UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended September 30, 2019

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 Incorporation or organization

(I.R.S. Employer Identification No.)

 

220 South Orange Avenue, Livingston, NJ 07039

(Address of principal executive offices)

Registrant’s telephone number, including area code: 973-535-2717

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

MLSS

NYSE American

 

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.   ☑ Yes    ☐   No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  ☑ Yes   ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐ 

Non-accelerated filer☐ 

Smaller reporting company ☑

Emerging growth company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐ Yes    ☑ No

 

As of November 14, 2019, the registrant has a total of 48,884,752 shares of Common Stock, $0.001 par value outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

 

 

MILESTONE SCIENTIFIC INC.

Form 10-Q 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

Balance Sheets as of September 30, 2019  and December 31, 2018

4

 

 

 

 

Statements of Operations for the three and nine months ended September 30, 2019 and 2018

5

 

 

 

 

Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018

6 -7

 

 

 

 

Statements of Cash Flows for nine months ended September 30, 2019 and 2018

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements 

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

Item 1A.

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 3.

Defaults Upon Senior Securities

32

 

 

 

Item 4.

Mine Safety Disclosures

32

 

 

 

Item 5.

Other Information

32

 

 

 

Item 6.

Exhibits

 33

 

 

Signatures

34

 

2

 

 

 

FORWARD-LOOKING STATEMENTS

 

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, including without limitations, Milestone Scientific's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”). Milestone Scientific disclaims any intent or obligation to update such forward-looking statements.

 

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

 

3

 

 

 

Part I- Financial Information 

Item 1. Financial Statements

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

September 30, 2019

   

December 31, 2018

 

ASSETS

               

Current assets:

               
Cash and cash equivalents   $ 1,711,249     $ 743,429  
Accounts receivable, net     1,239,261       1,978,456  
Accounts receivable, related party, net     -       100,000  
Prepaid expenses and other current assets     504,903       414,541  
Deferred cost, related party     -       50,000  
Inventories, net     1,617,062       1,921,051  
Advances on contracts     628,494       648,783  
Operating lease-right of use assets     54,818       -  

Total current assets

    5,755,787       5,856,260  
Furniture, fixtures and equipment, net     55,314       82,557  
Patents, net     395,514       435,273  
Other assets     35,905       26,878  

Total assets

  $ 6,242,520     $ 6,400,968  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               
Accounts payable   $ 739,726     $ 1,059,186  
Accounts payable, related party     1,553,860       1,810,058  
Accrued expenses and other payables     698,790       794,918  
Accrued expenses, related party     1,011,244       686,798  
Operating lease liabilities     54,817       -  
Deferred profit, related party     372,700       421,800  
Deferred revenue, related party     -       100,000  
Derivative liability     3,216,127       -  

Total current liabilities

    7,647,264       4,872,760  

Total liabilities

  $ 7,647,264     $ 4,872,760  
                 

Commitments and contingencies

               
                 

Stockholders’ equity (deficit)

               
Series A convertible preferred stock, par value $.001, authorized 5,000,000 shares, 0 and 7,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018.   $ -     $ 7  
Common stock, par value $.001; authorized 50,000,000 shares; 48,199,073 shares issued, 0 shares to be issued and 48,165,740 shares outstanding as of September 30, 2019 ; 33,859,034 shares issued, 2,470,565 shares to be issued and 33,825,701 shares outstanding as of December 31, 2018;     48,199       36,330  
Additional paid in capital     90,166,259       88,414,718  
Accumulated deficit     (90,660,941 )     (85,999,929 )
Treasury stock, at cost, 33,333 shares     (911,516 )     (911,516 )

Total Milestone Scientific Inc. stockholders' equity

    (1,357,999 )     1,539,610  
Noncontrolling interest     (46,745 )     (11,402 )

Total stockholders’ equity (deficit)

  $ (1,404,744 )   $ 1,528,208  
                 

Total liabilities and stockholders’ equity (deficit)

  $ 6,242,520     $ 6,400,968  

See notes to Condensed Consolidated Financial Statements

 

4

 

 

 

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

 

    For the three months ended September 30, 2019     For the three months ended September 30, 2018     For the nine months ended September 30, 2019     For the nine months ended September 30, 2018  
                                 

Product sales, net

  $ 1,899,821     $ 1,622,246     $ 6,073,580     $ 5,856,351  

Cost of products sold

    523,672       1,742,451       1,894,550       3,326,341  

Gross profit

    1,376,149       (120,205 )     4,179,030       2,530,010  
                                 

Selling, general and administrative expenses

    2,314,943       2,886,082       6,941,964       8,748,485  

Research and development expenses

    7,940       1,500       109,815       215,655  

Impairment of long -lived assets

    -       1,539,794       -       1,539,794  

Total operating expenses

    2,322,883       4,427,376       7,051,779       10,503,934  

Loss from operations

    (946,734 )     (4,547,581 )     (2,872,749 )     (7,973,924 )
                                 

Other expenses

    (2,633 )     (1,784 )     (7,458 )     (5,239 )

Interest income

    184       1,544       1,391       6,135  

Change in fair value of derivative liability

    (1,899,484 )     -       (1,846,761 )     -  

Loss before provision for income taxes and net of equity investments

    (2,848,667 )     (4,547,821 )     (4,725,577 )     (7,973,028 )

Provision for income taxes

    (1,250 )     (1,622 )     (19,877 )     (17,160 )

Loss before equity in net earnings (losses) of equity investments

    (2,849,917 )     (4,549,443 )     (4,745,454 )     (7,990,188 )

Earnings from Milestone Education

    -       1,635       -       1,635  

Earnings from China Joint Venture

    -       143,242       49,099       258,616  

Net loss

    (2,849,917 )     (4,404,566 )     (4,696,355 )     (7,729,937 )

Net loss attributable to noncontrolling interests

    12,941       11,742       35,343       118,424  

Net loss attributable to Milestone Scientific Inc.

    (2,836,976 )     (4,392,824 )     (4,661,012 )     (7,611,513 )
                                 

Net loss per share applicable to common stockholders—

                               

Basic

  $ (0.06 )   $ (0.12 )   $ (0.11 )   $ (0.22 )

Diluted

  $ (0.06 )   $ (0.12 )   $ (0.11 )   $ (0.22 )
                                 

Weighted average shares outstanding and to be issued—

                               

Basic

    47,721,732       35,586,995       43,311,984       35,086,822  

Diluted

    47,721,732       35,586,995       43,311,984       35,086,822  

See notes to Condensed Consolidated Financial Statement          

 

5

 

 

 

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED) 

 

    Preferred Stock Shares     Preferred Stock     Common Stock Share     Common Stock Amount     Additional Paid in Capital    

Accumulated Deficit

   

Noncontrolling Interest

    Treasury Stock    

Total

 

Balance, January 1, 2019

    7,000     $ 7       36,329,600     $ 36,330     $ 88,414,718     $ (85,999,929 )   $ (11,402 )   $ (911,516 )   $ 1,528,208  

Stock based compensation

    -       -       -       -       56,988       -       -       -       56,988  

Common stock to be issued to employees for bonuses

    -       -       175,715       175       61,325       -       -       -       61,500  

Common stock to be issued for payment of consulting services

    -       -       118,115       118       39,882       -       -       -       40,000  

Common stock to be issued to employee for compensation

    -       -       22,727       23       7,477       -       -       -       7,500  

Common stock to be issued to board of directors for services rendered

    -       -       20,588       21       6,979       -       -       -       7,000  

Common stock issued in public offering

    -       -       6,282,400       6,281       1,968,265       -       -       -       1,974,546  

Common stock issued in private offering

    -       -       714,286       714       249,286       -       -       -       250,000  

Reclassification of warrants and Shares to be issued to derivative liability (Note 8)

    -       -       -       -       (406,045 )     -       -       -       (406,045 )

Net loss

    -       -       -       -       -       (782,752 )     (10,443 )     -       (793,195 )

Balance, March 31, 2019

    7,000     $ 7       43,663,431     $ 43,662     $ 90,398,875     $ (86,782,681 )   $ (21,845 )   $ (911,516 )   $ 2,726,502  
Stock based compensation                                     44,712       -       -       -       44,712  
Common stock to be issued for payment of consulting services                     265,140       265       139,735       -       -       -       140,000  
Common stock to be issued to employee for compensation                     41,667       42       14,958       -       -       -       15,000  
Common stock to be issued to board of directors for services rendered                     82,442       82       29,918       -       -       -       30,000  

Conversion of Preferred Shares to Common Stock (Mandatory)

    (7,000 )     (7 )     5,982,906       5,983       (5,976 )     -       -       -       -  
Reclassification of warrants and Shares to be issued to derivative liability (Note 8)                     (2,903,366 )     (2,902 )     (1,062,637 )     -       -       -       (1,065,539 )

Net loss

    -       -       -       -       -       (1,041,284 )     (11,959 )     -       (1,053,243 )

Balance, June 30, 2019

    -     $ -       47,132,220     $ 47,132     $ 89,559,585       (87,823,965 )     (33,804 )     (911,516 )   $ 837,432  
Stock based compensation     -       -       -       -       45,147       -       -       -       45,147  
Common stock to issued for payment of consulting services     -       -       316,824       317       122,683       -       -       -       123,000  
Common stock to be issued for payment of consulting services     -       -       202,325       202       113,298       -       -       -       113,500  
Common stock to be issued to employees for bonuses     -       -       170,454       170       149,830       -       -       -       150,000  
Common stock to be issued to employee for compensation     -       -       18,072       18       14,982       -       -       -       15,000  
Common stock to be issued to board of directors for services rendered     -       -       44,408       44       29,956       -       -       -       30,000  
Common stock issued for warrants exercised     -       -       57,750       58       28,817       -       -       -       28,875  
Shares issued previously classified as derivative liability (Note 8)     -       -       692,281       693       410,026       -       -       -       410,719  
Reclassification of warrants and Shares to be issued to derivative liability (Note 8)     -       -       (435,260 )     (435 )     (308,065 )     -       -       -       (308,500 )
Net loss     -       -       -       -       -       (2,836,976 )     (12,941 )     -       (2,849,917 )
Balance, September 30, 2019     -     $ -       48,199,074     $ 48,199     $ 90,166,259     $ (90,660,941 )   $ (46,745 )   $ (911,516 )   $ (1,404,744 )

 

6

 

 

    Preferred Stock Shares     Preferred Stock     Common Stock Share     Common Stock Amount     Additional Paid in Capital    

Accumulated Deficit

   

Noncontrolling Interest

    Treasury Stock    

Total

 

Balance, January 1, 2018

    7,000     $ 7       34,592,818     $ 34,593     $ 86,689,084     $ (78,568,284 )   $ 256,744     $ (911,516 )   $ 7,500,628  

Stock based compensation

                                  $ 86,809                               86,809  

Common stock to be issued to employees for bonuses

                    323,076     $ 323     $ 339,177                               339,500  

Net loss

                                          $ (1,873,978 )   $ (101,407 )             (1,975,385 )

Balance, March 31, 2018

    7,000     $ 7       34,915,894     $ 34,916     $ 87,115,070     $ (80,442,262 )   $ 155,337     $ (911,516 )   $ 5,951,552  

Stock based compensation

    -       -       -       -       84,092       -       -       -       84,092  

Common stock to be issued to employees for bonuses

    -       -       79,307       79       59,921       -       -       -       60,000  

Common stock to be issued for payment of consulting services

    -       -       296,046       294       249,455       -       -       -       249,749  

Common stock to be issued to employee for compensation

    -       -       37,267       37       37,463       -       -       -       37,500  

Common stock for Asset Acquisition

    -       -       244,959       245       286,357       -       -       -       286,602  

Net loss

    -       -       -       -       -       (1,342,736 )     (7,250 )     -       (1,349,986 )

Balance, June 30, 2018

    7,000     $ 7       35,573,473     $ 35,571     $ 87,832,358     $ (81,784,998 )   $ 148,087     $ (911,516 )   $ 5,319,509  

Stock based compensation

    -       -                       76,524       -       -       -       76,524  

Common stock to be issued to employees for bonuses

    -       -       19,737       20       14,980       -       -       -       15,000  

Common stock to be issued for payment of consulting services

    -       -       54,057       54       39,946       -       -       -       40,000  

Common stock to be issued to employee for compensation

    -       -       10,134       10       7,490       -       -       -       7,500  

Common stock for Asset Acquisition

    -       -                               -       (8,020 )     -       (8,020 )

Net loss

    -       -                               (4,394,799 )     (9,767 )     -       (4,404,566 )

Balance, September 30, 2018

    7,000     $ 7       35,657,401     $ 35,655     $ 87,971,298     $ (86,179,797 )   $ 130,300     $ (911,516 )   $ 1,045,947  

See notes to Condensed Consolidated Financial Statements

 

7

 

 

 

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

    For the nine months ended September 30, 2019     For the nine months ended September 30, 2018  

Cash flows from operating activities:

               
Net loss   $ (4,696,358 )   $ (7,729,937 )

Adjustments to reconcile net loss to net cash used in operating activities:

               
Depreciation expense     37,159       53,675  
Amortization of patents     39,760       801,426  
Impairment to long lived assets     -       1,539,794  
Stock compensation     146,847       247,425  
Income from earnings on China joint venture     (49,100 )     (258,616 )
Inventory reserve     -       728,017  
Deferred cost reserve     -       790,189  
Change in fair value of derivative liability     1,846,761       -  
Amortization of right-of-use assets     117,121       -  

Changes in operating assets and liabilities:

               
Decrease in accounts receivable     739,195       521,347  
Decrease in accounts receivable, related party     100,000       466,455  
Increase in other receivables     (9,027 )     -  
Decrease in inventories     303,989       405,234  
Decrease (increase) in advances on contracts     20,289       (187,631 )
Increase in prepaid expenses and other current assets     (90,362 )     (9,854 )
(Decrease) increase in accounts payable     (465,670 )     328,900  
(Decrease) increase in accounts payable, related party     (109,989 )     467,352  
Increase (decrease) in deferred cost, related party     50,000       (470,708 )
Increase in accrued expenses     (50,424 )     859,677  
Increase in accrued expenses, related party     1,011,245       (43,892 )
Decrease in operating lease-right of use asset     (117,122 )     -  
(Decrease) increase in deferred revenue, related party     (100,000 )     (466,455 )

Net cash used in operating activities

    (1,275,686 )     (1,957,602 )

Cash flows from investing activities:

               
Purchase of property and equipment     (9,916 )     (6,505 )
Acquisition of Milestone Education     -       (8,020 )

Net cash used in investing activities

    (9,916 )     (14,525 )

Cash flows from financing activities:

               

Payments for financing transaction

    -       (250,000 )
Proceeds from exercise of warrants     28,875       -  
Net proceeds from Public Placement Offering     1,974,547       -  
Net proceeds from Private Placement Offering     250,000       -  

Net cash provided by financing activities

    2,253,422       (250,000 )

Net increase (decrease) in cash and cash equivalents

    967,820       (2,222,127 )
Cash and cash equivalents at beginning of period     743,429       2,636,956  

Cash and cash equivalents at end of period

  $ 1,711,249     $ 414,829  
                 

Supplemental non-cash disclosure of cash flow information:

               
Shares issued to employee for bonuses   $ 211,500     $ 47,401  
Shares issued to board of directors for services rendered   $ 67,000     $ -  
Shares issued to employees for compensation   $ 37,500     $ -  
Shares issued to consultants in lieu of cash payments   $ 416,500     $ 350,103  
Sale of Milestone China share, financing transaction   $ -     $ (1,400,000 )
Credit from United Systems for defective handpieces   $ (151,562 )   $ -  
Initial recognition of operating lease-right of use assets   $ (166,292 )   $ -  
Initial recognition of operating lease right to used liabilities   $ 166,292     $ -  

See notes to Condensed Consolidated Financial Statements

8

 

 

MILESTONE SCIENTIFIC INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)  

 

NOTE 1 — ORGANIZATION AND BUSINESS

 

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

 

Milestone Scientific was incorporated in the State of Delaware in November 1989. Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery device, using The Wand®, a single use disposable handpiece. The device is marketed in the dental market under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and in the medical market under the trademark CompuMed®. CompuDent® is suitable for all dental procedures that require local anesthetic. CompuMed® has regulatory approval for epidural medical procedures, and is expected to be suitable, for many medical procedures regularly performed in plastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedics and many other disciplines. The dental devices are sold in the United States, US territories, Canada and in 60 other countries. 

 

During 2016, Milestone Scientific filed for 510(k) marketing clearance with the U.S. Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo® Computer Controlled Anesthesia System.  In June 2017, the FDA approved the CompuFlo® Epidural Computer Controlled Anesthesia System for epidural injections. Milestone Scientific is in the process of introductory meetings with medical device distributors within the United States and foreign markets. Milestone Scientific’s immediate focus is on marketing its epidural device throughout the United States and Europe. To date there have been five medical devices sold in the United States and limited amounts sold internationally, although certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries.

 

In December 2016, we received notification from the FDA that based upon the 510(k)-application submitted for intra- articular injections, we did not adequately document that the device met the equivalency standard required for 510(k) clearances. Following consultation with the FDA’s Office of Device Evaluation, we intend to file a new 510(k) application for the device when the Company secures additional funding.

 

In November 2018, Milestone Scientific received a letter from NYSE American LLC (the “Exchange”) stating that the Company was not in compliance with the continued listing standards as set forth in Section(s) 1003(a)(i), (ii), and (iii) of the NYSE American Company Guide (the “Company Guide”).On December 20, 2018, the Company submitted a plan of compliance (the “Plan”) to the Exchange addressing how it intends to regain compliance with Section(s) 1003(a)(i), (ii) and (iii) of the Company Guide by May 20, 2020. On January 24, 2019, the Company received a letter from the Exchange stating that the Company’s Plan has been accepted. The Company is still not in compliance with Section(s) 1003(a)(i), (ii) and (iii) of the Company Guide and its listing on the Exchange is being continued pursuant to an extension granted by the Exchange.

 

In February 2019, Milestone Scientific consummated a public offering and a private placement of Common Stock. The public offering generated gross proceeds of approximately $2.0 million for the issuance of 5,715,000 shares of common stock and warrants to purchase 1,428,750 shares of common stock. The warrants terms are 5 years and they are exercisable at $0.50 per share. Subsequent to the public offering the underwriter exercised its over-allotment option and paid approximately $198,000 for 567,400 additional shares of common and as well as 141,850 warrants.

 

Also, in February 2019, the Company generated gross proceeds from a private placement of approximately $250,000 for 714,286 shares of common stock and warrants to purchase 178,571 shares of common stock from  Bp4 S.p.A., a principal stockholder of Milestone Scientific, that exercised its right to participate on a pro-rata basis on the aforementioned public offering. Bp4’s CEO is a director of Milestone Scientific and also Chief Executive Officer and Director of Wand Dental, a wholly owned subsidiary of Milestone Scientific. The warrants terms are 5 years and they are exercisable at $0.50 per share.

 

9

 
 
 

NOTE 2- GOING CONCERN AND LIQUIDITY

    

The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the condensed  consolidated financial statements are issued. Milestone Scientific has incurred operating losses and negative cash flows from operating activities in virtually each year since its inception. At September 30, 2019 cash on hand was $1.7 million. Based on the expected cash needed for operating activities, the Company’s current cash and liquidity is not sufficient to finance the  operating requirements for at least the next 12 months from the filing date. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.   

 

Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical devices and disposables business in the United States and worldwide, and a reduction in operating expenses. However, the Company’s continued operations will depend on its ability to raise additional capital through various potential sources (See Note 8 Shares and warrants in excess of authorized shares) until it achieves profitability, if ever. Management is actively pursuing financing or other strategic plans but can provide no assurances that such financing or other strategic plans will be available on acceptable terms, or at all. 

 

These condensed consolidated financial statements have been prepared with the assumption that the Company will continue as a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business and do not include any adjustments to reflect the possible future effects on the recover ability and classification of assets or the amounts and classification of liabilities that may result from the inability of the Company to continue as a going concern.    

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

1.  Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), Milestone Advanced Cosmetic (majority owned), Milestone Education (wholly owned) and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in consolidation.

 

2. Basis of Presentation

 

The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2018, included in Milestone Scientific's Annual Report on Form 10-K.

 

3.  Reclassifications

 

Certain reclassifications have been made to the 2018 financial statements to conform to the condensed  consolidated 2019 financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

 

4.  Use of Estimates

 

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

 

10

 

 

5.  Revenue Recognition

 

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To perform revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: 

 

i.

 

identification of the promised goods or services in the contract;

ii.

 

determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

iii.

 

measurement of the transaction price, including the constraint on variable consideration;

iv.

 

allocation of the transaction price to the performance obligations based on estimated selling prices; and

v.

 

recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

 

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

  

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

 

Sales Returns

 

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

 

Financing and Payment

 

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

 

Disaggregation of Revenue

 

See Note 10 for disaggregated revenue information

 

6.  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. 

 

If the Company determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary. Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity.        

 

11

 

 

Because Milestone Scientific has a variable interest in Milestone China, it considered the guidance in ASC 810, “Consolidation” as it relates to determining whether Milestone China is a VIE and, if so, identifying the primary beneficiary. Milestone Scientific would be considered the primary beneficiary of the VIE if it has both of the following characteristics:

 

 

Power Criterion: The power to direct the activities that most significantly impact the entity’s economic performance; and

 

Losses/Benefits Criterion: The obligation to absorb losses that could potentially be significant or the right to receive benefits that could potentially be significant to the VIE

 

Milestone Scientific does not have the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has not been met. Management placed the most weight on the relationship and significance of activities of Milestone China to the CEO and a group of significant shareholders, including the Milestone China CEO,  which have the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note 6.

 

7. Cash and Cash Equivalents

 

Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

 

8. 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. Most credit sales are due within 90 days from invoicing. As of September 30, 2019 and December 31, 2018, accounts receivable (non- related party) was recorded, net of allowance for doubtful accounts of $10,000. 

 

9.  Inventories

 

Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence and product expiration requirements. As of September 30, 2019 and December 31, 2018, inventory was recorded net of a valuation allowance for slow moving and defective inventory of approximately $752,000 and $763,000,  respectively. 

 

10.  Equity Method Investments

 

Investments in which Milestone Scientific can exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in the long-term assets on the condensed consolidated balance sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line on the Condensed  Consolidated Statements of Operations.

 

11.  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 two to seven years. The costs of maintenance and repairs are charged to operations as incurred. 

 

12

 

12.  Intangible Assets – Patents and Developed Technology

 

Patents are recorded at cost to prepare and file the applicable documents with the US Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight--line method over the estimated useful life of the patent. Patents and other developed technology acquired from another business entity are amortized over the remaining estimated useful life of the patent. 

          

13.  Impairment of Long-Lived Assets

 

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment review process is based upon an estimate of future undiscounted cash flow. Factors the Company considers that could trigger an impairment review include the following:

 

 

significant under performance relative to expected historical or projected future operating results;

 

significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

 

significant negative industry or economic trends; and

 

significant technological changes, which would render the technology obsolete.

 

Recoverability of assets that will continue to be used in the Company's operations is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimated future costs.

 

14.  Research and Development

 

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

 

15.  Income Taxes

 

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

 

At September 30, 2019 and December 31, 2018, we had no uncertain tax positions that required recognition in the condensed consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the condensed consolidated statements of operations. No interest and penalties are present for periods open. Tax returns for the 2015, 2016, 2017, and 2018 years are subject to audit by federal and state jurisdictions. 

 

16.  Basic and diluted net loss per common share

 

Basic earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. In periods where there is net income, we applied the two-class method to calculate basic and diluted net income (loss) per share of common stock, as our Series A Convertible Preferred Stock (which automatically converted in full into Common Stock on May 2019 – see Note 8) was a participating security. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. In periods where there is a net loss, the two-class method of computing earnings per share would not apply as our Series A Convertible Preferred Stock did not  contractually participate in our losses. 

 

The Company did not include any portion of outstanding options,  warrants or convertible preferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented.  Such outstanding options and warrants totaled 5,004,415 and 6,703,553 at September 30, 2019 and December 31, 2018,  respectively. The application of the two-class method of computing earnings per share under general accounting principles for participating securities is not applicable during these periods because those securities do not contractually participate in its losses. 

 

13

 

17.  Fair Value of Financial Instruments

 

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

 

 

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

 

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

 

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

 

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 

The following table provides the carrying value and fair value of the Company’s financial assets or liabilities (see Note 8 ) measured at fair value on a recurring basis as of September 30, 2019.

   

Carrying Value

   

Level 1

   

Level 2

   

Level 3

 
                                 

Derivative Warrants

  $ 1,016,639       -       -     $ 1,016,639  

Shares to be issued-liability

    2,199,488       2,199,488       -       -  

Total September 30, 2019

  $ 3,216,127     $ 2,199,488     $ -     $ 1,016,639  

 

The following additional disclosures relate to the changes in fair value of the Company’s Level 3 instruments during the nine months ended September 30, 2019 :

   

September 30, 2019

 

Balance at beginning of year

  $ -  

Warrants issued in connection with public offering (See Note 8)

    376,497  

Change in fair value of derivative liability

    674,792  
Exercise of liability classified warrants     (34,650 )

Balance at end of period

  $ 1,016,639  

 

The Company had no assets or liabilities that were measured in the fair value on a recurring basis as of December 31, 2018.

 

18. Derivative Liability

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks; however, the Company has certain financial instruments that qualify as derivatives and are classified as liabilities on the balance sheet. The Company evaluates all its financial instruments to determine if those instruments or any potential embedded components of those instruments qualify as derivatives that need to be separately accounted for in accordance with FASB ASC 815, “Derivatives and Hedging”.  Derivatives satisfying certain criteria are recorded at fair value at issuance and marked-to-market at each balance sheet date with the change in the fair value recorded as income or expense. In addition, upon the occurrence of an event that requires the derivative liability to be reclassified to equity, the derivative liability is revalued to fair value at that date. See Note 8.

 

19.  Stock-Based Compensation

 

Share-based payments to employees, including grants of employee stock options, is recognized in the condensed consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values. 

 

20.  Recent Accounting Pronouncements

 

On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), by ASU 2018-11, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

 

14

 

 

In adopting the new standard, the Company elected to utilize the available package of practical expedients permitted under the transition guidance, which does not require the reassessment of the following: i) whether existing or expired arrangements are or contain a lease, ii) the lease classification of existing or expired leases, and iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. As of the adoption date, the Company identified three operating lease arrangements in which it is a lessee. The adoption of this standard resulted in the recognition of operating lease liabilities and right-of-use assets of $166,292 in the Company’s condensed consolidated balance sheets. The adoption of the standard did not have a material effect on the Company’s statements of operations or statements of cash flows. For information regarding the impact of Topic 842 adoption, see Note 13 – Commitments.

 

On November 28, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. This ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and the range and weighted average of unobservable inputs used in Level 3 fair value measurements. ASU 2018-13 is effective for all entities with fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. The Company is currently evaluating the impact of adopting this standard.

 

In June 2016, the FASB issued a new standard ASU 2016-13, “Financial Instruments – Credit Losses” (Topic 326). The new standard is intended to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. It will be effective for all entities for fiscal years and interim periods, beginning after January 15, 2020. We are currently evaluating the impact of adopting this guidance on our consolidated balance sheet, results of operation and financial condition.

 

NOTE 4 — INVENTORIES

 

Inventories consist of the following:

 

September 30, 2019

   

December 31, 2018

 
                 
Dental finished goods, net   $ 1,338,193     $ 1,609,000  
Medical finished goods, net     196,958       188,133  
Component parts and other materials     81,911       123,918  

Total inventories

  $ 1,617,062     $ 1,921,051  

 

At September 30, 2019 and December 31, 2018, there is a reserve for slow moving medical finished goods of $450,039 and $454,183, respectively, and damaged or slow moving dental finished goods of $302,073 and $309,196, respectively. The reserve for the medical finished goods was primarily related to the delay in commercialization of the intra-articular medical instrument.  

 

NOTE 5 — ADVANCES ON CONTRACTS

 

The advances on contracts represent funding of future STA, Epidural instruments, and epidural replacements parts. The balance of the advances as of September 30, 2019 and December 31, 2018 is approximately $628,000 and $649,000 respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.    

   

15

 

 

 

NOTE 6 – INVESTMENT IN AND TRANSACTIONS WITH UNCONSOLIDATED SUBSIDIARIES

Milestone China Ltd.

           

Ownership

 

In June 2014, Milestone Scientific invested $1 million in Milestone China Ltd. (“Milestone China”) by contributing 772 STA Instruments to Milestone China for a 40% ownership interest. Milestone Scientific recorded this investment under the equity method of accounting. 

 

Related Party Transactions

 

Milestone China is Milestone Scientific’s exclusive distributor in China.  During 2017 and prior to the payment default during 2018, Milestone Scientific agreed to sell inventory to Milestone China and its agent. During 2018 Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and it’s agents which amounted to $2.8 million  at the time of the payment arrangement. The payment terms required payments of $200,000 per month beginning in July 2018 through November 2018 and a balloon payment of approximately $1,425,000 during December 2018. Milestone Scientific collected $950,000 under the payment arrangement which resulted in a deferred revenue and deferred cost balance of $1.8 million and $1.25 million, respectively. Due to the default on the arrangement  and Milestone China’s liquidity constraints, Milestone Scientific  halted  shipments to Milestone China and the Company has adjusted the accounts receivable related party and the deferred revenue related party based on the expected payment realization and recorded a reserve against the related deferred cost of $1.25 million during the fourth quarter of 2018.

 

Milestone Scientific recognized revenue associated with sales to Milestone China and it’s agents of zero and $100,000 For the three and nine months ended September 30, 2019, respectively. Milestone Scientific recognized $300,000 related party revenue from Milestone China and it’s agents during the three and nine months ended September 30, 2018.

 

Gross Profit Deferral

 

Due to timing differences of when the inventory sold to Milestone China is recognized and when Milestone China sells the acquired inventory to third parties, an elimination of the profit is required as of the balance sheet date. In accordance with ASC 323 Equity Method and Joint Ventures, Milestone Scientific has deferred 40% of the gross profit associated with previously recognized revenue from sales to Milestone China until that product is  sold to third parties.

 

At September 30, 2019 and December 31, 2018 , the deferred profit was $372,700 and $421,800, respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets. For the three and nine months ended September 30, 2019, Milestone Scientific recorded income on equity investment of  $0 and $49,100 respectively, for product sold by Milestone China to third parties. For the three and nine months ended September 30, 2018, Milestone Scientific recorded an earnings and loss on its investment of  $143,242, and $258,616 respectively, for product sold by Milestone China to third parties.

 

Equity Method Disclosures

 

At September 30, 2019 and December 31, 2018, Milestone Scientific's investment in Milestone China was $0. As of September 30, 2019 and December 31, 2018, Milestone Scientific’s share of cumulative losses of Milestone China were $4,361,103 and $3,380,388, respectively, which have been suspended.

 

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

   

September 30, 2019

   

December 31, 2018

 

Assets:

 

(unaudited)

   

(unaudited)

 

Current assets

  $ 14,186,280     $ 10,587,648  

Non-current assets

    4,756,043       4,603,845  

Total assets:

  $ 18,942,323     $ 15,191,493  
                 

Liabilities:

               

Current liabilities

  $ 23,477,542     $ 17,696,033  

Stockholders' equity (deficit)

    (4,535,219 )     (2,504,900 )

Total liabilities and stockholders’ deficit

  $ 18,942,323     $ 15,191,133  

 

16

 

 

   

For the three months ended September 30, 2019

   

For the three months ended September 30, 2018

   

For the nine months ended September 30, 2019

   

For the nine months ended September 30, 2018

 
   

(unaudited)

   

(unaudited)

   

(unaudited)

   

(unaudited)

 

Net sales

  $ 678,140     $ 1,710,473     $ 2,431,942     $ 3,795,507  

Cost of goods sold

    423,948       789,957       983,348       1,888,409  

Gross profit

    254,192       920,516       1,448,594       1,907,098  

Other expenses

    (598,324 )     (1,371,085 )     (3,900,382 )     (3,742,737 )

Net loss

  $ (344,132 )   $ (450,569 )   $ (2,451,788 )   $ (1,835,639 )

 

 

NOTE 7 — PATENTS

 

   

September 30, 2019

 
   

Cost

   

Impairment

   

Accumulated Amortization

   

Net

 

Patents-foundation intellectual property

  $ 1,377,863     $ -     $ (982,349 )   $ 395,514  

Total

  $ 1,377,863     $ -     $ (982,349 )   $ 395,514  

 

   

December 31, 2018

 
   

Cost

   

Impairment

   

Accumulated Amortization

   

Net

 

Patents-foundation intellectual property

  $ 1,377,863     $ -     $ (942,590 )   $ 435,273  

Epidural-Apad acquired patents

    2,639,647       (1,539,794 )     (1,099,853 )     -  

Total

  $ 4,017,510     $ (1,539,794 )   $ (2,042,443 )   $ 435,273  

 

Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was approximately  $13,000 and $40,000 for the three and nine months ended September 30, 2019, respectively. Amortization expense was approximately $332,000 and $801,000 for the three and nine months ended September 30, 2018, respectively.

 

During 2018, the Company determined  that the APAD Patents purchased in 2017 will not be further developed or commercialized before their estimated useful life expires. As such, management determined that these assets were impaired and a charge of approximately $1.5 million was recorded.     

 

NOTE 8— STOCKHOLDERS’ EQUITY

 

PUBLIC OFFERING AND PRIVATE PLACEMENT

 

In February 2019, Milestone Scientific consummated a public offering and a private placement of Common Stock. The public offering generated gross proceeds of approximately $2.0 million for the issuance of 5,715,000 shares of common stock and warrants to purchase 1,428,750 shares of common stock. The warrants’ term is 5 years and they are exercisable at $0.50 per share. Subsequent to the public offering the underwriter exercised its over-allotment option and paid approximately $198,000 for 567,400 additional shares of common stock and 141,850 warrants.

 

Also, in February 2019, the Company generated gross proceeds from a private placement of approximately $250,000 for 714,286 shares of common stock and warrants to purchase 178,571 shares of common stock from  Bp4 S.p.A., a principal stockholder of Milestone Scientific, that exercised its right to participate on a pro-rata basis on the recent public offering. Bp4’s CEO is a director of Milestone Scientific and also Chief Executive Officer and Director of Wand Dental, a wholly owned subsidiary of Milestone Scientific. The warrants’ terms are 5 years and they are exercisable at $0.50 per share.

 

17

 

 

WARRANTS

 

The following table summarizes information about shares issuable under warrants outstanding at September 30, 2019 :

 

   

Warrant shares outstanding

   

Weighted Average exercise price

   

Weighted Average remaining life

   

Intrinsic value

 

Outstanding at January 1, 2019

    1,592,775     $ 2.55     $ 0.21       -  

Issued

    1,749,171     $ 0.50     $ 4.35       560,199  

Exercised

    (57,750 )   $ 0.50       -       -  

Expired or cancelled

    -       -       -       -  

Outstanding and exercisable at September 30, 2019

    3,284,196     $ 1.49     $ 2.30       560,199  

 

See below for shares and warrants issued in excess of authorized shares for 2019 accounting treatment. 

 

PREFERRED STOCK 

 

In May 2014, Milestone completed a private placement, which raised gross proceeds of $10 million, from the sale of $3 million of Milestone Scientific common stock (two million shares at $1.50 per share) and $7 million of our Series A Convertible Preferred Stock ("preferred stock") (7,000 shares at $1,000 per share).  These shares were convertible, at the option of the holder, into the number of shares of common stock equal to the stated value divided by $2.545, subject to anti-dilution adjustments, at any time before May 14, 2019.

 

These shares were mandatory convertible on May 14, 2019, into the number of shares of common stock equal to the stated value divided by $2.54 per share or $1.50 per share if the common stock does not trade at $3.15 for period of time, as defined by the agreements, both subject to anti-dilution adjustment.

 

On May 14, 2019, the mandatory conversion date, the Preferred Stock was converted at a rate of $1.17 per common share resulting in the issuance of 5,982,906 shares of common stock.

 

SHARES TO BE ISSUED

 

As of September 30, 2019, there were 2,294,734 shares to be issued whose issuance has been deferred under the terms of an employment agreements with the Chief Executive Officer, Chief Financial Officer and other employees of Milestone Scientific.  As of December 31, 2018, there were 1,908,813 shares, whose issuance has been deferred under the terms of an employment agreements with the Chief Executive Officer, Chief Financial Officer and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment. 

 

As of September 30, 2019 and December 31, 2018, there were 351,612 and 561,752  shares to be issued to non-employees, respectively, that will be issued to non-employees for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date.

 

See below for shares and warrants issued in excess of authorized shares for 2019 accounting treatment. 

 

SHARES AND WARRANTS IN EXCESS OF AUTHORIZED SHARES

 

As a result of the shares and warrants issued in the public and private offerings as well as other issuance of common stock during 2019, the Company does not have a sufficient number of authorized shares of common stock to cover the exercise and issue of approximately 5,850,000 outstanding equity instruments. Therefore, the warrants issued in the public and private placements during 2019 and 2016 are classified as liabilities and will continue to be liability-classified until there are sufficient number of authorized shares of common stock to cover the shares issuable upon exercise of the warrants. As long as the warrants are liability-classified, they will continue to be re-measured each reporting period, with any increase or decrease in value recorded as a loss or gain in the condensed consolidated statement of operations. 

 

18

 

 

The fair value of the warrants is determined using a Black-Scholes option pricing model. The following assumptions were used to value the warrants at the reclassification to liability date:

 

   

2016 Warrants

   

2019 Warrants

 
Fair Value of Common Stock     $.36-$.83     $ 0.33  

Expected Term

 

.2-.5 years

   

4.9 years

 

Volatility

    86%-100%       83 %

Dividend yield

    0.00 %     0.00 %

Exercise Price

  $ 2.55     $ 0.50  

Risk-free interest rate

    1.88%-2.09%       2.30 %

Weighted average fair value of warrants granted

  $ -     $ 0.19  

Number of shares underlying warrants granted

    1,512,067       1,749,171  

 

On the date of issuance and reclassification the fair value of the warrants was approximately $376,000.

 

As these warrants are liability-classified, they were revalued at September 30, 2019 using the following assumptions:

 

   

2016 Warrants

   

2019 Warrants

 
Fair Value of Common Stock   $ 0.83     $ 0.08  

Expected Term

 

0.2 years

   

4.4 years

 

Volatility

    86 %     86 %

Dividend yield

    0.00 %     0.00 %

Exercise Price

  $ 2.55     $ 0.50  

Risk-free interest rate

    1.88 %     1.55 %

Weighted average fair value of warrants granted

  $ -     $ 0.61  
Number of shares underlying warrants granted     1,512,067       1,691,421  

 

As of September 30, 2019 the fair value of the warrants was approximately $1,017,000.  For the three and nine months ended September 30, 2019 the loss on the liability classified warrants was approximately $680,542 and $674,792, respectively.

 

Additionally, approximately 2.6 million of shares to be issued  are classified as liabilities until there are sufficient number of authorized shares of common stock to cover the issuance of such shares. These shares were valued at the trading price of a share of the Company’s common stock ($0.83 as of September 30, 2019 ) and they will continue to be re-measured each reporting period, with any increase or decrease in value recorded as a loss or gain in the condensed consolidated statement of operations. For the three and nine months ended September 30, 2019 the loss on the liability classified shares to be issued was approximately $1.2 million, respectively.  The value of the shares to be issued liability is approximately $2.2 million as of September 30 , 2019. 

 

The Company plans to seek shareholder approval to increase the number of authorized shares of Common Stock at the next Shareholder’s meeting, which has been scheduled for December 17, 2019.

 

 

NOTE 9 — INCOME TAXES

 

Due to Milestone Scientific's history of operating losses, full valuation allowances have been provided for all of Milestone Scientific's deferred tax assets at September 30, 2019 and December 31, 2018 due to uncertainty as to their future realization.

 

The utilization of Milestone Scientific's net operating losses may be subject to a substantial limitation due to the "change of ownership provisions" under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carry forwards before their utilization.

 

19

 

 

 

NOTE 10 — SEGMENT AND GEOGRAPHIC DATA

        

We conduct our business through two reportable segments:  dental and medical. These segments offer different products and services to different customer base. The following tables present information about our reportable and operating segments:

 

   

Three months ended September 30

   

Nine months ended September 30

 

Net Sales:

 

2019

   

2018

   

2019

   

2018

 

Dental

  $ 1,884,321     $ 1,622,246     $ 6,042,580     $ 5,780,251  

Medical

    15,500       -       31,000       76,100  

Total net sales

  $ 1,899,821     $ 1,622,246     $ 6,073,580     $ 5,856,351  

 

Operating Income (Loss):

 

2019

   

2018

   

2019

   

2018

 

Dental

  $ 644,650     $ (893,148 )   $ 1,766,087     $ 119,613  

Medical

    (554,843 )     (454,306 )     (1,711,184 )     (2,008,852 )

Corporate

    (1,036,541 )     (3,200,126 )     (2,927,655 )     (6,084,685 )

Total operating loss

  $ (946,734 )   $ (4,547,580 )   $ (2,872,752 )   $ (7,973,924 )

 

Depreciation and Amortization:

 

2019

   

2018

   

2019

   

2018

 

Dental

  $ 3,950     $ 3,889     $ 11,875     $ 12,133  

Medical

    2,424       2,530       7,424       21,884  

Corporate

    19,044       338,565       57,620       821,084  

Total depreciation and amortization

  $ 25,418     $ 344,984     $ 76,919     $ 855,101  

 

Income (loss) before taxes and equity in earnings of affiliates:

 

2019

   

2018

   

2019

   

2018

 

Dental

  $ 645,442     $ (959,095 )   $ 1,765,475     $ 125,734  

Medical

    (556,969 )     (454,906 )     (1,713,362 )     (2,010,595 )

Corporate

    (2,937,140 )     (3,133,819 )     (4,777,693 )     (6,088,167 )

Total loss before taxes and equity in earnings of affiliate

  $ (2,848,667 )   $ (4,547,820 )   $ (4,725,580 )   $ (7,973,028 )

 

Total Assets:

 

September 30, 2019

   

December 31, 2018

 

Dental

  $ 4,745,889     $ 5,169,944  

Medical

    513,000       328,208  

Corporate

    983,631       902,816  

Total assets

  $ 6,242,520     $ 6,400,968  

  

20

 

The following table presents information about our operations by geographic area for the three and nine months September 30, 2019 and 2018. Net sales by geographic area are based on the respective locations of our subsidiaries:

   

Three months ended September 30

   

Nine months ended September 30

 

Domestic-US & Canada

 

2019

   

2018

   

2019

   

2018

 

Devices

  $ 216,076     $ 119,190     $ 486,360     $ 251,743  

Handpieces

    812,655       369,027       2,632,199       2,296,533  

Other

    18,449       21,037       67,728       72,265  

Total Domestic US & Canada

  $ 1,047,180     $ 509,254     $ 3,186,287     $ 2,620,541  

International ROW

                               

Devices

    391,768     $ 299,872     $ 1,016,683     $ 952,390  

Handpieces

    451,631       506,880       1,714,471       1,924,901  

Other

    9,242       6,240       56,139       58,519  

Total International-ROW

  $ 852,641     $ 812,992     $ 2,787,293     $ 2,935,810  

International-China

                               
Devices   $ -     $ -     $ -     $ -  

Handpieces

    -       300,000       100,000       300,000  

Other

    -               -          

Total International

  $ -     $ 300,000     $ 100,000     $ 300,000  

Domestic. International Analysis

                               

Domestic-US & Canada

  $ 1,047,180     $ 509,254     $ 3,186,286     $ 2,620,541  

International -ROW

    852,641       812,992       2,787,294       2,935,810  

International -China

    -       300,000       100,000       300,000  

Total Product Sales

  $ 1,899,821     $ 1,622,246     $ 6,073,580     $ 5,856,351  

 

 

NOTE 11 – CONCENTRATIONS

 

Milestone Scientific has informal arrangements with third-party manufacturers of the STA, CompuDent ,CompuMed devices and handpieces, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. Consequently, advances on contracts have been classified as current at September 30, 2019   and December 31, 2018. The termination of the manufacturing relationship with any of these manufacturers could have a material adverse effect on Milestone Scientific’s ability to produce and sell its products. Although alternate sources of supply exist, and new manufacturing relationships could be established, Milestone Scientific would need to recover its existing tools or have new tools produced. Establishment of new manufacturing relationships could involve significant expense and delay. Any curtailment or interruption of the supply, because of termination of such a relationship, would have a material adverse effect on Milestone Scientific’s financial condition, business and results of operations.

             

For the three and nine months ended September 30, 2019 an aggregate of approximately 54% and 51%, respectively, of Wand Dental’s net product sales were to one customer/distributor. For the three and nine months ended September 30, 2018 an aggregate of approximately 44%  and 43%, respectively, of Wand Dental’s net product sales were to one customer/distributor. Accounts receivable for two customers/distributors amounted to approximately $2.7 million or 91%, or 59% and 32% of Milestone Scientific's gross accounts receivable as of September 30, 2019. Accounts receivable, including related party accounts receivable, for the major customer/distributor (i.e., Milestone China, a related party), amounted to approximately $3.1 million , or 82%, or 49% and 33% of Milestone Scientific's accounts receivable, as of December 31, 2018. As of September 30, 2019, Milestone China owed $1,817,990 to Milestone Scientific. Due to the delinquent nature of the scheduled payments and Milestone China’s further liquidity constraints, Milestone Scientific reduced accounts receivable, related party and deferred revenue, related party by $1,817,990 in 2018, this allowance remains recorded as of September 30, 2019 . Additionally, Milestone Scientific has a reserve of $1,250,928 at September 30, 2019 and December 31, 2018, against the associated deferred cost, related party which was recorded in 2018.

 

 NOTE 12 -- RELATED PARTY TRANSACTIONS

 

United Systems

 

Milestone Scientific has a manufacturing agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were

 

21

 

 

approximately $549,000 and $1.1 million for the three and nine months ended September 30, 2019 , respectively.  Purchases from this this manufacturer were approximately $361,727 and $900,000 for the three and nine months ended September 30, 2018 respectively. As September 30, 2019 and December 31,2018, Milestone Scientific owed this manufacturer approximately $1.1 million, which is included in accounts payable, related party on the condensed consolidated balance sheets. In February 2019, Milestone Scientific board of directors granted United Systems (controlling shareholder, Tom Cheng) 285,714 shares of stock at $0.35 or $100,000 for consulting services. These shares were issued July 2019.

 

During  2018 Milestone Scientific through its wholly owned subsidiary, Wand Dental, entered into an agreement with United Systems. The agreement was a Royalty Agreement for handpieces sold to Milestone China by United Systems. United Systems will pay Wand Dental a royalty equal to the net profit that Wand Dental would have received if the handpieces were sold directly to Milestone China or its Agent. As of September 30, 2019 and  December 31, 2018, Wand Dental had deferred royalty income of $342,540 that will be recognized at the earlier of when payment of the royalties is received from United Systems or when collectability is deemed to be assured and is included in accounts receivable, related party and deferred revenue, related party on the condensed  consolidated balance sheets.


Also, during the year ended December 31, 2018, a Distribution Agreement was  executed between Wand Dental and United Systems. Under the Distribution Agreement United Systems purchased 1,000 STA

instruments in June 2018, for delivery to Milestone China. Due to the related party nature and collectability concerns Wand Dental has deferred the sale. During 2018, Milestone Scientific had recorded deferred revenues and deferred costs associated with the sale to United Systems of $750,000 and $686,365, respectively. Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and it’s agents which amounted to $ 2.8 million at the time of the payment arrangement. The payment terms required payments of $200,000 per month beginning in July 2018 through November 2018 and a balloon payment of approximately $1,425,000 during December 2018. Due to the default on the arrangement  and Milestone China’s liquidity constraints, Milestone Scientific halted shipments to Milestone China. The Company has adjusted the accounts receivable related party and the deferred revenue related party based on the expected payment realization and recorded a reserve against the related deferred cost of $1.25 million which includes the sales to United Systems. The amounts due from United Systems described above are included in the adjustments and reserves for Milestone China. See Note 6.

 

In July 2019, United System issued a credit to the Company for approximately $151,000 for handpieces founded to be defective. The Company recorded the credit in cost of sales since  the Company previously

recorded an allowance for against inventory during 2018.

 

Milestone China

 

Milestone Scientific owns a 40% interest in Milestone China. See Note 6.

 

Other

 

As of  September 30, 2019 and December 31, 2018 Milestone Scientific recorded deferred compensation and accrued pension for Leonard Osser of approximately $222,000 and $387,000  respectively which is included accrued expenses related party.

 

As of  September 30, 2019 and December 31, 2018 Milestone Scientific recorded deferred compensation  for Joseph D'Agostino of $20,000, respectively which is included accrued expenses related party.

 

As of  September 30, 2019 and December 31, 2018 Milestone Scientific recorded deferred compensation and accrued pension for Gian Trombetta  of approximately of $455,000 and 280,000  respectively which is included accrued expenses related party.

 

In November 2016, K. Tucker Andersen, a significant stockholder of Milestone Scientific, entered into a three-year agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $25,000 and $75,000 for the three and nine months ended September 30, 2019 and 2018, respectively.

 

In January 2017, Milestone Scientific entered into a twelve-month agreement with Innovest S.p.A., a significant stockholder of Milestone Scientific, to provide consulting services. This agreement will renew for successive twelve-month terms unless terminated by Innovest S.p.A or Milestone Scientific. Expenses recognized on this agreement were $20,000  and $60,000 for the three and nine months ended September 30, 2019 and 2018, respectively.

 

22

 

The Director of Clinical Affairs’ royalty fee was approximately $92,831 and $291,024 for the three and nine months ended September 30, 2019,  respectively. The Director of Clinical Affairs’ royalty fee was approximately $77,907 and $284,437 for the three and nine months ended September 30, 2018,  respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 and $117,000 for the three and nine months ended September 30, 2019 respectively. Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 and $146,751 for the three and nine months ended September 30, 2018 respectively. As of September 30, 2019 and December 31, 2018, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $416,000 and $364,000, respectively, which is included in accounts payable, related party and accrued expense, related party.

 

NOTE 13 — COMMITMENTS

 

(1) Contract Manufacturing Agreement 


Milestone Scientific has informal arrangements with third-party manufacturers of the STA, CompuDent®  CompuFlo Epidural and CompuMed® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. In January 2018, Wand Dental entered into a new purchase commitment for the delivery of 1,000 devices beginning in 2019.  In July 2019, the open purchase order was modified ,as of September 30, 2019 we have an open purchase order of $1,149,560 for 1,500 instruments and have advanced $434,605 as of September 30, 2019 against this purchase commitment. In August 2019, Milestone Medical entered into a new purchase commitment for the delivery of 100 Epidural instruments beginning  in 2020. As of September 30, 2019 we have an open purchase order of $299,000 for 100 Epidural instruments and have advanced $89,700 against this purchase commitment.

 

(2)  Leases

 

Operating Leases

 

In June 2015, the Company amended its original office lease of approximately 6,851 square feet for its headquarters in Livingston, New Jersey. Under the amendment, the Company leased an additional 774 square feet of rentable area of the building and extended the term of the lease through January 31, 2020 at a monthly cost of $12,522. The Company has an option to further extend the term of the lease, however, this option was not included in the determination of the lease’s right-of-use asset or lease liability. Per the terms of the lease agreement, the Company does not have a residual value guarantee. The Company will also be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability. 

 

In August 2019, the Company made the decision to not renew the existing office lease and instead signed a seven (7) year lease in a new facility (the “Roseland Facility”). The new facility is located in Roseland, New Jersey,  the monthly lease payment is $9,275 commencing April 1, 2020.The Company is also responsible for electric charge equal to $2.00 per square foot which is equal to $11,130 annually, which shall be paid in equal monthly installments of $927.50. The Company will also be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts.

 

The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

 

 

As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the Medical Device industry.

 

Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component.

 

The expected lease terms include non-cancellable lease periods. Renewal option periods are not included in the determination of the lease terms as they were not reasonably certain to be exercised.

  

23

 

 

The components of lease expense as of September 30, 2019 were as follows:

 

                 

Lease cost

 

Three Months Ended September 30, 2019

   

Nine Months Ended September 30, 2019

 

Operating lease cost

  $ 39,555     $ 118,664  

Total lease cost

  $ 39,555     $ 118,664  

Other information

               

Cash paid for amounts included in the measurement of lease liabilities:

               
Operating cash flows from operating leases     -     $ 118,664  
Right-of-use assets obtained in exchange for new operating lease liabilities     -       -  
Weighted-average remaining lease term - operating leases     -       0.4 years  
Weighted-average discount rate - operating leases     -       9.2 %

 

Maturities of lease liabilities due under these lease agreements as of September 30, 2019 are as follows:

 

2019 (excluding the 9 months ended September 30, 2019 )

 

Operating Leases

 

2020

  $ 39,555  

2021

    15,976  

2022

    -  

2023

    -  

Thereafter

    -  

Total lease payments

  $ 55,531  

Less: interest

  $ (714 )

Total operating lease liabilities as of September 30, 2019

  $ 54,817  

 

Total lease payments presented in the table above excludes legally binding  minimum lease payments for operating leases signed for a  the Roseland Facility that will commence April 1, 2020. 

 

The Company adopted ASU 2016-02 on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments and operating lease commitments as of December 31, 2018 were as follows:

 

   

Total

   

Less than 1 Year

   

1-3 Years

   

3-5 Years

 

Operating Lease Obligations

  $ 175,557     $ 159,138     $ 16,419     $ -  

 

(3)  Other Commitments

 

The technology underlying the Safety Wand® and CompuFlo®, and an improvement to the controls for CompuDent® were developed by the Director of Clinical Affairs and assigned to Milestone Scientific. Milestone Scientific purchased this technology pursuant to an agreement dated January 1, 2005. The Director of Clinical Affairs will receive additional payments of 2.5% of the total sales of products using certain of these technologies, and 5% of the total sales of products using certain other of the technologies until the expiration of the last patent covering 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. See Note-12- other.  

  

 

NOTE 14— SUBSEQUENT EVENTS

 

Since the quarter ended September 30, 2019, the Company issued 239,629 shares of common stock for warrants exercised at  $0.50  for proceeds of $119,813.

 

24

 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussions of the financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. The actual results may differ materially from those anticipated in these forward-looking statements. See "Risk Factors" in  Form 10-K at December 31, 2018.

 

OVERVIEW

 

Our common stock was listed on the NYSE American on June 1, 2015 and trades under the symbol “MLSS”. We have developed a proprietary, computer-controlled anesthetic delivery instrument, using The Wand, a single use disposable handpiece. The instrument is marketed in dental sector under the trademark CompuDent®, and STA Single Tooth Anesthesia System and in medical sector under the trademark CompuMed. CompuDent is suitable for all dental procedures that require local anesthetic. CompuMed is suitable for many medical procedures regularly performed in plastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedics and several other disciplines. The dental instruments are sold in the United States, US territories, Canada, and in over 60 other countries abroad. In June 2017, the FDA approved our 510(k) application for marketing clearance in the United States of our CompuFlo Epidural Computer Controlled Anesthesia System.  We are in the process of introductory meetings with medical device distributors within the United States and Europe. There have been five medical instruments sold in the United States to date and limited amounts sold internationally as of the reporting date. Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in most European countries.

 

In November 2018, Milestone Scientific received a letter from NYSE American LLC (the “Exchange”) stating that the Company was not in compliance with the continued listing standards as set forth in Section(s) 1003(a)(i), (ii), and (iii) of the NYSE American Company Guide (the “Company Guide”).On December 20, 2018, the Company submitted a plan of compliance (the “Plan”) to the Exchange addressing how it intends to regain compliance with Section(s) 1003(a)(i), (ii) and (iii) of the Company Guide by May 20, 2020.

 

On January 24, 2019, the Company received a letter from the Exchange stating that the Company’s Plan has been accepted by the Exchange. The Company is still not in compliance with Section(s) 1003(a)(i), (ii) and (iii) of the Company Guide and its listing on the Exchange is being continued pursuant to an extension granted by the Exchange. If the Company is not in compliance with the continued listing standards by May 20, 2020, or if the Company does not make progress consistent with the Plan, the Exchange will initiate de-listing procedures as appropriate. The Company may appeal a staff de-listing determination in accordance with Section 10 and Part 12 of the Company Guide.

 

In 2019, we remain focused on advancing efforts to achieve our three primary objectives in our medical sector, those being:

 

 

Identify distributors in the United States for the Epidural instruments, now that FDA clearance has been received;

 

Worldwide distribution of the CompuFlo Epidural Computer Controlled Anesthesia System; and

 

Finalize the Cosmetic device and obtain European Regulatory Approve (CE market clearance), upon securing additional funding.

 

Wand STA Dental Market

 

Since its market introduction in early 2007, the Wand/STA Instrument and prior C-CLAD products have been used to deliver over 66 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.

 

Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, Inc. (“Henry Schein”). In June 2016, that agreement was replaced with an exclusive distribution arrangement for our dental products for the United States and Canada with Henry Schein. Under this arrangement we have a semi-dedicated independent sales force visiting dentists.

 

To date, Henry Schein has endeavored to accomplish the goals set forth in the exclusive distribution agreement for The Wand/ STA instrument and handpieces, including training of its exclusive products sale’s specialists. Specifically, up to 25 exclusive product sales specialists have now been fully trained as experts in the features, advantages and benefits of The Wand/STA instrument and handpieces and all are currently in the field selling the instrument.

   

25

 

 

Henry Schein also plans to increase the number of exclusive product specialist in 2020 and to train  an additional customer service representative to support dentists across North America through its exclusive product sales customer call center, as business volume increases.

 

On the global front, we have granted exclusive marketing and distribution rights for the Wand/STA Instrument to select dental suppliers in various international regions in Asia, Africa, South America and Europe. They include FM Produkty Dla Stomatologii in Poland and Unident AB in the Scandinavian countries of Denmark, Sweden, Norway and Iceland.

 

Medical Market

 

In September 2014, Milestone Medical received CE clearance to distribute their epidural and intra-articular instruments in the European Community (EU). Milestone Medical signed a distribution agreement in March 2015 with a medical distributor in Poland for the distribution of the epidural instrument. This distribution agreement was terminated in late 2016 due to the distributor’s inadequate performance under the distribution agreement. Milestone Medical is continuing to pursue distributors for the instrument in the EU community.

 

During 2016, Milestone Scientific filed for 510(k) marketing clearance with the U.S. Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo System.  In June 2017, the FDA approved the CompuFlo System for epidural injections. Milestone Scientific is in the process of meeting with medical device distributors within the United States and foreign markets. Milestone Scientific’s immediate focus is on marketing its epidural device throughout the United States and Europe.

 

In December 2016, we received notification from the FDA that based upon the 510(k)-application submitted for intra- articular injections, we did not adequately document that the device met the equivalency standard required for 510(k) clearances. Following consultation with the FDA’s Office of Device Evaluation, we filed a new 510(k) application for the device in June 2018. In November 2018, the FDA provided Milestone Scientific with a  list of questions on the intra-articular 510(k) application filed in June 2018. Due to the delay in responding to FDA questions Milestone Scientific will be required to file a new 510(K) application, which we intend to do in 2019, subject to available funding.

 

In October 2018, Milestone Medical signed a Distributor Agreement in the U.S. This agreement provides that this Distributor will purchase and hold an inventory of the CompuFlo Epidural System and disposables for sale. At this time there have been no minimum purchase established with the Distributor. This Distributor purchased five CompuFlo Epidural Systems and disposables after executing the Agreement.

 

In April 2019, Milestone Scientific entered an Agreement with American 3B Scientific, a leading supplier of didactic material for education, for the development and sale of a CompuFlo® Epidural Training Instrument. This instructional instrument utilizes the pressure sensing technology and will be utilized as a training instrument to improve epidural placement success. The first sale of this new medical instrument occurred in May 2019, for three instruments and three disposable kits.

 

We have entered into a limited number of distributor arrangements in Europe and the Middle East for our CompuFlo Epidural System. Our distribution strategy is initially aimed at having KOL's use and accept the device and initiates their own studies.

 

In September 2019, the Company appointed a new President, Brent Johnston. The President will also be responsible for the growth of the Medical segment (Milestone Medical Inc.). The new President will evaluate the business and marketing operations of Milestone Medical Inc. over the next few months, and make the changes required to expedite the sales of the Epidural instrument in the USA and other countries in the world.

26

 

 

The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by product category for the three months ending September 30, 2019 and 2018:

 

   

Three months ended September 30,

 

Domestic-US & Canada

 

2019

   

2018

 

Devices

  $ 216,076     $ 119,190  

Handpieces

    812,655       369,027  

Other

    18,449       21,037  

Total Domestic US & Canada

  $ 1,047,180     $ 509,254  

International ROW

               

Devices

  $ 391,768     $ 299,872  

Handpieces

    451,631       506,880  

Other

    9,242       6,240  

Total International-ROW

  $ 852,641     $ 812,992  

International-China

               

Devices

  $ -     $ -  

Handpieces

    -       300,000  

Other

    -       -  

Total International

  $ -     $ 300,000  
                 

Total Product Sales

  $ 1,899,821     $ 1,622,246  

 

The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by product category for the nine months ending September 30, 2019 and 2018:

 

   

Nine months ended September 30,

 

Domestic-US & Canada

 

2019

   

2018

 

Devices

  $ 486,360     $ 251,743  

Handpieces

    2,632,199       2,296,533  

Other

    67,728       72,265  

Total Domestic US & Canada

  $ 3,186,287     $ 2,620,541  

International ROW

               

Devices

  $ 1,016,683     $ 952,390  

Handpieces

    1,714,471       1,924,901  

Other

    56,1390       58,519  

Total International-ROW

  $ 2,787,293     $ 2,935,810  

International-China

               

Devices

  $ -     $ -  

Handpieces

    100,000       300,000  

Other

    -       -  

Total International

  $ 100,000     $ 300,000  
                 

Total Product Sales

  $ 6,073,580     $ 5,856,351  

 

27

 

Results of Operations

 

The following table sets forth the consolidated results of operations For the three months ended September 30, 2019 compared to 2018. The trends suggested by this table may not be indicative of future operating results:

 

   

For three months ended September 30,

 
   

2019

   

2018

 

Operating results:

               

Product sales, net

  $ 1,899,821     $ 1,622,246  

Cost of products sold

    523,672       1,742,451  

Gross profit

    1,376,149       (120,205 )
                 

Operating expenses:

               

Selling, general and administrative expenses

    2,314,943       2,886,081  

Research and development expenses

    7,940       1,500  
Impairment to long lived assets     -       1,539,794  

Loss from operations

    (946,734 )     (4,547,580 )

Other income, and loss on earning net

    (1,903,183 )     143,015  

Net loss

    (2,849,917 )     (4,404,565 )

Net loss attributable to noncontrolling interests

    12,941       11,742  

Net loss attributable to Milestone Scientific Inc.

  $ (2,836,976 )   $ (4,392,823 )

 

The following table sets forth the consolidated results of operations For the nine months ended September 30, 2019 compared to 2018. The trends suggested by this table may not be indicative of future operating results:

   

For nine months ended September 30,

 
   

2019

   

2018

 

Operating results:

               

Product sales, net

  $ 6,073,580     $ 5,856,351  

Cost of products sold

    1,894,550       3,326,341  

Gross profit

    4,179,030       2,530,010  
                 

Operating expenses:

               

Selling, general and administrative expenses

    6,941,964       8,748,485  

Research and development expenses

    109,815       215,655  

Impairment to long lived assets

    -       1,539,794  

Loss from operations

    (2,872,749 )     (7,973,924 )

Other income, and loss on earning net

    (1,823,606 )     243,987  

Net loss

    (4,696,355 )     (7,729,937 )

Net loss attributable to noncontrolling interests

    35,343       118,424  

Net loss attributable to Milestone Scientific Inc.

  $ (4,661,012 )   $ (7,611,513 )

 

Cash flow:

 

September 30, 2019

   

September 30, 2018

 

Net cash used in operating activities

  $ (1,275,686 )   $ (1,957,602 )

Net cash used in investing activities

    (9,916 )     (14,525 )

Net cash provided by financing activities

    2,253,422       (250,000 )

 

28

 

 

For the three months ended September 30, 2019 compared to three months ended September 30, 2018

 

Net sales for 2019 and 2018 were as follows:

 

   

2019

   

2018

   

Increase Decrease

      %

Dental

  $ 1,884,321     $ 1,622,248     $ 262,073       16 %