UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended June 30, 2023
☐ |
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For the quarterly period ended September 30, 2017
or
|
|
For the transition period from to
Commission File Number:file number 001-14053
MILESTONE SCIENTIFIC INC.Milestone Scientific Inc.
(Exact name of registrant as specified in its charter)
Delaware | 13-3545623 | |
| (I.R.S. Employer |
220 South Orange425 Eagle Rock Avenue Livingston, New Jersey 07039Suite 403, Roseland, NJ 07068
(Address of principal executive offices)
(973) 535-2717
(Registrant’s’s telephone number, including area code)code: 973-535-2717
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $.001 per share | NYSE American |
|
Securities registered pursuant to section 12(g) of the Act: NONENONE.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☑ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☑ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ☑
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingreporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large, accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☑ |
Emerging | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ YesNo ☑ No
As Novemberof August 14, 2017,2023, the registrant hadhas a total of 32,989,72471,365,659 shares of Common Stock, $.001$0.001 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
MILESTONE SCIENTIFIC INC.
Form 10-Q
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION | |||
Item 1. |
| Condensed Consolidated Financial Statements | |
| 4 | ||
| 5 | ||
| 6 | ||
|
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Notes to Unaudited Condensed Consolidated Financial Statements | 9
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Item 2. |
| 20
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 25
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Item 4. | Controls and Procedures |
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PART II—OTHER INFORMATION | |||
Item 1. | Legal Proceedings | 26
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Item 1A. | Risk Factors | 26
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26
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Item 3. | Defaults Upon Senior Securities | 26
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Item 4. | Mine Safety Disclosures | 26
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Item 5. | Other Information | 26
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Item 6. | Exhibits | 27
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Signatures | 28
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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, requiring additional funding which we may be unable to raise capital when needed (which may force us to delay, curtail or eliminate commercialization efforts of our CompuFlo Epidural Computer Controlled Anesthesia System), the early stage operations of and relatively lack of acceptance of our medical products, relying exclusively on two third parties to manufacture our products, changes to our distribution arrangements exposes us to risks of interruption of marketing efforts and building new marketing channels, changes in our informal manufacturing arrangements made by the manufacturer of our products and disruptions at the manufacturing facility of our manufacturers, including shortages of or delays in obtaining chips and other components, exposes us to risks that may harm our business, raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights, if physicians do not accept nor 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, 20162022 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®; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®Device®; and The Wand ®.
®.3
PART I—FINANCIAL INFORMATION
Part I- Financial Information
Item 1. Financial Statements
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 2,307,497 | $ | 3,602,229 | ||||
Accounts receivable, net of allowance for doubtful accounts of $10,000 as of September 30, 2017 and $5,000 as of December 31, 2016 | 1,999,636 | 802,384 | ||||||
Accounts receivable from related party | 712,800 | 2,714,600 | ||||||
Other receivable | - | 10,000 | ||||||
Notes receivable from financing transaction, short term | 500,000 | - | ||||||
Inventories | 4,165,721 | 4,602,719 | ||||||
Advances on contracts | 992,242 | 700,900 | ||||||
Deferred Cost | 362,718 | 620,041 | ||||||
Prepaid expenses and other current assets | 552,010 | 291,929 | ||||||
Total current assets | 11,592,624 | 13,344,802 | ||||||
Furniture, fixtures & equipment net of accumulated depreciation of $703,191 as of September 30, 2017 and $659,144 as of December 31, 2016 | 119,729 | 159,026 | ||||||
Patents, net of accumulated amortization of $904,295 as of September 30, 2017 and $717,086 as of December 31, 2016 | 3,152,415 | 660,457 | ||||||
Notes receivable from financing transaction long term | 650,000 | - | ||||||
Other assets | 26,878 | 17,355 | ||||||
Total assets | $ | 15,541,646 | $ | 14,181,640 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 616,036 | $ | 1,341,207 | ||||
Accounts payable related party | 902,341 | 1,235,052 | ||||||
Accrued expenses and other payables | 2,162,786 | 1,436,262 | ||||||
Deferred profit, related party | 659,931 | 630,990 | ||||||
Deferred revenue | 712,800 | 1,001,800 | ||||||
Total current liabilities | 5,053,894 | 5,645,311 | ||||||
Deferral from financing transaction | 1,400,000 | - | ||||||
Total liabilities | 6,453,894 | 5,645,311 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity | ||||||||
Series A convertible preferred stock, par value $.001, authorized 5,000,000 shares, 33,333 shares held in the treasury, and 7,000 shares issued and outstanding as September 30, 2017 and December 31, 2016 | 7 | 7 | ||||||
Common stock, par value $.001; authorized 50,000,000 shares;33,023,057 shares issued, 1,404,405 shares to be issued and 32,989,724 shares outstanding as of September 30, 2017; 30,457,224 shares issued, 1,270,481 shares to be issued and 30,423,891 shares outstanding as of December 31, 2016 | 34,426 | 31,720 | ||||||
Additional paid-in capital | 86,442,802 | 82,761,503 | ||||||
Accumulated deficit | (76,778,556 | ) | (73,381,491 | ) | ||||
Treasury stock, at cost, 33,333 shares | (911,516 | ) | (911,516 | ) | ||||
Total stockholders' equity | 8,787,163 | 8,500,223 | ||||||
Noncontrolling interest | 300,589 | 36,106 | ||||||
Total Equity | 9,087,752 | 8,536,329 | ||||||
Total liabilities and stockholders’ equity | $ | 15,541,646 | $ | 14,181,640 |
See Notes to Condensed Consolidated Financial StatementsMILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,701,453 | $ | 8,715,279 | ||||
Marketable securities | 1,981,180 | - | ||||||
Accounts receivable, net | 789,584 | 693,717 | ||||||
Prepaid expenses and other current assets | 551,990 | 443,872 | ||||||
Inventories | 2,193,063 | 1,792,335 | ||||||
Advances on contracts | 1,282,806 | 1,325,301 | ||||||
Total current assets | 10,500,076 | 12,970,504 | ||||||
Furniture, fixtures and equipment, net | 11,867 | 18,146 | ||||||
Intangibles, net | 201,529 | 227,956 | ||||||
Right of use assets finance lease | 13,319 | 17,645 | ||||||
Right of use assets operating lease | 400,511 | 443,685 | ||||||
Other assets | 24,150 | 24,150 | ||||||
Total assets | $ | 11,151,452 | $ | 13,702,086 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 674,587 | $ | 1,102,729 | ||||
Accounts payable, related party | 626,690 | 803,492 | ||||||
Accrued expenses and other payables | 1,422,506 | 1,124,839 | ||||||
Accrued expenses, related party | 278,339 | 167,549 | ||||||
Current portion of finance lease liabilities | 9,805 | 9,365 | ||||||
Current portion of operating lease liabilities | 97,429 | 91,701 | ||||||
Total current liabilities | 3,109,356 | 3,299,675 | ||||||
Non-current portion of finance lease liabilities | 5,683 | 10,698 | ||||||
Non-current portion of operating lease liabilities | 334,750 | 385,279 | ||||||
Total liabilities | $ | 3,449,789 | $ | 3,695,652 | ||||
Commitments | ||||||||
Stockholders’ equity | ||||||||
Common stock, par value $.001;authorized 100,000,000 shares; 70,107,739 shares issued and 70,074,406 shares outstanding as of June 30, 2023; 69,306,497 shares issued and 69,273,164 shares outstanding as of December 31, 2022; | 70,108 | 69,306 | ||||||
Additional paid in capital | 128,720,911 | 127,478,325 | ||||||
Accumulated deficit | (119,934,388 | ) | (116,410,405 | ) | ||||
Treasury stock, at cost, 33,333 shares | (911,516 | ) | (911,516 | ) | ||||
Total Milestone Scientific, Inc. stockholders' equity | 7,945,115 | 10,225,710 | ||||||
Noncontrolling interest | (243,452 | ) | (219,276 | ) | ||||
Total stockholders’ equity | 7,701,663 | 10,006,434 | ||||||
Total liabilities and stockholders’ equity | $ | 11,151,452 | $ | 13,702,086 |
MILESTONE SCIENTIFIC INC. | |||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Revenue | |||||||||||||||||||
Product sales, net | $ | 2,853,813 | $ | 3,186,596 | $ | 9,066,550 | $ | 8,973,726 | |||||||||||
Cost of products sold | 1,044,540 | 1,517,561 | 3,320,411 | 3,675,552 | |||||||||||||||
Gross profit | 1,809,273 | 1,669,035 | 5,746,139 | 5,298,174 | |||||||||||||||
Selling, general and administrative expenses | 3,205,996 | 2,933,950 | 8,996,092 | 9,226,062 | |||||||||||||||
Research and development expenses | 16,884 | 303,268 | 241,964 | 756,045 | |||||||||||||||
Total operating expenses | 3,222,880 | 3,237,218 | 9,238,056 | 9,982,107 | |||||||||||||||
Loss from operations | (1,413,607 | ) | (1,568,183 | ) | (3,491,917 | ) | (4,683,933 | ) | |||||||||||
Other (expenses) | (1,046 | ) | (846 | ) | (3,278 | ) | (2,782 | ) | |||||||||||
Interest income | 3,582 | - | 6,495 | - | |||||||||||||||
Loss before provision for income tax and equity in net earnings of equity investments | (1,411,071 | ) | (1,569,029 | ) | (3,488,700 | ) | (4,686,715 | ) | |||||||||||
Provision for income tax | (6,475 | ) | (16,522 | ) | (18,339 | ) | (80,147 | ) | |||||||||||
Loss before equity in net earnings of equity investments | (1,417,546 | ) |
| (1,585,551 | ) |
| (3,507,039 | ) |
| (4,766,862 | ) | ||||||||
Loss on earnings from China Joint Venture | - | (253,451 | ) | (28,941 | ) | (554,766 | ) | ||||||||||||
Loss in equity investments | - | (253,451 | ) | (28,941 | ) | (554,766 | ) | ||||||||||||
Net Loss | (1,417,546 | ) | (1,839,002 | ) | (3,535,980 | ) | (5,321,628 | ) | |||||||||||
Net loss attributable to noncontrolling interests | (6,605 | ) | (137,752 | ) | (138,915 | ) | (1,113,958 | ) | |||||||||||
Net loss attributable to Milestone Scientific Inc. | $ | (1,410,941 | ) | $ | (1,701,250 | ) | $ | (3,397,065 | ) | $ | (4,207,670 | ) | |||||||
Net loss per share applicable to common stockholders— | |||||||||||||||||||
Basic | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.16 | ) | |||||||
Diluted | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.16 | ) | |||||||
Weighted average shares outstanding and to be issued— | |||||||||||||||||||
Basic | 33,573,676 | 29,155,712 | 32,501,221 | 25,965,566 | |||||||||||||||
Diluted | 33,573,676 | 29,155,712 | 32,501,221 | 25,965,566 |
See Notes to Condensed Consolidated Financial Statements
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES | ||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||
Shares | Amount | Shares | Amount | Additional | Accumulated | Noncontrolling | Treasury | Total | ||||||||||
Balance, January 1, 2017 | 7,000 | $ 7 | 31,727,705 | $ 31,720 | $ 82,761,503 | $ (73,381,491) | $ 36,106 | $ (911,516) | $ 8,536,329 | |||||||||
Stock based compensation | - | - | 530,966 | - | - | - | 530,966 | |||||||||||
Common stock to be issued to employee for compensation | 10,913 | 11 | 14,989 | - | - | - | 15,000 | |||||||||||
Common stock issued to employee for exercise of stock options | 83,333 | 83 | 62,417 | - | - | - | 62,500 | |||||||||||
Common stock issued for payment of consulting services | 245,373 | 260 | 422,249 | - | - | - | 422,509 | |||||||||||
Common stock to be issued to employee for bonuses | 158,082 | 151 | 259,841 | - | - | - | 259,992 | |||||||||||
Common stock issued for assets acquired | 1,646,358 | 1,646 | 2,484,354 | 2,486,000 | ||||||||||||||
Common Stock exchanged for MMD | 311,998 | 311 | (403,709) | - | 403,398 | - | - | |||||||||||
Common stock issued to directors for bonuses | 120,000 | 120 | 159,480 | - | - | - | 159,600 | |||||||||||
Sale of Common Stock - Public Offering | 123,700 | 124 | 150,712 | - | - | - | 150,836 | |||||||||||
Net loss | - | - | - | (3,397,065) | (138,915) | - | (3,535,980) | |||||||||||
Balance, September 30, 2017 | 7,000 | $ 7 | 34,427,462 | $ 34,426 | $ 86,442,802 | $ (76,778,656 | $ 300,589 | $ (911,516) | $ 9,087,752 | |||||||||
See Notes to Condensed Consolidated Financial StatementsMILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended June 30, 2023 | For the three months ended June 30, 2022 | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | |||||||||||||
Product sales, net | $ | 2,909,966 | $ | 1,648,368 | $ | 5,507,564 | $ | 4,349,270 | ||||||||
Cost of products sold | 1,019,907 | 967,720 | 1,728,882 | 1,986,196 | ||||||||||||
Gross profit | 1,890,059 | 680,648 | 3,778,682 | 2,363,074 | ||||||||||||
Selling, general and administrative expenses | 3,937,281 | 3,282,322 | 7,011,012 | 6,397,948 | ||||||||||||
Research and development expenses | 213,647 | 266,560 | 353,994 | 731,027 | ||||||||||||
Depreciation and amortization expense | 16,681 | 16,645 | 33,902 | 33,460 | ||||||||||||
Total operating expenses | 4,167,609 | 3,565,527 | 7,398,908 | 7,162,435 | ||||||||||||
Loss from operations | (2,277,550 | ) | (2,884,879 | ) | (3,620,226 | ) | (4,799,361 | ) | ||||||||
Interest income (expense) | 48,722 | 3,550 | 72,067 | (1,193 | ) | |||||||||||
Loss before provision for income taxes | (2,228,828 | ) | (2,881,329 | ) | (3,548,159 | ) | (4,800,554 | ) | ||||||||
Net loss | (2,228,828 | ) | (2,881,329 | ) | (3,548,159 | ) | (4,800,554 | ) | ||||||||
Net loss attributable to noncontrolling interests | (12,511 | ) | (22,848 | ) | (24,176 | ) | (40,350 | ) | ||||||||
Net loss attributable to Milestone Scientific Inc. | $ | (2,216,317 | ) | $ | (2,858,481 | ) | $ | (3,523,983 | ) | $ | (4,760,204 | ) | ||||
Net loss per share applicable to common stockholders— | ||||||||||||||||
Basic and Diluted | (0.03 | ) | (0.04 | ) | (0.05 | ) | (0.07 | ) | ||||||||
Weighted average shares outstanding and to be issued— | ||||||||||||||||
Basic and Diluted | 72,333,656 | 70,356,796 | 72,048,223 | 70,585,590 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2023
(UNAUDITED)
Common Stock | Common Stock Amount | Additional Paid in Capital | Accumulated Deficit | Noncontrolling Interest | Treasury Stock | Total Stockholder Equity | ||||||||||||||||||||||
Balance January 1, 2023 | 69,306,497 | $ | 69,306 | $ | 127,478,325 | $ | (116,410,405 | ) | $ | (219,276 | ) | $ | (911,516 | ) | $ | 10,006,434 | ||||||||||||
Stock based compensation | - | - | 388,772 | - | - | - | 388,772 | |||||||||||||||||||||
Common stock issued to board of directors for services | 256,868 | 258 | (258 | ) | - | - | - | - | ||||||||||||||||||||
Common stock to be issued to employees for bonuses | - | - | 50,000 | - | - | - | 50,000 | |||||||||||||||||||||
Common Stock issued to Consultants | 242,335 | 242 | 125,758 | - | - | - | 126,000 | |||||||||||||||||||||
Net loss | - | - | - | (1,307,666 | ) | (11,665 | ) | - | (1,319,331 | ) | ||||||||||||||||||
Balance at March 31, 2023 | 69,805,700 | $ | 69,806 | $ | 128,042,597 | $ | (117,718,071 | ) | $ | (230,941 | ) | $ | (911,516 | ) | $ | 9,251,875 | ||||||||||||
Stock based compensation | - | - | 404,330 | - | - | - | 404,330 | |||||||||||||||||||||
Common stock to be issued for payment of consulting services | 109,204 | 109 | 56,677 | - | - | - | 56,786 | |||||||||||||||||||||
Common stock issued to board of directors for services | 192,835 | 193 | (193) | - | - | - | - | |||||||||||||||||||||
Common stock to be issued to employees for bonuses | - | - | 217,500 | - | - | - | 217,500 | |||||||||||||||||||||
Net loss | - | - | (2,216,317 | ) | (12,511 | ) | - | (2,228,828 | ) | |||||||||||||||||||
Balance at June 30, 2023 | 70,107,739 | $ | 70,108 | $ | 128,720,911 | $ | (119,934,388 | ) | $ | (243,452 | ) | $ | (911,516 | ) | $ | 7,701,663 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THREE AND SIX MONTHS ENDED JUNE 30, 2022
(UNAUDITED)
Common Stock | Common Stock Amount | Additional Paid in Capital | Accumulated Deficit | Noncontrolling Interest | Treasury Stock | Total Stockholder Equity | ||||||||||||||||||||||
Balance January 1, 2022 | 68,153,336 | $ | 68,153 | $ | 124,915,560 | $ | (107,704,274 | ) | $ | (152,541 | ) | $ | (911,516 | ) | $ | 16,215,382 | ||||||||||||
Stock based compensation | - | - | 305,370 | - | - | - | 305,370 | |||||||||||||||||||||
Common stock to be issued to employees for bonuses | - | - | 164,385 | - | - | - | 164,385 | |||||||||||||||||||||
Net loss | - | - | - | (1,901,723 | ) | (17,502 | ) | - | (1,919,225 | ) | ||||||||||||||||||
Balance at March 31, 2022 | 68,153,336 | $ | 68,153 | $ | 125,385,315 | $ | (109,605,997 | ) | $ | (170,043 | ) | $ | (911,516 | ) | $ | 14,765,912 | ||||||||||||
Stock based compensation | - | - | 392,266 | - | - | - | 392,266 | |||||||||||||||||||||
Common stock issued to employee for compensation | 27,051 | 27 | 39,973 | - | - | - | 40,000 | |||||||||||||||||||||
Common stock to be issued for payment of consulting services | 246,028 | 246 | 345,689 | - | - | - | 345,935 | |||||||||||||||||||||
Common stock issued to board of directors for services | 12,879 | 13 | 12,864 | - | - | - | 12,877 | |||||||||||||||||||||
Common stock to be issued to employees for bonuses | 224,850 | 225 | (225 | ) | - | - | - | - | ||||||||||||||||||||
Common stock to be issued to employees for bonuses | 147,338 | 147 | (147 | ) | - | - | - | - | ||||||||||||||||||||
Net loss | - | - | - | (2,858,481 | ) | (22,848 | ) | - | (2,881,329 | ) | ||||||||||||||||||
Balance at June 30, 2022 | 68,811,482 | $ | 68,811 | $ | 126,175,735 | $ | (112,464,478 | ) | $ | (192,891 | ) | $ | (911,516 | ) | $ | 12,675,661 |
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 SIX MONTHS ENDED
(UNAUDITED)
June 30, 2023 | June 30, 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (3,548,159 | ) | $ | (4,800,554 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation expense | 7,473 | 6,692 | ||||||
Amortization of intangibles | 26,429 | 26,768 | ||||||
Stock based compensation | 793,101 | 697,635 | ||||||
Inventory Reserve | - | 430,245 | ||||||
Employees paid in stock | 267,500 | 217,262 | ||||||
Expense paid in stock | 182,786 | 345,935 | ||||||
Amortization of right-of-use asset | 45,624 | 43,491 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase in accounts receivable | (95,867 | ) | 117,926 | |||||
Increase in accounts receivable, related party | - | (269,973 | ) | |||||
(Decrease) in inventories | (400,728 | ) | (394,167 | ) | ||||
(Decrease) increase in advances on contracts | 42,495 | (321,597 | ) | |||||
Increase in prepaid expenses and other current assets | (108,118 | ) | (147,578 | ) | ||||
(Decrease) increase in accounts payable | (428,141 | ) | 604,976 | |||||
(Decrease) increase in accounts payable, related party | (176,803 | ) | 337,801 | |||||
Increase (decrease) in accrued expenses | 297,666 | (464,800 | ) | |||||
Increase (decrease) in accrued expenses, related party | 110,790 | (191,789 | ) | |||||
Decrease operating right of use lease asset | (43,174 | ) | (39,338 | ) | ||||
Net cash used in operating activities | $ | (3,027,126 | ) | $ | (3,801,065 | ) | ||
Cash flows from investing activities: | ||||||||
Purchase of furniture, fixtures, and equipment | (1,196 | ) | 85 | |||||
Purchase of Marketable securities | (1,981,180 | ) | - | |||||
Net cash (used in) provided by investing activities | $ | (1,982,376 | ) | $ | 85 | |||
Cash flows from financing activities: | ||||||||
Payments finance lease obligations | (4,324 | ) | (4,234 | ) | ||||
Net cash used in financing activities | $ | (4,324 | ) | $ | (4,234 | ) | ||
Net decrease in cash and cash equivalents | (5,013,826 | ) | (3,805,214 | ) | ||||
Cash and cash equivalents at beginning of period | 8,715,279 | 14,764,346 | ||||||
Cash and cash equivalents at end of period | $ | 3,701,453 | $ | 10,959,132 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(Unaudited) | ||||
Nine Months Ended September 30, | ||||
2017 | 2016 | |||
Cash flows from operating activities: | ||||
Net loss | $ | (3,535,980) | $ | (5,321,628) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depreciation expense | 44,046 | 69,345 | ||
Amortization of patents | 187,209 | 53,017 | ||
Stock compensation | 530,966 | 1,136,430 | ||
Loss China joint venture | 28,941 | 545,950 | ||
Changes in operating assets and liabilities: | ||||
(Increase) in accounts receivable | (1,197,252) | (759,385) | ||
Decrease in accounts receivable related party | 2,001,800 | - | ||
Decrease in other receivable | 10,000 | 58,140 | ||
Decrease (increase) in inventories | 436,998 | (225,998) | ||
(Increase) to advances on contracts | (291,342) | (53,566) | ||
Increase (Decrease) to prepaid expenses and other current assets | (260,081) | 27,701 | ||
(Increase) in other assets | (9,523) | - | ||
(Decrease) increase in accounts payable | (725,170) | 169,388 | ||
(Decrease) in accounts payable related party | (332,711) | - | ||
Increase in deferred profit, related party | 257,323 | |||
Increase in accrued expenses and other payables | 1,583,624 | 181,324 | ||
(Decrease) in deferred revenue | (289,000) | - | ||
Net cash used in operating activities | (1,560,152) | (4,119,282) | ||
Cash flows from investing activities: | ||||
Purchase of intangible assets | (39,520) | (15,616) | ||
Purchase of property and equipment | (4,749) | (14,945) | ||
Purchase of intangibles assets-Apad | (153,647) | - | ||
Consolidation of variable interest entity | - | 50,621 | ||
Net cash (used in) provided by investing activities | (197,916) | 20,060 | ||
Cash flows from financing activities: | ||||
Capital contribution from noncontrolling interest | - | 2,543 | ||
Proceeds from Private Placement Offering | - | 2,225,000 | ||
Proceed from financing transaction | 250,000 | - | ||
Proceeds from exercise of stock options | 62,500 | - | ||
Net proceeds on Private Placement Offering | 150,836 | - | ||
Net cash provided by investing activities | 463,336 | 2,227,543 | ||
Net decrease in cash and cash equivalents | (1,294,732) | (1,871,679) | ||
Cash and cash equivalents at beginning of period | 3,602,229 | 4,194,384 | ||
Cash and cash equivalents at end of period | $ | 2,307,497 | $ | 2,322,705 |
Supplemental disclosure of cash flow information: | ||||
Net assets acquired from variable entity | $ | 14,076 | ||
Shares issued to for assets acquired | $ | 2,484,354 | - | |
Sale of Milestone China shares, financing transaction | $ | 1,400,000 | - | |
Shares issued to employees for bonus | $ | 259,841 | $ | 389,318 |
Shares issued to consultants in lieu of cash payments | $ | 422,249 | $ | 366,299 |
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., and Milestone Medical, and Milestone EducationInc. (all described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent®ompuDent®; CompuMed®; CompuFlo®CompuFlo®; DPS Dynamic Pressure Sensing Technology®technology®; Milestone Scientific ®; ®;CathCheck®; 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, revolutionary, computer-controlled anesthetic delivery instrument, throughdevice, its DPS Dynamic Pressure Sensing Technology® System, to meet the useneeds of various subcutaneous drug delivery injections and fluid aspiration – enabling healthcare practitioners to achieve multiple unique benefits that cannot currently be accomplished with the 160-year-old manual syringe. The device, using The Wand®, a single use disposable handpiece. The instrumenthandpiece, is marketed in dentistry under the trademarktrademarks 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 4738 other countries. To date there have been no medical instruments sold in the United States and limited amounts sold internationally, although certain medical instruments have obtained CE mark approval and can be marketed and sold in most European countries. In June 2017, Milestone Scientific received 510(k)also has 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System.System in the lumbar thoracic and cervical thoracic junction of the spinal region. In addition, certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries.
During 2015,Milestone Scientific is a biomedical technology company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical and dental use. Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets. Our common stock was initially listed on the NYSE MKTAmerican on June 1, 2015 and trades under the ticker symbol “MLSS”. The Company is focused on building its intellectual property portfolio across numerous indications.
NOTE 2-LIQUIDITYAND UNCERTAINTIES
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 isThe Company has evaluated whether there are conditions or events, considered in the process of introductory meetings with medical device distributorsaggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the United States and foreign markets. Milestone Scientific’s immediate focus is on marketing its epidural instrument throughout the United States and Europe.
In December 2016, we received notification from the FDA that based upon the 510(k) application submitted for intra- articular injections, we did not adequately documentdate 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.
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 sharesunaudited condensed consolidated financial statements 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 $2,639,000issued. Total losses since inception have been capitalized$120 million. The operating losses were $2.3 million and will amortized over their five year estimated useful life$3.6 million for three and tested for impairment assix months ended June 30, 2023, respectively. Management has prepared cash flow forecasts covering a finite lived intangible asset.
In July 2017, Milestone Scientific's Compensation Committee approved the issuanceperiod 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 on12 months from the date of the 2018 Annual Stockholder meeting, subject to approvalissuance of these financial statements. As 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 approvalresult of the epidural instrument),forecast, management believes that the Company has sufficient cash, along with the current cash flow and support from the dental business to mitigate the expected selling expenditures for commercialization of the Epidural medical device, as well as other operating expenditures and planned new product development programs, over the next twelve months from the filing date of this report, and thus has concluded that there is no substantial doubt about the Company’s ability to aggressively marketcontinue as a going concern.
These forecasts include several revenue and operating expense assumptions which indicate that the Company’s current cash and liquidity is sufficient to finance the operating requirements for at least the next twelve months. Management believes that the Company will have sufficient cash reserves to meet its dental instruments.anticipated obligations for at least the next twelve months from the filing date of this report. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical instrumentsdevices and disposables business in the United States (following June 2017 FDA approval of its CompuFlo® Computer Controlled Anesthesia System ) and worldwide, and a reductionsreduction in operating expenses. Management believes that Milestone ScientificHowever, the Company’s continued operations will have sufficient cash reserves to meetdepend on its anticipated obligations over the next twelve month period following the date of this report. However, Milestone Scientific will likely needability to raise additional capital priorthrough various potential sources until it achieves profitability, if ever.
In addition to its employees, the expected generationCompany 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 sustainable positive cash flowthese 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 activitiesits or their business, respectively.
Sanctions imposed by the United States and may also needother western democracies, against Russia because of the Ukraine conflict, and any expansion of the conflict, have had and are likely to raise additional capitalcontinue to effectively launch its approved medical instrumenthave unpredictable and eventually generate positive cash flowwide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations. The conflict has caused market volatility, a sharp increase in certain commodity prices, and an increasing number and frequency of cybersecurity threats. As direct impact from the anticipated medical business.conflict, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE - 2 SUMMARY OF ACCOUNTING POLICIES
1. BasisPrinciples of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally acceptedaccepted in the United States ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission (SEC), 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, 2022, included in Milestone Scientific's Annual Report on Form 10-K.10-K.
3.Reclassifications Use of Estimates
Certain reclassifications have been madeThe preparation of 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 2016 financial statements to conform to the consolidated 2017 financial statement presentation. These reclassifications had no effectallowance for doubtful accounts, inventory valuation, cash flow assumptions regarding evaluations of going concern considerations, stock compensation expense, and valuation allowances on net loss or cash flows as previously reported. deferred tax assets. Actual results could differ from those estimates.
4. Variable Interest EntitiesRevenue Recognition
A variable interest entity ("VIE") isThe Company recognizes revenue when its customer obtains control of promised goods or services, in an entityamount that either (i) has insufficient equity to permitreflects the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lackconsideration which 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 rightCompany expects to receive benefitsin exchange for those goods or services. To perform revenue recognition, the Company performs the following five steps:
i. | identification of the promised goods or services in the contract; |
ii. | determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; |
iii. | measurement of the transaction price, including the constraint on variable consideration; |
iv. | allocation of the transaction price to the performance obligations based on estimated selling prices; and |
v. | recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. |
The Company derives its revenues from the entity that could potentially be significantsale of its products, primarily dental instruments, handpieces, and other related products. The Company sells its products directly 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 Education as of January 2016. Accordingly, the assets and liabilities of Milestone Education are includedconsumers in the accompanying condensed consolidated financial statements.
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 isUnited States and through a VIEglobal distribution network that includes both exclusive and if so, identifying the primary beneficiary. As Milestone China’s equity at risknon-exclusive distribution agreements with related and voting rights were not proportional to their economic interest, Milestone China was determined to be a VIE. Milestone Scientific would be considered the primary beneficiary of the VIE if it has both of the following characteristics:
● Power Criterion: The power to direct the activities that most significantly impact the entity’s economic performance; and
● Losses/Benefits Criterion: The obligation to absorb losses that could potentially be significant or the right to receive benefits that could potentially be significant to the VIE.
Milestone management does not have the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has not been met. Management placed the most weight on the relationship and significance of activities of Milestone China to the 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 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 be accounted for under the equity method.
5. Cash and Cash Equivalents
Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
6. Accounts Receivable
Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the inability of its customers to make payments on amounts billed. A majority of credit sales are due within ninety days from invoicing. There have not been any significant credit losses incurred to date.
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 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 requirements.
9. Equity Method Investments
Investments in which Milestone 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. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line on the condensed consolidated statements of operations.
Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
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. Intangible Assets - Patents
Patents are recorded at cost to prepare and file the applicable documents with the US Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. Patents acquired from another business entity will be amortized at the estimated average useful life of the patent. These patents are recorded at the acquisition cost and included legal fees.
12. 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, 2017.
13. Revenue Recognitionthird parties.
Revenue from product sales is recognized netupon transfer of discounts and allowancescontrol of a product to domestic distributors, on thea customer, generally upon 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 Scientificshipment. The Company has no obligation on theseproduct 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
E-Commerce
As of January 3, 2023, the Company launched an E-Commerce platform, selling and hand piecesshipping STA Single Tooth Anesthesia Systems® (STA) and handpieces directly to dental offices and dental groups within the United States. Our E-commerce portal accepts online payments via credit and debit cards. The cost of delivery is charged to customer along with appropriate sales tax. The Company recognizes revenue from product sales at the time the product ships to a customer via a third party.
Sales Returns
The Company records allowances for product returns as a reduction of revenue at the time product sales are not bundled but rather sold separatelyrecorded. 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.
The Company terminated its major U.S. distributor contract as such, there are no multiple element determinationsof December 31, 2022. That distributor had return rights in connection with this contract termination that extended through March 31, 2023. The Company recorded allowance of approximately $179,000 for those returns within its December 31, 2022 financial statements. No returns have been presented, and the revenue recognition.Company reversed the allowance for sales returns.
14. ShippingFinancing and Handling CostsPayment
The Company's payment terms differ by geography and customer, but payments from distributors are required within 90 days or less from the date of shipment. The E-commerce portal sells directly to end users and accepts online payments via credit and debit cards via a third-party. These payments from the third-party are settled within two business days.
Disaggregation of Revenue
The Company operates in two operating segments: dental and medical. Therefore, results of the Company's operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. See Note 8 for revenues by geographical market, based on the customer’s location, and product category for the three and six months ended June 30, 2023 and 2022.
5.Cash and Cash Equivalents
Milestone Scientific includes shipping considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of June 30, 2023 and handling costsDecember 31, 2022, Milestone Scientific has approximately $3.7 million and $8.7 million, respectively of cash and cash equivalents. As of June 30, 2023 and December 31, 2022, Milestone Scientific had approximately $3.4 million and $8.3 million, respectively, in cash, cash equivalents, and marketable securities in accounts that exceeded the Federal Deposit Insurance Corporation insurance limit of $250,000.
6. Marketable Securities
The Company’s marketable securities are comprised of treasury bills with original maturity greater than three months from date of purchase. The Company’s marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on treasury bills are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of operations. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of goods sold. These costs are paid by or billed to customersthe marketable securities.
The appropriate classification of marketable securities is determined at the time of shipment for domestic shipments. International shipmentspurchase and evaluated as of each reporting balance sheet date. Investments in marketable debt and equity securities classified as available-for-sale are FOB warehouse, therefore no costs are incurred by Milestone Scientific.
15. 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.
16. Income Taxes
Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
17. 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.
18. Fair Value of Financial Instruments
Fair Value Measurements:fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweendetermined using quoted 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 thanor quoted prices included within Level 1for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of 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 Declines in the fair value measurement. Our assessmentvalues of equity securities that are considered other-than-temporary, are charged to other income (expense), net. The Company considers available evidence in evaluating potential impairments of its investments, including the significance of a particular inputduration and extent to thewhich fair value measurement requires judgment,is less than cost. As of June 30, 2023, the Company held approximately $2.0 million in U.S. treasury securities, with maturity dates within 3 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 presentation6 months of the balance sheet asdate.
7.Accounts Receivable
The e-commerce portal sells directly to end users and accepts online payments via credit and debit cards via a third-party credit card processor. These payments are settled within 2 business days of the transactions. Sales to distributors are on credit terms. The Company assignsestimates losses from the ability or inability of its distributor to make payments on amounts billed.
Distributors credit sales are due in 90 days or less from the date of invoicing. As of June 30, 2023 and December 31, 2022, accounts receivable was recorded, net of allowance for doubtful accounts of $27,000 and $10,000, respectively.
8.Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a fullquarterly 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 its net deferred tax asset.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.
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
9.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 as follows: 72,333,656 and 70,356,796 for the three months ended June 30, 2023 and 2022, respectively; and 72,048,223 and 70,585,590 for the six months ended June 30, 2023 and 2022, 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.
10.Stock-Based Compensation
Milestone Scientific accounts for stock-based compensation under ASC Topic 718, Share-Based Payment. ASC Topic 718 requires all share-based payments to employees, non-employees, directors, and officers, including grants of employee stock options, to be recognized in the unaudited condensed consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values.
NOTE - 4 CONSOLIDATION OF VARIABLE INTEREST ENTITY
11.Recent Accounting Pronouncements
Milestone Education isIn 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 50% owned subsidiaryforward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability.
In November 2019, the FASB issued ASU 2019-10,Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effectivedates, which deferred the effective date of Milestone Scientific which began operations in 2013 to provide training and education to dentists throughoutASU 2016-13 for the world. Milestone Scientific accounted for its investment in Milestone Education using the equity method of accounting through December 31, 2015. Approximately 81% of the revenue earned by Milestone Education is from services performed for Milestone Scientific as of September 30, 2017.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. As January 1, 2023, the Company adopted ASU 2019-10,Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842) the adoption of this dependency and relationship, we determined that we had the power to direct the activities that most significantlyASU does not have a material impact Milestone Education's economic performance, and therefore is consolidated inon our financial statements.
NOTE - 5 INVESTMENTS IN 4UNCONSOLIDATED SUBSIDIARIES
Advance Ocular Science SA
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% 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 yet 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 included in the condensed consolidated financial statements at September 30, 2017 as no further investment has been made by Milestone Scientific.
—Milestone China Ltd. INVENTORIES
In June 2014, Milestone Scientific invested $1 million in Milestone China Ltd. (“Milestone China”) by contributing 772 STA Instruments to Milestone China 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 China 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, which have been suspended.
In June 2017, Milestone Scientific entered into an agreement for the saleInventories consist 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 presented 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.following:
Milestone Scientific had $356,400 and $1,714,600 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 receivable on the condensed consolidated balance sheets.
Milestone Scientific defers the total revenue and costs of goods sold when instruments 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 actually recognized and when Milestone China sells the acquired inventory to third parties, an elimination of the intra-entity profit is required as of the balance sheet date. In accordance with ASC 323 Equity Method and Joint Ventures, Milestone Scientific has deferred 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.
June 30, 2023 | December 31, 2022 | |||||||
Dental finished goods | $ | 1,833,864 | $ | 1,315,263 | ||||
Medical finished goods | 208,081 | 334,124 | ||||||
Component parts and other materials | 151,118 | 142,948 | ||||||
Total inventories | $ | 2,193,063 | $ | 1,792,335 |
The following table includes summarized financial information (unaudited) of Milestone China:
September 30, 2017 | December 31, 2016 | |||||
Assets: | ||||||
Current Assets | $ | 7,127,064 | $ | 9,362,198 | ||
Non-Current Assets | 2,981,574 | 2,467,547 | ||||
Total Assets: | 10,108,638 | 11,829,745 | ||||
Liabilities: | ||||||
Current Liabilities | 10,449,791 | 9,900,611 | ||||
Stockholders' equity | (341,153) | 1,929,134 | ||||
Total liabilities and stockholders’ equity | $ | 10,108,638 | $ | 11,829,745 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Sales | $ | 1,382,588 | $ | 329,617 | $ | 2,548,140 | $ | 658,939 | ||||||||
Cost of Goods Sold | 556,430 | 262,576 | 1,445,634 | 546,440 | ||||||||||||
Gross Profit | 826,158 | (67,041 | ) | 1,102,506 | 112,499 | |||||||||||
Other Expenses | (1,886,180 | ) | (1,160,834 | ) | (3,487,845 | ) | (1,673,731 | ) | ||||||||
Net Losses | $ | (1,060,022 | ) | $ | (1,093,793 | ) | $ | (2,385,339 | ) | $ | (1,561,232 | ) |
NOTE – 6 Stock Option Plans
Milestone Scientific recognizes compensation expenseCompany has recorded an allowance on a straight line basis overslow moving Medical finished goods due to the requisite service period and in the case of performance based options over the periodslow adoption of the expected performance. For the threeepidural instruments and nine months ended September 30, 2017 Milestone Scientific recognized $299,175handpieces for approximately $1.1 million 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 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$1.0 million as of SeptemberJune 30, 2017 2023 and 2016, December 31, 2022, respectively.
A summary of option activity for employees under the plans and changes during the nine month ended September 30, 2017, is presented below:
Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||
Options outstanding January 1, 2017 | 1,511,995 | 1.74 | 2.97 | - | ||||
Granted | 1,383,121 | 2.04 | 4.26 | |||||
Exercised during 2017 | (83,333) | 0.75 | ||||||
Forfeited or expired | ||||||||
Options outstanding September 30, 2017 | 2,811,783 | 1.98 | 3.31 | |||||
Exercisable, September 30, 2017 | 1,380,958 | 1.98 | 2.22 |
A summary of option activity for non-employees under the plans As of September 30, 2017 and changes during the six month ended is
Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||||||||||
Options outstanding January 1, 2017 | 224,999 | 2.52 | 5.32 | - | ||||||||||||
Granted | - | |||||||||||||||
Exercised during 2017 | - | |||||||||||||||
Forfeited or expired | - | |||||||||||||||
Options outstanding September 30, 2017 | 224,999 | 2.52 | 4.57 | - | ||||||||||||
Exercisable, September 30, 2017 | 12,960 | 2.33 | 3.68 | - |
The fair value of the non-employee options was estimated on the date of grant using the Black Scholes option-pricing model at the date of grant. In accordance with the provisions of FASB ASC 505, Milestone Scientific 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.
NOTE – 7 CONCENTRATION OF CREDIT RISK
Milestone Scientific's consolidated financial instruments that are exposed to concentrations of credit risk 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 establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions.
NOTE – 85 — ADVANCES ON CONTRACTS
The advances on contracts represent funding of future STA inventory purchasesdevices, epidural instruments, and Epiduralepidural replacements parts. The balance of the advances Asas of SeptemberJune 30, 2017 2023 and December 31, 2016 2022 is $992,242 and $700,900,approximately $1.3 million, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.
NOTE 6— STOCKHOLDERS’ EQUITY
NOTE – 9 INCOME TAXESWarrants
DueThe following table summarizes information about shares issuable under warrants outstanding as of June 30, 2023:
Warrant shares outstanding | Weighted Average exercise price | Weighted Average remaining life | Intrinsic value | |||||||||||||
Outstanding at January 1, 2023 | 4,268,221 | 2.18 | 0.50 | - | ||||||||||||
Issued | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Expired or cancelled | (3,953,649 | ) | - | - | - | |||||||||||
Outstanding and exercisable at June 30, 2023 | 314,572 | 0.50 | 0.60 | 116,549 |
Shares to Milestone Scientific's historyBe Issued
As of operating losses, a full valuation allowancesJune 30, 2023 and 2022, there were 2,380,068 and 1,852,789 respectively of shares to be issued whose issuance has been provided for alldeferred under the terms of employment agreements with the Chief Executive Officer, and other employees of Milestone Scientific'sScientific. Such shares will be issued to each party upon termination of their employment.
As of June 30, 2023and2022, there were 382,697 and 174,364 respectively of shares to be issued to non-employees, for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date.
The following table summarizes information about shares to be issued on June 30, 2023 and 2022.
June 30, 2023 | June 30, 2022 | |||||||
Shares-to-be-issued, outstanding January 1, 2023 and 2022, respectively | 2,440,673 | 2,066,343 | ||||||
Granted in current period | 322,092 | 108,148 | ||||||
Issued in current period | - | (147,338 | ) | |||||
Shares-to be issued outstanding June 30, 2023 and 2022, respectively | 2,762,765 | 2,027,153 |
Stock Options Plans
The Milestone Scientific Inc. 2020 Equity Compensation Plan, as amended and restated (the "2020 Plan"), provides for awards of restricted common stock, restricted stock units, options to purchase common stock and other awards, up to a maximum 11,500,000 shares of common stock and expires in June 2031. Options may be granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a price not less than the fair market value of common stock on the date of grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant.
Milestone Scientific recognizes compensation expense over the requisite service period. For three and six months ended June 30, 2023 Milestone Scientific recognized approximately $229,000 and $457,000 of total employee compensation cost, respectively, recorded in general and administrative expenses on the statement of operations. For three and six months ended June 30, 2022 Milestone Scientific recognized $223,000 and $501,000 of total employee compensation cost, respectively, recorded in general and administrative expenses on the statement of operations.
A summary of option activity for employees under the plans and changes during the six months ended June 30, 2023 is presented below:
Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||||||||||
Options outstanding January 1, 2023 | 3,059,989 | 2.36 | 6.38 | - | ||||||||||||
Granted during 2023 | - | - | - | |||||||||||||
Exercised during 2023 | - | - | - | - | ||||||||||||
Forfeited or expired during 2023 | - | - | - | - | ||||||||||||
Options outstanding June 30, 2023 | 3,059,989 | 2.36 | 5.88 | - | ||||||||||||
Exercisable, June 30, 2023 | 1,481,651 | 2.29 | 5.25 | - |
A summary of option activity for non-employees under the plans and changes during the six months ended June 30, 2023 presented below:
Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||||||||||
Options outstanding January 1, 2023 | 91,663 | 1.75 | 2.55 | 1,083 | ||||||||||||
Granted during 2023 | 8,333 | 0.89 | 4.99 | - | ||||||||||||
Exercised during 2023 | - | - | - | - | ||||||||||||
Options outstanding June 30, 2023 | 99,996 | 1.68 | 2.29 | 7,516 | ||||||||||||
Exercisable, June 30, 2023 | 86,109 | 1.78 | 1.96 | 6,736 |
For the three and six months ended June 30, 2023, Milestone Scientific recognized approximately $4,900 and $12,700 expense related to non-employee options, respectively. For the three and six months ended June 30, 2022, Milestone Scientific recognized approximately $5,000 and $10,000 expense related to non-employee options, respectively.
The information below summarizes the restricted stock award activity for the six months ended June 30, 2023.
Number of Shares | Weighted Average Grant-Date Fair Value per Award | |||||||
Non-vested as January 1, 2023 | 435,293 | 1.18 | ||||||
Granted | 617,978 | 0.89 | ||||||
Vested | (540,164 | ) | - | |||||
Cancelled | - | - | ||||||
Non-vested as June 30, 2023 | 513,107 | 0.96 |
As of June 30, 2023, there are 49,615 restricted shares granted and deferred tax assets At Septemberunder the terms of employment agreements with each Territory Manager of Milestone Scientific. Such shares will be issued to each party upon completion of 2 years of employment. For the three and six months ended June 30, 20172023, the Company recognized stock compensation expense of approximately $9,400 and December 31, 2016, no recognition$19,000 respectively. For the three and six months ended June 30, 2022, the Company recognized negative stock compensation expense of approximately $54,000 and $27,000, respectively, due to termination of certain employees who had not vested in their grant in the current period. For the six months ended June 30, 2023, the total unrecognized compensation expense was givenapproximately $19,000, related to unvested restricted stock awards, which the utilizationCompany expects to recognize over an estimated weighted-average period of .53 years.
As of June 28, 2023, the Company entered into restricted stock agreements with members of the remaining net operating loss carryforwardsBoard of Directors of the Company. The Company granted 617,978 restricted stock awards with a fair market value of $0.89 per share. Such restricted stock vests as follows: 25% on the grant date in eachJune 2023, and 25% quarterly, on the first day of these periods.the following months: October 2023, January 2023, and April 2024. These awards vest immediately upon a change of control as defined in the agreements. For the three and six months of June 30, 2023, the Company recognized approximately $162,000 and $307,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operations. For the six months of June 30, 2023, the total unrecognized stock compensation expense was approximately $407,000 related to non-vested restricted stock awards with the members of the Board of Directors, which the Company expects to recognize over an estimated weighted average period of .75 years.
NOTE 7 — 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 INFORMATION8 — SEGMENT AND GEOGRAPHIC DATA
Milestone Scientific’s consolidated dental sales by productWe conduct our business through two reportable segments: Dental and by geographical regionMedical. These segments offer different products and services to different customer bases. The Company provides general corporate services to its segments; however, these services are as follows: Revenue from the medicalnot considered when making operating decisions and assessing segment is not material as of September 2017.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.
Three months Ended September 30, | Nine months Ended September 30, | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
DOMESTIC | ||||||||||||||||||||
Instruments | $ | 452,232 | $ | - | $ | 857,525 | $ | 852,149 | ||||||||||||
Handpieces | 893,496 | 106,908 | 3,230,567 | 1,860,593 | ||||||||||||||||
Other | 12,338 | 12,508 | 53,037 | 46,634 | ||||||||||||||||
Total Domestic | $ | 1,358,066 | $ | 119,416 | $ | 4,141,129 | $ | 2,759,376 | ||||||||||||
INTERNATIONAL-Europe | ||||||||||||||||||||
Instruments | $ | 340,575 | $ | 1,416,030 | $ | 1,053,050 | $ | 1,974,280 | ||||||||||||
Handpieces | 765,821 | 713,766 | 2,068,007 | 1,845,424 | ||||||||||||||||
Other | 32,951 | 87,984 | 89,764 | 188,046 | ||||||||||||||||
Total International -Europe | $ | 1,139,347 | $ | 2,217,780 | $ | 3,210,821 | $ | 4,007,750 | ||||||||||||
INTERNATIONAL-China | ||||||||||||||||||||
Instruments | $ | - | $ | 493,000 | $ | 1,000,000 | $ | 1,493,800 | ||||||||||||
Handpieces | 356,400 | 356,400 | 712,800 | 712,800 | ||||||||||||||||
Other | - | - | 1,800 | - | ||||||||||||||||
Total International-China | $ | 356,400 | $ | 849,400 | $ | 1,714,600 | $ | 2,206,600 | ||||||||||||
Domestic | $ | 1,358,066 | $ | 119,416 | $ | 4,141,129 | $ | 2,759,376 | ||||||||||||
International -Europe | 1,139,347 | 2,217,780 | 3,210,821 | 4,007,750 | ||||||||||||||||
International -China | 356,400 | 849,400 | 1,714,600 | 2,206,600 | ||||||||||||||||
$ | 2,853,813 | $ | 3,186,596 | $ | 9,066,550 | $ | 8,973,726 |
The following tables present information about our reportable and operating segments:
For the Three Months ended June 30, | For the Six Months ended June 30, | |||||||||||||||
Sales | ||||||||||||||||
Net Sales: | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Dental | $ | 2,912,166 | $ | 1,609,768 | $ | 5,503,564 | $ | 4,303,120 | ||||||||
Medical | (2,200 | ) | 38,600 | 4,000 | 46,150 | |||||||||||
Total net sales | $ | 2,909,966 | $ | 1,648,368 | $ | 5,507,564 | $ | 4,349,270 | ||||||||
Operating Income (Loss): | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Dental | $ | 598,944 | $ | 163,022 | $ | 1,240,884 | $ | 517,262 | ||||||||
Medical | (863,899 | ) | (1,615,283 | ) | (1,685,832 | ) | (2,851,374 | ) | ||||||||
Corporate | (2,012,595 | ) | (1,432,618 | ) | (3,175,278 | ) | (2,465,249 | ) | ||||||||
Total operating loss | $ | (2,277,550 | ) | $ | (2,884,879 | ) | $ | (3,620,226 | ) | $ | (4,799,361 | ) | ||||
Depreciation and Amortization: | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Dental | $ | 1,219 | $ | 893 | $ | 2,388 | $ | 1,786 | ||||||||
Medical | 694 | 1,019 | 1,662 | 2,037 | ||||||||||||
Corporate | 14,768 | 14,733 | 29,852 | 29,637 | ||||||||||||
Total depreciation and amortization | $ | 16,681 | $ | 16,645 | $ | 33,902 | $ | 33,460 |
Income (loss) before taxes and equity in earnings of affiliates: | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Dental | $ | 599,126 | $ | 161,774 | $ | 1,240,295 | $ | 514,571 | ||||||||
Medical | (865,735 | ) | (1,616,733 | ) | (1,689,503 | ) | (2,854,273 | ) | ||||||||
Corporate | (1,962,219 | ) | (1,426,370 | ) | (3,098,951 | ) | (2,460,852 | ) | ||||||||
Total loss before taxes and equity in earnings of affiliate | $ | (2,228,828 | ) | $ | (2,881,329 | ) | $ | (3,548,159 | ) | $ | (4,800,554 | ) | ||||
Total Assets | June 30, 2023 | December 31, 2022 | ||||||||||||||
Dental | $ | 4,439,751 | $ | 3,875,978 | ||||||||||||
Medical | 452,974 | 620,373 | ||||||||||||||
Corporate | 6,258,727 | 9,205,735 | ||||||||||||||
Total assets | $ | 11,151,452 | $ | 13,702,086 |
The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by business segment product category:
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||
Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 271,215 | $ | - | $ | 271,215 | $ | 155,028 | $ | - | $ | 155,028 | ||||||||||||
Handpieces | 1,130,122 | (2,200 | ) | 1,127,922 | 801,533 | 18,600 | 820,133 | |||||||||||||||||
Accessories | 21,443 | - | 21,443 | 22,621 | - | 22,621 | ||||||||||||||||||
Grand Total | $ | 1,422,780 | $ | (2,200 | ) | $ | 1,420,580 | $ | 979,182 | $ | 18,600 | $ | 997,782 | |||||||||||
International: Rest of World | ||||||||||||||||||||||||
Instruments | $ | 474,250 | $ | - | $ | 474,250 | $ | 160,814 | $ | - | $ | 160,814 | ||||||||||||
Handpieces | 732,894 | - | 732,894 | 459,799 | 20,000 | 479,799 | ||||||||||||||||||
Accessories | 12,242 | - | 12,242 | 9,973 | - | 9,973 | ||||||||||||||||||
Grand Total | $ | 1,219,386 | $ | - | $ | 1,219,386 | $ | 630,586 | $ | 20,000 | $ | 650,586 | ||||||||||||
International: China | ||||||||||||||||||||||||
Instruments | $ | 270,000 | $ | - | $ | 270,000 | $ | - | $ | - | $ | - | ||||||||||||
Handpieces | - | - | - | - | - | - | ||||||||||||||||||
Accessories | - | - | - | - | - | - | ||||||||||||||||||
Grand Total | $ | 270,000 | $ | - | $ | 270,000 | $ | - | $ | - | $ | - | ||||||||||||
Total Product Sales | $ | 2,912,166 | $ | (2,200 | ) | $ | 2,909,966 | $ | 1,609,768 | $ | 38,600 | $ | 1,648,368 |
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||||||
Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 495,683 | $ | - | $ | 495,683 | $ | 277,996 | $ | - | $ | 277,996 | ||||||||||||
Handpieces | 2,269,900 | - | 2,269,900 | 1,597,392 | 26,150 | 1,623,542 | ||||||||||||||||||
Accessories | 44,320 | - | 44,320 | 47,481 | - | 47,481 | ||||||||||||||||||
Grand Total | $ | 2,809,903 | $ | - | $ | 2,809,903 | $ | 1,922,869 | $ | 26,150 | $ | 1,949,019 | ||||||||||||
International: Rest of World | ||||||||||||||||||||||||
Instruments | $ | 873,205 | $ | - | $ | 873,205 | $ | 614,374 | $ | - | $ | 614,374 | ||||||||||||
Handpieces | 1,522,010 | 4,000 | 1,526,010 | 1,383,751 | 20,000 | 1,403,751 | ||||||||||||||||||
Accessories | 28,446 | - | 28,446 | 22,162 | - | 22,162 | ||||||||||||||||||
Grand Total | $ | 2,423,661 | $ | 4,000 | $ | 2,427,661 | $ | 2,020,287 | $ | 20,000 | $ | 2,040,287 |
International: China | ||||||||||||||||||||||||
Instruments | $ | 270,000 | $ | - | $ | 270,000 | $ | - | $ | - | $ | - | ||||||||||||
Handpieces | - | - | - | 359,964 | - | 359,964 | ||||||||||||||||||
Accessories | - | - | - | - | - | - | ||||||||||||||||||
Grand Total | $ | 270,000 | $ | - | $ | 270,000 | $ | 359,964 | $ | - | $ | 359,964 | ||||||||||||
Total Product Sales | $ | 5,503,564 | $ | 4,000 | $ | 5,507,564 | $ | 4,303,120 | $ | 46,150 | $ | 4,349,270 |
NOTE 9 – CONCENTRATIONS
Milestone Scientific has informal arrangements with a third party manufacturer-party U.S. manufacturers of the STA CompuDent®devices, and CompuMed®epidural instruments pursuant to which they manufacture these products under specific purchase orders which contain advance requirements but without any long-term contract or minimum purchase commitment. Advances on contracts have been classified as current at June 30, 2023, and 2022. The termination of the manufacturing relationship with any of these manufacturers could have a material adverse effect on Milestone Scientific’s ability to produce and sell its products. Although alternate sources of supply exist, and new manufacturing relationships could be established, Milestone Scientific would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. Any curtailment or interruption of the supply, because of termination of such a relationship, would have a material adverse effect on Milestone Scientific’s financial condition, business, and results of operations.
On January 3, 2023, the Company launched an E-Commerce platform, selling and shipping STA Single Tooth Anesthesia System® (STA) and handpieces directly to dental offices and dental groups within the U.S. For the three months ended June 30, 2023, E-Commerce accounted for 43% of net product sales and one distributor accounted for 11% of net product sales. For the six months ended June 30, 2023, E-Commerce accounted for 42% of net product sales. For the three months ended June 30, 2022, an aggregate of approximately 49% of the Company’s net sales were from one distributor. For the six months ended June 30, 2022, an aggregate of approximately 11% and 38% of the Company’s net product sales were from two distributors.
We had three distributors that accounted for 40%, 16% and 11% of accounts receivable, respectively for the six months ended June 30, 2023. We had two customers that accounted for 33%, and 20% amount of accounts receivable, respectively as of December 31, 2022.
As of June 30, 2023, we had one vendor that accounted for 45% of accounts payable and accounts payable related party. We had one vendor that accounted for 42% of accounts payable and accounts payable related party as of December 31, 2022.
NOTE 10-- RELATED PARTY TRANSACTIONS
United Systems
Milestone Scientific has a supply agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were approximately $592,000 and $1.3 million, respectively for the three and six months ended June 30, 2023. Purchases from this manufacturer were approximately $436,000 and $1.7 million, respectively for the three and six months ended June 30, 2022.
As of June 30, 2023 and December 31, 2022, Milestone Scientific owed this manufacturer approximately $592,000, and $819,000, respectively, which is included in accounts payable, related party and accrued expense, related party on the unaudited condensed consolidated balance sheets.
Other
During 2022, K. Tucker Andersen, an significant stockholder of Milestone Scientific, entered into an agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $25,000 and $50,000 for three and six months ended June 30, 2022. The agreement was not renewed in 2023.
The Director of Clinical Affairs’ royalty fee was approximately $144,000 and $267,000 for the three and six months ended June 30, 2023, respectively. The Director of Clinical Affairs’ royalty fee was approximately $81,000 and $213,000 for the three and six months ended June 30, 2022, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 and $78,000 for the three and six months ended June 30, 2023 and 2022, respectively.
As of June 30, 2023 and December 31, 2022, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $145,000 and $120,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the condensed consolidated balance sheet.
Pursuant to a Succession Agreement dated April 6, 2021 between Mr. Osser and the Company: (i) the Employment Agreement dated as of July 10, 2017 between Mr. Osser and the Company, pursuant to which upon Mr. Osser stepping down as Interim Chief Executive Officer of the Company, the Company agreed to employ him as Managing Director, China Operations of the Company (the “China Operations Agreement”), and (ii) the Consulting Agreement dated as of July 10, 2017 (the “Consulting Agreement”) between the Company and U.S. Asian Consulting Group, LLC, a company of which Mr. Osser is a principal, the compensation under the China Operations Agreement was modified to reduce the overall compensation by $100,000 to $200,000, split equally between a cash amount and an amount in shares, and the compensation under the Consulting Agreement was increased by $100,000 to $200,000, equally split between a cash amount and an amount in shares, which shares were formerly payable under the China Operations Agreement. Compensation under the China Operations Agreement and the Consulting Agreement are payable for 9.5 years from May 19, 2021. The Company recorded expense of $50,000 and $100,000 related to the Managing Director, China Operations for the three and six months ended June 30, 2023 and 2022, respectively. The Company recorded expense of $50,000 and $100,000 related to the US Asian Consulting Group, LLC for the three and six months ended June 30, 2023 and 2022, respectively.
NOTE 11 — COMMITMENTS
(1) Contract Manufacturing Agreement
Milestone Scientific has informal arrangements with third-party manufacturers of the STA devices, and epidural instruments pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. In March 2016, Milestone Scientific entered into a purchase commitment for delivery of 3,000 instruments, as of September 30, 2017 all instruments have been received. In January 2017, Milestone Scientific entered intoThe Company has a purchase commitment for the delivery of 2,0003,000 STA instruments beginning in the 4th quarter
as of 2017. An advanceJune 30, 2023. As of $948,094 was recorded at SeptemberJune 30, 2017. At September 30, 2017, Milestone Scientific’s purchase commitment for this2023, the purchase order commitment was $431,619. Consequently,approximately $2.9 million, and approximately $1.2 million was paid and reported in advances on contracts have been classified as current at September 30, 2017 and December 31, 2016.
For the three months ended September 30, 2017 , an aggregate of approximately 67% of Milestone Scientific's net product sales were to two customers/ distributors (one of which, Milestone China, is a related party), 54%, and 13%, respectively. For the nine months ended September 30, 2017, an aggregate of approximately 72% of Milestone Scientific's net product sales were to two customers/distributors (one of which, Milestone China, is a related party), 53%, and 19%, respectively. Accounts receivable for the major customer/distributors amounted to an aggregate of approximately $1,403,148, or 70% of Milestone Scientific's accounts receivable for nine months ended September 30, 2017. For the three months ended September 30, 2016, an aggregate of 61% of Milestone Scientific's net product sales were to two customers/distributors (one of which ,Milestone China, is a related party), 44%, and 17%, respectively. For the nine months ended September 30, 2016, an aggregate of approximately 70% of Milestone Scientific's net product sales were to two customers/distributors (one of which, Milestone China, is a related party), 62%, and 8%, respectively.
NOTE – 11 Employment and Consulting Agreements
In July 2017, Milestone Scientific entered into a three-year employment agreement with Daniel Goldberger to serve as President and Chief Executive Officer of Milestone Scientific. Under the agreement, Mr. Goldberger would receive base compensation of $300,000 per annum and may additionally earn annual bonuses of up to an aggregate of $400,000, payable one half in cash and one half in Milestone Scientific common stock (“Bonus Shares”) contingent upon achieving performance benchmarks periodically set for each year by the compensation committee of the Board. In addition to any such shares of common stock, Mr. Goldberger was entitled to receive stock options (“Bonus Options”) to acquire twice the number of any Bonus Shares earned, pursuant to a non-qualified stock option grant agreement under Milestone Scientific’s then existing equity compensation plan. The Bonus Options had a five-year term and were to vest in equal annual installments on each of the first, second and third anniversary of the grant date, subject to continued employment on such vesting date and accelerated vesting upon the occurrence of certain events. The exercise price of the Bonus Options was based on the fair market value of per share of common stock on the date of grant.
In July 2017, Milestone Scientific granted to Mr. Goldberger non-qualified stock options to purchase 921,942 shares of common stock at an exercise price of $2.00 per share. Those options had a five-year term and were to vest in equal annual installments on each of the first, second and third anniversaries of the grant date, subject to his continued employment on the vesting date and accelerated vesting upon the occurrence of certain events.
On October 5, 2017, Milestone Scientific Inc. announced that Daniel Goldberger had resigned as President and Chief Executive Officer effective October 2, 2017, upon which the previously described stock options granted to him in July 2017 terminated prior to vesting (see Note 14).
In July 2017, Milestone Scientific entered into a ten-year new employment agreement with Leonard Osser, who previously served as the Company’s President and Chief Executive Officer, to serve as Managing Director – China Operations. This new agreement provides for annual compensation of $300,000 consisting of $100,000 in cash and $200,000 in the Company’s common stock valued at the average closing price of the Company’s common stock on the NYSE or such other market or exchange on which its shares are then traded during the first fifteen (15) trading days of the last full calendar month of each year during the term of this agreement. This agreement supersedes all prior employment agreements between Mr. Osser and Milestone Scientific. If the Company terminates Mr. Osser’s employment “Without Cause,” other than due to his death or disability, or if Mr. Osser terminates his employment for “Good Reason” (both as defined in the agreement), Mr. Osser is entitled to be paid in one lump sum payment as soon as practicable following such termination: an amount equal to the aggregate present value (as determined in accordance with Section 280G(d)(4) of the Code) of all compensation pursuant to this agreement from the effective date of termination hereunder through the remainder of the Employment Term.
In July 2017, Mr. Osser also resigned from his positions of Chairman of the Board, Chief Executive Office and President of Milestone Medical. Upon his resignation, Milestone Medical entered in a consulting agreement with U.S. Asian Consulting Group LLC, an entity controlled by Mr. Osser, pursuant to which he will provide specific services to Milestone Medical for a ten- year term. Pursuant to the consulting agreement, U.S. Asian Consulting Group, LLC, is entitled to receive $100,000 per year for Mr. Osser's services.
NOTE – 12 RELATED PARTIES
Milestone Scientific has a manufacturing agreement with United Systems (a significant stockholder of Milestone), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were $721,225 and $1,690,582 for the three and nine months ended September 30, 2017, respectively. Purchases of handpieces from this manufacturer were $967,003 and $2,088,229 for the three and nine months ended September 30, 2016, respectively. Milestone Scientific owed $902,341 and $984,286 to this manufacturer as of September 30, 2017 and December 31, 2016, respectively.
Milestone Scientific had $356,400 and $1,714,600 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 receivable on the condensed consolidated balance sheets. sheet. As of December 31, 2022, the purchase order commitment was approximately $1.7 million, and approximately $1.2 million was paid and reported in advances on contracts in the condensed consolidated balance sheet. The advances on contracts represent funding of future epidural instruments, and epidural replacements parts. The balance of the advances as of June 30, 2023 and December 31, 2022 is approximately $75,000, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.
In August 2016, a stockholder of Milestone Scientific entered a three-year agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $25,000 and $75,000 for the three and nine months ended September 30, 2017, respectively. Expenses recognized on this agreement were $25,000 and $75,000 for the three and nine months ended September 30, 2016, respectively.
In January 2017, Milestone Scientific entered into a 12 month agreement with Innovest S.p.A. to provide consulting services (see Note 13).
NOTE – 13 (2) COMMITMENTS AND CONTINGENCIESLeases
(1) Lease Commitments
Operating Leases
The headquarters for Milestone Scientific is located at 220 South Orange Ave, Livingston, New Jersey. Milestone Scientific leases approximately 7,625 square feetCompany identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
● | As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the Medical Device industry. | |
● | Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. | |
● | The expected lease terms include non-cancellable lease periods. Renewal option periods are not included in the determination of the lease terms as they were not reasonably certain to be exercised. |
The components of office space. The lease term expires January 31, 2020 and provides for a monthly lease payment of $12,522. Additionally, Milestone Scientific has other smaller insignificant leases ending through 2017. Further, a third party distribution and logistics center in Pennsylvania handles shipping and order fulfillment on a month-to-month basis. For the three and nine months ended September 30, 2017, rent expense amounted to $36,658 and $106,828 respectively. For the three and nine months ended September 30, 2016 rent expense amounted to $25,031 and $95,019, respectively.were as follows:
% | ||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Cash paid for operating lease liabilities | $ | 31,882 | $ | 31,999 | $ | 63,763 | $ | 63,881 | ||||||||
Cash paid for finance lease liabilities | 2,685 | 2,685 | 5,370 | 5,370 | ||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | 663,009 | 663,009 | ||||||||||||||
Property and equipment obtained in exchange for new finance lease liabilities | 43,242 | 43,242 | ||||||||||||||
Weighted Average Remaining Lease Term | ||||||||||||||||
Finance leases (years) | 1.5 years | |||||||||||||||
Operating leases (years) | 3.75 years | |||||||||||||||
Weighted-average discount rate – operating leases | 9.20 | % | ||||||||||||||
Weighted-average discount rate – finance leases | 9.20 | % |
(2) Other CommitmentsITEM 7. Management
Milestone Scientific's employment agreement (the “2009 Agreement”) with Leonard Osser, its former Chief Executive Officer, provided for payments of $203,111 per year for five years to the executive or as he directs such payments, to a third party, to fund his acquisition of, or contribution to, an annuity, pension, or deferred distribution plan; or for an investment for the benefit of the executive and his family. Milestone Scientific expensed approximately $51,000 and $152,000 for the three and nine months ended September 30, 2017, and 2016 respectively to fund this obligation. In July 2017, Milestone Scientific entered into a new employment agreement with Mr. Osser, which superseded the 2009 Agreement pursuant to which he stepped down from his position as Chief Executive Officer and became Managing Director – China Operations (see Note 11). Pursuant to the new agreement, Milestone Scientific agreed to fund the last installment of $203,111 in January 2018 as provided for in the 2009 Agreement.
The technology underlying the SafetyWand® and CompuFlo®, and an improvement to the controls for CompuDent® were developed by the Director of Clinical Affairs and assigned to Milestone Scientific. Milestone Scientific purchased this technology pursuant to an agreement dated January 1, 2005. The Director of Clinical Affairs will receive additional payments of 2.5% of the total sales of products using certain of these technologies, and 5% of the total sales of products using certain other of the technologies until the expiration of the last patent. The Director of Clinical Affairs was granted, pursuant to the agreement, an option to purchase, at fair market value on the date of the grant 8,333 shares of common stock upon the issuance of each additional patent relating to these technologies. If products produced by third parties use any of these technologies (under license from us) then the Director of Clinical Affairs will receive the corresponding percentage of the consideration received by Milestone Scientific for such sale or license.
The Director of Clinical Affairs’ royalty fee was $122,606 and $446,098 for the three and nine months ended September 30, 2017, respectively. The Director of Clinical Affairs’ royalty fee was $148,185 and $449,875 for the three and nine months ended September 30, 2016, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $68,751 and $206,253 for the three and nine months ended September 30, 2017, and 2016 respectively.
In January 2017, Milestone Scientific entered into a 12 month agreement with Innovest S.p.A. to provide consulting services. This agreement will renew for successive 12 month terms unless terminated by Innovest S.p.A or Milestone Scientific. Expenses recognized on this agreement were $20,000 and $60,000 for the three and nine months ended September 30, 2017, respectively.
On October 2, 2017, Milestone Scientific accepted the resignation of the then CEO, Daniel Goldberger. Subsequent to that date, Mr. Goldberger through his attorney advised Milestone Scientific’s attorneys, that Mr. Goldberger was entitled, based on the circumstances he asserted with respect to his resignation after acceptance of such resignation, to his basic salary ($300,000) for one year and certain other benefits (health and disability insurance for one year ($30,000 estimated) and a car allowance of $1,200 per month), in accordance with his employment contract dated July 10, 2017. Under the circumstances asserted by Mr. Goldberger, he would also be entitled to the immediate vesting of options under the Milestone Scientific’s Stock Option Plan agreed to be granted to him pursuant to his employment agreement, exercisable for ninety days after his resignation, for 921,942 shares of Milestone Scientific at a price of $2.00 per share, which exercise price is in excess of the market price of Milestone Scientific’s shares on the date hereof. Milestone Scientific believes that the assertion of Mr. Goldberger is not in accordance with the facts or the requirements of his employment contract, and Milestone Scientific intends to vigorously contest his assertion.
NOTE 14- Subsequent Events
On October 5, 2017, Milestone Scientific announced that Daniel Goldberger had resigned as President and Chief Executive Officer effective October 2, 2017.
On October 5, 2017, Milestone Scientific also announced the appointment of Leslie Bernhard, the Company’s current Chairman of the Board, as the Company’s Interim Chief Executive Officer, to serve in such role until the appointment of a new Chief Executive Officer.
In connection with her appointment to serve as the Company’s Interim Chief Executive Officer, Ms. Bernhard will be paid an annual salary of $200,000 and receive a one-time bonus of 100,000 shares of the Company’s Common Stock. In addition, at the completion of her service as Interim Chief Executive Officer, Ms. Bernhard shall be entitled to receive a cash bonus in an amount to be determined by the Board of Directors at that time.
ITEM 2. Management’ss Discussion and Analysis of Financial Condition and Results of Operations.Operations
The following discussions of ourthe financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewherecontained in this report and in connection with management's discussion and analysis and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-Q.10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission, or SEC on March 30, 2023. Certain statements in this discussion and elsewhereelsewhere in this report constitute forward-looking statements, within the meaning of section 21E of the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties. OurThe actual results may differ materially from those anticipated in these forward-looking statements.
OVERVIEW
Milestone Scientific is a biomedical technology company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical, dental and cosmetic use. Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets. We believe our technologies are proven and well established. Our common stock was initially listed on the NYSE MKTAmerican on June 1, 2015, and trades under the symbol “MLSS”.
We have focused our resources on redefining the worldwide standard of care for injection techniques by making the experience more comfortable for the patient by reducing the anxiety and stress of receiving injections from the healthcare provider. Our computer-controlled injection devices make injections precise, efficient, and virtually painless.
Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery instrument, through the use of device, using The 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. Our proprietary CompuMed®DPS Dynamic Pressure Sensing technology® is suitable for many medical procedures regularly performed in plastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedicsour technology platform that advances the development of next-generation devices. It regulates flow rate and a number of other disciplines. The dental instruments are sold inmonitoring pressure from the United States and in over 47 countries abroad. There have been no medical instruments sold in the United States and limited amounts sold internationally astip of the reporting date. Certain of ourneedle, through platform extensions for local anesthesia for subcutaneous drug delivery, used in various dental and medical instruments have obtained European CE mark approvalinjections. It has specific medical applications for epidural space identification in regional anesthesia procedures and can be marketed and sold in most European countries. In June 2017, the FDA approved our 510(k) application for marketing clearance in the United States of our CompuFlo® Epidural Computer Controlled Anesthesia System. We are in the process of introductory meetings with medical device distributors within the United States and foreign markets. intra-articular joint injections.
In 2017, we remainedMilestone Scientific remains focused on advancing efforts to achieve our fourthe following three primary objectives; those being:
● Obtaining the 510(k) marketing clearance with the FDA for the intra articular instrumentsobjectives:
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Because of combining the ability to regulate the flow rate and monitor pressure at the tip of the needle, Milestone Scientific developed the industry’s first solution for painlessly administering an intra-ligamentary injection, i.e., “single-tooth anesthesia” which could be used as the only injection necessary for achieving dental anesthesia, foregoing the need to administer traditional injections such as a nerve branch block. In addition to single-tooth anesthesia,the STA Instrument GrowthSystem can effectively perform all the traditional injections that dentists routinely give but can provide them virtually pain free and with numerous clinical advantages. This device, which also utilizes a disposable handpiece, is currently marketed by Milestone Scientific as the STA Single Tooth Anesthesia System.
Our dental devices have been used to administer tens of millions of injections worldwide. Each of our devices has a related single use disposable handpiece, leading to a continuing revenue stream following sale of the device. At present, we sell disposable handpieces unique to our legacy product (the Wand and CompuDent) to users who have not upgraded to our current dental product, the STA Single Tooth Anesthesia System. Because of combining the ability to regulate the flow rate and monitor pressure at the tip of the needle, Milestone Scientific developed the industry’s first solution for painlessly administering an intra-ligamentary injection, i.e., “single-tooth anesthesia” which could be used as the only injection necessary for achieving dental anesthesia, foregoing the need to administer traditional injections such as a nerve branch block. In addition to single-tooth anesthesia,the STA System can effectively perform all the traditional injections that dentists routinely give but can provide them virtually pain free and with numerous clinical advantages. This device, which also utilizes a disposable handpiece, is currently marketed by Milestone Scientific as the STA Single Tooth Anesthesia System
Building on the success of our proprietary, core technology platform for dental injections, and desiring to pursue other growth opportunities, we have recently begun to expand the uses and applications of our proprietary, patented technologies to achieve greater operational efficiencies, enhanced patient safety and therapeutic adherence, patient satisfaction, and improved quality of care across a broad range of medical specialties. In June 2017, we received FDA regulatory clearance to sell the CompuFlo Epidural Computer Controlled Anesthesia System in the United States for certain medical applications.
We intend to continue to expand the uses and applications of our DPS Dynamic Pressure Sensing technology. We believe that we and our technology solutions are recognized by key opinion leaders (i.e., academics, anesthesiologists and practicing dentists whose opinions are widely respected), industry experts and medical and dental practitioners as a leader in the emerging, computer-controlled injection industry.
The Single Tooth Anesthesia System (Dental)
Since its market introduction in early 2007, the STA InstrumentSingle Tooth Anesthesia System and prior C-CLAD productsdevices have been used to deliver over 66 90 million safe, effective, and comfortable injections. The instrument has also been favorably evaluated in numerous peer-reviewed, published clinical studies and associated articles. Moreover, there appears to be a growing consensus among users that the STA Instrument is proving to be a valuable and beneficial instrument that is positively impacting the practice of dentistry worldwide.
Global Distribution Network
United States and Canadian Market
Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, Inc. (“Henry Schein”). In June 2016, that agreement was replaced with an exclusive distribution arrangement for our dental products for the United States and Canada with Henry Schein. Under this arrangement we have a semi-dedicated independent sales force visiting dentists. We believe that this arrangement will be more effective than previous arrangements which primarily relied upon appearances at dental shows and catalog sales.
To date, Henry Schein has endeavored to accomplish the goals set forth in the exclusive distribution agreement for The Wand® STA instrument and handpieces, including training of its exclusive products sales specialists. Specifically, 25 exclusive product sales specialists have now been fully trained as experts in the features, advantages and benefits of The Wand® STA instrument and handpieces and all 25 are currently in the field selling the instrument.
Henry Schein also plans to train an additional two to three dedicated customer service representatives to support dentists across North America through its exclusive product sales customer call center, as business volume increases.
Henry Schein’s exclusive products sales specialist team, which is comprised of 25 products sales specialists and supported by over 1,000 field service representatives, will exclusively market and distribute The Wand® STA instrument and handpieces, together with a select group of other devices in the United States and Canada. Our agreement with Henry Schein has minimum purchase order requirements to maintain exclusivity in the third through tenth year of the term of the agreement.
International Market
On the global front, we have granted exclusive marketing and distribution rights for the STA Instrument to select dental suppliers in various international regions in Asia, Africa, South America and Europe. They include Istrodent (Pty) Ltd. in South Africa and Unident AB in the Scandinavian countries of Denmark, Sweden, Norway and Iceland.
In October 2012, the State Food and Drug Administration (CFDA) of the People’s Republic of China approved our STA Single Tooth Anesthesia System® (STA System). In May 2014, the CFDA also approved the STA handpieces for sale in China.
In September 2014, Milestone Medical received CE clearance to distribute their epidural and intra-articular instruments in the European Community (EU). Milestone Medical signed a distribution agreement in March 2015 with a medical distributor in Poland for the distribution of the epidural instrument. This distribution agreement was terminated in late 2016 due to the distributor’s inadequate performance under the distribution agreement. Milestone Medical is continuing to pursue distributors for the instrument in the EU community.
In June 2014, Milestone Scientific invested $1 million in Milestone China Ltd. (“Milestone China”) by contributing 772 STA Instruments to Milestone China 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 China 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 beyond its investment in Milestone China of $1,606,913 and $1,124,350 as of September 30, 2017 and December 31, 2016, respectively, which have been suspended.Market Product
In June 2017, Milestone Scientific entered into an agreementthe FDA approved the CompuFlo Epidural System for epidural injections.
In May, 2022, the Company received a chronology-specific CPT Code 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 until paid in full and is securedCompany's technology by the Milestone China Shares until full repayment. In addition, pursuantAmerican Medical Association, which marks an important milestone that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. Effective January 1, 2023 this temporary tracking code allows clinicians to such note,submit claims to healthcare insurance providers using the purchaser is precluded from selling all or substantially all of its assets prior to repaymentCompany’s technology for Epidural Sterile Injections in the lumbar, thoracic, cervical thoracic junctions of the note. The 10-year option agreement provides Milestone Scientific an option to repurchasespinal region, for reimbursement. A CPT code expands the Milestone China Shares at $1,400,000potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System, which should help accelerate the commercial roll-out of CompuFlo in the United States.
On February 27, 2023, the Company announced that its CompuFlo® Epidural System has received 510(k) FDA clearance for use in the thoracic region of the spine, including the cervical thoracic junction. This approval expands upon the Company’s prior approval of CompuFlo for use within the first two years and at fair market value (as defined in such agreement) for the remainderlumbar region of the 10-year term. The transactionspine, where the focus has been accounted for as a secured financingon labor 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.delivery.
The sale of the Milestone China Shares allows Milestone Scientific to continue to expand in the China market by supplying Milestone China with the STA Single Tooth Anesthesia System® and related hand pieces, while eliminating the burden on Milestone Scientific's management as a 40% minority owner. Milestone Scientific believes that the sale will provide Milestone China with a new partner that may accelerate its penetration of the China market.
Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | |||||||||||||||||||||||
Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 271,215 | $ | - | $ | 271,215 | $ | 155,028 | $ | - | $ | 155,028 | ||||||||||||
Handpieces | 1,130,122 | (2,200 | ) | 1,127,922 | 801,533 | 18,600 | 820,133 | |||||||||||||||||
Accessories | 21,443 | - | 21,443 | 22,621 | - | 22,621 | ||||||||||||||||||
Grand Total | $ | 1,422,780 | $ | (2,200 | ) | $ | 1,420,580 | $ | 979,182 | $ | 18,600 | $ | 997,782 | |||||||||||
International: Rest of World | ||||||||||||||||||||||||
Instruments | $ | 474,250 | $ | - | $ | 474,250 | $ | 160,814 | $ | - | $ | 160,814 | ||||||||||||
Handpieces | 732,894 | - | 732,894 | 459,799 | 20,000 | 479,799 | ||||||||||||||||||
Accessories | 12,242 | - | 12,242 | 9,973 | - | 9,973 | ||||||||||||||||||
Grand Total | $ | 1,219,386 | $ | - | $ | 1,219,386 | $ | 630,586 | $ | 20,000 | $ | 650,586 | ||||||||||||
International: China | ||||||||||||||||||||||||
Instruments | $ | 270,000 | $ | - | $ | 270,000 | $ | - | $ | - | $ | - | ||||||||||||
Handpieces | - | - | - | - | - | - | ||||||||||||||||||
Accessories | - | - | - | - | - | - | ||||||||||||||||||
Grand Total | $ | 270,000 | $ | - | $ | 270,000 | $ | - | $ | - | $ | - | ||||||||||||
Total Product Sales | $ | 2,912,166 | $ | (2,200 | ) | $ | 2,909,966 | $ | 1,609,768 | $ | 38,600 | $ | 1,648,368 |
The following table shows a breakdown of Milestone Scientific’sScientific’s product sales (net), domestically and internationally, by product category, and the percentage of product sales (net) by eachbusiness segment product category:
Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||||||||||||
Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
Instruments | $ | 495,683 | $ | - | $ | 495,683 | $ | 277,996 | $ | - | $ | 277,996 | ||||||||||||
Handpieces | 2,269,900 | - | 2,269,900 | 1,597,392 | 26,150 | 1,623,542 | ||||||||||||||||||
Accessories | 44,320 | - | 44,320 | 47,481 | - | 47,481 | ||||||||||||||||||
Grand Total | $ | 2,809,903 | $ | - | $ | 2,809,903 | $ | 1,922,869 | $ | 26,150 | $ | 1,949,019 | ||||||||||||
International: Rest of World | ||||||||||||||||||||||||
Instruments | $ | 873,205 | $ | - | $ | 873,205 | $ | 614,374 | $ | - | $ | 614,374 | ||||||||||||
Handpieces | 1,522,010 | 4,000 | 1,526,010 | 1,383,751 | 20,000 | 1,403,751 | ||||||||||||||||||
Accessories | 28,446 | - | 28,446 | 22,162 | - | 22,162 | ||||||||||||||||||
Grand Total | $ | 2,423,661 | $ | 4,000 | $ | 2,427,661 | $ | 2,020,287 | $ | 20,000 | $ | 2,040,287 |
International: China | ||||||||||||||||||||||||
Instruments | $ | 270,000 | $ | - | $ | 270,000 | $ | - | $ | - | $ | - | ||||||||||||
Handpieces | - | - | - | 359,964 | - | 359,964 | ||||||||||||||||||
Accessories | - | - | - | - | - | - | ||||||||||||||||||
Grand Total | $ | 270,000 | $ | - | $ | 270,000 | $ | 359,964 | $ | - | $ | 359,964 | ||||||||||||
Total Product Sales | $ | 5,503,564 | $ | 4,000 | $ | 5,507,564 | $ | 4,303,120 | $ | 46,150 | $ | 4,349,270 |
Three months Ended September 30, | Nine months Ended September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||
DOMESTIC | ||||||||||||||||||||||||
Instruments | $ | 452,232 | 33.3 | % | $ | - | — | $ | 857,525 | 20.7 | % | $ | 852,149 | 30.9 | % | |||||||||
Handpieces | 893,496 | 65.8 | % | 106,908 | 89.5 | % | 3,230,567 | 78 | % | 1,860,593 | 67.4 | % | ||||||||||||
Other | 12,338 | 0.9 | % | 12,508 | 10.5 | % | 53,037 | 1.3 | % | 46,634 | 1.7 | % | ||||||||||||
Total Domestic | $ | 1,358,066 | 100.0 | % | $ | 119,416 | 100.0 | % | $ | 4,141,129 | 100.0 | % | $ | 2,759,376 | 100.0 | % | ||||||||
INTERNATIONAL-Europe | ||||||||||||||||||||||||
Instruments | $ | 340,575 | 29.9 | % | $ | 1,416,030 | 63.8 | % | $ | 1,053,050 | 32.8 | % | $ | 1,974,280 | 49.3 | % | ||||||||
Handpieces | 765,821 | 67.2 | % | 713,766 | 32.2 | % | 2,068,007 | 64.4 | % | 1,845,424 | 46.0 | % | ||||||||||||
Other | 32,951 | 2.9 | % | 87,984 | 4.0 | % | 89,764 | 2.8 | % | 188,046 | 4.7 | % | ||||||||||||
Total International -Europe | $ | 1,139,347 | 100.0 | % | $ | 2,217,780 | 100.0 | % | $ | 3,210,821 | 100.0 | % | $ | 4,007,750 | 100.0 | % | ||||||||
INTERNATIONAL-China | ||||||||||||||||||||||||
Instruments | $ | - | — | $ | 493,000 | 58.0 | % | $ | 1,000,000 | 58.3 | % | $ | 1,493,800 | 67.7 | % | |||||||||
Handpieces | 356,400 | 100.0 | % | 356,400 | 42.0 | % | 712,800 | 41.6 | % | 712,800 | 32.3 | % | ||||||||||||
Other | - | — | - | — | 1,800 | 0.1 | % | - | — | |||||||||||||||
Total International-China | $ | 356,400 | 100.0 | % | $ | 849,400 | 100.0 | % | $ | 1,714,600 | 100.0 | % | $ | 2,206,600 | 100.0 | % | ||||||||
Domestic | $ | 1,358,066 | 47.6 | % | $ | 119,416 | 3.7 | % | $ | 4,141,129 | 45.7 | % | $ | 2,759,376 | 30.7 | % | ||||||||
International-Europe | 1,139,347 | 39.9 | % | 2,217,780 | 69.6 | % | 3,210,821 | 35.4 | % | 4,007,750 | 44.7 | % | ||||||||||||
International-China | 356,400 | 12.5 | % | 849,400 | 26.7 | % | 1,714,600 | 18.9 | % | 2,206,600 | 24.6 | % | ||||||||||||
Total Product Sales | $ | 2,853,813 | 100.0 | % | $ | 3,186,596 | 100.0 | % | $ | 9,066,550 | 100.0 | % | $ | 8,973,726 | 100.0 | % |
Current Product Platform
See Note 1, “Organization and Business”.
Milestone Scientific plans to support increased sales and marketing activity through our current distributors and through newly appointed distributors of the STA instruments and handpieces in the international market. In the United States and Canada, Milestone Scientific will continue the utilization of independent hygienists for training individual practitioners and group practices domestically, refined and directed advertising to dental professionals, continue to develop Key Opinion Leaders (KOL) and support and broaden our global distribution network. Additionally with the recent FDA marketing clearance for the epidural instrument, Milestone Scientific is initiating marketing and sales efforts in the US to establish medical sector distributors for the sale of this instrument
Results of Operations
The following table sets forth for the consolidated results of operations for the three and ninesix months ended SeptemberJune 30, 2017, respectively, as a percentage of revenues.2023 and 2022, respectively. The trends suggested by this table may not be indicative of future operating results: results:
Three months Ended September 30, | Nine months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Revenue | |||||||||||||||||
Product sales, net | $ 2,853,813 | 100% | $ 3,186,596 | 100% | $ 9,066,550 | 100% | $ 8,973,726 | 100% | |||||||||
Cost of products sold | 1,044,540 | 37% | 1,517,561 | 48% | $ 3,320,411 | 37% | 3,675,552 | 41% | |||||||||
Gross profit | 1,809,273 | 63% | 1,669,035 | 52% | 5,746,139 | 63% | 5,298,174 | 59% | |||||||||
Selling, general and administrative expenses | 3,205,996 | 112% | 2,933,950 | 92% | 8,996,092 | 99% | 9,226,062 | 103% | |||||||||
Research and development expenses | 16,884 | 1% | 303,268 | 10% | 241,964 | 3% | 756,045 | 8% | |||||||||
Total operating expenses | 3,222,880 | 113% | 3,237,218 | 102% | 9,238,056 | 102% | 9,982,107 | 111% | |||||||||
Loss from operations | (1,413,607) | (50)% | (1,568,183) | (49)% | (3,491,917) | (39)% | (4,683,933) | (52)% | |||||||||
Other (expenses) | (1,046) | (0)% | (846) | (0)% | (3,278) | (0)% | (2,782) | (0)% | |||||||||
Interest expense | 3,582 | 0% | - | 0% | 6,495 | 0% | - | 0% | |||||||||
Loss before provision for income tax and equity in net earnings of equity investments | (1,411,071) | (49)% | (1,569,029) | (49)% | (3,488,700) | (38)% | (4,686,715) | (52)% | |||||||||
Provision for income tax | (6,475) | (0)% | (16,522) | (1)% | (18,339) | (0)% | (80,147) | (1)% | |||||||||
Loss before equity in net earnings of equity investments | (1,417,546) | (50)% | (1,585,551) | (50)% | (3,507,039) | (39)% | (4,766,862) |
| (53)% | ||||||||
Loss on earnings from China Joint Venture | - | 0% | (253,451) | (8)% | (28,941) | (0)% | (554,766) | (6)% | |||||||||
Loss in equity investments | - | 0% | (253,451) | (8)% | (28,941) | (0)% | (554,766) |
| (6)% | ||||||||
Net Loss | (1,417,546) | (50)% | (1,839,002) | (58)% | (3,535,980) | (39)% | (5,321,628) | (59)% | |||||||||
Net loss attributable to noncontrolling interests | (6,605) | (0)% | (137,752) | (4)% | (138,915) | (2)% | (1,113,958) | (12)% | |||||||||
Net loss attributable to Milestone Scientific Inc. | $ (1,410,941) | (49)% | $ (1,701,250) | (53)% | $ (3,397,065) | (37)% | $ (4,207,670) | (47)% |
For the three months ended June 30, 2023 | For the three months ended June 30, 2022 | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | |||||||||||||
Operating results: | ||||||||||||||||
Product sales, net | $ | 2,909,966 | $ | 1,648,368 | $ | 5,507,564 | $ | 4,349,270 | ||||||||
Cost of products sold | 1,019,907 | 967,720 | 1,728,882 | 1,986,196 | ||||||||||||
Gross profit | 1,890,059 | 680,648 | 3,778,682 | 2,363,074 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative expenses | 3,937,281 | 3,282,322 | 7,011,012 | 6,397,948 | ||||||||||||
Research and development expenses | 213,647 | 266,560 | 353,994 | 731,027 | ||||||||||||
Depreciation and amortization expense | 16,681 | 16,645 | 33,902 | 33,460 | ||||||||||||
Total operating expenses | 4,167,609 | 3,565,527 | 7,398,908 | 7,162,435 | ||||||||||||
Loss from operations | (2,277,550 | ) | (2,884,879 | ) | (3,620,226 | ) | (4,799,361 | ) | ||||||||
Other income, and interest expense net | 48,722 | 3,550 | 72,067 | (1,193 | ) | |||||||||||
Net loss | (2,228,828 | ) | (2,881,329 | ) | (3,548,159 | ) | (4,800,554 | ) | ||||||||
Net loss attributable to noncontrolling interests | (12,511 | ) | (22,848 | ) | (24,176 | ) | (40,350 | ) | ||||||||
Net loss attributable to Milestone Scientific Inc. | $ | (2,216,317 | ) | $ | (2,858,481 | ) | $ | (3,523,983 | ) | $ | (4,760,204 | ) |
Milestone Scientific earned gross profit of approximately $1.8 million and $5.7 million in the three and nineThree months ended SeptemberJune 30, 2017. Milestone Scientific earned gross profit of approximately $1.7 million and $5.3 million in the2023compared three and nine monthsmonths ended SeptemberJune 30, 2016. However, the revenues and related gross profits have not been sufficient to support overhead, new product introduction and research and development expenses.2022
The Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016Net sales for 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 2,912,166 | $ | 1,609,768 | $ | 1,302,398 | ||||||
Medical | (2,200 | ) | 38,600 | $ | (40,800 | ) | ||||||
Total sales, net | $ | 2,909,966 | $ | 1,648,368 | $ | 1,261,598 |
Total revenues
Gross marginU.S. E-commerce revenue for the three months ended SeptemberJune 30, 20172023 was 63%, which increased approximately $1.2 million. The Company recorded no revenue from 52%Henry Schein for the three months ended SeptemberJune 30, 2016.2023 compared to approximately $811,000 recorded for the three months ended June 30, 2022. Revenue from other U.S. distributors was approximately $214,000 for the three months ended June 30, 2023, an increase of $47,000 compared to June 30, 2022. For the three months ended June 30, 2023, international revenue was approximately $1.2 million, an increase of $588,000, compared to June 30, 2022. As of June 30, 2023 the Company, reported approximately $270,000 revenue from China, as compared to no revenue.
Gross Profit for 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 1,970,863 | $ | 1,083,603 | $ | 887,260 | ||||||
Medical | (80,804 | ) | (402,955 | ) | $ | 322,151 | ||||||
Total gross profit | $ | 1,890,059 | $ | 680,648 | $ | 1,209,411 |
Consolidated gross profit for the three months ended June 30, 2023 increased by $1.2 million or 178% compared to the same period in 2022. The increase in gross profit relateswas due to higher margins sales associated with the increase in US sales in 2017 which islaunch of the E-Commerce platform. The Company recorded approximately $91,000 for inventory that was offset by special pricing in China to facilitate an increase in market share.obsolete and or expired.
Selling, general and administrative expenses for 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 1,166,645 | $ | 683,428 | $ | 483,217 | ||||||
Medical | 772,810 | 1,181,009 | (408,199 | ) | ||||||||
Corporate | 1,997,826 | 1,417,885 | 579,941 | |||||||||
Total selling, general and administrative expenses | $ | 3,937,281 | $ | 3,282,322 | $ | 654,959 |
Consolidated selling, general and administrative expenses for the three months ended SeptemberJune 30, 20172023, and 20162022 were approximately $3.2$3.9 million versus $2.9and $3.3 million, respectively.respectively. The increase of approximately $272,000 predominantly due$655,000 is categorized in several areas. Employee salaries and benefits expenses increased approximately $148,000 for the three months ended June 30, 2023 compared to the additionalsame period in 2022. The Company increased quality control, regulatory, professional fees, and other selling, general and administrative expenses is resulting fromapproximately $478,000. With the completionlaunch of the clinical studies relating to Milestone Medical's epidural instruments in 2016 and Milestone Scientific initiatingE-Commerce platform marketing and sales efforts in the U.S. to establish the medical sector.
Research and developmentwarehousing expense increased for the three months ended SeptemberJune 30, 20172023, by approximately $58,000 compared to the same period in 2022. Royalty expenses increased approximately $63,000 for the three months ended June 30, 2023 compared to the same period in 2022. The Company decreased employee travel, by approximately $92,000 for the three months ended June 30, 2023, compared to the same period in 2022.
Research and 2016Development for2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 204,057 | $ | 236,260 | $ | (32,203 | ) | |||||
Medical | 9,590 | 30,300 | (20,710 | ) | ||||||||
Corporate | - | - | - | |||||||||
Total research and development | $ | 213,647 | $ | 266,560 | $ | (52,913 | ) |
Consolidated research and development expenses for the three months ended June 30, 2023 and 2022 were approximately $17,000 verse $303,000,$214,000 and $267,000, respectively. The decrease of approximately $286,000approximately $53,000 is predominantly duerelated to the completion ofCompany's progress in developing the clinical studies relating to Milestone Medical's epidural instruments in 2016.next generation STA Single Tooth Anesthesia System.
Profit (Loss) from Operationsfor 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 598,944 | $ | 163,022 | $ | 435,922 | ||||||
Medical | (863,899 | ) | (1,615,283 | ) | 751,384 | |||||||
Corporate | (2,012,595 | ) | (1,432,618 | ) | (579,977 | ) | ||||||
Total loss from operations | $ | (2,277,550 | ) | $ | (2,884,879 | ) | $ | 607,329 |
The loss from operations was approximately $2.3 million and $2.9 million for the three months ended SeptemberJune 30, 20172023 and 2016 was approximately $1.4 million, verse $1.6 million2022, respectively, a decrease of approximately $155,000. This$0.6 million. As stated above, the decrease in the loss from operations is primarily attributable todriven by higher dental sales, which offsets the completion of the clinical studies relating to Milestone Medical's epiduralhigher selling, general and intra articular instruments in 2016.administrative expenses during period.
NineSix months ended SeptemberJune 30, 2017 2023compared to Nine Months Ended Septembersix months endedJune 30, 20162022
Total revenuesNet sales for 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 5,503,564 | $ | 4,303,120 | $ | 1,200,444 | ||||||
Medical | 4,000 | 46,150 | $ | (42,150 | ) | |||||||
Total sales, net | $ | 5,507,564 | $ | 4,349,270 | $ | 1,158,294 |
Consolidated revenue for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022 was from dental revenues, were approximately $9.1$5.5 million and $9.0$4.3 million, respectively. Total revenues increased byrespectively, an increase of approximately 1% which$1.2 million. As of January 3, 2023, the Company launched an E-Commerce platform, selling and shipping the STA Single Tooth Anesthesia System® (STA) and handpieces directly to end users, including dental offices and dental groups, within the U.S. E-commerce's revenue for the six months ended June 30, 2023 was principally related to increased handpiece sales in theapproximately $2.2 million. The Company terminated its major United States domestic sales bydistributor, Henry Schein, as of December 31, 2022. The distributor had return rights through March 31, 2023 under the distribution contract. The Company recorded an allowance of approximately $179,000 for those returns at December 31, 2022. The allowance was reversed as of March 31, 2023. The Company recorded no revenue from Henry Schein for the six months ended June 30, 2023 compared to approximately $1.7 million in 2017recorded for the six months ended June 30, 2022. Revenue from other U.S. distributors was approximately $432,000 for the six months ended June 30, 2023, an increase of $161,000 compared to 2016. International sales in 2017 decreasedJune 30, 2022. For the six months ended June 30, 2023, international revenue was approximately $2.4 million, an increase of $403,000 compared to June 30, 2022. As of June 30,2023, the Company reported approximately $270,000 revenue from China, a decrease of $90,000 compared to June 30, 2022.
Gross Profit for 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 3,859,279 | $ | 2,761,265 | $ | 1,098,014 | ||||||
Medical | (80,597 | ) | (398,191 | ) | $ | 317,594 | ||||||
Total gross profit | $ | 3,778,682 | $ | 2,363,074 | $ | 1,415,608 |
Consolidated gross profit for the six months ended June 30, 2023 increased by approximately $1.6$1.4 million overor 60 % compared to the same period in 20162022. The increase was due to a reduction in shipments to Milestone China.higher margins sales associated with our the launch of E-Commerce platform. The reductions in shipments to Milestone China is due to Milestone China working throughCompany, recorded approximately $91,000 for inventory purchases from late 2016. However, we believe that the June 2016 exclusive distribution agreement with Henry Schein will continue to increase domestic sales in 2017 as the productwas obsolete and sales force training has been substantially completed as of September 30, 2017.or expired.
Gross margin for the nine months ended September 30, 2017 was 63%, which increased from 59% for the nine months ended September 30, 2016. The increase in gross profit relates to the increase in US sales in which was offset by special pricing in China to facilitate an increase in market share.
Selling, general and administrative expenses for 2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 2,283,209 | $ | 1,549,441 | $ | 733,768 | ||||||
Medical | 1,582,378 | 2,412,895 | (830,517 | ) | ||||||||
Corporate | 3,145,425 | 2,435,612 | 709,813 | |||||||||
Total selling, general and administrative expenses | $ | 7,011,012 | $ | 6,397,948 | $ | 613,064 |
Consolidated selling, general and administrative expenses for the ninesix months ended SeptemberJune 30, 20172023, and 20162022 were approximately $9$7.0 million versus $9.2and $6.4 million,, respectively. The decreaseincrease of approximately $230,000$613,000 is predominantly duecategorized in several areas. Employee salaries and benefits expenses decreased approximately $19,000 for the six months ended June 30, 2023 compared to the reductionsame period in 2022. The Company increased quality control, regulatory, professional fees, and other selling, general and administrative expenses resulting fromapproximately $486,000. With the completionlaunch of the clinical studies relatingE-Commerce platform marketing and warehousing expense increased for the six months ended June 30, 2023, by approximately $213,000 compared to Milestone Medical's epidural and intra articular instrumentsthe same period in 2016.2022. Royalty expenses increased approximately $53,000 for the six months ended June 30, 2023 compared to the same period in 2022. The Company decreased employee travel, by approximately $120,000 for the six months ended June 30, 2023, compared to the same period in 2022.
Research and Development for2023and 2022were as follows:
2023 | 2022 | Change | ||||||||||
Dental | $ | 332,800 | $ | 692,776 | $ | (359,976 | ) | |||||
Medical | 21,194 | 38,251 | (17,057 | ) | ||||||||
Corporate | - | - | - | |||||||||
Total research and development | $ | 353,994 | $ | 731,027 | $ | (377,033 | ) |
Consolidated research and development expenses for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 were approximately $242,000$354,000 and $756,000,$731,000, respectively. The decrease of approximately $377,000 is duerelated to reductionthe Company's progress in development cost associated with epidural developing the next generation STA Single Tooth Anesthesia System.
Profit (Loss) from Operationsfor 2023and intra articular instruments.2022were as follows:
Loss | 2023 | 2022 | Change | |||||||||
Dental | $ | 1,240,884 | $ | 517,262 | $ | 723,622 | ||||||
Medical | (1,685,832 | ) | (2,851,374 | ) | 1,165,542 | |||||||
Corporate | (3,175,278 | ) | (2,465,249 | ) | (710,029 | ) | ||||||
Total loss from operations | $ | (3,620,226 | ) | $ | (4,799,361 | ) | $ | 1,179,135 |
The loss from operations was approximately $3.6 million and $4.8 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016 was approximately $3.5million and $4.7 million,2022, respectively, a decrease of approximately $1.2 million. ThisAs stated above, the decrease in the loss from operations is primarily attributable todriven by higher dental sales, which offset the completion of the clinical studieshigher selling, general and reduced research and developmentadministrative expenses relating to our epidural and intra articular instruments in 2017 and gross profit.during period.
Liquidity and Capital Resources
At September 30, 2017, Milestone Scientific had cash and cash equivalents of approximately $2.3 million, total current assets of approximately $11.6 million and working capital of approximately $6.5 million. We believe that our cash on hand, accounts receivable and the anticipated revenues from the dental business will be sufficient to fund our business operations for at least the next 12 months from the filing date of this Form 10-Q.
Milestone Scientific continues to take positive steps to maintain adequate inventory levels and advances on contracts to maintain available inventory to meet our domestic and international sales requirements. For the nine months ended September 30, 2017 and 2016, our net cash used in operating activities was approximately $1.6 million and $4.1 million, respectively, which represents a decrease of approximately $2.5 million year over year.
Milestone Scientific has incurred annual operating losses and negative cash flows from operating activities since its inception. 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 and the medical business worldwide, and a reductionsreduction in operating expenses. On June 30, 2023, Milestone Scientific had cash and cash equivalents of approximately $3.7 million and working capital of approximately $7.4 million. As of June 30, 2023, the Company held approximately $2.0 million in U.S. treasury securities with maturities within 3 and 6 months of the balance sheet date. For the six months ended June 30, 2023 and June 30, 2022, we had cash flows used in operating activities of approximately $3.0 million and $3.8 million, respectively. Management believes that the Company will havehas sufficient cash, along with the current cash flow and liquiditysupport from the dental business to meet its anticipated obligationsmitigate the expected selling expenditures for commercialization of the Epidural medical device, as well as other operating expenditures and planned new product development programs, over the next twelve-month period followingtwelve months from the filing date of this report.
Milestone Scientific believes that the FDA clearance of its 510(k) application with respect to the CompuFlo® Epidural Computer Controlled Anesthesia will provide Milestone Scientific with the opportunity to enter the US medical device market and generate revenues in the future. Milestone Scientific believes that it has sufficient inventory of the epidural instruments to satisfy the near term marketing opportunities.
Our condensed consolidated balance sheets included in this Report reflects a decrease of approximately $1.8 million in current assets from December 31, 2016 to September 30, 2017. This decrease in current assets was primarily due to a reduction in cash, accounts receivable from related parties, deferred cost, other receivables and inventory of approximately $4 million. This was offset by an increase in accounts receivable, advances on contracts, note receivable and prepaid expenses and other current assets of an aggregate of approximately $2.2 million.
Current liabilities decrease by approximately $591,000 from approximately $5.6 million to approximately $5.1 million. The decrease is primarily due to a decrease in accounts payable of approximately $725,000, accounts payable related party of approximately $333,000, deferred revenue of approximately $289,000 offset by an increase in deferred profit China of approximately $29,000, and an increase in accrued expenses of approximately $727,000.
Subsequent Events
On October 5, 2017, Milestone Scientific announced that Daniel Goldberger had resigned as President and Chief Executive Officer effective October 2, 2017.
On October 5, 2017, Milestone Scientific also announced the appointment of Leslie Bernhard, the Company’s current Chairman of the Board, as the Company’s Interim Chief Executive Officer, to serve in such role until the appointment of a new Chief Executive Officer.
In connection with her appointment to serve as the Company’s Interim Chief Executive Officer, Ms. Bernhard will be paid an annual salary of $200,000 and receive a one-time bonus of 100,000 shares of the Company’s Common Stock. In addition, at the completion of her service as Interim Chief Executive Officer, Ms. Bernhard shall be entitled to receive a cash bonus in an amount to be determined by the Board of Directors at that time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Milestone Scientific is a “smaller“smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Milestone Scientific’s InterimScientific’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of Milestone Scientific’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, Milestone Scientific’s Interim Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures as of SeptemberJune 30, 20172023 are effective to ensure that information required to be disclosed in the reports Milestone Scientific files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Milestone Scientific's management, including the Interim Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There werehave been no changes in Milestone Scientific’s internal control over financial reporting identified in connection with the evaluation that occurred during Milestone Scientific’s last fiscalthe quarter ended SeptemberJune 30, 20172023 that have materially affected, or that are reasonably likely to materially affect, Milestone Scientific’s internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEMItem 1A. RISK FACTORS Risk Factors
As a smaller reporting company, we are not requiredThere have been no material changes to provide the information required by this Item.risk factors previously disclosed in Part I, Item 1A, of our 2022 Annual Report.
Item1B. Unresolved Staff Comments
None.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
RecentUnregistered Sales of UnregisteredEquity Securities
In the quarter ended September 30, 2017, Milestone Scientific issued a total and use of 352,015 shares of its common stock as follows:
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proceedsIn addition, as of July 13, 2017, pursuant to the Asset Purchase Agreement with APAD Octrooi B.V. and APAD B.V. (collectively, the “Sellers”), Milestone Scientific issued an aggregate of 1,646,358 shares of its common stock to the Sellers in consideration for certain patent rights and other intellectual property rights related to the Sellers’ computer controlled injection instrument.
The foregoing shares were issued in reliance upon the exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Act"), pursuant to Sections 4(a)(2), Section 4(a)(5) and/or Regulation D promulgated thereunder. A legend restricting resale, transfer, or other disposition of these shares other than in compliance with the Act was imprinted on the stock certificates evidencing such shares.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATIONItem3. Default upon Senior Securities
None.Not applicable.
Item4. Mine Safety Disclosure
Not applicable.
Item5. Other Information
Not applicable.
Item 6. Exhibits and Financial Statement Schedules
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31.1 | ||
31.2 |
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32.2 |
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101.INS | Inline XBRL Instance | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
| Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished herewith and not filed, in accordance with |
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SIGNATURES
Incorporated herein by reference to the Current Report on Form 8-K filed with the Securities and Commission on July 11, 2017.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MILESTONE SCIENTIFIC INC. | ||
/s/ | ||
Arjan Haverhals |
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(Principal Executive Officer) | ||
/s/ | ||
Peter Milligan |
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Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
Date: August 14, 2023 |
Date: November 14, 2017
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