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 quarterly period ended September 30, 2015March 31, 2016
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-14053
MILESTONE SCIENTIFIC INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-3545623 |
(State or other jurisdiction of |
| (I.R.S. Employer |
220 South Orange Avenue, Livingston, New Jersey 07039
(Address of principal executive offices)
(973) 535-2717
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $.001 per share | NYSE MKT LLC |
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xoYes ¨þ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xoYes ¨þ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.þ Yes £ No
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨o Yes xþ No
As of November 12, 2015,May 16, 2016, the Issuer had a total of 21,478,24821,687,164 shares of Common Stock, $.001 par value, outstanding.
TABLE OF CONTENTS
Item 1. Financial Statements |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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| PART II—OTHER INFORMATION |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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2
When used in this Quarterly Report on Form 10-Q, the words “may”, “will”, “should”, “expect”, “believe”, “anticipate”, “continue”, “estimate”, “project”, “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends that may affect Milestone Scientific’s future plans of operations, business strategy, results of operations and financial condition. Milestone Scientific wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. 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 and registration statements filed with the Securities and Exchange Commission (the “SEC”). Milestone Scientific disclaims any intent or obligation to update such forward-looking statements.
Milestone Scientific has rights to the following trademarks: CompuDent®, CompuMed®, CompuFlo®, The Wand®, The Wand Plus®, The SafetyWand®, Dynamic Pressure Sensing Technology®, and STA Single Tooth Anesthesia™, (STA Instrument, instruments and handpieces), Ionic White® (light emitting diode), and Ionic White™ (whitening toothpaste).
3
MILESTONE SCIENTIFICSCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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| September 30, 2015 |
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| December 31, 2014 |
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| March 31, 2016 |
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| December 31, 2015 |
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| (Unaudited) |
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| (Audited) |
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| (unaudited) |
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| (audited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
| $ | 4,390,783 |
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| $ | 10,367,993 |
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| $ | 2,671,778 |
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| $ | 4,194,384 |
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Accounts receivable, net of allowance for doubtful accounts of $5,000 as of September 30, 2015 and December 31, 2014 |
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| 2,349,347 |
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| 1,541,478 |
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Due from related party |
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| 85,959 |
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| — |
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Note receivable-Milestone Medical Inc |
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| 2,000,000 |
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| — |
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Accounts receivable, net of allowance for doubtful accounts of $5,000 as of March 31, 2016 and December 31, 2015 |
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| 2,269,154 |
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| 1,793,801 |
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Other receivable |
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| 58,140 |
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| 58,140 |
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Inventories |
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| 2,804,906 |
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| 2,497,099 |
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| 3,898,237 |
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| 4,258,094 |
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Advances on contracts |
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| 1,211,926 |
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| 721,197 |
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| 1,253,645 |
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| 1,215,128 |
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Prepaid expenses and other current assets |
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| 428,570 |
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| 454,566 |
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| 505,336 |
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| 304,604 |
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Total current assets |
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| 13,271,491 |
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| 15,582,333 |
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| 10,656,290 |
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| 11,824,151 |
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Investment in Milestone Medical Inc |
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| — |
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| 888,720 |
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Investment in Milestone Education LLC |
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| 18,700 |
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| 24,192 |
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| - |
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| 16,346 |
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Investment in Milestone China |
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| 161,588 |
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| 348,651 |
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Furniture, fixtures & equipment net of accumulated depreciation of $437,024 as of September 30, 2015 and $416,210 as of December 31, 2014 |
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| 115,616 |
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| 88,818 |
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Patents, net of accumulated amortization of $628,953 as of September 30, 2015 and $576,960 as of December 31, 2014 |
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| 480,021 |
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| 530,029 |
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Furniture, fixtures & equipment net of accumulated depreciation of $589,703 as of March 31, 2016 and $566,477 as of December 31, 2015 |
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| 220,892 |
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| 235,935 |
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Patents, net of accumulated amortization of $663,926 as of March 31, 2016 and $646,388 as of December 31, 2015 |
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| 712,448 |
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| 715,540 |
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Other assets |
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| 17,355 |
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| 14,685 |
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| 17,355 |
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| 17,355 |
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Total assets |
| $ | 14,064,771 |
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| $ | 17,477,428 |
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| $ | 11,606,985 |
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| $ | 12,809,327 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
| $ | 780,934 |
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| $ | 1,453,908 |
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| $ | 1,866,352 |
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| $ | 2,088,268 |
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Accrued expenses and other payables |
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| 1,350,853 |
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| 981,168 |
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| 1,375,171 |
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| 1,555,567 |
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Total current liabilities |
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| 2,131,787 |
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| 2,435,076 |
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| 3,241,523 |
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| 3,643,835 |
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Commitments and Contingencies |
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Stockholders’ Equity |
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Series A convertible preferred stock, par value $.001, authorized 5,000,000 shares, 7,000 shares issued and outstanding, respectively |
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| 7 |
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| 7 |
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| 7 |
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| 7 |
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Common stock, par value $.001; authorized 50,000,000 shares; 21,478,248 shares issued, 963,451 shares to be issued and 21,444,915 shares outstanding as of September 30, 2015; 21,404,494 shares issued, 974,953 shares to be issued and 21,371,161 shares outstanding as of December 31, 2014 |
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| 22,442 |
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| 22,380 |
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Common stock, par value $.001; authorized 50,000,000 shares; 21,720,497 shares issued, 1,100,405 shares to be issued and 21,687,164 shares outstanding as of March 31, 2016; 21,720,497 shares issued, 963,451 shares to be issued and 21,687,164 shares outstanding as of December 31, 2015 |
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| 22,821 |
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| 22,685 |
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Additional paid-in capital |
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| 78,016,152 |
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| 77,504,415 |
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| 79,076,752 |
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| 78,632,383 |
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Accumulated deficit |
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| (66,028,987 | ) |
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| (61,967,462 | ) |
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| (68,185,043 | ) |
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| (67,434,984 | ) |
Treasury stock, at cost, 33,333 shares |
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| (911,516 | ) |
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| (911,516 | ) |
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| (911,516 | ) |
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| (911,516 | ) |
Total stockholders' equity |
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| 11,098,098 |
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| 14,647,824 |
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Total Milestone Scientific Inc. stockholders' equity |
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| 10,003,021 |
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| 10,308,575 |
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Noncontrolling interest |
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| 834,886 |
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| 394,528 |
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| (1,637,559 | ) |
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| (1,143,083 | ) |
Total Equity |
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| 11,932,984 |
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| 15,042,352 |
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| 8,365,462 |
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| 9,165,492 |
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Total liabilities and stockholders’ equity |
| $ | 14,064,771 |
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| $ | 17,477,428 |
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| $ | 11,606,985 |
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| $ | 12,809,327 |
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The following table includes assets to settle liabilities of the consolidated variable interest. These assets and liabilities are included in the consolidated balance sheet above. |
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Assets: |
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Cash and cash equivalents |
| $ | 72,967 |
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| $ | 1,222 |
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Accounts receivable |
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| 45,075 |
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| 45,075 |
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Inventories |
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| 875,974 |
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| 885,961 |
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Advances on contracts |
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| 44,148 |
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| 43,524 |
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Furniture, fixtures & equipment net of accumulated depreciation |
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| 107,403 |
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| 119,007 |
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Liabilities: |
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Accounts payable |
| $ | 426,993 |
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| $ | 461,292 |
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Accrued expenses and other payables |
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| 324,815 |
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| 354,361 |
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See Notes to Condensed Consolidated Financial Statements
4
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| Three Months Ended March 31, |
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| 2015 |
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| 2014 |
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| 2015 |
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| 2014 |
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| 2016 |
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| 2015 |
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Product sales, net |
| $ | 2,459,958 |
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| $ | 2,535,098 |
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| $ | 6,996,921 |
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| $ | 7,662,864 |
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| $ | 3,569,374 |
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| $ | 2,770,204 |
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Cost of products sold |
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| 794,285 |
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| 829,546 |
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| 2,298,162 |
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| 2,624,950 |
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| 1,368,190 |
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| 933,148 |
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Gross profit |
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| 1,665,673 |
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| 1,705,552 |
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| 4,698,759 |
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| 5,037,914 |
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| 2,201,184 |
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| 1,837,056 |
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Selling, general and administrative expenses |
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| 2,480,354 |
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| 1,838,388 |
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| 6,969,332 |
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| 4,749,112 |
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| 3,001,130 |
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| 1,898,081 |
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Research and development expenses |
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| 20,676 |
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| 29,370 |
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| 49,616 |
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| 74,254 |
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| 143,442 |
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| 10,118 |
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Total operating expenses |
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| 2,501,030 |
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| 1,867,758 |
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| 7,018,948 |
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| 4,823,366 |
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| 3,144,572 |
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| 1,908,199 |
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(Loss) income from operations |
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| (835,357 | ) |
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| (162,206 | ) |
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| (2,320,189 | ) |
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| 214,548 |
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Other income (expenses) |
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| (632 | ) |
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| - |
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| (632 | ) |
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| - |
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Interest income (expense) |
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| (411 | ) |
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| 755 |
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| (329 | ) |
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| 916 |
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Loss on earnings from Milestone Medical Inc. |
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| (590,612 | ) |
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| (223,834 | ) |
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| (1,566,711 | ) |
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| (567,550 | ) | ||||||||
Income (loss) on earnings from Education Joint Venture |
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| 2,343 |
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| (2,633 | ) |
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| (5,493 | ) |
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| (10,455 | ) | ||||||||
Loss on earnings from China Joint Venture |
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| (123,083 | ) |
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| 29,428 |
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| (187,062 | ) |
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| 29,428 |
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Loss from operations |
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| (943,388 | ) |
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| (71,143 | ) | ||||||||||||||||
Interest expense |
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| (1,237 | ) |
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| - |
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Interest income |
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| 302 |
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| 1,210 |
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Total other expenses, net |
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| (712,395 | ) |
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| (196,284 | ) |
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| (1,760,227 | ) |
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| (547,661 | ) |
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| (935 | ) |
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| 1,210 |
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Loss before provision for income taxes |
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| (1,547,752 | ) |
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| (358,490 | ) |
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| (4,080,416 | ) |
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| (333,113 | ) | ||||||||
Provision for Income Tax |
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| (27,105 | ) |
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| — |
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| (40,751 | ) |
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| — |
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Loss before provision for income tax and equity in net earnings of equity investments |
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| (944,323 | ) |
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| (69,933 | ) | ||||||||||||||||
Provision for income tax |
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| (46,834 | ) |
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| - |
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Loss before equity in net earnings of equity investments |
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| (991,157 | ) |
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| (69,933 | ) | ||||||||||||||||
Loss on earnings from Milestone Medical |
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| - |
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| (450,160 | ) | ||||||||||||||||
Loss on earnings from Education Joint Venture |
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| - |
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| (4,215 | ) | ||||||||||||||||
(Loss) Gain on earnings from China Joint Venture |
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| (269,726 | ) |
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| 96,674 |
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Loss in equity investments |
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| (269,726 | ) |
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| (357,701 | ) | ||||||||||||||||
Net Loss |
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| (1,574,857 | ) |
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| (358,490 | ) |
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| (4,121,167 | ) |
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| (333,113 | ) |
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| (1,260,883 | ) |
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| (427,634 | ) |
Net loss attributable to the noncontrolling interests |
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| 5,655 |
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| — |
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| 59,642 |
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| — |
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Net loss attributable to noncontrolling interests |
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| 510,824 |
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| 8,259 |
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Net loss attributable to Milestone Scientific Inc. |
| $ | (1,569,202 | ) |
| $ | (358,490 | ) |
| $ | (4,061,525 | ) |
| $ | (333,113 | ) |
| $ | (750,059 | ) |
| $ | (419,375 | ) |
Net loss per share applicable to common stockholders— |
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Basic |
| $ | (0.07 | ) |
| $ | (0.02 | ) |
| $ | (0.19 | ) |
| $ | (0 | ) |
| $ | (0.03 | ) |
| $ | (0.02 | ) |
Diluted |
| $ | (0.07 | ) |
| $ | (0.02 | ) |
| $ | (0.19 | ) |
| $ | (0 | ) |
| $ | (0.03 | ) |
| $ | (0.02 | ) |
Weighted average shares outstanding and to be issued— |
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Basic |
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| 21,418,145 |
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| 21,189,245 |
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| 21,375,317 |
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| 19,621,471 |
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| 22,609,349 |
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| 21,919,616 |
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Diluted |
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| 21,418,145 |
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| 21,189,245 |
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| 21,375,317 |
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| 19,621,471 |
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| 22,609,349 |
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| 21,919,616 |
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See Notes to Condensed Consolidated Financial Statements
5
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
NINETHREE MONTHS ENDED SEPTEMBER 30, 2015MARCH 31, 2016
(Unaudited)
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| Preferred Stock |
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| Common Stock |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Additional Paid-in Capital |
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| Accumulated Deficit |
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| Noncontrolling interest |
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| Treasury Stock |
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| Total |
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Balance, January 1, 2015 |
|
| 7,000 |
|
| $ | 7 |
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|
| 22,379,447 |
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| $ | 22,380 |
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| $ | 77,504,415 |
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| $ | (61,967,462 | ) |
| $ | 394,528 |
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| $ | (911,516 | ) |
| $ | 15,042,352 |
|
Stock based compensation |
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|
|
| — |
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|
| — |
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|
| 334,049 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 334,049 |
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Capital contribution from noncontrollling interest |
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|
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|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
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|
| 500,000 |
|
|
| — |
|
|
| 500,000 |
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Common stock to be issued to employee for bonuses |
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|
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|
|
|
|
|
| 28,653 |
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|
| 29 |
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|
| 99,971 |
|
|
| — |
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|
|
|
|
|
| — |
|
|
| 100,000 |
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Common stock issued to employee for bonuses |
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|
|
|
|
|
|
|
|
| 7,407 |
|
|
| 7 |
|
|
| 19,993 |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| 20,000 |
|
Common stock issued for payment of consulting services |
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|
|
|
|
|
|
|
|
| 12,098 |
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|
| 12 |
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|
| 29,988 |
|
|
| — |
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|
|
|
|
|
| — |
|
|
| 30,000 |
|
Common stock issued for payment of employee compensation |
|
|
|
|
|
|
|
|
|
| 5,761 |
|
|
| 6 |
|
|
| 14,994 |
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|
| — |
|
|
|
|
|
|
| — |
|
|
| 15,000 |
|
Exercise of stock options for consultants |
|
|
|
|
|
|
|
|
|
| 8,333 |
|
|
| 8 |
|
|
| 12,742 |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| 12,750 |
|
Net loss |
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,061,525 | ) |
|
| (59,642 | ) |
|
| — |
|
|
| (4,121,167 | ) |
Balance, September 30, 2015 |
|
| 7,000 |
|
| $ | 7 |
|
|
| 22,441,699 |
|
| $ | 22,442 |
|
| $ | 78,016,152 |
|
| $ | (66,028,987 | ) |
| $ | 834,886 |
|
| $ | (911,516 | ) |
| $ | 11,932,984 |
|
|
| Preferred Stock |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Accumulated Deficit |
|
| Noncontrolling interest |
|
| Treasury Stock |
|
| Total |
| |||||||||
Balance, January 1, 2016 |
|
| 7,000 |
|
| $ | 7 |
|
|
| 22,685,160 |
|
| $ | 22,685 |
|
| $ | 78,632,383 |
|
| $ | (67,434,984 | ) |
| $ | (1,143,083 | ) |
| $ | (911,516 | ) |
| $ | 9,165,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of Milestone Education |
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,348 |
|
| - |
|
|
| 16,348 |
| ||||
Stock based compensation |
| - |
|
| - |
|
| - |
|
| - |
|
|
| 134,505 |
|
| - |
|
| - |
|
| - |
|
|
| 134,505 |
| |||||||
Common stock to be issued to employee for bonuses |
|
|
|
|
|
|
|
|
|
| 136,954 |
|
|
| 136 |
|
|
| 309,864 |
|
| - |
|
| - |
|
| - |
|
|
| 310,000 |
| |||
Net loss |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
| (750,059 | ) |
|
| (510,824 | ) |
| - |
|
|
| (1,260,883 | ) | ||||||
Balance, March 31, 2016 |
|
| 7,000 |
|
| $ | 7 |
|
|
| 22,822,114 |
|
| $ | 22,821 |
|
| $ | 79,076,752 |
|
| $ | (68,185,043 | ) |
| $ | (1,637,559 | ) |
| $ | (911,516 | ) |
| $ | 8,365,462 |
|
See Notes to Condensed Consolidated Financial Statements
6
MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
| 2015 |
|
| 2014 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (4,121,167 | ) |
| $ | (333,113 | ) |
Adjustments to reconcile net loss to net cash (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
| 20,815 |
|
|
| 12,124 |
|
Amortization of patents |
|
| 51,994 |
|
|
| 58,778 |
|
Common stock and options for compensation, consulting and vendor services |
|
| 499,049 |
|
|
| 324,279 |
|
Equity loss on Milestone Medical Inc. |
|
| 1,566,711 |
|
|
| 567,550 |
|
Equity loss on Education joint venture |
|
| 5,493 |
|
|
| 10,455 |
|
Equity earning on China joint venture |
|
| 187,062 |
|
|
| (29,428 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
| (807,869 | ) |
|
| (91,489 | ) |
Increase in related party |
|
| (85,959 | ) |
|
| - |
|
Increase in inventories |
|
| (307,807 | ) |
|
| (919,814 | ) |
(Increase) decrease to advances on contracts |
|
| (490,729 | ) |
|
| 996,949 |
|
(Increase) decrease to prepaid expenses and other current assets |
|
| 25,996 |
|
|
| (114,807 | ) |
Increase in other assets |
|
| (2,670 | ) |
|
| — |
|
Decrease in accounts payable |
|
| (672,974 | ) |
|
| (629,479 | ) |
Increase in customer advances |
|
| — |
|
|
| 49,441 |
|
Increase in accrued expenses and other payables |
|
| 369,685 |
|
|
| 95,194 |
|
Net cash used in operating activities |
|
| (3,762,370 | ) |
|
| (3,360 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Notes receivable to Milestone Medical Inc |
|
| (2,000,000 | ) |
|
| — |
|
Advances to related parties |
|
| (677,991 | ) |
|
| (398,810 | ) |
Addition to intangible assets |
|
| (1,986 | ) |
|
| - |
|
Purchases of property and equipment |
|
| (47,613 | ) |
|
| (66,130 | ) |
Net cash used in investing activities |
|
| (2,727,590 | ) |
|
| (464,940 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
| 12,750 |
|
|
| 202,781 |
|
Net proceeds on Private Placement Offering in May 2014 |
|
| — |
|
|
| 9,449,683 |
|
Repayment of related party loan |
|
| — |
|
|
| (50,000 | ) |
Capital contribution from noncontrolling interest |
|
| 500,000 |
|
|
| — |
|
Net cash provided by financing activities |
|
| 512,750 |
|
|
| 9,602,464 |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| (5,977,210 | ) |
|
| 9,134,164 |
|
Cash and cash equivalents at beginning of period |
|
| 10,367,993 |
|
|
| 1,147,198 |
|
Cash and cash equivalents at end of period |
| $ | 4,390,783 |
|
| $ | 10,281,362 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Shares issued to directors for the exercise of stock options |
| $ | — |
|
| $ | 41,250 |
|
Shares issued to directors for compensation |
| $ | — |
|
| $ | 55,200 |
|
Shares to be issued to employees for bonuses |
| $ | 100,000 |
|
| $ | — |
|
Shares issued to employees for exercise of stock options |
| $ | — |
|
| $ | 104,615 |
|
Shares issued to employees in lieu of cash compensations |
| $ | 42,500 |
|
| $ | 35,624 |
|
Shares issued to consultants for exercise of stock options |
| $ | 60,000 |
|
| $ | 199,500 |
|
Net proceeds on Private Placement Offering |
| $ | — |
|
| $ | 56,916 |
|
|
| March 31, 2016 |
|
| March 31, 2015 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,260,883 | ) |
| $ | (427,634 | ) |
Adjustments to reconcile net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
| 22,786 |
|
|
| 5,791 |
|
Amortization of patents |
|
| 17,538 |
|
|
| 17,323 |
|
Common stock and options for compensation, consulting and vendor services |
|
| 444,505 |
|
|
| 82,124 |
|
Equity loss on Milestone Medical |
|
| - |
|
|
| 450,160 |
|
Equity loss on Education joint venture |
|
| - |
|
|
| 4,215 |
|
Equity loss (gain) on China joint venture |
|
| 164,837 |
|
|
| (96,674 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
| (475,351 | ) |
|
| (101,460 | ) |
Increase in other receivable |
|
| - |
|
|
| (268,914 | ) |
Increase in inventories |
|
| 359,857 |
|
|
| 468,891 |
|
(Increase) decrease to advances on contracts |
|
| (38,517 | ) |
|
| (236,644 | ) |
(Increase) decrease to prepaid expenses and other current assets |
|
| (200,732 | ) |
|
| - |
|
(Increase) decrease in other assets |
|
| - |
|
|
| (224,393 | ) |
Increase (decrease) in accounts payable |
|
| (237,853 | ) |
|
| - |
|
Increase in accrued expenses and other payables |
|
| (185,313 | ) |
|
| (353,976 | ) |
Net cash used in operating activities |
|
| (1,389,126 | ) |
|
| (681,191 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Notes receivable from Milestone Medical |
|
| - |
|
|
| (200,000 | ) |
Due from related party |
|
| - |
|
|
| (184,589 | ) |
Investment in Milestone Medical |
|
| - |
|
|
| (68,387 | ) |
Investment in China Joint Venture |
|
| (164,837 | ) |
|
| - |
|
Purchases of intangible assets |
|
| (14,442 | ) |
| - |
| |
Purchases of property and equipment |
|
| (4,822 | ) |
|
| (2,421 | ) |
Cash acquired from variable interest entity |
|
| 50,621 |
|
|
| - |
|
Net cash used in investing activities |
|
| (133,480 | ) |
|
| (455,397 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Capital contribution from noncontrolling interest |
|
| - |
|
|
| 100,000 |
|
Net cash provided by investing activities |
|
| - |
|
|
| 100,000 |
|
Net decrease in cash and cash equivalents |
|
| (1,522,606 | ) |
|
| (1,036,588 | ) |
Cash and cash equivalents at beginning of period |
|
| 4,194,384 |
|
|
| 10,367,993 |
|
Cash and cash equivalents at end of period |
| $ | 2,671,778 |
|
| $ | 9,331,405 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Net Assets Acquired from Variable Interest Entity |
|
| 20,472 |
|
|
| - |
|
Shares issued to employees in lieu of cash compensations |
| $ | 310,000 |
|
| $ | - |
|
See Notes to Condensed Consolidated Financial Statements
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Milestone Scientific Inc. and subsidiarySubsidiaries, (collectively “Milestone Scientific”, “our”, “us” or “we”) was incorporated in the stateState of Delaware in August 1989. Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery instrument, through the use of The Wand®, a single use disposable handpiece. The instrument is marketed in dentistry under the trademark CompuDent®,Wand Plus® and STA (Single Tooth Anesthesia) TMand in medicine under the trademark CompuMed®. CompuDent® is suitable for all dental procedures that require local anesthetic. CompuMed® and Wand Plus are 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 instruments are sold in the United States and in over 47 countries abroad. Milestone Scientific’s products are manufactured by a third-party contract manufacturer.
In July 2014, Milestone Scientific acquired all of the 750,000 outstanding shares of an inactive Florida corporation and changed its name to Wand Dental, Inc. (“Wand Dental”). In September 2014, that corporation was merged into a Delaware corporation, retaining the same name and capitalization. On July 1, 2014, Wand Dental was capitalized with cash and received Milestone Scientific’s dental business and related dental assets including the exclusive license of Milestone Scientific’s, patents, trademarks, and technology for use in the dental marketplace. Wand Dental is consolidated into Milestone Scientific.
The unaudited consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 20142015 included in Milestone Scientific’sScientific Annual Report on Form 10-K.
On June 1, 2015, Milestone Scientific up-listed to the NYSE MKT under the ticker symbol MLSS.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present Milestone Scientific’s financial position as of September 30, 2015March 31, 2016 and the results of its operations for the three and nine months then ended.
The results reported for the three and nine months ended September 30, 2015March 31, 2016 are not necessarily indicative of the results of operations which may be expected for a full year.
Milestone Scientific has incurred significant operating losses since its inception except for 2013 and the first quarter of 2014. Milestone Scientific had negative cash flows from operating activities since its inception, except for the nine months ending September 30, 2015 of $3816,480 and a negative cash flow of $3,360 for the nine months ended September 30, 2014. At September 30, 2015,2013. Milestone Scientific had cashis actively pursuing the generation of revenue, positive operating income and cash equivalents of $4,390,783net income. The capital raised in May 2014, provided Milestone Scientific with the opportunity to continue to develop and a positive working capital of $11,139,704 as compared to working capital of $13,147,257 at December 31, 2014. The working capital decreased by $2,007,553 as compared to December 31, 2014. The change in working capital is primarily due to a decrease in cashcommercialize additional medical instruments and cash equivalents, increase in accounts receivable, note receivable, inventories, and advances on contract and a decrease in current liabilities. Milestone Scientific’s management continues to examine all areas ofaggressively market the business to manage its cash flow.dental instruments throughout the world. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue based upon management’s assessment of present contracts and current negotiations and reductions in operating expenses.
As of September 30, 2015,March 31, 2016 Milestone Scientific believes that itwith the new distribution agreement with Henry Schein Inc. (effective January 1, 2016), the world’s largest supplier of medical, dental and veterinary supplies and devices, that dental revenue is projected to improve in the upcoming 12 months. To further reduce our expenditures, Milestone Medical’s expenses related to USA FDA clearance for the epidural and intra-articular instruments can be controlled as required to meet Milestone Scientific’s budget. Milestone Scientific has completed a detailed cash flow projection for the upcoming 12 months and has concluded that by limiting the FDA related expenses and increasing the dental instrument revenue through the new distribution agreement, management believes that Milestone Scientific will have sufficient cash reserves collections of accounts and notes receivable to meet all of its anticipated obligations forover the next twelve months. Milestone Scientific will continue to manage its cash position while taking strategic steps to expand its business in the medical and dental, business sectors.
8
NOTE -1– 1 SUMMARY OF ACCOUNTING POLICIES
1. | Principles of Consolidation |
The accompanying consolidated financial statementsstatement have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accountaccounts of Milestone Scientific and its wholly owned subsidiaryand majority owned subsidiaries, including Wand Dental, as well as Milestone Medical Inc. Additionally, the consolidated financial statements include the account of(“Milestone Medical”) and Milestone Education LLC (“Milestone Education”), both variable interest entities for which Milestone Scientific Advanced Cosmetic System, Inc. (“ACS”), a Delaware corporation that is seventy (70) percent owned by Milestone Scientific. The minority interest (thirty percent) in ACS is recorded in the equity section of the consolidated financial statements as noncontrolling interest.primary beneficiary. All significant, intercompanyintra-entity transactions and balances have been eliminated in the consolidation.
2. | Variable Interest Entities |
A Variable Interest Entity (VIE) is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE.
ACS was organized in July 2014 by Milestone China (defined below) which is 40% owned by Milestone Scientific. ACS is owned fifty percent by Milestone China and fifty percent by Milestone Scientific. Milestone China has provided $900,000 of cash andIf Milestone Scientific provided a royalty-free licensedetermines that it has operating power and the obligation to utilize its technology to develop a Botox instrument.absorb losses or receive benefits, Milestone Scientific will also provideconsolidates the resourcesVIE as the primary beneficiary, and if not, does not consolidate. Milestone Scientific’s involvement constitutes power that is most significant to design and commercialize the instrument at cost. Through attributionentity when it has unconstrained decision making ability over key operational functions within the entity
Assets recognized as a result of consolidating VIEs do not represent additional assets that could be used to satisfy claims against Milestone Scientific owns seventy percentScientific’s general assets. Conversely, liabilities recognized as a result of ACS.consolidating these VIEs do not represent additional claims on Milestone Scientific’s general assets; rather, they represent claims against the specific assets of the consolidated VIEs.
Milestone Scientific Inc. Poland SP z.o.o. an inactive Polish company was formedis the primary beneficiary of Milestone Medical, and Milestone Education, as variable interest entities. Accordingly, the assets and liabilities of Milestone Medical and Milestone Education are included in 2014. the accompanying consolidated financial statements. Please refer to Note 4 for further details regarding the treatment of the variable interest entity.
3. | Cash and Cash Equivalents |
Milestone Scientific Inc. owns seventy-five percentconsiders all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
4. | Accounts Receivable |
Milestone Scientific Inc. Poland SP z.o.o.
8
The realization of accounts receivable will havesells a significant impactamount 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 reported by Milestone Scientific. The criteria used by management to evaluate
5. | Product Return and Warranty |
Milestone Scientific does not accept non-defective returns from its customers. Product returns under warranty are accepted, evaluated and repaired or replaced in accordance with the adequacy ofWarranty Policy. Returns not within the allowance for doubtful accounts included, among others, credit worthiness ofWarranty Policy are evaluated and the customer current trends, prior payment performance,is charged for the age of the receivables and Milestone Scientific’s overall historical experience.repair.
6. | Inventories |
Inventories
Inventory costing, obsolescence and physical control are significant to the on-going operation of the business. 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.
Investment
9
Investments in Milestone Medical
In March 2011, Milestone Scientific entered into a joint venture (the “Medical Joint Venture”) with Beijing 3H Scientific Technology Co., Ltd. (“Beijing 3H”), a People’s Republic of China (“PRC”) Company. Milestone Scientific contributed an exclusive worldwide royalty-free licensewhich we have the ability to exercise significant influence, but do not control, are accounted for the development and commercialization of intra-articular and epidural drug delivery instruments, utilizing its patented CompuFlo technology to the Medical Joint Venture, and a group of individual investors including the controlling shareholders of Beijing 3H and a large shareholder of Milestone Scientific, who contributed $1.5 million. Milestone Scientific, with the consent of the investors, organized a domestic research and development joint venture corporation, now known as Milestone Medical Inc. (“formally Medical Joint Venture”). In the fourth quarter of 2014, the joint venture agreement with Beijing 3H was terminated. However, Milestone Medical has continued to implement its business plan. As of September 30, 2015, Milestone Scientific owned 49.98% of the Milestone Medical and has recorded the investment usingunder the equity method of accounting.accounting and are included in the long term assets on the Consolidated Balance Sheet. Under this method of accounting, our share of the net earnings or losses of the investee is presented below the income tax line on the Consolidated Statement of Operations since the activities of the investee are not closely aligned with the operations of Milestone Scientific. We evaluate our 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.
Investment
8. | 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.
9. | Intangible Assets - Patents |
Patents are recorded at cost to prepare and file the applicable documents with the United States Patent Office, or internationally with the applicable governmental office in Milestone China
In July 2014,the respective country. Although certain patents have not yet been approved, the costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. If the applicable patent application is ultimately rejected, the remaining unamortized balance will be expensed in the period in which Milestone Scientific agreedreceives a notice of such rejection. Patent applications filed and patents obtained in foreign countries are subject to invest $1.0 millionthe laws and procedures that differ from those in the United States. Patent protection in foreign countries may be different from patent protection under United States laws and may not be favorable to Milestone Scientific Milestone Scientific also attempts to protect the proprietary information through the contributionuse of 772 STA instruments for a 40% ownership in Milestone China Ltd., a Hong Kong based medicalconfidentiality agreements and dental distribution company (“Milestone China”). In 2014, 772 STA instruments were shippedby limiting access to the facilities. There can be no assurance that the program of patents, confidentiality agreements and recorded at Milestone Scientific’s cost inrestricted access to the investment account for Milestone China onfacilities will be sufficient to protect the Balance Sheet. Milestone China will purchase STA instruments and handpieces on credit terms as required. Milestone China began operations in July 2014.proprietary technology.
10. | Impairment of Long-Lived Assets |
Impairment of Long-Lived Assets
The long lived assets of Milestone Scientific, principally patents and trademarks are the base features of the business. Milestone Scientific reviews long-lived assets for impairment whenever events or circumstances and situations change such that there is an indicationindicate that the carrying amounts may not be recoverable. The carrying value of the assetassets 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. Milestone Scientific has reviewed long-lived assets for impairment and concluded no impairment exists as of March 31, 2016.
11. | Revenue Recognition |
Revenue from product sales is recognized net of discounts and allowances to domestic distributors on the date of shipment for essentially all shipments, since the shipment terms are FOB warehouse. Milestone Scientific will recognize revenue on date of arrival of the goods at the customer’s location, where shipments are FOB destination. Shipments to international distributors are FOB warehouse, therefore revenue is recognized on shipment of the goods. Milestone China is an exception, where only 60% of revenue is recognized on shipment, and the remaining balance is deferred until the goods have been sold to a third party by Milestone China. In all cases the price to the buyer is fixed and the collectability is reasonably assured. Further, Milestone Scientific has no obligation on these sales for any post installation, set-up or maintenance, these being the responsibility of the buyer. Milestone Scientific’s only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.period
12. | Shipping and Handling Costs |
Milestone Scientific includes shipping and handling costs in cost of goods sold. These costs are billed to customers at the time of shipment for domestic shipments. International shipments are FOB warehouse, therefore no costs are incurred by Milestone Scientific.
10
Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred.
14. | 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. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
15. | Recent Accounting Pronouncements |
In May 2014, the Financial Accounting Pronouncements
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 JulyAugust 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifyingguidance approving a one-year deferral, making the Measurementstandard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. The FASB continues to release guidance clarifying certain aspects of Inventory. Thethe revenue guidance. We do not believe that this new standard applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standardaccounting pronouncement will be effective on
9
January 1, 2017. The adoption of this standard is not expected to have ana material impact on our financial position or results of operations.
statements.
In SeptemberNovember 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. As of March 31, 2016 and 2015 there are no deferred tax assets or liabilities recorded.
In February 2016, the Financial Accounting Standards Board issued a new standard ASU No. 2015-16, Business CombinationsNo.2016-02, “Leases “ (Topic 805)842): Simplifying the Accounting for Measurement-Period Adjustments. The new standard requires that an acquireris intended to increase transparency and comparability among organizations to recognize adjustments to provisional amounts that are identified duringlease assets and liabilities on the measurement period in the reporting period in which the adjustment amounts are determinedbalance sheet and sets forth new disclosure requirements related to the adjustments. The new standarddisclose key information about leasing arrangements. It will be effective for us on January 1, 2016. Thefiscal years beginning after December 15, 2019 and for interim periods within fiscal years beginning after December 15, 2020. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows.
In March 2016, the Financial Accounting Standards Board issued a new standard ASU No.2016-07, “Investments - Equity Method and Joint Ventures” (Topic 323): The new standard is not expectedintended to eliminate the requirement that when an investment qualifies for the use of the equity method as a result of an in increase in the level of ownership or degree of influence, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect all of the previous periods that the investment was held. It will be effective for all entities for fiscal years and interim periods, beginning after December 15, 2016. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have an impact on ourits financial position, or results of operations.operations and cash flows.
In March 2016, the Financial Accounting Standards Board issued a new standard ASU No.2016-09, “Compensation – Stock Compensation” (Topic 718): The new standard is intended to clarify certain reporting aspects relating to stock based compensation, relating primarily to forfeitures, tax impacts and cash flow presentation. Certain attributes will be treated prospectively, while others will require a retroactive application. Generally, the changes will be effective for fiscal years and interim periods, beginning after December 15, 2016. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows
NOTE – 2 Basic and Diluted Net INCOME (Loss) Per Common Share
Milestone Scientific presents “basic” and “fully diluted” earnings (loss) per common share applicable to common stockholders and, if applicable, “diluted” earnings (loss) per common share applicable to common stockholders pursuant to the provisions of FASBStatement of Financial Accounting Standards ASC Topic 260. Basic earnings (loss) per common share is calculated by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding and to be issued during each period. The calculation of diluted earnings per common share is similar to that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options, warrants, and warrantsthe conversion of debt were issued during the period. (Fully diluted shares are only calculated if there is a
Since Milestone Scientific had net income.)
losses for 2016 and 2015, the assumed effects of the exercise of potentially dilutive outstanding stock options and warrants were not included in the calculation as their effect would have been anti-dilutive.
For the three months ended March 31, 2016 and nine months ending September 30, 2015, and 2014, Milestone Scientific calculated basic and fully diluted earnings per common share as described in the previous paragraph.
NOTE – 3 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 reported by the Company.
NOTE – 4 INVESTMENT IN UNCONSOLIDATED SUBSIDIARIESCONSOLIDATION OF VARIABLE INTEREST ENTITY
Milestone Medical
Milestone Medical Inc
Milestone Medical had a zero net book value at September 30, 2015. In July 2013,is 49.98% owned by Milestone Scientific entered a strategic partnership with the largest provideras of specialty sales and distribution solutions for healthcare in the United States. This agreement was terminated in the second quarter of 2015.
Prior to the fourth quarter of 2014March 31, 2016. Milestone Scientific had distribution responsibility in the U.S.has been established to develop and Canada,commercialize intra-articular and Beijing 3Hepidural drug delivery instruments, utilizing an exclusive royalty-free license to Milestone Scientific’s CompuFlo technology. The license was responsible for distribution in Macao, Hong Kong and other regions of Asia. In the fourth quarter of 2014, the joint venture agreement with Beijing 3H was terminated and Milestone Medical contracted with Milestone China to become its new distributor in Asia for both the epidural and intra-articular instruments. In the fourth quarter of 2014,contributed by Milestone Scientific Inc. purchased an additional 995,000 shares offor our initial ownership in Milestone Medical from another shareholder for $447,750 ($0.45 per share), which increased its percentage of ownership to 49.98% of Milestone MedicalMedical.
Milestone Scientific recorded a loss on its
Since our initial investment in Milestone Medical of $590,612 and $1,566,711we have accounted for the three and nine months ended September 30, 2015 and $223,834 and $567,550 for the three and nine months ended September 30, 2014, respectively. For the nine month September 30, 2015 Milestone Scientific offset advances to Milestone Medical by $537,923 which is the excess loss of the Company’s investment in Milestone Medical. Milestone Scientific has accounted for its investment in Milestone Medical usingaccordance with the equity method of accounting. The losses described representHowever, during 2015, Milestone Scientific provided short term bridge financing to Milestone Medical in anticipation of the applicable losses reportedcompletion of a secondary stock offering in the Polish Market. In December 2015, Milestone Medical suspended their capital raise efforts meriting re-consideration of the initial accounting for the investment as an equity method investment. In April 2016, Milestone Medical cancelled the uplisting of its shares to the Poland Warsaw Stock Exchange.
As a result of the change in circumstances around the proposed offering in December 2015 by Milestone Medical, duringwe reevaluated the threerelationship between the two entities and nine months ended September 30,the status of Milestone Medical as a VIE. We have concluded that Milestone Medical does not have sufficient capital at risk to support its activities without additional financial support from Milestone Scientific. As a result of these factors, we have concluded that the line of credit extended to Milestone Medical constitutes a variable interest in Milestone Medical and therefore Milestone Medical is consolidated at March 31, 2016.
Since the factors giving rise to concluding that Milestone Medical is a VIE happened so close to the end of fiscal year 2015, and 2014, respectively.the acquisition date for measuring the consolidation of Milestone Medical has been deemed to be December 31, 2015.
Subsequent to March 31, 2016 Milestone Scientific utilizes theacquired equity methodand voting control of accounting to recognize its financial resultsMilestone Medical as a result of the acquisition of an additional 37% of the outstanding common stock of Milestone Medical Joint Venture.
by exchanging Milestone Medical shares for shares of Milestone Scientific did not have any legal expense related to seeking U.S. Food and Drug Administration (“FDA”) marketing clearance for the epidural and intra-articular instruments under section 510k for the three and nine months ended September 30, 2015. Milestone Scientific expensed $44,415 and $175,868 on behalfcommon stock at a rate of two shares of Milestone Medical for the three and nine months ended September 30, 2014, respectively, for legal expenses related to seeking FDA marketing clearance for the epidural and intra-articular instruments under section 510K. As partone share of the joint venture agreement, Milestone Scientific agreed to pay all the legal fees related to the FDA clearance process.Scientific.
12
Milestone Scientific had an investment in Milestone Medical of zero as September 30, 2015 and $888,720 as of December 31, 2014.Education LLC
Milestone Education LLC.
10
The Education Joint Venture has been providingis a 50% owned subsidiary of Milestone Scientific which began operations in 2013 to provide training and education to our dentists throughout the world. Milestone Scientific accountedaccounts for its investment in theMilestone Education Joint Venture using the equity method of accounting. Theaccounting through December 31, 2015. Approximately 80% of the revenue earned by Milestone Education Joint Venture earnedis from services performed for Milestone Scientific. As a profitresult of $4,686this relationship, we concluded that we have the power to direct the activities that most significantly impact Milestone Education’s economic performance, and incurredthat it is a loss of $10,986 for the threevariable interest entity and nine months ended September 30, 2015, respectively. The Education Joint Venture incurred a loss of $5,266 and $20,910 for the three and nine months ended September 30, 2014, respectively. Fifty percent of these losses were recordedshould be consolidated in the condensedfinancials of Milestone Scientific. As of December 31, 2015, the impact of the consolidation was deemed not to be material to the consolidated financial statements.
The financial statements of Milestone Medical, and Milestone Education are included in the accompanying consolidated financial statements as of March 31, 2016.
The financial information in the table below summarizes the combined results of operations of Milestone Scientific, and its subsidiaries including Milestone Medical and Milestone Education (each a variable interest entity) on a pro forma basis as though the companies had been combined as of the beginning of the earliest period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the threeresult of operations that would have been achieved if the consolidation had taken place at the beginning of the period presented.
| March 31, 2015 Pro Forma |
| |
Total revenue | $ | 2,791,103 |
|
Cost of products sold |
| 933,148 |
|
Gross Profit |
| 1,857,955 |
|
Selling, general and administrative expenses |
| 2,683,757 |
|
Research and development expenses |
| 143,685 |
|
Operating expenses |
| 2,827,442 |
|
Loss from operations |
| (969,643 | ) |
Other expenses |
| - |
|
Interest expense |
| (369 | ) |
Interest income |
| 1,213 |
|
Loss before Provision for Income Tax |
| (968,643 | ) |
Provision for Income Tax |
| - |
|
Loss before equity in net earnings of equity investments |
| (968,643 | ) |
Loss on earnings from Milestone Medical Inc. |
| (450,160 | ) |
Loss on earnings from Education Joint Venture |
| (4,215 | ) |
Gain on earnings from China Joint Venture |
| 96,674 |
|
Loss in equity investments |
| (357,701 | ) |
Net loss |
| (1,326,344 | ) |
Less: Net loss attributable to the noncontrolling interests |
| (457,436 | ) |
Net loss attributable to Milestone Scientific Inc. | $ | (868,908 | ) |
NOTE – 5 INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Advance Ocular Science SA
Advanced Ocular Sciences SA is an entity organized to develop an instrument that delivers injections into the eyes. The company is a shell company as of March 31, 2016. Milestone Scientific owns 25% of this entity. As of the balance sheet date, no equity has been contributed to the company by Milestone Scientific. During 2015, Milestone Scientific advanced $78,798 for marketing and nine months ended September 30, 2015strategy planning to Advanced Ocular Sciences SA. Advanced Ocular
13
Sciences SA., or their organizers are obligated to repay this advance once the public offering is approved and 2014.funded in Poland during 2016. Advance Ocular Science SA was not included in the consolidated financial statements at March 31, 2016 as no investment has been made by Milestone Scientific.
Milestone China IncLtd.
In SeptemberJune 2014, Milestone Scientific agreed to invest $1.$1 Million through the contribution of 772 STA instruments (at a distributor price of approximately $1,295 per instrument) for a forty percent ownership in Milestone China. The instruments were shipped to the distributors over a period of two years. China Ltd. (“Milestone China will purchase additional STA handpieces as required.China”). In 2014, 772 STAthe instruments were shipped and arewere recorded at Milestone Scientific’s cost in the investment account for Milestone China on the Balance Sheet. Milestone China did not begin operations until July 2014. Milestone Scientific recognized a loss of $123,083 and $187,062 from Milestone China, for the three and nine months and ended September 30, 2015. These amounts represents 40% of the loss and profit of Milestone China for each period respectively. Milestone Scientific’sas an investment in Milestone China at the cost of the inventory contributed. In January 2016, Milestone Scientific contributed 308 STA instruments with a retail value of approximately $400,000 ($1,296 per instrument) to Milestone China Inc. as an increase in our investment in this subsidiary. The additional contribution increased the Company’s investment by approximately $165,000 which represents the costs of the instruments and it did not increase the company’s percentage of ownership since the contribution is $161,588proportionate to the other shareholder contribution. Milestone Scientific recorded a loss on its investment in Milestone China of $164,837 and $348,651 as of September 30,equity earnings $96,674 for the three months ended March 31, 2016 and 2015, respectively. Milestone’s investment in Milestone China was $0 and December$445,325, at March 31, 2014,2016 and 2015 respectively. Milestone Scientific shipped $938,304had suspended losses on its investment in Milestone China of instruments and $138,600$177,291, as of handpieces in the nine months ended September 30, 2015. March 31, 2016.
Milestone Scientific recognized 60%sold $1,000,000 in instruments during quarter ended March 31, 2016 to Milestone China. Milestone China Ltd. owes $825,340 to Milestone Scientific for instruments shipped in 2016, which is included in accounts receivable at March 31, 2016
Milestone Scientific recognizes the total revenue and costs of goods sold at the revenue on shipmentstime the shipment of instruments and handpieces. The remaining 40%However, due to timing differences of revenuewhen the inventory is recognized at the time the goods are sold to aMilestone China and when Milestone China sells the acquired inventory to third party. At September 30, 2015 there was noparties, elimination of the intra-entity profit is required as of the balance sheet date. In accordance with Accounting Standard Codification (“ASC”) 323 – Equity Method and Joint Ventures, Milestone Scientific has deferred revenue, all instruments and handpieces werethe gross profit associated with inventory shipped to Milestone China that has not been sold to third parties The deferred profit of $174,670 is included in the loss from the Milestone China within the Statement of Operations and presented as a third party.reduction of the accounts receivable in the Consolidated Balance Sheet.
NOTE – 56 Stock Option Plans
A summary of option activity for employees under the plans and changes during the nine months ended September 30, 2015, is presented below:
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| |
|
|
|
|
|
| Weighted |
|
| Average |
|
| Aggregate |
| |||
|
| Number |
|
| Averaged |
|
| Remaining |
|
| Intrinsic |
| ||||
|
| of |
|
| Exercise |
|
| Contractual |
|
| Options |
| ||||
|
| Options |
|
| Price $ |
|
| Life (Years) |
|
| Value $ |
| ||||
Outstanding, January 1, 2015 |
|
| 1,472,130 |
|
|
| 1.33 |
|
|
| 3.23 |
|
|
| 1,430,231 |
|
Granted |
|
| 157,306 |
|
|
| 3.01 |
|
|
| 4.48 |
|
|
| 57,000 |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited or expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding, September 30, 2015 |
|
| 1,629,436 |
|
|
| 1.49 |
|
|
| 2.50 |
|
|
| 2,620,771 |
|
Exercisable, September 30, 2015 |
|
| 1,077,520 |
|
|
| 1.14 |
|
|
| 1.95 |
|
|
| 2,093,571 |
|
Milestone Scientific recognizes stock compensation expense on a straight line basis over the requisite service period. Duringperiod and in the threecase of performance based options over the period of the expected performance. For the months ended September 30,March 31, 2016 and 2015, and 2014 Milestone Scientific recognized $107,205$134,505 and $39,877$82,124 of total stockemployee compensation cost. During the nine months ended September 30, 2015 and 2014, Milestone Scientific recognized $334,049 and $119,630 of total stock compensation cost.cost related to options that vested each year, respectively. As of September 30,March 31, 2016 and 2015, and September 30, 2014, there was $881,765$1,026,024 and $272,946, respectively,$949,780 of total unrecognized compensation cost related to non-vested options which Milestone Scientific expects to recognize over a weighted average period of 3.592.99 years and 2.03.10 years at September 30,as of March 31, 2016 and 2015, respectively.
A summary of option activity for employees under the plans and 2014, respectively. A 6% rate of forfeitureschanges during the three months ended March 31, 2016, is assumed in the calculation of the compensation cost for the period in 2015 and 2014.presented below:
Expected volatilities are based on historical volatility of Milestone Scientific’s common stock over a period commensurate with the anticipated term. Milestone Scientific uses historical data to estimate option exercise and employee termination within the valuation model.
|
| Number of Options |
|
| Weighted Averaged Exercise Price $ |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Aggregate Intrinsic Options Value $ |
| ||||
Outstanding, January 1, 2016 |
|
| 1,419,436 |
|
|
| 1.56 |
|
|
| 2.78 |
|
|
| 1,220,338 |
|
Granted |
|
| 348,908 |
|
|
| 1.72 |
|
|
| 4.85 |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited or expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding, March 31, 2016 |
|
| 1,768,344 |
|
|
| 1.59 |
|
|
| 2.99 |
|
|
| 466,050 |
|
Exercisable, March 31, 2016 |
|
| 1,157,983 |
|
|
| 1.33 |
|
|
| 2.43 |
|
|
| 465,309 |
|
14
A summary of option activity for non-employees under the plans and changes during the ninethree months ended September 30, 2015,March 31, 2016, is presented below:
11
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
| Number of Options |
|
| Weighted Averaged Exercise Price $ |
|
| Weighted Average Remaining Contractual Life (Years) |
|
| Aggregate Intrinsic Options Value $ |
| ||||||
|
|
|
|
|
| Weighted |
|
| Average |
|
| Aggregate |
| |||||||||||||||||||
|
| Number |
|
| Averaged |
|
| Remaining |
|
| Intrinsic |
| ||||||||||||||||||||
|
| of |
|
| Exercise |
|
| Contractual |
|
| Options |
| ||||||||||||||||||||
|
| Options |
|
| Price $ |
|
| Life (Years) |
|
| Value $ |
| ||||||||||||||||||||
Outstanding, January 1, 2015 |
|
| 16,666 |
|
|
| 1.27 |
|
|
| 0.62 |
|
|
| 17,166 |
| ||||||||||||||||
Outstanding, January 1, 2016 |
|
| 8,333 |
|
|
| 2.70 |
|
|
| 4.83 |
|
|
| - |
| ||||||||||||||||
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| 8,333 |
|
|
| 1.53 |
|
|
| — |
|
|
| — |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding, September 30, 2015 |
|
| 8,333 |
|
|
| 1.01 |
|
|
| 0.19 |
|
|
| 17,166 |
| ||||||||||||||||
Exercisable, September 30, 2015 |
|
| 8,333 |
|
|
| 1.01 |
|
|
| 0.19 |
|
|
| 17,166 |
| ||||||||||||||||
Outstanding, March 31, 2016 |
|
| 8,333 |
|
|
| 2.70 |
|
|
| 4.58 |
|
|
| - |
| ||||||||||||||||
Exercisable, March 31, 2016 |
|
| 2,777 |
|
|
| 2.70 |
|
|
| 4.58 |
|
|
| - |
|
DuringThe fair value of the nine months ended September 30, 2015 and September 30, 2014,options was estimated on the date of grant using the Black Scholes option-pricing model. As of March 31, 2016, Milestone Scientific had no expensesrecognized $1,175 expense related to non-employee options that vested during the period. There was no unrecognized compensation cost related to non-vested options as of September 30, 2015. A six percent rate of forfeitures is assumed in the calculation of the compensation cost for the period.vested.
In accordance with the provisions of FASB ASC 505-50-15, all other issuances of common stock, stock options or other equity instruments to non-employees as consideration for goods or services received by Milestone Scientific are accounted for based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured). The fair value of any options or similar equity instruments issued is estimated based on the Black-Scholes option-pricing model and the assumption that all of the options or other equity instruments will ultimately vest. Such fair value is measured as of an appropriate date pursuant to the guidance, (generally, the earlier of the date the other party becomes committed to provide goods or services or the date of performance by the other party is complete) and capitalized or expensed as if Milestone Scientific had paid cash for the goods or services.
NOTE – 67 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 entered into a purchase agreement with a vendor to supply Milestone Scientific with 12,000 STA Instruments and this commitment was completed in September 2015. Milestone Scientific does not believe that significant credit risk exists with respect to this advance to the contract manufacturer.
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. Management has provided a reserve that it believes is sufficient to record accounts receivable at net realizable value as of September 30,March 31, 2016, and 2015, and December 31, 2014.respectively.
NOTE – 78 ADVANCES ON CONTRACTS
The advances on contracts represent funding of future STA inventory purchases. The balance of the advances as of September 30, 2015March 31, 2016, and December 31, 20142015, is $1,211,926$1,253,645 and $721,197,$1,215,128, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.
NOTE – 89 INCOME TAXES
For the three Months ended March 31, 2016, and nine months ending September 30, 2015 state tax liability was approximately $27,000$47,000 and $41,000. Such expense was recognized in the accompanying consolidated financial statements as of September 30, 2015.$0, respectively. Due to Milestone Scientific’s history of past operating losses, which required a full valuation allowances for all of Milestone Scientific’s deferred tax assets at September 30,March 31, 2016 and 2015, and 2014, no recognition was given to the utilization of the remaining Federal net operating loss carryforwards.
NOTE – 9 COMMON STOCK ISSUANCES
As of September 30, 2015 Milestone Scientific issued 40,155 shares to a former employee based on a deferred compensation agreement. In addition Milestone Scientific Inc. issued 13,168shares of common stock valued at $35,000 for the payment of employee compensation and 12,098 share of common stock valued at $30,000was issued for payment of services. Milestone Scientific Inc. also issued 8,333 shares of common stock on the exercise of certain stock options valued at $12,750.
1215
NOTE – 10 PREFERRED STOCK ISSUANCESIGNIFICANT CUSTOMERS & GEOGRAPHICAL INFORMATION
In May 2014, Milestone Scientific completed a $10 million private placement pursuant, which raised $3 million, from the sales of 2 million shares of common stock at $1.50 per share, and $7 million from the sale of 7,000 shares of Series A Convertible Preferred Stock (the “Series A Stock”), with a stated value of $1,000 per share. The Series A Stock votes togetherhas informal arrangements with the Common Stock on a converted basis and as a single class. However, those shares have class voting rights as to amendments to the Certificate of Incorporation adversely affecting the Series A Stock and increasing in the number of authorized shares of Series A Stock. Issuances of additional shares of Series A Stock, and increases in the sizemanufacturer of the board, priorSTA, CompuDent® and CompuMed® instruments, one of the principal manufacturers for those instruments pursuant to the timewhich they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. Purchases from this supplier were $636,059 and $617,602 for the holders of the Series A Stock, no longer have a right to nominate a designee for election to the board or issuance of “senior stock” or “parity stock.” The Series A Stock is entitled to a liquidation preference in an amount equal to the greater of 100% of its $1,000 per share stated value plus an amount equal to any then accruedthree months ended March 31, 2016 and unpaid dividends, or the amount the Series A Stock would receive if all the outstanding shares of Series A Stock had been converted into common stock at $2.545 per share, subject to adjustment in accordance with the terms and provisions of the Certificate of Incorporation (the “base conversion price”). The Series A Stock is convertible into common stock at the base conversion price at the option of the holder or mandatorily convertible into common stock on May 13, 2019, at the base conversion price provided that certain “threshold” prices have been achieved during the 360 calendar day period prior to such date. If those threshold prices have not been achieved, the Series A Stock will convert at $1.50 per share on May 13, 2019.
NOTE – 11 RELATED PARTY
2015, respectively. Milestone Scientific has a manufacturing agreement with one of the principal manufacturers, which is a related party. The related party, manufacturesof its handpieces pursuant to which they manufacture products under specific purchase orders but without minimum purchase commitments. A five percent shareholder of Milestone Scientific purchased $447,817 and $325,628 from the supplier for the three months ended September 30, 2015 and 2014, respectively. Milestone Scientific purchased $1,801,449 and $2,069,546 from the supplier for the nine months ended September 30, 2015 and 2014, respectively.is also a shareholder of this vendor. Milestone Scientific owed $427,231$610,202 and $502,167$455,573 to this supplier as of September 30,March 31, 2016 and March 31, 2015, and December 31, 2014, respectively.
On July 1, 2013, Milestone Scientific and Milestone Medical signed an agreement for the reimbursement of specific expenses incurred by Milestone Scientific specifically for the benefit of Milestone Medical. At September 30, 2015, the expenses due from Milestone Medical are $623,881, which were offset by $537,923 which is the excess loss of the company investment in Milestone Medical.
In December 2014, Milestone Scientific entered into a bridge financing to Milestone Medical while waiting approval of the capital raise, Milestone Scientific (49.98% owners) entered into a line of credit agreement allows Milestone Medical to borrow up to $2 million from Milestone Scientific through January 2016, if needed, to assist in paying for the capital raise. The loan provides for interest at a rate of 3.25% per annual, the prime rate at the inception of the line of credit. The agreement terminates at April 15, 2016. In September 2015 Milestone Scientific increased the line of credit to $2.5 million at the request of Milestone Medical Inc., due to the delay in obtaining regulatory approval to proceed with the additional capital raise. All other contractual conditions of the line of credit remain unchanged. $2,000,000 was borrowed by Milestone Medical as of September 30, 2015 and is recognized as notes receivable on the condensed consolidated balance sheet.
A wholly-owned subsidiary (Wand Dental) of Milestone Scientific shipped approximately $938,304 of instruments and $150,600 of handpieces in the nine months ended September 30, 2015 to Milestone China. Milestone China owes $1,088,904 Wand Dental for handpieces and instruments shipped in 2015. The receivable is included within the accounts receivable balance within the balance sheet.
NOTE – 12 SIGNIFICANT CUSTOMERS & GEOGRAPHICAL INFORMATION
For the three months March 31, 2016, Milestone Scientific had two customers (distributors) for the three months ended September 30, 2015, that respectively had approximately 33% (15%21% and 18 %)35%, of its net product salessales. Accounts receivable for the two major customers respectively amounted to approximately $505,670 and $228,148 of gross accounts receivable. For the three months March 31, 2015, Milestone had two customers (distributors) that respectively had approximately 47% (21%27% and 26 %)18%, of its net product sales for three months ended September 30, 2014. Milestone Scientific had two customers (distributors) for the nine months ended September 30, 2015 that had approximately 40% (22%, and 18 %) of the net product sales and two customers (distributors) that had approximately 46% (21% and 25 %) of its net product sales for the nine months ended September 30, 2014.
Milestone Scientific had accountssales. Accounts receivable for three major customers that amounted to $1,571,782 ($1,088,904, $306,221 and $176,657) representing 69% (47%, 13% and 9%) of accounts receivable as of September 30, 2015, and accounts receivable forthe two major customers respectively amounted to approximately $761,413 and $170,536 of $1,099,804, or 69% as of December 31, 2014, respectively.gross accounts receivable.
Milestone Scientific’s sales by product and by geographical region are as follows:
| Three Months Ended March 31, |
| |||||
| 2016 |
|
| 2015 |
| ||
DOMESTIC |
|
|
|
|
|
|
|
Instruments | $ | 661,645 |
|
| $ | 448,965 |
|
Handpieces |
| 988,143 |
|
|
| 432,062 |
|
Other |
| 34,379 |
|
|
| (13,467 | ) |
Total Domestic | $ | 1,684,167 |
|
| $ | 867,560 |
|
|
|
|
|
|
|
|
|
INTERNATIONAL |
|
|
|
|
|
|
|
Instruments | $ | 1,268,156 |
|
| $ | 677,614 |
|
Handpieces |
| 584,708 |
|
|
| 1,214,453 |
|
Other |
| 32,342 |
|
|
| 10,577 |
|
Total International | $ | 1,885,207 |
|
| $ | 1,902,644 |
|
|
|
|
|
|
|
|
|
Total Product Sales | $ | 3,569,374 |
|
| $ | 2,770,204 |
|
13
| Three Months Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
| |||||||||||
|
| 2015 |
|
| 2014 |
|
|
|
| 2015 |
|
| 2014 |
| ||||
Instruments |
| $ | 901,213 |
|
| $ | 413,914 |
|
| Instruments |
| $ | 2,317,547 |
|
| $ | 1,938,293 |
|
Handpieces |
|
| 1,533,936 |
|
|
| 2,090,580 |
|
| Handpieces |
|
| 4,610,592 |
|
|
| 5,608,776 |
|
Other |
|
| 24,809 |
|
|
| 30,604 |
|
| Other |
|
| 68,782 |
|
|
| 115,795 |
|
|
| $ | 2,459,958 |
|
| $ | 2,535,098 |
|
|
|
| $ | 6,996,921 |
|
| $ | 7,662,864 |
|
United States |
| $ | 700,879 |
|
| $ | 1,039,153 |
|
| United States |
| $ | 2,410,054 |
|
| $ | 3,434,171 |
|
Canada |
|
| 145,808 |
|
|
| 30,548 |
|
| Canada |
|
| 189,164 |
|
|
| 100,321 |
|
Other Foreign |
|
| 1,613,271 |
|
|
| 1,465,397 |
|
| Other Foreign |
|
| 4,397,703 |
|
|
| 4,128,372 |
|
|
| $ | 2,459,958 |
|
| $ | 2,535,098 |
|
|
|
| $ | 6,996,921 |
|
| $ | 7,662,864 |
|
NOTE – 1311 PENSION PLANS
Milestone Scientific havehas a defined contribution planDefined Contribution Plan that allows eligible employees to contribute part of their salary through payroll deductions. Milestone Scientific does not contribute to this plan, but does pay the administrative costs of the plan, which arewere not significant.
In March 2014, the Board of Directors approved the Compensation Committee’s request to amend the Chief Executive Officer of Milestone Scientific’s employment agreement to provide benefits to make 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 Executive and his family. For the three and nine months ended September 30, 2015, approximately $51,000 and $102,000, was expensed.
NOTE – 1412 COMMITMENTS AND OTHER
(1) Lease Commitments
The headquarters for Milestone Scientific is located at 220 South Orange Ave, Livingston, New Jersey. Milestone Scientific leases approximately 7,625 square feet of office space. The lease term expires January 31, 2020 at a monthly cost of $12,522. Additionally, Milestone Scientific has other smaller insignificant leases ending through 2017. A third party distribution and logistics center in Pennsylvania handles shipping and order fulfillment on a month-to-month basis. For the three Months ended March 31, 2016 and 2015, rent expense amounted to $35,232, and $13,824 respectively.
(2) Contract Manufacturing Arrangement
Milestone Scientific has informal arrangements for the manufacture of its products.products The STA single(single tooth anesthesia,anesthesia), and CompuDentCompuDent® instruments are manufactured for Milestone Scientific by Tricor Systems, Inc. pursuant to
16
specific purchase orders. The STA and The Wandthe Wand® Handpiece with Needle is supplied to Milestone Scientific by a contractor in the United States, which arranges for its manufacture with two factories in China.
The termination of the manufacturing relationship with any of the above manufacturers could have a material adverse effect on Milestone Scientific’s ability to produce and sell its products. Although alternate sources of supply exist and new manufacturing relationships could be established, Milestone Scientific would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. Any curtailment or interruption of the supply, whether or not as a result of termination of such a relationship, would adversely affect Milestone Scientific.
(3) Other Commitments and Subsequent Events
In March 2014, the Board of Directors approved the Compensation Committee’s request to amend the Chief Executive Officer of Milestone Scientific’s employment agreement to provide benefits to make payments of $203,111 per year for five years to the Chief Executive Officer, 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 Executive and his family. For each the three months ended March 31, 2016 and 2015, approximately $51,000was charged to expense, respectively.
The technology underlying the SafetyWand and CompuFlo,CompuFlo®, and an improvement to the controls for CompuDentCompuDent® were developed by the Director of Clinical Affairs and assigned to us. Milestone Scientific purchased this technology pursuant to an agreement dated January 1, 2005. The DirectorDirector 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. In addition, theThe Director of Clinical Affairs is granted, pursuant to the agreement, an option to purchase, at fair market value on the date of the grant, 8,333 shares of the 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. Milestone Scientific expensed the Director’sDirector of Clinical Affairs’ royalty feesfee of $117,320$190,626 and $89,600 for$111,484, during the three months ended September 30,March 31, 2016 and 2015, and 2014, respectively. Milestone Scientific expensed the Director’s royalty fee of $313,751 and $291,714 for the nine months ended September 30, 2015 and 2014, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of zeroClinical Affairs of $68,757 and $39,390 for$23,400 the ninethree months ended September30,March 31, 2016 and 2015, and 2014, respectively.
Subsequent Events
In January 2010,Subsequent to March 31, 2016 Milestone Scientific issued a purchase order to Tricor Systems Incacquired an additional 37% of the outstanding common stock of Milestone Medical by exchanging Milestone Medical shares for the purchase of 12,000 STA Instruments to be delivered over the next three years. The purchase order is for $5,261,640. Wand Dental Inc, a wholly-owned subsidiaryshares of Milestone Scientific was assigned this commitment on October 1, 2014. Ascommon stock at a rate of September 30, 2015, this commitment was completed. In the second quarter of 2015, Wand Dental Inc entered into a new purchase commitment for 3,000 STA instruments, ($1,785,750) for the delivery of these instruments beginning October 2015 and into 2016. The balance of the advances as of September 30, 2015 and December 31, 2014 is $1,211,926 and $721,197, respectively.
In August 2013, a shareholdertwo shares of Milestone Scientific entered a three year agreement withMedical for one share of Milestone Scientific to provide financial and business strategic services. The fee for these services are $100,000 annually.Scientific.
Subsequent Events
14
Milestone Scientific has evaluated subsequent events and has determined that there are no other events to be disclosed.
17
The following discussions of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Form 10-Q. Certain statements in this discussion and elsewhere 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. Our actual results may differ materially from those anticipated in these forward-looking statements.
OVERVIEW
Milestone Scientific Inc. (“Milestone Scientific”, “our”, “us” or “we”) was officially listed on the NYSE MKT on June 1, 2015.
In 2015,2016, Milestone Scientific remains focused on advancing efforts to achieve our two primary objectives; those being:
Enhancing our global reach by partnering with distribution companies in the medical sector and
Optimizing our tactical approach to product sales and marketing in order to materially increase penetration of the global dental and medical markets with our proprietary, patented Computer-Controlled Local Anesthesia Delivery (C-CLAD) solution, the STA Single Tooth Anesthesia Instrument (STA Instrument)
STA Instrument Growth
Since its market introduction in early 2007, the STA Instrument and a prior computerized controlled local anesthesia delivery product have been used to deliver over 60 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
In September 2015, Milestone Scientific received official notification that a consortium led by, Milestone Scientific Inc. Poland, SP z.o.o. had been an awarded a $4.2 million grant from The Natural Centre for Research and development in Poland of which Milestone Scientific’s subsidiary will receive approximately $1.5 million in funding.
In August 2013, Milestone Scientific entered an exclusive distributor agreement (beginning October 1, 2013), with Henry Schein, for the sale and distribution of the CompuDent handpieces in the United States and Canada.
In July 2013, Milestone Scientific entered a strategic partnership with the largest provider of specialty sales and distribution solutions for healthcare. Pursuant to the strategic partnership, the distributor will hold, for a period of three years with the FDA market, the exclusive rights to market, resell, label and distribute Milestone Scientific’s CompuFlo injection technology for use in epidural applications for childbirth and other pain management needs in the U.S. hospital sector. This partnership was terminated in June 2015, due to delays in receiving FDA clearance on the instrument at that time.
In November 2012, Milestone Scientific entered an exclusive distribution and marketing agreement with a well-known U.S. domestic manufacturer and distributor, for the sale and distribution of the STA instruments and handpieces in United States and Canada. The exclusive distributor and marketing agreement was converted to a non-exclusive agreement as December 31, 2015. Henry Schein a global leader of distribution in the dental supplies was added as a non-exclusive distributor of the STA instruments and handpieces in the United State and Canada in January 2016. In August 2014, Milestone Scientific entered an exclusive distributor agreement (beginning October 1, 2014), with Henry Schein, for the sale and distribution of the legacy CompuDent® handpieces in the United States and Canada.
International Market
On the global front, we also 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 in South Africa and Unident in the Scandinavian countries of Denmark, Sweden, Norway and Iceland.
In early October 2012, the State Food and Drug Administration (SFDA) of the People’s Republic of China approved Milestone Scientific’s Single Tooth Anesthesia System® (STA System). In May 2014, the CFDA, (previously the SFDA), granted registration approval of the STA handpieces in China.
15
Shortly before the end of the second quarter 2009, we announced that we were refining our international marketing strategy to gain greater access to and penetration of the international dental markets for the STA Instrument, CompuDent CompuDent® and related disposable handpieces. The new sales strategy provides for increasing hands-on oversight and support of our existing international distribution network, while also attracting new distributors throughout Europe, Asia
18
and South America. To assist in this endeavor, Milestone Scientific added in the spring of 2010, Milestone Scientific added an International Sales Director to focus on the growth of our products outside the USA and Canada. The position was eliminated in 2014 and subsidized with a consultant in Central and South America, while our new CEO of Wand Dental has focused his efforts in developing distributors in Europe and South America.
In March 2011, Milestone Scientific entered into a joint venture (the “Medical Joint Venture”) with Beijing 3H Scientific Technology Co., Ltd. (“Beijing 3H”), a People’s Republic of China (“PRC”) Company. Milestone Scientific contributed an exclusive worldwide royalty-free license for the development and commercialization of intra-articular and epidural drug delivery instruments, utilizing its patented CompuFlo technology to the Medical Joint Venture. A group of individual investors including the controlling shareholders of Beijing 3H and a large shareholder of Milestone Scientific contributed $1.5 million. Milestone Scientific, with the consent of the investors, organized a domestic research and development joint venture corporation, now known as Milestone Medical Inc. (“Milestone Medical”). In the fourth quarter of 2014, the joint venture agreement with Beijing 3H was terminated. However, Milestone Medical has continued to implement its business plan. As of September 30, 2015, Milestone Scientific owned 49.98% of Milestone Medical and has recorded the investment using the equity method of accounting.
Subsequent to the termination of the distribution agreement with Beijing 3H, Milestone Medical contracted with Milestone China to become the new distributor in Asia for both the epidural and intra-articular instruments while Milestone Scientific continues to have distribution responsibility in the U.S. and Canada. Milestone Scientific owns forty percent of Milestone China. As of September 30, 2015, Milestone Medical’s development of the two medical instruments is ongoing and nearing the completion. In September 2014, Milestone Medical Inc., a subsidiary of Milestone Scientific (“Milestone Medical”), received CE certificationclearance to distribute their instruments in European Community (EU). Milestone ScientificMedical is actively pursuing medical distributors for the instrument in the EU community. In March 2015, Milestone Medical signed a distribution agreement in March 2015, with a Polish Medical distributor for the distribution of the epidural instrument. Shipment of instruments and disposables beganinstrument starting in SeptemberApril 2015. In September 2015, Milestone Medical signed a distribution agreement with an Italian distributor for distribution of the epidural instrument in Italy. During the third quarter of 2015, the company shipped its first instruments to the Italian distributor.
Segmented Sales Performance
The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by product category, and the percentage of product sales (net) by each product category:
|
| Three Months Ended September 30, |
|
|
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||
|
| 2015 |
|
| 2014 |
|
|
|
| 2015 |
|
| 2014 |
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||||||||||||
DOMESTIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| DOMESTIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments |
| $ | 9,555 |
|
|
| 1.0 | % |
| $ | 178,623 |
|
|
| 17.2 | % |
| Instruments |
| $ | 611,845 |
|
|
| 25.4 | % |
| $ | 687,501 |
|
|
| 20.0 | % |
| $ | 661,645 |
|
|
| 39.3 | % |
| $ | 448,965 |
|
|
| 51.8 | % |
Handpieces |
|
| 672,425 |
|
|
| 96.0 | % |
|
| 846,420 |
|
|
| 81.5 | % |
| Handpieces |
|
| 1,777,548 |
|
|
| 73.7 | % |
|
| 2,685,360 |
|
|
| 78.2 | % |
|
| 988,143 |
|
|
| 58.7 | % |
|
| 432,062 |
|
|
| 49.8 | % |
Other |
|
| 18,898 |
|
|
| 3.0 | % |
|
| 14,110 |
|
|
| 1.3 | % |
| Other |
|
| 20,661 |
|
|
| 0.9 | % |
|
| 61,310 |
|
|
| 1.8 | % |
|
| 34,379 |
|
|
| 2.0 | % |
|
| (13,467 | ) |
|
| (1.6 | )% |
Total Domestic |
|
| 700,878 |
|
|
| 100.0 | % |
|
| 1,039,153 |
|
|
| 100.0 | % |
| Total Domestic |
|
| 2,410,055 |
|
|
| 100.0 | % |
|
| 3,434,171 |
|
|
| 100.0 | % |
| $ | 1,684,167 |
|
|
| 100.0 | % |
| $ | 867,560 |
|
|
| 100.0 | % |
INTERNATIONAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| INTERNATIONAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments |
| $ | 891,657 |
|
|
| 40.0 | % |
| $ | 235,291 |
|
|
| 15.7 | % |
| Instruments |
| $ | 1,705,703 |
|
|
| 37.2 | % |
| $ | 1,250,792 |
|
|
| 29.6 | % |
| $ | 1,268,156 |
|
|
| 67.3 | % |
| $ | 677,614 |
|
|
| 34.9 | % |
Handpieces |
|
| 861,512 |
|
|
| 60.0 | % |
|
| 1,244,160 |
|
|
| 83.2 | % |
| Handpieces |
|
| 2,833,043 |
|
|
| 61.8 | % |
|
| 2,923,417 |
|
|
| 69.1 | % |
|
| 584,708 |
|
|
| 31.0 | % |
|
| 1,214,454 |
|
|
| 63.7 | % |
Other |
|
| 5,910 |
|
|
| 0.0 | % |
|
| 16,494 |
|
|
| 1.1 | % |
| Other |
|
| 48,120 |
|
|
| 1.0 | % |
|
| 54,484 |
|
|
| 1.3 | % |
|
| 32,342 |
|
|
| 1.7 | % |
|
| 10,577 |
|
|
| 1.5 | % |
Total International |
|
| 1,759,079 |
|
|
| 100.0 | % |
|
| 1,495,945 |
|
|
| 100.0 | % |
| Total International |
|
| 4,586,866 |
|
|
| 100.0 | % |
|
| 4,228,693 |
|
|
| 100.0 | % |
| $ | 1,885,207 |
|
|
| 100.0 | % |
| $ | 1,902,644 |
|
|
| 100.0 | % |
DOMESTIC/INTERNATIONAL ANALYSIS | DOMESTIC/INTERNATIONAL ANALYSIS |
|
| DOMESTIC/INTERNATIONAL ANALYSIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Domestic |
| $ | 700,878 |
|
|
| 32.0 | % |
| $ | 1,039,153 |
|
|
| 41.0 | % |
| Domestic |
| $ | 2,410,055 |
|
|
| 34.4 | % |
| $ | 3,434,171 |
|
|
| 44.8 | % |
| $ | 1,684,167 |
|
|
| 47.2 | % |
| $ | 867,560 |
|
|
| 37.2 | % |
International |
|
| 1,759,080 |
|
|
| 68.0 | % |
|
| 1,495,945 |
|
|
| 59.0 | % |
| International |
|
| 4,586,866 |
|
|
| 65.6 | % |
|
| 4,228,693 |
|
|
| 55.2 | % |
|
| 1,885,207 |
|
|
| 52.8 | % |
|
| 1,902,644 |
|
|
| 62.8 | % |
Total Product Sales |
| $ | 2,459,958 |
|
|
| 100.0 | % |
| $ | 2,535,098 |
|
|
| 100.0 | % |
| Total Product Sales |
| $ | 6,996,921 |
|
|
| 100.0 | % |
| $ | 7,662,864 |
|
|
| 100.0 | % |
| $ | 3,569,374 |
|
|
| 100.0 | % |
| $ | 2,770,204 |
|
|
| 100.0 | % |
In 2015, Milestone Scientific plannedearned gross profit of approximately $2.2 million and $1.8 million in the three months ended March 31, 2016 and 2015, respectively. However, the revenues and related gross profits have not been sufficient to support overhead, new product introduction and research and development expenses. Although Milestone Scientific anticipates expending funds for research and development in 2016, these amounts will vary based on the operating results for each quarter. Milestone Scientific has incurred annual operating losses and negative cash flows from operating activities since its inception, except for 2013. At March 31, 2016, Milestone Scientific has sufficient cash reserves to meet all of its anticipated obligations for at least the next twelve months, including a limited amount of financing for the operation of Milestone Medical until additional financing is consummated in 2016. Milestone Scientific is actively pursuing the continued generation of positive cash flows from operating activities through increase in revenue, assessment of current contracts and current negotiations.
In 2016, Milestone Scientific plans to further support increased sales and marketing activity through our current distributors and through newly appointed distributors of the STA Instrumentsinstruments and handpieces in the international market. In the U.S. and Canada, Milestone Scientific will continue the utilization of independent hygienists for training individual practitioners and group practices continue to,domestically, refined and directed advertising to dental professionals, and continue to support and broaden our global distribution network.
19
The consolidated results of operations for the three and nine months ended September 30, 2015 compared to the same three and nine month periods in 2014 reflect our focus and development on the Wand/STA Instrument, as well as continuing efforts on
16
identifying collaborative partners which will allow for new product development utilizing our CompuFlo technology.
The following table sets forth for the periods presented, the statementconsolidated results of operations datafor the three months ended March 31, 2016 compared to 2015 as a percentage of revenues. 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, |
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||||||||||||
Total revenue |
| $ | 2,459,958 |
|
|
| 100 | % |
| $ | 2,535,098 |
|
|
| 100 | % |
| $ | 6,996,921 |
|
|
| 100 | % |
| $ | 7,662,864 |
|
|
| 100 | % |
| $ | 3,569,374 |
|
|
| 100 | % |
| $ | 2,770,204 |
|
|
| 100 | % |
Cost of products sold |
|
| 794,285 |
|
|
| 32 | % |
|
| 829,546 |
|
|
| 33 | % |
|
| 2,298,162 |
|
|
| 33 | % |
|
| 2,624,950 |
|
|
| 34 | % |
|
| 1,368,190 |
|
|
| 38 | % |
|
| 933,148 |
|
|
| 34 | % |
Gross Profit |
|
| 1,665,673 |
|
|
| 68 | % |
|
| 1,705,552 |
|
|
| 67 | % |
|
| 4,698,759 |
|
|
| 67 | % |
|
| 5,037,914 |
|
|
| 66 | % |
|
| 2,201,184 |
|
|
| 62 | % |
|
| 1,837,056 |
|
|
| 66 | % |
Selling, general and administrative expenses |
|
| 2,480,354 |
|
|
| 99 | % |
|
| 1,838,388 |
|
|
| 73 | % |
|
| 6,969,332 |
|
|
| 99 | % |
|
| 4,749,112 |
|
|
| 62 | % |
|
| 3,001,130 |
|
|
| 95 | % |
|
| 1,898,081 |
|
|
| 99 | % |
Research and development expenses |
|
| 20,676 |
|
|
| 1 | % |
|
| 29,370 |
|
|
| 1 | % |
|
| 49,616 |
|
|
| 1 | % |
|
| 74,254 |
|
|
| 1 | % |
|
| 143,442 |
|
|
| 5 | % |
|
| 10,118 |
|
|
| 1 | % |
Operating expenses |
|
| 2,501,030 |
|
|
| 100 | % |
|
| 1,867,758 |
|
|
| 74 | % |
|
| 7,018,948 |
|
|
| 99 | % |
|
| 4,823,366 |
|
|
| 62 | % |
|
| 3,144,572 |
|
|
| 100 | % |
|
| 1,908,199 |
|
|
| 100 | % |
(Loss) income from operations |
|
| (835,357 | ) |
|
| -34 | % |
|
| (162,206 | ) |
|
| -6 | % |
|
| (2,320,189 | ) |
|
| -33 | % |
|
| 214,548 |
|
|
| 3 | % | ||||||||||||||||
Other expenses - interest & expenses |
|
| (712,395 | ) |
|
| -29 | % |
|
| (196,284 | ) |
|
| -8 | % |
|
| (1,760,227 | ) |
|
| -25 | % |
|
| (547,661 | ) |
|
| -7 | % | ||||||||||||||||
Loss before Provision for Tax |
|
| (1,547,752 | ) |
|
| -64 | % |
|
| (358,490 | ) |
|
| -10 | % |
|
| (4,080,416 | ) |
|
| -59 | % |
|
| (333,113 | ) |
|
| 7 | % | ||||||||||||||||
Loss from operations |
|
| (943,388 | ) |
|
| -26 | % |
|
| (71,143 | ) |
|
| -3 | % | ||||||||||||||||||||||||||||||||
Interest expense |
|
| (1,237 | ) |
|
| 0 | % |
|
| - |
|
|
| 0 | % | ||||||||||||||||||||||||||||||||
Interest income |
|
| 302 |
|
|
| 0 | % |
|
| 1,210 |
|
|
| 0 | % | ||||||||||||||||||||||||||||||||
Total other expenses, net |
|
| (935 | ) |
|
| 0 | % |
|
| 1,210 |
|
|
| -3 | % | ||||||||||||||||||||||||||||||||
Loss before provision for income tax and equity in net earnings of equity investments |
|
| (944,323 | ) |
|
| -69 | % |
|
| (69,933 | ) |
|
| -3 | % | ||||||||||||||||||||||||||||||||
Provision for Income Tax |
|
| (27,105 | ) |
|
| -1 | % |
|
| — |
|
|
| 0 | % |
|
| (40,751 | ) |
|
| -2 | % |
|
| — |
|
|
| 0 | % |
|
| (46,834 | ) |
|
| -1 | % |
|
| - |
|
|
| 0 | % |
Loss before equity in net earnings of equity investments |
|
| (991,157 | ) |
|
| -28 | % |
|
| (69,933 | ) |
|
| -3 | % | ||||||||||||||||||||||||||||||||
Loss on earnings from Milestone Medical |
|
| - |
|
|
| 0 | % |
|
| (450,160 | ) |
|
| -16 | % | ||||||||||||||||||||||||||||||||
Loss on earnings from Education Joint Venture |
|
| - |
|
|
| 0 | % |
|
| (4,215 | ) |
|
| 0 | % | ||||||||||||||||||||||||||||||||
(Loss) Gain on earnings from China Joint Venture |
|
| (269,726 | ) |
|
| -8 | % |
|
| 96,674 |
|
|
| 3 | % | ||||||||||||||||||||||||||||||||
Loss in equity investments |
|
| (269,726 | ) |
|
| -8 | % |
|
| (357,701 | ) |
|
| -13 | % | ||||||||||||||||||||||||||||||||
Net loss |
|
| (1,574,857 | ) |
|
| -64 | % |
|
| (358,490 | ) |
|
| -14 | % |
|
| (4,121,167 | ) |
|
| -58 | % |
|
| (333,113 | ) |
|
| -4 | % |
|
| (1,260,883 | ) |
|
| -35 | % |
|
| (427,634 | ) |
|
| -15 | % |
Less: Net loss attributable to the noncontrolling interests |
|
| 5,655 |
|
|
| 0 | % |
|
| — |
|
|
| 0 | % |
|
| 59,642 |
|
|
| 0 | % |
|
| — |
|
|
| 0 | % |
|
| 510,824 |
|
|
| 17 | % |
|
| 8,259 |
|
|
| 0 | % |
Net loss attributable to Milestone Scientific Inc. |
| $ | (1,569,202 | ) |
|
| -64 | % |
| $ | (358,490 | ) |
|
| -14 | % |
| $ | (4,061,525 | ) |
|
| 57 | % |
| $ | (333,113 | ) |
|
| -4 | % |
| $ | (750,059 | ) |
|
| -21 | % |
| $ | (419,375 | ) |
|
| -15 | % |
Three monthsMonths ended September 30, 2015March 31, 2016 compared to Three monthsMonths ended September 30, 2014March 31, 2015
Total product sales forThe following paragraphs will describe the three months ended September 30, 2015 and 2014 were $2,459,958 and $2,535,098, respectively, a decreaseresults of $75,140, from 2014. Domestic sales decreased by $338,275 or 33% from 2014. In the domestic market, the total handpiece sales decreased by $173,995, or 21%, in 2015 over 2014. The decrease in domestic handpiece sales is primarily due to a price increase in January 2015 that is slowly being adopted by our distributor in the USA. We have adjusted our training and field support to increase handpiece usage. On the international front, revenue increased by $263,134 in 2015 over 2014. This increase is primarily due to the recognition of instruments revenue for sales to Milestone China. Handpiece sales decreased by $382,648, or 31%, due to international price increase at the beginning of 2015 and a strengthening of the US dollar as2016 compared to the Euro and other currencies throughout the world. We believe that Wand Plus users in Europe will continue to own, utilize and purchase handpieces. We are adjusting our pricing strategy for both instruments and handpieces in light of the strengthened US dollar.2015.
Cost of products sold for the three months ended September 30, 2015 and 2014 were $794,285 and $829,546, respectively.
For the three months ended September 30, 2015, Milestone Scientific generated a gross profit of $1,665,673 or 68% of total revenues, as compared to a gross profit of $1,705,552, or 67% of totalTotal revenues for the three months ended September 30, 2014.March 31, 2016 and 2015 were approximately $3.5 and $2.7 million, respectively. The total dental revenue increased by $799,170 or 29% which was primarily related to the increase in instrument sales worldwide. This increase in revenue is in both STA instruments and handpieces. It is important to note that in the first quarter of 2016 Henry Schein purchased their first order of instruments and handpieces as a non-exclusive distributor in USA and Canada. International Instruments sales increased by $590,000 over the same period in 2015 due to a shipment of STA instruments to China. Handpieces decreased by $630,000 for the same period in 2015 due to an incentive buyer program in 2015 for handpieces that did not occur in the first quarter of 2016. International sales decreased by approximately $17,000. In the USA, Milestone Scientific has modified its exclusive distributor and marketing agreement with Aseptico Inc. This exclusive agreement was changed to a non-exclusive agreement in December 31, 2015. The term of this non-exclusive agreement expired on March 31, 2016. Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, the leading distributor of dental products in the USA and Canada.
The gross margin in 2016 decreased to 62% versus 66% in 2015. This decrease in gross profit dollars of $39,879margin is primarily due to a decreaseprice reduction in sales.instruments in certain key markets to stimulate increased volume in 2016 by increasing marketing efforts by distributors. Although the gross margin percentage decreased 4%, gross profit dollars in 2016 increased to approximately $2.2 million from approximately $1.8 million in 2015 or, by approximately $364,000 over the same period year over year.
20
Selling, generalgeneral and administrative expenses (“SG&A Expenses”) for the three months ended September 30,March 31, 2016 were approximately $3.0 million versus $1.9 million in 2015. This increase of approximately $1.1 million is predominantly due to the consolidation of Milestone Medical in the first quarter of 2016. In 2015, Milestone Medical was accounted for under the equity method, as such their line item expenses were recorded as a one line entry in the Statement of Operations as a Loss on Earnings from Milestone Medical. The total operating expense for Milestone Medical for the quarter ending March 31, 2016 and 2014 were $2,480,3542015 was $851,000 and $1,838,388, respectively,$890,000, respectively. The major reduction in the total operating expense for Milestone Medical was a reduction in Research and Development Expense of approximately $86,000, offset by an increase in various general expenses of $641,966.$23,000.
On the consolidated basis, giving effect to the consolidation of Milestone Medical, Milestone Scientific continuesand Wand Dental, expenses increased by approximately $400,000. Salaries and other compensation expense increased by $105,000 with the increase in personnel required to focus on controllinggrow our business, a Senior Brand Manager, a Senior Manager of Project Management and an increase in our Clinical Hygienist staff to train our current and new customers. Other personnel benefits increased by $108,000 due to Medical Insurance increases and increased staff. Stock based compensation increased by $51,000 due stock option awards provided to executives at the end of 2015. Marketing and trade show expenses in all categories. Inand travel and other expenses accounted for the third quarter of 2015, Milestone Scientific continued the process of building its marketing and sales efforts to increase revenues in the medical and dental business sectors. As such, a large portionremainder of the increase in SG&A expenses is in the area, of personnel costs. Payroll, bonus, and business consulting cost increased by $405,974 partially offset by1st quarter 2016 versus the reduction of International sales commission of $344,000 as the agreement with this provider ended in the second quarter 2015, in the thirdfirst quarter of 2015 as compared to the same period of 2014. Additionally, legal fees increased for ongoing business activity and for the litigation settlement with a distributor increased by $113,856. Also marketing expenses increased by $116,004 in the quarter to support or sales effort.2015.
Research and development expenses for the three months ended September 30,March 31, 2016 and 2015 were $143,442 and 2014 were $20,676$10,118, respectively. As previously stated, $47,000 of the increase is due to the consolidation of Milestone Medical in 2016. The remainder of the increase is due to other research and $29,370.development projects that are in process.
The loss from operations for the three months ended September 30,March 31, 2016 and 2015 was $943,388 and 2014 was $835,357 and $162,206,$71,143, respectively. The $673,151 increaseadditional loss of $911,000 is primarily the result of the consolidation Milestone Medical in loss from operations is explained above.2016.
17
For the quarter ended September 30, 2015, we recognizedThere was a loss on the China Joint Venture of $590,612 (non-cash) attributable to Milestone Medical compared to a loss$269,726 and profit of $223,834 (non-cash)$96,674 for the same prior year period. We recognized a loss of $123,083 (non-cash) (40% percent of Milestone China’s loss) attributablethree months ended March 31, 2016 and 2015, respectively. The China joint Venture is in its initial operating and expansion cycle in China, and as such will continue to Milestone China compared to $29,428 income for the same prior year period. Milestone China began operationshave losses in July 2014.2016
For the reasons explained above, and after factoring in the positive effects of net loss attributable to non-controlling interest, the net loss for the three months March 31, 2016 was $750,059 as compared to the net loss for the three months ended September 30,March 31, 2015 of $419,375.
Liquidity and 2014 was $1,569,202Capital Resources
Looking at the current balance sheet for Milestone Scientific and $358,490, respectively. The $1,210,712 increase in net loss is primarily a result of an increase in SG&A Expenses of $641,966 and a net increase of non-cash losses on the unconsolidated subsidiaries, of $516,111.
Nine months ended September 30, 2015 compared to the nine months ended September 30, 2014
Total product sales for the nine months ended September 30, 2015 and 2014 were $6,996,921 and $7,662,864, respectively, a decrease of $665,943, or 9% due mainly a decrease in domestic handpieces sales, compared to the same period in 2014. The domestic handpiece salescurrent assets decreased by $907,812 for the nine months ended September 30, 2015 as compared to the same period in 2014.approximately $1.2 million. The decrease in handpiece sales is due to a price increase in the beginning of 2015 that is taking time for the distributors to pass on to their customers along with sell thru of handpieces purchased by the distributor in late 2014 to avoid the price increase in 2015. International revenue increased by $358,173. The increase is primarily attributable to an increase in international instruments revenue of $454,911 for the nine months ended September 30, 2015 as compared to the same period in 2014. However, as noted in the three month period comparison the nine month period continues to be negatively impacted (international) by the strengthened US dollar. As such, we have Milestone Scientific has modified our pricing strategy for the remainder of the year.
Cost of products sold for the nine months ended September 30, 2015 and 2014 were $2,298,162 and $2,624,950, respectively, a decrease of $326,788, or 12% due to a reduction in units sold.
Gross profit for the nine months ended September 30, 2015 and 2014 was $4,698,759 or 67% of total revenues, and $5,037,914 or 66% of total revenues, respectively. Gross profit dollars in the first nine months of 2015 decreased by $339,155 or 7%current assets is primarily due to a decrease in sales volume offset by an increasecash of approximately $1.5 million and a decrease in gross profit margin in 2015 over 2014.
SG&A Expenses for the nine months ended September 30, 2015 and 2014 were $6,969,332, and $4,749,112, respectively, an increaseinventories of $2,220,220 in 2015 as compared to 2014. Milestone Scientific continues to focus on controlling expenses in all categories. However, as we continue the process of building a marketing and sales management staff to grow our existing business and initiate new medical instruments in various sectors: these costs to continue to rise. Since January 1, 2015, Milestone Scientific has added a President and Wand Dental Inc. (subsidiary of Milestone Scientific) has added a CEO. In late 2014 Wand Dental also added a Director of Marketing. During the nine month period ended September 30, 2015, the increase in SG&A Expenses wasapproximately $360,000. The cash reduction is primarily attributable to the following: (i) approximately $800,000 of the increase was attributable to the increase in compensation and travel expenses, (ii) approximately $200,000 of the increase was attributable to additional legal expenses in the area of regulatory for Patents, (iii)approximately $500,000 of the increase was attributable to general legal expenses as a result of increased legal procedures and distributor litigation expense that was settled in 2015, and (iv) approximately $425,000 of the increase was attributable to a commission paid to a consultant for obtaining a Polish government grant for development of a new instrument for delivery of stem cells for diabetes treatments. In addition, investor relations expense increased in 2015 over 2014 due to the expansionloss from operations and the financial support of the investor relations beyond the USA.
Research and development expensesMilestone Medical for the ninethree months ended September 30, 2015 and 2014 were $49,616 and $74,254, respectively.March 31, 2016.
TheCurrent liabilities decreased by approximately $402,000.
Working Capital decreased by $766,000, primarily due to the loss from operations for the ninethree months ended September 30, 2015 was $2,320,189 comparedMarch 31, 2016. However, Milestone Scientific believes that its cash on hand and revenues from the dental business will be sufficient to income from operations of $214,548operate the ongoing business for at least the comparable period in 2014. The $2,534,737 increase in operating loss is explained above.
Fornext 12 months. As noted above, the nine months ended September 30, 2015, we recognized a loss of $1,566,711 (non-cash) attributable tofunding for Milestone Medical compared to a loss of $567,550 (non-cash) for the same prior year period. We recognized a loss $187,062 (non-cash) (40% percent of Milestone China’s loss) attributable to Milestone China compared to income of $29,428 or for the same prior year period. Milestone China began operations in July 2014.
For the reasons explained above, net loss for the nine months ended September 30, 2015 and 2014 was $4,061,525 and $333,113 respectively. The $3,728,412 increase in net loss is primarily a result of an increase in SG&A Expenses of $2,220,220 and a net increase of non-cash losses on the unconsolidated subsidiaries of $1,212,566.
Liquidity and Capital Resources
As of September 30, 2015, Milestone Scientific had cash and cash equivalents of $4,390,783 and positive working capital of $11,139,704.
18
The working capital at September 30, 2015 was $11,139,704 as compared to the working capital at December 31, 2014 of $13,147,257. The decrease of $2,007,553 in working capital was primarily attributable to a decrease in cash and cash equivalents of $5,977,210 offset by an increase in account receivable of $807,869, increase in inventory of $307,807, increase in advances to contractors of $490,729 an increase to the note receivable of $2,000,000 coupled with a net decrease in current liabilities of $303,289.
The $2 million note receivable is pursuant to the $2.5 million line of credit Milestone Scientific entered into with Milestone Medical in December 2014. This line of credit was increased from $2 million to $2.5 million in September 2015. Milestone Scientific expects that this note receivable will be repaid in the fourth quarter of 2015, or in the first quarter of 2016 by means of capital raise in Poland by Milestone Medical.limited during 2016.
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 Cash flows from operating activities for the ninethree months ended September 30,March 31, 2016 and 2015 the netwere a negative $1,389,126 and $681,191, respectively.
Milestone Scientific has incurred annual operating losses and negative cash used inflows from operating activities was $3,762,370. This was attributable primarily to a net loss of $4,061,525since its inception, except for the nine monthsyear ended September 30, 2015.
.December 31, 2013. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through increases in revenues based upon management’s assessment of present contracts, and current negotiations and reductions in operating expenses. WithThe consolidation of Milestone Medical
21
in December 2015 and the $10 million Private Placement (net $9.4 million)lack of capital raising activities by Milestone Medical in May 2014, 2015 created a unique situation for Milestone Scientific advancing into 2016. However as noted previously, Milestone Scientific is not obligated to continue its financial support of Milestone Medical, but the timeline for Milestone Medical 510K FDA clearance is expected in 2016 (mid-year). Milestone Scientific expects that clearance to commercialize the epidural and intra articular instruments in 2016 will significantly improve the capital raising opportunities and financial picture.
Milestone Scientific believes that carefully controllingwith the new distribution agreement with Henry Schein Inc. (effective January 1, 2016), the world’s largest supplier of medical, dental and veterinary supplies and devices, that dental revenues are projected to improve in the upcoming 12 months. To further reduce Milestone Scientific’s expenditures, Milestone Medical expenses collection of current accounts receivablerelated to USA FDA clearance for the epidural and repaymentintra-articular instruments can be controlled as required to meet Milestone Scientific’s budget. By limiting the FDA related expenses and increasing the dental instrument revenue through the new distribution agreement and performing a detailed cash flow projection of the $2 million note receivable it doesconsolidated company and its subsidiaries, management believes that Milestone Scientific will have sufficient cash reserves to meet all of its anticipated obligations forover the next twelve months.
As a smaller reporting company, we are not required to provide the information required by this Item.
Milestone Scientific’s management, including the 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 (the “Evaluation Date”). Based upon that evaluation, Milestone Scientific’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures as of the Evaluation Date 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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding disclosure.
There were no changes in Milestone Scientific’s internal control over financial reporting identified in connection with the evaluation that occurred during Milestone Scientific’s last fiscal quarter ended September 30, 2015March 31, 2016 that have materially affected, or that are reasonably likely to materially affect, Milestone Scientific’s internal controls over financial reporting.
1922
PPARART II – OTHER INFORMATION
None.
As a smaller reporting company, we are not required to provide the information required by this Item.
In the nine months ended September 30, 2015, Milestone Scientific issued a total of 33,599 shares of its common stock for aggregate consideration of $77,750. In September 2015, 40,155 shares were issued to a previous employee as part of a deferred compensation agreement. These shares were classified as shares to be issued, previously included in outstanding shares, and therefore not included in this schedule.None.
|
| Shares |
|
| $ |
| ||
Shares issued to employee as compensation |
|
| 13,168 |
|
|
| 35,000 |
|
Shares issued for services |
|
| 12,098 |
|
|
| 30,000 |
|
Exercise of stock options by consultants |
|
| 8,333 |
|
|
| 12,750 |
|
|
|
| 33,599 |
|
| $ | 77,750 |
|
All of the foregoing shares of common stock were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) pursuant to Section 4(a)(2) of the Act. The stock certificates for all of the foregoing shares were each imprinted with an appropriate restrictive legend.
None.
Not applicable.
None.
31.1 | Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.* | |
|
| |
31.2 | Chief Operating Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.* | |
|
| |
32.1 | Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.** | |
|
| |
32.2 | Chief Operating Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.** | |
| ||
101.INS |
| XBRL Instance Document.* |
|
| |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
|
| |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
|
| |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |
|
| |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* | |
|
| |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.* |
20
* | Filed herewith. |
** | Furnished, not filed, in accordance with Item 601(32)(ii) of Regulation S-K. |
2123
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/ Leonard Osser |
Leonard Osser |
Chief Executive Officer |
(Principal Executive Officer) |
/s/ Joseph D’Agostino |
Joseph D’Agostino |
Chief Operating Officer |
Chief Financial Officer |
(Principal Financial Officer) |
Date: November 12, 2015May 16, 2016
2224