MILESTONE SCIENTIFIC INC.

Form 10-Q 

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

When used in this Quarterly Report on Form 10-Q, the words “may”“may”, “will”, “should”, “expect”, “believe”, “anticipate”, “continue”, “estimate”, “project”, “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends that may affect Milestone Scientific’s future plans of operations, business strategy, results of operations and financial condition. Milestone Scientific wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Milestone Scientific’s plans and objectives are based, in part, on assumptions involving the continued expansion of its business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Milestone Scientific. Although Milestone Scientific believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements included herein, our history of operating losses that are expected to continue during the ongoing COVID-19 pandemic, the early stage operations of and relative lack of acceptance of our medical products, relying exclusively on two third parties to manufacture our products, changes in our informal manufacturing arrangements made by the manufacturers of our products and disruptions at the manufacturing facilities of our manufacturers exposes us to risks that may harm our business, restrict our operations or require us to relinquish proprietary rights, if physicians do not accept or use our CompuFlo® Epidural Computer Controlled Anesthesia System our ability to generate revenue from sales will be materially impaired, exposure to the risks inherent in international sales and operations, including China, and developments by competitors may render our products or technologies obsolete or non-competitive, the inclusion of such information should not be regarded as a representation by Milestone Scientific or any other person that the objectives and plans of Milestone Scientific will be achieved. Prospective investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and the actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth herein and others set forth from time to time in Milestone Scientific’s reports, including without limitations,limitation, Milestone Scientific's Annual Report on Form 10-K for the year ended December 31, 20162021 filed with the Securities and Exchange Commission (the “SEC”). Milestone Scientific disclaims any intent or obligation to update such forward-looking statements.

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

 PART I—FINANCIAL INFORMATION

Part I- Financial Information

Item 1. Financial Statements

 See Notes to Condensed Consolidated Financial Statements

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

 See Notes to Condensed Consolidated Financial Statements

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THREE MONTHS ENDED MARCH 31, 2022 

(UNAUDITED)

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

See Notes to Condensed Consolidated Financial StatementsCONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THREE MONTHS ENDED MARCH 31, 2021

(UNAUDITED)

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

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED

(UNAUDITED) 

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

See Notes to Condensed Consolidated Financial Statements

MILESTONE SCIENTIFIC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1-NOTE 1— ORGANIZATION andAND BUSINESS

All references in this report to “Milestone“Milestone Scientific,” “us,” “our,” “we,” “the Company”the “Company” or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Milestone Advanced Cosmetic,Inc., Milestone Medical, Inc. and Milestone Education LLC (all described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent®ompuDent®; CompuMed®CompuMed®; CompuFlo®CompuFlo®; DPS Dynamic Pressure Sensing Technology®technology®; Milestone Scientific ®; ®;CathCheck^TM; 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 ofdevice, 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®. 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 instrumentsdevices are sold in the United States, Canada and in 4760 other countries. To date there have been noCertain medical instruments sold in the United States and limited amounts sold internationally, although certain medical instrumentsdevices have obtained CE mark approval and can be marketed and sold in most European countries. 

In June 2017, Milestone Scientific received 510(k)510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System.

During 2015, our common stock was listed on the NYSE MKT under the ticker symbol “MLSS”.

During 2016, Milestone Scientific filed for 510(k) marketing clearance with the FDA for both intra-articular and epidural injections with the CompuFlo® Computer Controlled Anesthesia System.  In June 2017, the FDA approved the CompuFlo® Epidural Computer Controlled Anesthesia System for epidural injections.  Milestone Scientific is(“Epidural”).We are in the process of introductory meetingsmeeting with medical facilities and device distributors within the United States, Middle East and foreign markets. Milestone Scientific’s immediate focus is on marketing its epidural instrument throughoutEurope. To date there have been seventeen medical devices sold in the United States and Europe.limited amounts sold internationally. Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in most European countries.

NOTE 2-LIQUIDITYAND UNCERTAINTIES

In December 2016, we received notification fromThe Company has evaluated whether there are conditions or events, considered in the FDAaggregate, that based uponraise substantial doubt about the 510(k) application submitted for intra- articular injections, we did not adequately documentCompany's ability to continue as a going concern within one year after the date that the device met unaudited condensed consolidated financial statements are issued. As of March 31, 2022, the equivalency standard required for 510(k) clearance. Following consultation with the FDA OfficeCompany had an accumulated deficit of Device Evaluation, we intend to provide additional data, which could include$109.6 million and has incurred a new Human Factor Validation study (HFV Study) in supportnet loss of a new 510(k) applicationapproximately $1.9 million for the device. An HFV Study demonstrates the ease of use of a product.

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. The public offering price for each share and related warrant was $1.50. The gross proceeds from this offering were approximately $3,000,000, before deducting underwriting discounts and commissions and other offering expenses.

In January 2017, the underwriter exercised a portion of its over-allotment option and purchased an additional 123,700 shares of common stock at the public offering price of $1.499 per share. The gross proceeds were approximately $186,000 before deducting underwriting discounts and commissions and other offering expenses.

In June 2017, Milestone Scientific entered into an agreement for the sale of its interest in Milestone China (a forty (40%) percent interest) (the “Milestone China Shares”) to an unaffiliated United States domiciled purchaser and a 10-year option agreement to repurchase the Milestone China Shares. The purchase price for the Milestone China Shares was $1,400,000 of which $125,000 was paid in cash and $1,275,000 was paid by delivery of a non-interest bearing secured promissory note. The note is payable in quarterly installments of $125,000 and is secured by the Milestone China Shares until full repayment.  In addition, the purchaser is precluded from selling all or substantially all of its assets prior to repayment of the note. The 10-year option agreement provides Milestone Scientific an option to repurchase the Milestone China Shares at $1,400,000 within the first two years and at fair market value (as defined in such agreement) for the remainder of the 10-year term. The transaction has been accounted for as a secured financing and Milestone Scientific will continue to account for its relationship with Milestone China under the equity method of accounting. A note receivable is presented on the Company’s balance sheet, along with a deferral from financing transaction ($1,400,000). The carrying value of the forty (40%) percent investment at the transaction date was zero (see Note 5).

On July 13, 2017, Milestone Scientific consummated a previously disclosed Asset Purchase Agreement (the “Agreement”) with APAD Octrooi B.V. and APAD B.V. (each, a “Seller” and collectively, the “Sellers”) pursuant to which Milestone Scientific acquired certain patent rights and other intellectual property rights related to the Sellers’ computer controlled injection instrument (the “Purchased Assets”) which has been accounted for as an asset acquisition. On the closing date, Milestone Scientific issued to the Sellers an aggregate of 1,646,358 shares of its common stock, valued at $2,486,000 which shares are subject to certain post-closing upward or downward adjustments not to exceed twenty-five percent of the initial shares as of the purchase date or 250,000 Euros, as defined in the Agreement. As of September 30, 2017, Milestone Scientific has recorded a $167,000 liability relating to the estimated additional shares that would have to be issued according this provision in the Agreement. Milestone Scientific paid approximately $153,000 in legal fees on behalf of the Seller as stipulated based on the terms of the Agreement. The patents and other intellectual property purchased in the amount of approximately $2,639,000 have been capitalized and will amortized over their five year estimated useful life and tested for impairment as a finite lived intangible asset.

In July 2017, Milestone Scientific's Compensation Committee approved the issuance of 400,000 stock options to Gian Domenico Trombetta, CEO of Wand Dental, a Director of Milestone Scientific and a director of Innovest S.p.A., an Italian investor (250,000 options at an exercise price of $2.55 per share were issued on July 7, 2017 and 150,000 options having an exercise price at the higher of $2.55 or the market price of the stock on the date of the 2018 Annual Stockholder meeting, subject to approval of a new or amended equity incentive plan at such meeting.)

Milestone Scientific has incurred operating losses and negative cash flows from operating activities in virtually each year since its inception. Milestone Scientific is actively pursuing the generation of revenue, positive operating income and net income. The capital raised in December 2016 and January 2017 provided Milestone Scientific with working capital to continue to develop its medical instruments and obtain regulatory approval for one of its medical instruments ( the June, 2017 FDA approval of the epidural instrument), as well as to aggressively market its dental instruments. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical instruments and disposables business in the United States (following June 2017 FDA approval of its CompuFlo® Computer Controlled Anesthesia System ) and worldwide, and a reductions in operating expenses. period ended March 31, 2022. Management believes that Milestone Scientific, Inc. will have sufficient cash reserves to meet its anticipated obligations over the next twelve month period following months from the filing date of this quarterly report. However, Milestone Scientific will likely  need to raise additional capital prior to the  expected generation of sustainable positive cash flow from operating activities and may also need to raise additional capital to effectively launch its approved medical instrument and eventually generate positive cash flow from the anticipated medical business.

NOTE - 2 SUMMARY OF ACCOUNTING POLICIES

1. BasisIn 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 Consolidationthese 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 accompanyingcoronavirus (COVID-19) adversely impacted the Company's operations, our distributors and suppliers in recent years. In spite of the reopening of dental offices, hospitals, and pain clinics throughout the country and the rest of the world, revenues for three months ended March 31, 2022 and 2021 were adversely affected in particular for the medical business. However, any business interruptions, resulting from COVID-19, or new strain could significantly disrupt our operations and could have a material adverse impact on our business in the future. 

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

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

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.Principles of Consolidation

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

2. Basis of Presentation

The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with

the instructions for Form 10Q10-Q and Article 8 of Regulation S-X.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 condensed consolidated financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, 2021, included in Milestone Scientific's Annual Report on Form 10-K.10-K.

3.Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, and cash flow assumptions regarding evaluations for impairment of long-lived assets and going concern considerations, stock compensation expense, and valuation allowances on deferred tax assets. Actual results could differ from those estimates.

4.Revenue Recognition

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

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

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

Sales Returns

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

Financing and Payment

The Company's payment terms differ by geography and customer, but payment is generally required within 90 days from the date of shipment or delivery.

3. ReclassificationsDisaggregation of Revenue

Certain reclassifications have been made toThe Company operates in 2 operating segments: dental and medical. Therefore, results of the 2016 financial statements to conform toCompany operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. See Note 10 for revenues by geographical market, based on the consolidated 2017 financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported. customer’s location, and product category for the three months ended March 31, 2022 and 2021.

4.

5.Variable InterestInterest Entities

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controllingcontrolling 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 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 Education as of January 2016. Accordingly, the assets and liabilities of Milestone Education are included in the accompanying condensed 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:

Milestone managementScientific 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. ManagementManagement 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. See Note 6.

5.

6.Cash and Cash Equivalents

Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2022 and December 31, 2021. Milestone Scientific has approximately $12.4 million and $13.9 million, respectively, of investments with short term maturities classified as cash equivalents.  At times, such cash, may be more than the Federal Deposit Insurance Corporation insurance limit. 

6.

7.Accounts Receivable

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

7. 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.

8.Inventories

Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out(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.

9.Equity Method Investments

Investments in whichwhich 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 condensed consolidated balance sheets.unaudited Condensed Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the provision for income tax line on the condensed consolidated statementsunaudited Condensed Consolidated Statements of  operations.

Operations. Milestone Scientific evaluates its equity method investments wheneverwhenever 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.

10. 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 five to seven years. The costs of maintenance and repairs are charged to operations as incurred.

11. 9.Intangible Assets -– Patents and Developed Technology

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

12.

10.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:

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 September 30, 2017.

13. Revenue RecognitionCompany's operations is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimated future costs.

Revenue from product sales is recognized, net of discounts and allowances to domestic distributors, on 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. 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'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.

14. Shipping and Handling Costs

Milestone Scientific includes shipping and handling costs in cost of goods sold. These costs are paid by or billed to customers at the time of shipment for domestic shipments. International shipments are FOB warehouse, therefore no costs are incurred by Milestone Scientific.

15. 11.Research and Development

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

16.

12.Income Taxes

Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporarytemporary 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.

17. UseAt March 31, 2022, and December 31, 2021, we had 0 uncertain tax positions that required recognition in the unaudited condensed consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the unaudited condensed Consolidated Statements of EstimatesOperations. NaN interest and penalties are present for periods open. Tax returns for the 2018,2019 and 2020 years are subject to audit by federal and state jurisdictions.

The 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.

18. 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.

19. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("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. 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 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. The Company has adopted this pronouncement as of January 1, 2017, and applied retrospectively, for its provision for income taxes disclosure. The adoption did 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"(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. Milestone Scientific is in the process of determining what impact, 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. The adoption of this standard did not have a material impact on our financial statements.

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. The adoption of this standard did not 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 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.

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 fiscal years and interim periods, beginning after December 15, 2016. Milestone Scientific has adopted the standard, effective January 1, 2017, which did not have an impact on its financial reporting.

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 does not expect the adoption of this ASU to have a material effect on its presentation within the statement of cash flows.

In January 2017, the FASB issued a new standard ASU No.2017-01, “Business Combinations” (Topic 805). The new standard provides guidance to clarify the definition of a ‘business’, and assist entities in evaluation whether a transaction should be accounted for as an acquisition/disposal of assets or a business. It will be effective for public entities for fiscal years and interim periods, beginning after December 15, 2017, with limited early application. 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 May 2017, the FASB issued a new standard ASU No.2017-09, “Compensation – Stock Compensation” (Topic 718). The new standard provides guidance and clarity for modification to equity based compensation programs. 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 - 3

13.Basic and Diluted Net INCOME (Loss)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 260.260, “Earnings per Share”. Basic earnings (loss) per common share is calculated by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding and to be issued during each period.common shares of 69,013,001 and 66,578,435 for the three months ended March 31, 2022, and 2021 respectively. The calculation of diluted earnings per common share is 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. The Company also includes shares to be issued to employees in the calculation of basic earnings per share because the shares to be issued settle a compensation obligation in a fixed number of shares.

Since Milestone Scientific had net losses for in the three months and nine months ended September 30, 2017 March 31, 2022, and 2016,2021, 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 4,629,5577,543,252 and 1,885,010 at September 30, 20176,092,193 on March 31, 2022, and 2016,2021, respectively.

NOTE - 4 CONSOLIDATION OF VARIABLE INTEREST ENTITY

14.Fair Value of Financial Instruments

Milestone EducationFair value is the price that would be received to sell an asset or paid to transfer a 50% owned subsidiaryliability in an orderly transaction between market participants in the principal market at the measurement date (exit price). The Company required to classify fair value measurements in one of Milestone Scientific which began operations in 2013the following categories: 

Financial assets and liabilities are classified based on the lowest level of input that is significant to provide trainingthe fair value measurement. Our assessment of the significance of an input to the fair value measurement requires judgment and education to dentists throughoutmay affect the world. Milestone Scientific accounted for its investment in Milestone Education usingvaluation of the equity methodfair value of accounting through assets and liabilities and their placement within the fair value hierarchy levels. As of March 31, 2022, and December 31,  2015. Approximately 81% of2021 the revenue earned by Milestone Education is from services performed for Milestone Scientific as of September 30, 2017. AsCompany does not have any assets or liabilities that were measured at fair value on a result of this dependency and relationship, we determined that we had the power to direct the activities that most significantly impact Milestone Education's economic performance, and therefore is consolidated in our financial statements. recurring basis.

NOTE - 5 INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

Advance Ocular Science SA15. Stock-Based Compensation 
 

Advanced Ocular Sciences SA ("Advanced Ocular") is a shell company attempting to develop an instrument to deliver injections into the eyes. As of September 30, 2017, Milestone Scientific owns 25%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 this entity. During 2015, Milestone Scientific advanced $78,798 for marketing and strategy planning to Advanced Ocular and it, or its organizers, were obligated to repay this advance if a public offering of Advanced Ocular equity was approved and funded in Poland during 2016. However, a public offering has yetemployee stock options, to be completed in Poland. As a result, Milestone Scientific wrote-off the $78,798 advanced to Advanced Ocular as of December 31, 2016. Advance Ocular was not includedrecognized in the unaudited condensed consolidated financial statements at September 30, 2017of operations over the service period, as no further investment has been made by Milestone Scientific.an operating expense, based on the grant-date fair values.

Milestone China Ltd.

16.Recent Accounting Pronouncements

In June 2014, Milestone Scientific invested $1 millionJanuary 2020, FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which, generally, provides guidance for investments in Milestone China Ltd. (“Milestone China”) by contributing 772 STA Instruments to Milestone Chinaentities accounted for a 40% ownership interest. Milestone Scientific recorded this investment under the equity method of accounting. Milestone Scientific recorded a loss on its investment in Milestone ChinaASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of $0 and $164,837, as of September 30, 2017 and 2016, respectively. Milestone Scientific's investment in Milestone China was $0 as of September 30, 2017 and December 31, 2016, respectively. Milestone Scientific incurred cumulative losses on its investment in Milestone China of $2,078,484 and $1,124,350 as of September 30, 2017 and December 31, 2016, respectively, whichthis standard did not have been suspended.

  In June 2017, Milestone Scientific entered into an agreement for the sale of the Milestone China Shares to an unaffiliated United States domiciled purchaser and a 10-year option agreement to repurchase the Milestone China Shares. The purchase price for the Milestone China Shares was $1,400,000 of which $125,000 was paid in cash and $1,275,000 was paid by delivery of a non-interest bearing secured promissory note. The note is payable in quarterly installments of $125,000 until paid in full and is secured by the Milestone China Shares until full repayment.  In addition, pursuant to such note, the purchaser is precluded from selling all or substantially all of its assets prior to repayment of the note. The 10-year option agreement provides Milestone Scientific an option to repurchase the 40% equity interest at $1,400,000 within the first two years and at fair value (as defined in such agreement) for the remainder of the 10-year term. The transaction has been accounted for as a secured financing and Milestone Scientific will continue to account for its relationship with Milestone China under the equity method of accounting. A note receivable is presentedimpact on the Balance Sheet, along with a deferral from financing transaction ($1,400,000). The carrying value of the forty (40%) percent investment at the transaction date was zero.Company's condensed consolidated financial statement.

Milestone Scientific had $356,400In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and $1,714,600Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity; which, generally, provides guidance for accounting regarding derivatives relating to entities common stock and earnings per share. ASU 2020-06 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of related party sales of handpieces and instruments to Milestone China and Milestone China’s agent during the three and nine months ended September 30, 2017 respectively. Milestone Scientific had $1,977,862 and $3,203,466 of related party sales of handpieces and instruments to Milestone China during the three and nine months ended September 30, 2016, respectively. As of September 30, 2017 and December 31, 2016, Milestone Scientific recorded deferred revenues and deferred costs associated with sales to Milestone China of $712,800 and $362,718, and $1,001,800 and $620,041, respectively.  As of September 30, 2017 and December 31, 2016, Milestone China’s agent owed $712,800 and $2,714,600, respectively, to Milestone Scientific which is included in related party accounts receivablethis standard did not have an impact on the condensedCompany's consolidated balance sheets. financial statement.

Milestone Scientific defersIn October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with Topic ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”). To achieve this, an acquirer may assess how the totalacquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and costs of goods sold when instrumentsmeasuring the acquired contract assets and handpieces are shipped to Milestone China and Milestone China’s agent due to market conditions and Milestone China liquidity concerns. Due to timing differences of when the inventory sold to Milestone China is actuallycontract liabilities consistent with how they were recognized and when Milestone China sellsmeasured in the acquired inventoryacquiree’s financial statements. The amendments of ASU 2021-08 are for fiscal years beginning after December 15, 2022, including interim periods. Early adoption is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to third parties, an eliminationall business combinations for which the acquisition date occurs on or after the beginning of the intra-entity profit is required as offiscal year that includes the balance sheet date. In accordance with ASC 323 Equity Method and Joint Ventures, Milestone Scientific has deferred 40% of the gross profit associated with recognized revenue from Milestone China that has not been sold to third parties. At September 30, 2017 and December 31, 2016, the deferred profit was $659,931 and $630,990, respectively, which is included in the condensed consolidated balance sheets. For the nine months ended September 30, 2017 and 2016, the loss on equity investment was $28,941 and $554,766, respectively, which is included in the condensed consolidated statements of operation. For the three months ended September 30, 2017 and 2016, the loss on equity investment was $0 and $253,451, respectively, which is included in the condensed consolidated statements of operation.

The following table includes summarized financial information (unaudited) of Milestone China:

NOTE – 6 Stock Option Plans

Milestone Scientific recognizes compensation expense on a straight line basis over the requisite service period and in the case of performance based options over theinterim period of the expected performance. For the threeearly application and nine months ended September 30, 2017 Milestone Scientific recognized $299,175 and $543,290 of total employee stock based compensation cost, respectively. For the three and nine months ended September 30, 2016, Milestone Scientific recognized $81,678 and $107,205 of total employee stock based compensation cost, respectively. As of September 30, 2017 and 2016, there was $1,389,525 and $580,331 of total unrecognized compensation cost related(2) prospectively to nonvested options, respectively, which Milestone Scientific expects to recognize these cost over a weighted average period of 2.5 years and 2.49 years as of September 30, 2017 and 2016, respectively.

A summary of option activity for employees under the plans and changes during the nine month ended September 30, 2017, is presented below:

A summary of option activity for non-employees under the plans As of September 30, 2017 and changes during the six month ended is

The fair value of the non-employee options was estimatedall business combinations that occur on or after the date of grantinitial application. The Company will evaluate the impact of ASU 2021-08 on any future business combinations the Company may enter in the future.

In June 2016, the FASB issued ASU 2016-13,Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables. The FASB has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard. This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability. In November 2019, the Black Scholes option-pricing model atFASB 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 grant. In accordanceASU 2016-13 for the Company. As a result of ASU 2019-10, ASU 2016-13 is effective for all entities with fiscal years beginning after December 15, 2022, including interim periods. The adoption of this update is not expected to have a material impact on the provisions of FASB ASC 505, Milestone Scientific re-measures 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 three and nine months ended September 30, 2017, Milestone Scientific recognized income of $6,067 and $12,324, respectively related to non-employee options. For the three and nine months ended September 30, 2016, Milestone Scientific recognized expense of $2,807 and $8,421 respectively related to non-employee options.Company's condensed consolidated financial statements.

NOTE – 7 CONCENTRATION OF CREDIT RISK4 — INVENTORIES

Milestone Scientific's consolidated financial instruments that are exposed to concentrations of credit riskInventories consist primarily of cash, trade accounts receivable, and advances on contracts. Milestone Scientific places its cash and cash equivalents with large financial institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. Milestone Scientific has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks. Financial instruments which potentially subject Milestone Scientific to credit risk consist principally of trade accounts receivable, as Milestone Scientific does not require collateral or other security to support customer receivables, and advances on contracts. Milestone Scientific closely monitors the extension of credit to its customers while maintaining allowances, if necessary, for potential credit losses. On a periodic basis, Milestone Scientific evaluates its accounts receivable and establishesfollowing:

The Company maintains an allowance for doubtful accounts based on a historyslow moving Medical finished goods of past write-offs approximately $450,000 as of March 31, 2022 and collections and current credit conditions.

December 31, 2021.

NOTE – 85 — ADVANCES ON CONTRACTS

The advances on contracts represent funding of future STA inventoryinventory purchases, epidural instruments, and Epiduralepidural replacements parts. The balance of the advances Asas of September 30, 2017 March 31, 2022, and December 31, 2016 2021 is $992,242approximately $1.2 million and $700,900,$1.3 million, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.  

NOTE 6 – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES

NOTE – 9 INCOME TAXESMilestone China Ltd.

Ownership

In June 2014, Milestone Scientific invested $1 million in Milestone China Ltd. (“Milestone China”), by contributing dental instruments to Milestone China for a 40% ownership interest. Milestone China owns approximately 75% of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”). At the time, Milestone Beijing had primary responsibility for the sales, marketing, and distribution of the Company’s dental products in China. Milestone Scientific recorded its investment in Milestone China under the equity method of accounting. 

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

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

Though management believes that this conveyance by Milestone China to LiDong Zhang is outside of the laws of Hong Kong and/or China, as may be applicable, at this juncture Milestone Scientific has no ownership in Anhui and Milestone China has no assets or operations. After considering taking action to assert our rights in the matter, and based on the acknowledgement that such course of action is not without its procedural and substantive challenges in Hong Kong and/or China and, importantly, in view of Michelle Zhang dba Solee Science & Technology USA (“Solee”) (see below), a company located in New Jersey, who became the independent distributor, former agent, for Milestone China and its subsidiaries, and due to the good working relationship developing between Milestone Scientific and Solee and reduction of Milestone Scientific’s credit exposure to a Chinese entity, management is not pursuing any legal action at this time to recover our equity interest.

However, management has determined to pursue an investigation of whether the above-described consideration payable by LiDong Zhang to Milestone China was actually paid to Milestone China and, if so, its recovery. Nevertheless, at this time, Milestone Scientific has not received any consideration, does not know if any of such consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, whether it can recover its share of such consideration. As a result, at this time, Milestone Scientific has not received any consideration and does not know if any of the consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, unless circumstances change, Milestone Scientific does not expect it will receive any of the consideration received by Milestone China for its assets without pursuing legal action. As a result, Milestone Scientific has not recorded a gain or receivable related to the transfer of Anhui. As of March 31, 2022, and December 31, 2021 the investment in Milestone China was zero.

Related Party Transactions

Milestone China Distribution Agreement

Milestone China had been Milestone Scientific’s exclusive distributor in China. During 2017 and prior to the payment default during 2018, Milestone Scientific agreed to sell inventory to Milestone China and its agent. During 2018, Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and its agents which amounted to $2.8 million at the time of the payment arrangement. Milestone Scientific collected $950,000 under this arrangement, until Milestone China defaulted on the payment arrangements.

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

Beginning in mid- November 2021, Milestone Scientific entered into discussions with Michelle Zhang dba Solee Science & Technology USA (“Solee”), a company located in New Jersey, to become Milestone Scientific’s independent distributor for China, the former agent, for Milestone China and its subsidiaries. On November 22, 2021, Wand Dental, Inc., a United States subsidiary of Milestone Scientific, entered into a Buy and Sell Agreement with Solee, pursuant to which Milestone Scientific granted Solee the right to sell Milestone Scientific’s STA instruments, associated handpieces, and spare parts in China to Anhui. As of  March 31, 2022 and December 31, 2021, there have been no shipment under the new agreement to Solee.

Gross Profit Deferral

Due to timing differences of when the inventory sold to Milestone Scientific's historyChina, Anhui or their agent is recognized and when Milestone China and Anhui sells the acquired inventory to third parties, an elimination of operating losses, a full valuation allowancesthe recorded 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 recognized revenue from sales to Milestone China, Solee as an agent, and Anhui until that product is sold to third parties.

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

At Mach 31,2022, and December 31, 2021 the deferred profit was approximately $0, which is included in deferred profit, related party in the unaudited condensed consolidated balance sheets. For the three months ended March 31, 2022, and 2021, Milestone Scientific recorded income from gross profit deferral of  approximately $0 and $1,301, respectively, in relation to gross profit previously deferred on product sold to Milestone China, Anhui, and Solee recorded as deferred profit and divesture-equity investment on the accompanying  unaudited condensed consolidated statement of operations. 

NOTE 7 — PATENTS

Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was approximately $13,000 and $11,000 for allthe three months ended March 31, 2022, and March 31, 2021, respectively. The annual amortization expense expected to be recorded for existing intangibles assets for the years 2022 through 2026 and thereafter, is approximately $40,000, $52,000, $34,000, $28,000 and $110,000.

NOTE 8— STOCKHOLDERS’ EQUITY

Warrants

The following table summarizes information about shares issuable under warrants outstanding as of March 31, 2022:

Shares to Be Issued

As of March 31, 2022, and 2021, there were 2,000,127 and 2,264,127 shares respectively, to be issued whose issuance has been deferred to the employees of Milestone Scientific's deferred tax assets At September 30, 2017 Scientific, Inc. respectively.  

As of March 31, 2022, and December2021, there were 174,364 and 144,024 shares, respectively, to be issued to non-employees,  that will be issued for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date.

The following table summarizes information about shares to be issued on March 31, 2016, no recognition was given2022, and 2021, respectively.

As of March 31, 2022, there were 130,816 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 these periods.2 years of employment. For the three months ended March 31, 2022, the Company recognized stock compensation expense of approximately $22,000. As of March 31, 2022, the total unrecognized compensation expense was $169,792 related to unvested restricted stock awards, which the Company expects to recognize over an estimated weighted-average period of 1.46 years. 

NOTE 9 — INCOME TAXES

The utilization of Milestone Scientific's net operating losses may be subject to a substantial limitation due to the "change of ownership provisions"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.

As of September 30, 2017 and December 31, 2016, state tax liability was approximately $18,339 and $63,000, respectively. Such expense was recognized in the accompanying condensed consolidated financial statements.

NOTE– 10 SIGNIFICANT CONCENTRATIONS & GEOGRAPHICAL INFORMATION — SEGMENT AND GEOGRAPHIC DATA

Milestone Scientific’s consolidated dentalWe conduct our business through 2 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: