Published: 2023-03-30 17:09:47 ET

FORWARD-LOOKING STATEMENTS

 

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements of Milestone Scientific Inc. (“Milestone Scientific”) to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Milestone Scientific’s plans and objectives are based, in part, on assumptions involving the continued expansion of its business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Milestone Scientific. Although Milestone Scientific believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of our history of operating losses that are expected to continue, requiring additional funding which we may be unable to raise capital when needed (which may force us to delay, curtail or eliminate commercialization efforts of our CompuFlo Epidural Computer Controlled Anesthesia System), the early stage operations of and relatively lack of acceptance of our medical products, relying exclusively on two third parties to manufacture our products, changes to our distribution arrangements exposes us to risks of interruption of marketing efforts and building new marketing channels, changes in our informal manufacturing arrangements made by the manufacturer of our products and disruptions at the manufacturing facility of our manufacturers, including shortages of or delays in obtaining chips and other components, exposes us to risks that may harm our business, raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights, if physicians do not accept nor use our CompuFlo Epidural Computer Controlled Anesthesia System, our ability to generate revenue from sales will be materially impaired, exposure to the risks inherent in international sales and operations, including China, and developments by competitors may render our products or technologies obsolete or non-competitive, the inclusion of such information should not be regarded as a representation by Milestone Scientific or any other person that the objectives and plans of Milestone Scientific will be achieved. Milestone Scientific undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

 

 

PART I

 

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 Medical, Inc. (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 ®; CathCheck®; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand ®. 

 

Item 1. Business

 

Overview 

 

Milestone Scientific was incorporated in the State of Delaware in August 1989. Milestone Scientific has developed a proprietary, revolutionary, computer-controlled anesthetic delivery device, our DPS Dynamic Pressure Sensing Technology® System, to meet the needs of various subcutaneous drug delivery injections and fluid aspiration – enabling healthcare practitioners to achieve multiple unique benefits that cannot currently be accomplished with the 160-year-old manual syringe. The device, using The Wand®, a single use disposable handpiece, is marketed in dentistry under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and is suitable for all dental procedures that require local anesthetic. The dental devices are sold in the United States, Canada and in 38 other countries. Milestone Scientific also has 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System in the lumbar spine region. In addition, certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries.

 

Milestone Scientific is a biomedical technology research and development company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical, and dental Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets. We believe our technologies are proven and well established. Our common stock was initially listed on the NYSE American on June 1, 2015 and trades under the symbol “MLSS”. The Company is focused on building its intellectual; property portfolio across numerous indications.

 

The recent receipt of chronology-Specific CPT Code for the Company's technology by the American Medical Association marks an important milestone, that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. A CPT code expands the potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System., which should help accelerate the commercial roll-out of CompuFlo in the U.S.

 

DPS Dynamic Pressure Sensing Technology; Our Proprietary Core Technology Platform

 

Given our experience and established brand awareness within the dental industry beginning with our first commercial product, the first computer-controlled local anesthesia delivery (C-CLAD) system marketed as the Wand® and re-branded as the CompuDent® System, now the market leader in dental injection technology, we elected to focus our product development efforts on improving the patient experience and making the device more versatile and precise for the practitioner.

 

Our next significant intellectual property advancement was a improvement over our CompuDent® System – the development of our proprietary CompuFlo® Computer-Controlled Drug Delivery System with DPS Dynamic Pressure Sensing Technology, an advanced and FDA-approved technology for the painless and accurate delivery of drugs, anesthetics, and other medicaments into all tissue types, as well as for the aspiration of bodily fluids or previously injected substances. Its regulation and control of the flow rate continues to provide painless delivery benefits, while its innovative dynamic pressure sensing capability provides visual and audible in-tissue pressure feedback, identifying tissue types to the healthcare provider. This pressure feedback extends the benefit of painlessness from anesthetics with known viscosities to a wide range of liquid drugs and other medicaments with varying viscosities and flow rates. Such pressure feedback, part of our DPS Dynamic Pressure Sensing Technology, also allows the healthcare provider to know when certain types of tissues have been penetrated and permits the healthcare provider to inject medicaments precisely at the desired location. Thus, real-time continuous pressure feedback can prevent the injection to tissue outside the intended target area, an important characteristic in the injection of chemotherapeutics and other toxic substances.

In addition to the ability to determine exit pressure in-situ (in the injection site tissue) at the tip of the needle, minimizing tissue damage (and eliminating the pain of the injection) because the flow rate and pressure of the injection are precisely controlled, CompuFlo® computer-controlled Drug Delivery Systems features a proprietary algorithm, which allow for the measurement of the exit pressure. These algorithms contain the critical components of specific drugs, parameters of needles, tubing and syringes and all other pertinent components for the safe and efficacious delivery of medications for all procedures. CompuFlo® technology also enables devices to provide a digital record of the time and volume of anesthetic or medicament injected.

 

Each Wand/STA System also includes a disposable injection handpiece that is extremely comfortable, light, and easy to use, providing for precise tactile control during the injection, an electro-mechanical (computer-controlled) fluid delivery instrument and the ability to record data from the injection event. The pencil grip used with the handpieces provides the practitioner with enhanced tactile sense and accurate control and allows bi-directional rotation, eliminating needle deflection, resulting in a greater accuracy and success. The handpiece is vibration-free because it does not have a motor or electrical component in it and, since the handpiece does not look like a typical syringe, we believe it also reduces patient anxiety and offers the possibility of curing dental phobia of which an estimated 40 million Americans suffer.

 

As confirmed by numerous noted medical and dental experts within academia and the clinical practice arenas, CompuFlo Systems using DPS Dynamic Pressure Sensing technology have the potential to greatly increase the safety and efficacy of many drug delivery procedures that currently rely upon the over 160-year-old hypodermic syringe technology and the tactile senses and delivery expertise of the administrator.

 

Devices using DPS Dynamic Pressure Sensing Technology such as the CompuFlo System can be used to inject a wide variety of liquid medicaments as well as anesthetics. We believe our CompuFlo System avoids the negative side effects from the use of traditional hypodermic drug delivery injection devices, which are well documented in dental and medical literature and include risk of death, transient or permanent paralysis, pain, tissue damage and post-operative complications. Pain and tissue damage often result from uncontrolled flow rates and pressure created during the administration of drug solutions into human tissue. While several technologies can control the flow rate, we believe our patented DPS Dynamic Pressure Sensing technology and CompuFlo Systems provide the control of pressure during the injection as well accurately and precisely delivery the drug.

 

CompuFlo Epidural Computer Controlled Anesthesia System

 

The CompuFlo Epidural Computer Controlled Anesthesia System (or the CompuFlo Epidural System) is one such platform extension of our DPS Dynamic Pressure Sensing Technology platform, providing anesthesiologists and other healthcare providers the ability, for the first time, to quantitatively determine and document the pressure at the needle tip in real-time for proper needle placement in epidural procedures used for labor/delivery and back pain management. Our proprietary DPS Dynamic Pressure Sensing Technology allows the CompuFlo Epidural System to provide objective visual and audible in-tissue pressure feedback that allows anesthesiologists to identify and confirm placement in the epidural space.

 

Our CompuFlo Epidural System provides an objective tool that we believe consistently and accurately identifies the epidural space by detecting the difference in pressure between the ligamentum flavum and the intrafilamentary tissue. In studies, the CompuFlo Epidural System with DPS Dynamic Pressure Sensing Technology has been shown to be effective in correctly identifying the epidural space. Knowing the precise location of a needle tip during an epidural injection procedure provides a measure of safety not presently available to doctors using conventional syringes. In the absence of fluoroscopy, identifying the epidural space by relying on the subjective perception of loss of resistance to saline requires a very long education period and learning curve and could result in morbidity and lack of efficacy. During back pain management epidural procedures, where fluoroscopy is commonly used, the CompuFlo Epidural System allows the clinician to locate the epidural space, without using fluoroscopy, thereby protecting the patient and clinician from unnecessary exposure to radiation along with significantly reducing capital and operating costs.

 

Wand/STA Dental Product

 

Since its market introduction in early 2007, the Wand STA System and prior C-CLAD devices have been used to deliver over 80 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.

 

Medical Market Product

 

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 Epidural System.  In June 2017, the FDA approved the CompuFlo Epidural System for epidural injections.

 

In addition, the recent receipt of chronology-Specific CPT Code for the Company's technology by American Medical Association marks an important milestone, that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo instrument. A CPT code expands the potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System., thereby helping accelerate the commercial roll-out of CompuFlo in the U.S. 

 

Cosmetic Botulinum Product

 

Milestone Advanced Cosmetic Systems, Inc. (“Advanced Cosmetic Systems”), was originally owned 50% by us and 50% by Milestone China Company Limited (“Milestone China”), a company organized under the laws of Hong Kong and initially owned 40% by Milestone Scientific. Milestone China contributed $900,000 of cash to the joint venture, and we have provided a royalty-free license to utilize our technology to the joint venture to develop a botulinum toxin injection device.

 

In November 2017, we announced plans for the commercial launch of our proprietary cosmetic injection device using our DPS Dynamic Pressure Sensing technology platform and our CompuFlo Cosmetic System for delivery of botulinum toxin. Our proprietary cosmetic injection device features improved needle placement with a comfortable stylus grip, precise dosing, the same technology platform that has made dental and epidural injections painless, and a new, intuitive touch-screen interface. Although the Company received positive outcomes of multi-state human factor studies with targeted customers, the Company did not have the necessary capital to move forward with the commercial launch of our cosmetic device and apply for marketing clearance in Europe (CE clearance), and United States (FDA clearance). 

Other Possible Products

 

The Company is reviewing using CompuFlo’s DPS Dynamic Pressure Sensing Technology for less painful injections for use in rhinoplasty, colorectal surgery, podiatry, and other disciplines. In the self-injectable market, there are many injectable drugs routinely self-administered in a home or office setting using spring loaded automatic injection devices by people who suffer from long-term chronic conditions such as multiple sclerosis, rheumatoid arthritis, and other diseases of the auto immune system. We believe CompuFlo’s DPS Dynamic Pressure Sensing Technology, using pressure sensing capabilities, can serve as a less painless subcutaneous injection method for these self-administered drugs. However, there can be no assurance that we will be able to successfully develop any such products, or that if developed, that we will be able to obtain FDA approval to market any such products, or even if we do obtain such FDA approval, that any such products will generate any revenue for us or be a commercial success.

 

Ukraine

 

Sanctions imposed by the United States and other western democracies, because of the Ukrainian-Russian conflict, and any expansion thereof, is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations. As direct impact from the conflict, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition. 

 

COVID-19 Pandemic

 

The COVID-19 pandemic materially adversely affected the Company’s financial results and business operations during 2021. During the year 2022, the demand increased, and recovery of the dental business was seen, however, it is unclear what the effect other possible variants might have on the business during 2023. Therefore, such increased demand may or may not continue and/or demand may or may not increase from historical levels depending on the duration and severity of the COVID-19 pandemic, the transmissibility and severity of variants, the effectiveness of the on-going vaccination process, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. Such events may result in business and manufacturing disruption, inventory shortages, delivery delays, and reduced sales and operations, any of which could materially affect our business, financial condition, and results of operations.

 

 

 

 

 

 

Milestone Scientific relies on a combination of patent, copyright, trade secret and trademark laws and employee and third-party non-disclosure agreements to protect its intellectual property rights. Despite the precautions taken by Milestone Scientific to protect its IP rights, unauthorized parties may attempt to reverse engineer, copy, or obtain and use products and information that Milestone Scientific regards as proprietary, or may design products serving similar purposes that do not infringe on Milestone Scientific’s patents. Milestone Scientific’s failure to protect its proprietary information and the expenses of doing so could have a material adverse effect on our business, financial condition, and results of operations.

 

If Milestone Scientific’s products infringe upon patent or proprietary rights of others, we may be required to modify processes or to obtain licenses. There can be no assurance that Milestone Scientific would be able to do so in a timely manner, upon acceptable terms and conditions, or at all. The failure to do so could have a material adverse effect on our business, financial condition, and results of operations.

 

Manufacturing

 

Milestone Scientific has informal arrangements with an U.S. manufacturer of the Wand/STA System, and epidural devices. Pursuant to these informal arrangements, our third-party manufacturer manufactures the Wand/STA System under specific purchase orders without minimum purchase commitments, and at prices to be agreed upon in each such purchase order.

 

Our agreement with the principal manufacturer of dental handpieces includes pricing terms. Milestone Scientific has been supplied by the manufacturer of the Wand/STA System and its predecessor, the CompuDent System, since the commencement of production in 1998, and by the manufacturer of its dental handpieces since 2003. The manufacturer of our dental handpieces is in the People’s Republic of China and the manufacturer of the Wand/STA System is in the United States. Refer to Item 1A. Risk Factors. 

 

Changes to pricing of the Wand/STA System instruments by the manufacturer could have a material adverse effect on our financial condition, business, and results of operations. Termination of the manufacturing relationship with any of these third-party manufacturers could significantly and adversely affect our ability to produce and sell the products.

 

Though other alternate sources of supply for dental handpieces exist, Milestone Scientific would need to establish relationships with new suppliers, and with respect to the Wand/STA System recover its existing tools or have new tools produced and “burn in” and other manufacturing and quality control software re-produced. Establishing new manufacturing relationships could involve significant expense and delay. Any curtailment or interruptions of supply, whether as a result of the inability of a supplier to meet our product delivery needs or termination of the relationship, would have a material adverse effect on our financial condition, business, and results of operations.

 

Distribution and Marketing

 

Dental Products

 

The Company has used a combination of exclusive and non-exclusive distributors to sell its dental products.  In the United States and Canada the Company’s largest distributor was Henry Schein, Inc. (“Henry Schein”).  In December 2021, Henry Schein’s exclusive distribution arrangement with respect to the Wand STA System became a non-exclusive distribution arrangement for the United States and Canada, and on December 31, 2022 such non-exclusive distribution arrangement terminated.

 

In anticipation of such termination, in January 2021, the Company began a process of signing non-exclusive dental distribution arrangements with dental distributors in specific geographical locations in the United States and Canada. As of December 31, 2022, there are twelve new non-exclusive dental distributors engaged in the United States and Canada. In addition, the Company developed its own United States direct distribution channel which was launched in January of 2023.

 

On the global front, we have granted exclusive marketing and distribution rights for the Wand STA System to select dental suppliers in various international regions in Asia, Africa, South America, and Europe. Additionally, the Company is in the process of evaluating current international distributors and adding new distributors globally as required based on the economics of the region.

 

Medical Product

 

The company, markets and sell it’s medical products in the international markets such as Italy, Switzerland, Greece, Canada and the Middle East through exclusive distributors. In the United States the Medical products are sold by a direct sales team of 3 full time employees and CTI a medical distributor covering 22 states.

 

Competition

 

As of this filing, there is no subcutaneous drug delivery platform or device on the market regulating the flow rate and pressure of an injection capable of delivering a painless injection at the desired location like Milestone Scientific’s proprietary, patented devices having our DPS Dynamic Pressure Sensing technology.

Milestone Scientific’s devices compete based on their performance characteristics and the benefits provided to the patient, practitioner, and their business operations. Clinical studies have shown that our devices reduce fear, pain and anxiety for many patients, and Milestone Scientific believes that they can reduce practitioner stress levels, as well. Other computer-controlled local anesthesia delivery (C-CLAD) options are the Quicksleeper and SleeperOne, from Dental Hi Tec, Dentapen from Septodant, the Calajet from Aseptico, and the Comfort Control Syringe by Dentsply. In the medical segment, for needle verification and placement the EpiFaith Syringe made its market entry in 2023.

 

The Quicksleeper was invented in France by Dr. Alain Villette in 1991. It is marketed as the only local anesthetic delivery device in France that allows the ability to perform all intraoral local anesthetic injection techniques, including osteocentral anesthesia, quickly and without failure. The extra feature that gives the Quicksleeper this ability is a built-in motor in the syringe/handpiece that renders the syringe both an injector and a perforator of bone. That is, the handpiece of the Quicksleeper can perform an intraosseous injection via a motor driven perforation of the cortical plate of bone. A standard dental needle that attaches to the syringe spins as the motor rotates the handpiece thus acting as a perforator. However, the handpiece is relatively heavy, weighing 240 g. as compared to a standard syringe that weighs 80 g. Injection speed increases during the injection, but the operator cannot control when the injection speed increases.

 

The Calajet instrument, manufactured in Europe, has been very slow to grow market acceptance. It recently began marketing in the United States with similar slow acceptance. The instrument is a higher price than the Wand STA and does not provide dynamic pressure sensing technology. Although a competitor, we believe that without a substantial distribution network this instrument will have a difficult time to be successful in the United States.

 

The Dentapen from Septodent is the newest competitor in the market. This device is manufactured in Europe and began marketing in the United States in 2018. This device is priced similar to the Wand/STA device, but at this time, to our knowledge, it has been slow to attract viable distribution in the United States.

 

The EpiFaith Syringe claims to assist the physicians in entering the epidural space. The instrument is introduced at a lower price. Although a potential competitor, we believe that our technology is well documented and is the only pressure sensor guidance system for epidural analgesia assisting the physician over the entire trajectory of epidural needle placement and catheter verification.

 

Milestone Scientific’s proprietary, patented devices with its DPS Dynamic Pressure Sensing Technology platform also compete with disposable and reusable syringes that generally sell at lower prices and that use established and well-understood methodologies in both the dental and medical marketplaces.

 

Rapid technological change and research may affect our products. Current or new competitors could, at any time, introduce new or enhanced products with features that render our products less marketable or even obsolete. Therefore, Milestone Scientific must devote substantial efforts and financial resources to improve existing products, bring products to market quickly, and develop new products for related markets. In addition, the ability to compete successfully requires that Milestone Scientific maintain an effective distribution network with a strong marketing plan. Any new products must comply with applicable regulatory authorities before they may be marketed. Milestone Scientific cannot assure that it can compete successfully, that competitors will not develop technologies or products that render our products less marketable or obsolete, or, that Milestone Scientific will succeed in improving its existing products, effectively develop new products, or obtain required regulatory approval for those products.

 

Government Regulation

 

The manufacture and sale of medical devices and other medical products are subject to extensive regulation by the Food and Drug Administration  ("FDA") pursuant to the U.S. Food, Drug and Cosmetic Act (“FD&C Act”), and by other federal, state, and foreign authorities. Under the FD&C Act, medical devices must receive FDA clearance before they can be marketed commercially in the United States. Some medical products must undergo rigorous pre-clinical and clinical testing and an extensive FDA approval process before they can be marketed. 

 

These processes can take many years and require the expenditure of substantial resources. The time required for completing such testing and obtaining such approvals is uncertain, and FDA clearance may never be obtained. Delays or rejections may be encountered based upon changes in FDA policy during the period of product development and FDA regulatory review of each product submitted. Similar delays also may be encountered in other countries. Following the enactment of the Medical Device Amendments to the U.S. Food, Drug and Cosmetic Act in May 1976, the FDA classified medical devices in commercial distribution into one of three classes. This classification is based on the controls necessary to reasonably ensure the safety and effectiveness of the medical devices. Class I devices are those devices whose safety and effectiveness can reasonably be ensured through general controls, such as adequate labeling, pre-market notification, and adherence to the FDA’s Quality System Regulation (“QSR”), also referred to as “Good Manufacturing Practices” (“GMP”) regulations. Some Class I devices are further exempted from some of the general controls. Class II devices are those devices whose safety and effectiveness reasonably can be ensured using special controls, such as performance standards, post-market surveillance, patient registries, and FDA guidelines. Class III devices are those which must receive pre-market approval by the FDA to ensure their safety and effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting or implantable devices.

 

Prior to Pre-market Notification clearance, the manufacturer or distributor may not place the device into commercial distribution until an order is issued by the FDA. By regulation, the FDA has no specific time limit by which it must respond to a 510(k) Pre-market Notification. Currently, the FDA typically responds to the submission of a 510(k) Pre-market Notification within 180 days. The FDA response may declare that the device is substantially equivalent to another legally marketed device and allow the proposed device to be marketed in the United States. However, the FDA may determine that the proposed device is not substantially equivalent or may require further information, such as additional test data, before the FDA is able to decide regarding substantial equivalence. Such determination or request for additional information could delay market introduction of products. If a device that has obtained 510(k) Pre-market Notification clearance is changed or modified in design, components, method of manufacture, or intended use, such that the safety or effectiveness of the device could be significantly affected, separate 510(k) Pre-market notification clearance must be obtained before the modified device can be marketed in the United States. If a manufacturer or distributor cannot establish that a proposed device is substantially equivalent to a legally marketed device, the manufacturer or distributor will have to seek pre-market approval of the proposed device, a more difficult procedure requiring extensive data, including pre-clinical and human clinical trial data, as well as extensive literature to prove the safety and efficacy of the device.

 

The FDA cleared the Wand, our CompuDent System, and its disposable handpieces, for marketing in the United States for dental applications in July 1996; the CompuMed® System for marketing in the United States for medical applications in May 2001; the Safety Wand® for marketing in the United States for dental applications in September 2003; the Wand/STA System for dental applications in August 2006; and our CompuFlo Epidural System in June 2017.

For us to commercialize other products in the United States, Milestone Scientific would have to submit and have cleared additional 510(k) applications to the FDA. In 2017, the FDA reduced the barrier to marketing clearance for certain dental devices. As a result, other manufacturers of injection devices could more easily enter the dental market. However, we believe that any new device will be very limited in sales volume without a significant distributor in the dental market.

 

Though certain dental and medical devices have received FDA marketing clearance, there can be no assurance that any of the other medical devices under development will obtain the required regulatory clearance in a timely manner, or at all. If regulatory clearance of a product is granted, such clearance may entail limitations on the indicated uses for which the product may be marketed. In addition, modifications may be made to the products to incorporate and enhance their functionality and performance based upon new data and design review. There can be no assurance that the FDA will not request additional information relating to product improvements; that any such improvements would not require further regulatory review, thereby delaying the testing, approval, and commercialization of product improvements; or that ultimately any such improvements will receive FDA clearance.

 

Compliance with applicable regulatory requirements is subject to continual review and is monitored through periodic inspections by the FDA. Later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including fines, delays or suspensions of regulatory clearances, seizures or recalls of products, operating restrictions, and criminal prosecution.

 

Milestone Scientific is subject to pervasive and continuing regulation by the FDA, whose regulations require manufacturers of medical devices to adhere to certain QSR requirements as defined by the FD&C Act. QSR compliance requires testing, quality control and documentation procedures. Failure to comply with QSR requirements can result in the suspension or termination of production, product recall or fines and penalties. Products also must be manufactured in registered establishments. In addition, labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. The export of devices is also subject to regulation in certain instances.

 

The Medical Device Reporting (“MDR”) regulation obligates us to provide information to the FDA on product malfunctions or injuries alleged to have been associated with the use of the product or in connection with certain product failures that could cause serious injury. If, because of FDA inspections, MDR reports or other information, the FDA believes that Milestone Scientific is not in compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin future violations, or assess civil and/or criminal penalties against us, our officers, or employees. Any action by the FDA could result in disruption of operations for an undetermined amount of time.

 

In May 2022, the Company initiated a Corrective Action Preventative Action (CAPA) investigation of the Epidural Disposable Kit, Part # 6100-01, lot HC 51, the scope of the voluntary market withdrawal needed to be expanded to include Part # 6100-03, lot HC 50. A new non-conformance was initiated, and Lot HC 50 was added to the scope of the CAPA initiated above. The investigation via the CAPA identified that there is an issue with the id adaptors used in both lot’s HC 51 and HC 50. However, the Health Hazard Evaluation shows that there is no risk to the patient or the user, thus management has determined there are no potential impacts to patients or users. Lot’s HC 51 and HC 50 are worth approximately $22,000 and $10,000 respectively. Management has determined that no other lots were affected.

 

In May 2022, the Company was notified that Wand STA handpieces, reference # STA—5050-2725, lot B210113 were packaged incorrectly. The Company initiated a Corrective Action Preventative Action (CAPA) investigation to determine the root cause and implement corrective actions. The Health Hazard Evaluation was completed and showed that there is no risk to the patient or the user due to this discrepancy, thus management has determined there are no potential impacts to patients or users. However, to provide the highest quality products to the market, Milestone Scientific decided to initiate a voluntary market withdrawal on May 13, 2022. Lot B210113 is worth approximately $25,000. 

Human Capital

 

The Company has a total 20 full-time employees, including two executive officers. Milestone Scientific also has a consultant who serves as a Director of Clinical Affairs. None of our employees are subject to a collective bargaining agreement and we believe our employee relations are

good. 

 

Corporate Information

 

We were organized in August 1989 under the laws of the State of Delaware. Our principal executive office is located at 425 Eagle Rock Avenue, Roseland, New Jersey 07068. Our telephone number is (973) 535-2717. 

 

Item 1A. Risk Factors

 

You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and/or prospects.

 

Risks Related to Our Financial Position and Need for Additional Capital

 

We have incurred significant losses since our inception.  These operating losses are expected to continue, and we are unable to predict the extent of future losses, whether we will generate significant revenues or whether we will achieve or sustain profitability.

 

We are a small, non-diversified medical device company with a history of limited revenue and significant operating losses and our prospects must be evaluated considering the uncertainties, risks, expenses, and difficulties frequently encountered by similarly situated companies. The Company has generated net losses in all periods since the commencement of our operations. The operating losses were $8.8 million and $7.4 million, for the years ended December 31, 2022, and 2021, respectively.

 

We expect to make substantial expenditures and incur increasing operating costs in the future and our accumulated deficit will increase significantly as we undertake to commercialize our CompuFlo Epidural System. Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets, and stockholders' equity.  Because of the risks and uncertainties associated with product acceptance, we are unable to predict the extent of any future losses, whether we will ever generate significant revenues or if we will ever achieve or sustain profitability.  Even if we do generate profits from operations, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits from operations, and to become and remain profitable, could impair our ability to raise capital, expand our business, and maintain our commercial efforts or continue our operations. A decline in the value of our company could also cause our shareholders to lose all or part of their investment

 

We may require additional funding and may be unable to raise capital when needed, which may force us to delay, curtail or eliminate commercialization efforts of our CompuFlo Epidural Computer Controlled Anesthesia System.

 

Our operations have consumed substantial amounts of cash since inception.  During the years ended December 31, 2022 and 2021, net cash flow used in operations was approximately $6.0 million and approximately $4.0 million, respectively.  We expect to continue to spend substantial amounts on commercialization and marketing activities, including the continued commercialization and marketing of our FDA-approved CompuFlo Epidural Computer Controlled Anesthesia System.  Until such time, if ever, as we can generate a sufficient amount of product revenue and achieve positive cash flow, we expect to seek to finance future cash needs through equity financings or corporate collaboration and licensing arrangements and may seek the sale of non-medical assets.  

 

Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, may adversely impact the price of our common stock.

 

Almost all our 69,306,497 outstanding shares of common stock on December 31, 2022, as well as a substantial number of shares of our common stock underlying outstanding warrants, are available for sale in the public market, either freely or pursuant to Rule 144 under the Securities Act of 1933, as amended. Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, may adversely impact the price of our common stock. 

 

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In February 2019, we issued 6,282,400 shares and 1,570,600 warrants to purchase common shares under our S-3 registration statement. During 2019 the Company issued 639,375 shares associated the warrants issued in February 2019. Since the year ended December 31, 2019, the Company issued 675,000 shares of common stock for warrants exercised at  $0.50  for proceeds of $337,500.

 

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In February 2019, in a private placement we issued 714,286 restricted common shares and 178,571 warrants to purchase common stock.

 

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In April 2020, we completed a Common Stock offering generating gross proceeds of approximately $5.1 million (5,420,000 common shares and 2,710,000 warrants). The combined price of the shares and warrants was $0.95 per share. The warrants are exercisable at a price of $1.20 per share and have an expiration of three (3) years from the issue date.

 

 

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In June 2020, we completed a second Common Stock offering generating gross proceeds of approximately $14.6 million (6,770,000 common shares and 3,749,000 warrants). The combined price of the shares and warrants was $2.15 per share. The warrants are exercisable at $2.60 and expire three (3) years from the issue date.

 

Raising additional capital by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations, or require us to relinquish proprietary rights.

 

To the extent that we raise additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted.  Any future debt financing may involve covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions, among other restrictions.  In addition, if we raise additional funds through licensing arrangements or the disposition of any of our assets, it may be necessary to relinquish potentially valuable rights to our product candidates or grant licenses on terms that are not favorable to us. 

 

Recent developments in financial institutions could adversely affect our current and projected business operations, financial condition and results of operations.

 

Recent events involving limited liquidity, defaults, non-performance and other adverse developments that affect financial institutions have led to market-wide liquidity concerns. For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or FDIC, as receiver. On March 12, 2023, Signature Bank and Silvergate Capital Corp. were also placed into receivership. Future increases of the borrowing rate by the Federal Reserve Board, to slow inflation or for other reasons, may expose other financial institutions to greater interest rate risk and exacerbate liquidity and other adverse developments affecting such institutions. 

 

The Company currently keeps more than $250,000, the maximum amount insured by the Federal Deposit Insurance Corporation (“FDIC”), in its current bank depositary.  The Company may experience delayed access or a loss of its uninsured deposits or other financial assets should its existing financial institution experience financial distress.  While the U.S. Department of Treasury, FDIC and Federal Reserve Board have provided access to uninsured funds in connection with the Silicon Valley Bank crisis, there is no guarantee that these institutions will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.  The Company is currently evaluating its banking relationships with the intent of increasing the amount of deposits that are fully insured or invested in risk free instruments.

 

The results of events or concerns that involve non-performance by financial institutions could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations.  In addition, any further deterioration in the macroeconomic economy or financial services industry, or delayed access or loss of uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution by our customers or vendors, could lead to losses or defaults by companies with whom we do business, which in turn could have a material adverse effect on our current and/or projected business operations, results of operations and financial condition. In addition, other companies could be adversely affected by any of the liquidity or other risks that are described above as factors that could result in material adverse impacts on us, including but not limited to delayed access or loss of uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution.

 

Risks Related to Sales and Distribution of Milestone Scientific Products

 

Changes in our distribution arrangements exposes us to risks of interruption of marketing efforts and building new marketing channels.

 

Effective December 31, 2022, the Company's  termination of its U.S. distribution agreement with Henry Schein became effective. The goal of changing our marketing plan from a sole exclusive distributor in the United States and Canada, to a large number of non-exclusive distributors and an e-commerce platform, may not be seamless or uninterrupted .

 

Returns under our Distribution and Supply Agreement with Henry Schein, Inc. could have a material adverse effect on our business, financial condition, and results of operations.  

 

Under our Distribution and Supply Agreement with Henry Schein, Henry Schein has a right to return our products for full credit against the purchase price paid by them in accordance with such agreement, including but not limited to, returns due to shipment error by us or factory defect. On December 31, 2022, such non-exclusive distribution arrangement terminated, subject to certain post-termination rights and obligations of the parties, all in accordance with such agreement.

 

Milestone Scientific’s International Operations Subject it to Certain Business Risks.

 

A substantial amount of Milestone Scientific’s sales come from its operations outside the United States and we intend to continue to pursue growth opportunities outside of the United States. Milestone Scientific’s international operations subject it to certain risks relating to, among other things, fluctuations in foreign currency exchange, local economic and political conditions, competition from local companies, increases in trade protectionism, United States relations with the governments of the foreign countries in which Milestone Scientific operates, foreign regulatory requirements or changes in such requirements, changes in local healthcare payment systems and healthcare delivery systems, local product preferences and requirements, longer payment terms for account receivables than we experience in the United States, difficulty in establishing and managing foreign operations, weakening or loss of the protection of intellectual property rights in some countries and import or export licensing requirements.

 

 

We are exposed to the risks inherent in international sales.

 

In 2022, export sales outside of the United States made up approximately 63% of our total sales, and we sell our products to customers in approximately 30 countries and U.S. territories.  We have exposure to risks of operating in many foreign countries, including:

 

●	fluctuations in foreign currency exchange rates, could increase the end user cost for instruments;
●	restrictions on, or difficulties and costs associated with, the currency exchange from foreign countries to obtain U.S. dollars;
●	difficulties and costs associated with complying with a wide variety of complex laws, treaties, and regulations;
●	unexpected changes in political or regulatory environments;
●	political and economic instability;
●	import and export restrictions and other trade barriers; and
●	difficulties in obtaining approval for significant transactions.

 

If physicians do not accept nor use our CompuFlo Epidural System, our ability to generate revenue from sales will be materially impaired.

 

Although the FDA has cleared our application to begin marketing the CompuFlo Epidural System, this is no assurance that physicians, hospitals, clinics, and other health care providers will accept and use it.  Acceptance and use of the CompuFlo Epidural System will depend on many factors including:

 

●	perceptions by members of the health care community, including physicians, about the safety and effectiveness of our product;
●	cost-effectiveness of our product relative to competing products and systems;
●	convenience, ease of use and reliability of our product relative to competing products and systems;
●	patient satisfaction;
●	product availability as well as, manufacturer warranty, maintenance, and customer and technical support;
●	availability of reimbursement for our product from government or other healthcare payers; and
●	effectiveness of marketing and distribution efforts by us and our licensees and distributors.

 

Because we expect sales of the CompuFlo Epidural Computer Controlled Anesthesia System to generate substantially all our medical product revenues in the near-term, the failure of this product to find market acceptance would harm our business and could require us to seek additional financing or make such financing difficult to obtain on favorable terms, if at all.

 

Milestone Scientific’s sales and marketing efforts rely upon independent distributors that are free to market products that compete with Milestone Scientific’s products, and if Milestone Scientific is unable to maintain or expand its network of independent distributors, its business could be materially adversely affected.

 

Milestone Scientific believes that a significant portion of its sales will continue to be to independent distributors for the foreseeable future, and it is possible that the percentage of its sales to independent distributors could increase. None of Milestone Scientific’s independent distributors in the United States have been required to sell Milestone Scientific products exclusively, and each of them may freely sell the products of Milestone Scientific’s competitors. If Milestone Scientific is unable to maintain or expand its network of independent distributors, its sales may be negatively affected.  If any of its key independent distributors were to cease to distribute Milestone Scientific’s products or reduce their promotion of such products as compared to the products of Milestone Scientific’s competitors, Milestone Scientific may need to seek alternative independent distributors or increase its reliance on other independent distributors which alternative arrangements may not be sufficient to prevent a material reduction in sales of its products.

 

Developments by competitors may render our products or technologies obsolete or non-competitive.

 

The medical device industry is intensely competitive and subject to rapid and significant technological change.  We expect that other companies (or individuals), whether located in the United States or abroad, will pursue the development of alternative injection-based or imaging-based systems that will compete with our products.  Many of these potential competitors have substantially greater capital resources, larger research and development staffs and facilities, longer product development history in obtaining regulatory approvals and greater manufacturing and marketing capabilities than we do.  These companies also compete with us to attract qualified personnel and parties for acquisitions, joint ventures, or other collaborations.  As a result, we may not be able to compete effectively against these companies or their products.

 

 

Our ability to commercialize our products will depend in part on the extent to which reimbursement will be available from governmental agencies, health administration authorities, private health maintenance organizations and health insurers and other healthcare payers.

 

Our ability to generate revenues from our products will be diminished if the products sell for inadequate prices or hospitals or physicians are unable to obtain adequate levels of reimbursement for the cost they incur in connection with the use of the product.  Significant uncertainty exists as to the reimbursement status of newly approved healthcare products.  Healthcare payers, including Medicare, are challenging the prices charged for medical products and services.  Government and other healthcare payers increasingly attempt to contain healthcare costs by limiting both coverage and the level of reimbursement for products.  Insurance coverage may not be available, or reimbursement levels may be inadequate, to cover the charges for the use of such product.  If government and other healthcare payers do not provide adequate coverage and reimbursement for any of our products, market acceptance of such product could be reduced. 

 

Prices in many countries, including many in Europe, are subject to local regulation and price controls.  In the United States, where pricing levels for medical products, procedures and services are substantially established by third-party payors, including Medicare, if payors reduce the amount of reimbursement for a product, it may cause groups or individuals dispensing the product to discontinue use of the product, to substitute lower cost products even if the alternatives are less effective or to seek additional price-related concessions.  These actions could have a negative effect on our financial results.  The existence of direct and indirect price controls and pressures on our products could materially adversely affect our financial prospects and performance.

 

We could lose our market advantage earlier than expected.

 

We believe that our products represent a significant improvement over any existing drug delivery injection system in use today.  However, this competitive advantage can evaporate quickly if we are not able to commercialize our products quickly.  In the medical device industry, the majority of an innovative product’s commercial value is realized during the early stages of commercialization, before competing products are developed.  Our market advantage is based, in part, on patent rights and the need for new competing products and systems to obtain regulatory approval before they can be commercialized.  The scope of our patent rights may be limited and may also depend on the availability of meaningful legal remedies. 

 

Our failure to adequately protect our intellectual property rights, through patents or otherwise, or limitations on the use or loss of such rights, could have a material adverse effect on our ability to prevent the commercialization of competing anesthetic delivery systems.  In some countries, basic patent protections for our products may not exist because certain countries did not historically offer the right to obtain specific types of patents and/or we (or our licensors) did not file in those markets.  In addition, the patent environment can be unpredictable, and the validity and enforceability of patents cannot be predicted with certainty.

 

Risks Related to the Covid-19 Pandemic

 

The COVID-19 pandemic has and may continue to adversely affect the Company’s business. Additional factors could exacerbate such negative consequences and/or cause other materially adverse effects.

 

Certain COVID-19 pandemic-related impacts were experienced by our businesses during 2022 and may continue for an indeterminable period. These included supply chain delays for some of our products which are manufactured in China and supply shortages in key components in our dental products. Future resurgences in COVID-19 infections or other new viral outbreaks may affect the prioritization of non-acute versus acute healthcare utilization, which may temporarily weaken future demand for certain of our products and increase the demand for other of our products. Also, adverse macroeconomic conditions may worsen if governments impose future restrictions, such as lockdowns or quarantine requirements, in order to control infection rates associated with COVID-19 or other viruses.

 

Additionally, the pandemic escalated challenges that existed for global healthcare systems prior to the pandemic, including budget constraints and staffing shortages, particularly shortages of nursing staff. Changes in the ways healthcare services are delivered, including the transition of more care from acute to non-acute settings and increased focus on chronic disease management, may place additional financial pressure on hospitals and the broader healthcare system. Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our products.

 

We are experiencing supply delays and shortages due to the disruptions the ongoing COVID-19 pandemic is having on the global supply chain, especially with respect to goods from China.

 

We are experiencing supply delays and shortages due to the disruptions the ongoing COVID-19 pandemic is having on the global supply chain, especially with respect to goods from China. The ongoing COVID-19 pandemic has resulted in significant disruption to the operations of certain suppliers in China and the related transportation of their goods to the United States that are parts of our global supply chain. We have been able to make alternative delivery arrangements for limited quantities of goods, at an increased cost. While we have not yet experienced material shortages in supply as a result of these disruptions and our alternative delivery arrangements, if they were to be prolonged or expanded in scope, there could be resulting supply shortages which could impact our ability to have manufactured and delivered our products to the United States and, ultimately to our customers. Accordingly, such supply shortages and delivery limitations could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

 

Risks Related to Employee Matters 

 

We may not be able to attract and retain qualified employees.

 

Our future success depends upon the continued service of our executive officer and other key management and technical personnel, and on our ability to continue to identify, attract, retain, and motivate them. Implementing our business strategy requires specialized territory managers and other talent, as our revenues are highly dependent on technological and product innovations. The market for employees in our industry is extremely competitive, a number of such competitors are significantly larger than us and are able to offer compensation in excess of what we are able to offer. If we are unable to attract and retain qualified employees, our business may be harmed. 

 

Risk Related to Our Dependence on Third Parties

 

Relying exclusively on third parties to manufacture our products, changes in our informal manufacturing arrangements made by the manufacturer of our products and disruptions at the manufacturing facility of our manufacturers and failure to maintain existing supply relationships exposes us to risks that may harm our business. 

 

We have limited internal experience in manufacturing operations and have not historically established our own manufacturing facilities. We currently lack the internal resources to manufacture any of our products, including our CompuFlo® Epidural Computer Controlled Anesthesia System. 

 

Milestone Scientific has been supplied by the manufacturer of the Wand/STA System and its predecessor, the CompuDent System, since the commencement of production in 1998, and by the manufacturer of its handpieces since 2003. The manufacturer of our handpieces is in the People’s Republic of China and the manufacturer of the Wand/STA System is in the United States. At present, we have an informal arrangement with the manufacturers of our products. Our current arrangement with our manufacturers is on a purchase order-by-purchase order basis. As a result, we do not have price protection or a supply commitment for our devices or handpieces. If either manufacturer insists on a material change in terms or determines to discontinue manufacture of our products, it could have an adverse effect on our financial condition and results of operation.

 

An operational disruption in the facility of the manufacturer of, or their ability to ship, our handpieces or devices could negatively impact our financial results. The occurrence of a natural disaster, such as a hurricane, tropical storm, earthquake, tornado, severe weather, flood, fire, or epidemic, pandemic, or other health emergency, or other unanticipated problems such as labor difficulties, equipment failure or unscheduled maintenance, in each case could cause operational disruptions of varied duration.   

 

These types of disruptions could materially adversely affect our financial condition and results of operations to varying degrees dependent upon the facility, the duration of the disruption, our ability to shift business to another facility or find alternative sources of supply.  Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.  Given our current manufacturing relationships, it is possible that our manufacturing requirements may exceed the available supply allotments under our existing agreements. Our anticipated future reliance on third-party manufacturers exposes us to the following additional risks:

●	We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited, and the FDA must approve any replacement contractor.  This approval would require new testing and compliance inspections. In addition, a new manufacturer would have to develop substantially equivalent processes for production of our products.
●	Contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to successfully produce, store, and distribute our products.
●	Contract manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state agencies to ensure strict compliance with current good manufacturing practice and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers' compliance with these regulations and standards and our manufacturers may be found to be in noncompliance with certain regulations, which may impact their ability to manufacture our products.

●	If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.  We may be required to pay fees or other costs for access to such improvements.

 

Though other alternate sources of supply for dental handpieces exist, Milestone Scientific would need to establish relationships with new suppliers, and with respect to the Wand/STA System recover its existing tools or have new tools produced and “burned in” and other manufacturing and quality control software re-produced. Establishing new manufacturing relationships could involve significant expense and delay.

 

Each of these risks could delay the commercialization of our CompuFlo Epidural Computer Controlled Anesthesia System, limit our available supply of The Wand/ STA for dental applications, cause damage to our reputation, result in higher costs and/or deprive us of potential product revenues.  Any curtailment or interruptions of the supply, whether as a result of termination of the relationship or otherwise, would have a material adverse effect on our financial condition, business, and results of operations.

 

Our business is exposed to risks associated with the economic, environmental, and political conditions in China because the sole manufacturer of our handpieces is located in China.

 

Because the sole manufacturer of our dental handpieces is located in China, our business is disproportionately exposed to the economic, environmental, and political conditions of the region. China’s political and economic systems are very different from most developed countries in many respects, including, the amount of government involvement, the level of development, the control of foreign exchange and the allocation of resources. Uncertainties may arise with changing governmental policies and measures. China also faces many social, economic, and political challenges that may produce instabilities in both its domestic arena and in its relationship with other countries.

These instabilities may significantly and adversely affect our supply of dental handpieces which would in turn adversely affect our financial performance. In addition, as the Chinese legal system develops, there can be no assurance that changes in laws and regulations and their interpretation or their enforcement will not have a material adverse effect on our business relationship with the sole manufacturer of our dental handpieces. Any adverse change in the economic, environmental, and political conditions in China could have a material adverse effect on economic growth and the level of investments and availability of capital in China, which in turn could lead to a reduction in the supply of our dental handpieces and consequently have a material adverse effect on our businesses.

 

Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.

 

In general, our success depends upon the quality of our products.  Quality management plays an essential role in meeting customer requirements, preventing defects, improving our products and services, and assuring the safety and efficacy of our products.  Our future success depends on our ability to maintain and continuously improve our quality management program.  A quality or safety issue may result in adverse inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses.  An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products. See Item 1; “Government Regulation.”

 

Use of third parties to manufacture our products may increase the risk that we will not have sufficient quantities of our products or such quantities at acceptable levels of cost and quality, which could impair our commercialization efforts.

Milestone Scientific relies on a number of third parties to supply and manufacture the components and raw materials for its products and its does not have long-term supply agreements with suppliers of these component parts and raw materials, and its arrangements with these suppliers are on a purchase-order basis. These products we obtain from suppliers are subject to fluctuations in price and availability attributable to a number of factors, including general economic conditions, commodity price fluctuations, the demand by other companies for the same raw materials and the availability of complementary and substitute materials.

 

While Milestone Scientific works with suppliers to ensure continuity of supply, no assurance can be given that these efforts will be successful. In the event that any of its existing supply arrangements are terminated or there is a reduction or interruption of supply under these existing arrangements, Milestone Scientific expects that it will be able to enter into new arrangements with alternative suppliers, but these new arrangements may be on terms that are less favorable, including with respect to price and volume, and it may be costly or cause delays in our manufacturing process to transition to a new supplier, particularly in cases in which we must comply with regulatory requirements relating to qualification of new suppliers. The termination, reduction or interruption in supply of these raw materials and components could adversely impact Milestone Scientific Scientific’s ability to manufacture and sell certain of its products.

 

Third-party suppliers may encounter problems during manufacturing for a variety of reasons, including failure to follow specific protocols and procedures, failure to comply with applicable regulations, equipment malfunction, component part supply constraints, and environmental factors, any of which could delay or impede their ability to supply the components and raw materials for Milestone Scientific’s products. Any such failure to perform or a reduction or interruption in supply could have a material adverse effect on Milestone Scientific’s business and operations.

 

Risks Related to Regulatory Compliance and Other Legal Matters

 

We are subject to substantial domestic and international government regulation, including regulatory quality standards applicable to our manufacturing and quality processes. Failure by us to comply with these standards could have an adverse effect on our business, financial condition, or results of operations.

 

The FDA regulates the approval, manufacturing and sales and marketing of many of our products in the United States. Significant government regulation also exists in other countries in which we conduct business. As a device manufacturer, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA.

 

In the European community, we are required to maintain certain ISO certifications to sell our products and must undergo periodic inspections by notified bodies to obtain and maintain these certifications. Failure to comply with current governmental regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions, product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls or related field actions, withdrawals, and/or declining sales.

 

 

We may be subject, directly, or indirectly, to U.S. federal and state health care fraud and abuse and false claims laws and regulations. Prosecutions under such laws have increased in recent years and we may become subject to such litigation. If we are unable to comply or have not fully complied with such laws, we could face substantial penalties.

 

Our operations are and will continue to be directly, or indirectly through our distributors, customers, and health care professionals, subject to various U.S. federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, federal False Claims Act, and the Foreign Corrupt Practice Act of 1977 (“FCPA”). These laws may impact, among other things, our proposed sales, and marketing and education programs. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal health care program such as Medicare or Medicaid. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal health care covered business, the statute has been violated. The Anti-Kickback Statute is broad and, despite a series of narrow safe harbors, prohibits many arrangements and practices that are lawful in businesses outside of the health care industry. Penalties for violations of the federal Anti-Kickback Statute include criminal penalties and civil and administrative sanctions such as fines, imprisonment, and possible exclusion from Medicare, Medicaid, and other federal health care programs. An alleged violation of the Anti-Kickback Statute may be used as a predicate offense to establish liability pursuant to other federal laws and regulations such as the federal False Claims Act. Many states have also adopted laws like the federal Anti-Kickback Statute, some of which apply to the referral of patients for health care items or services reimbursed by any source, not only the Medicare and Medicaid programs.

 

The federal False Claims Act prohibits persons from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment from, the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known as “relators” or “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The frequency of filing qui tam actions has increased significantly in recent years, causing greater numbers of medical device, pharmaceutical and health care companies to have to defend False Claim Act actions. The Affordable Care Act includes provisions expanding the ability of certain relators to bring actions that would have been previously dismissed under prior law. When an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim. The Deficit Reduction Act of 2005 encouraged states to enact or modify their state false claims act to be at least as effective as the federal False Claims Act by granting states a portion of any federal Medicaid funds recovered through Medicaid-related actions. Most states have enacted state false claims laws, and many of those states included laws with qui tam provisions.

 

The Affordable Care Act includes provisions known as the Physician Payments Sunshine Act (section 6002), which require manufacturers of drugs, biologics, devices, and medical supplies covered under Medicare and Medicaid to disclose to the Centers for Medicare and Medicaid Services any transfers of value to physicians and teaching hospitals.

 

Manufacturers must also disclose investment interests held by physicians and their family members. Failure to submit the required information may result in civil monetary penalties of up to $1 million per year for knowing violations and may result in liability under other federal laws or regulations. Similar reporting requirements have also been enacted on the state level in the United States, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with health care professionals. In addition, some states, such as Massachusetts and Vermont, impose an outright ban on certain gifts to physicians. These laws could affect our promotional activities by limiting the kinds of interactions we could have with hospitals, physicians or other potential purchasers or users of our products. Both the disclosure laws and gift bans will impose administrative, cost and compliance burdens on us. If we are found to be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, including civil and criminal penalties, damages, fines, or an administrative action of suspension or exclusion from government health care reimbursement programs and the curtailment or restructuring of our operations

 

In addition, we are subject to the Foreign Corrupt Practices Act (“FCPA”) and other countries’ anti-corruption/anti-bribery regimes, such as the U.K. Bribery Act. The FCPA prohibits improper payments or offers of payments to foreign governments and their officials for obtaining or retaining business. Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, sales agents, or distributors may be ineffective, and violations of the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, results of operations and financial condition.

Safeguards we implement to discourage improper payments or offers of payments by our employees, consultants, sales agents, or distributors may be ineffective, and violations of the FCPA and similar laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, results of operations and financial condition.

 

Changes in United States policy regarding international trade, including import and export regulation and international trade agreements, could also negatively impact Milestone Scientific’s business. The United States has imposed tariffs and export controls on certain goods and products imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could result in an increase in supply chain costs that Milestone Scientific may not be able to offset or that otherwise adversely impact its results of operations. In addition, political tensions between the United States and China have escalated in recent years. Rising political tensions could reduce trade, investment and other economic activities between the two major economies. Any of these factors could have a material adverse effect on Milestone Scientific’s business, prospects, financial condition and results of operations.

 

 

Certain modifications to Milestone Scientific’s products may require new 510(k) clearances or other marketing authorizations and may require Milestone Scientific to recall or cease marketing its products.

 

Once a medical device is permitted to be legally marketed in the United States pursuant to a 510(k) clearance, a manufacturer may be required to notify the FDA of certain modifications to the device.

 

Manufacturers determine in the first instance whether a change to a product requires a new 510(k) clearance or premarket submission, but the FDA may review any manufacturer’s decision. The FDA may not agree with Milestone Scientific’s decisions regarding whether new clearances are necessary. Milestone Scientific has made modifications to its products in the past and has determined based on its review of the applicable FDA regulations and guidance that in certain instances new 510(k) clearances or other premarket submissions were not required. Milestone Scientific may make similar modifications or add additional features in the future that it believes does not require a new 510(k) clearance. If the FDA disagrees with Milestone  Scientific’s determinations and requires it to submit new 510(k) notifications, Milestone Scientific may be required to cease marketing or to recall the modified product until it obtains clearance, and it may be subject to significant regulatory fines or penalties.

 

Milestone Scientific may be subject to enforcement actions if it engages in improper marketing or promotion of its products.

 

Milestone Scientific’s promotional materials and training methods must comply with applicable laws, regulations and regulatory authority’s rules and guidelines, including the FDA and the Federal Trade Commission (the “FTC”). If the FDA, the FTC or another regulatory agency determines that Milestone Scientific’s promotional or training material constitutes off-label, false or misleading, unfair or deceptive promotion of its products, it could request that Milestone Scientific modify its training or promotional materials or subject Milestone Scientific to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider Milestone Scientific’s promotional or training materials to constitute off-label, false or misleading, unfair or deceptive promotion of its products, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement, and reputational harm.

 

Changes in laws and regulations over which we have no control can significantly affect our business and results of operations.

 

Any governmental entity that regulates our operations in the country in which they are located may enact new legislation or adopt new laws and regulations or policies at any time, and new judicial decisions may change the interpretation of existing legislation or regulations at any time in any of the countries in which our operations or projects are located. We have no control over any such changes. Any new laws or regulations governing our operations could have an adverse impact on our business, results of operations and prospects.

 

Risks Related to Milestone Scientific Common Stock  

 

Milestone Scientific is effectively controlled by a limited number of stockholders.

 

Milestone Scientific Scientific’s principal stockholders, Leonard Osser and Gian Domenico Trombetta control approximately 25% of the issued and outstanding shares of common stock. As a result, they can exercise substantial control over our affairs and corporate actions requiring stockholder approval, including electing directors, selling all or substantially all our assets, merging with another entity, or amending our certificate of incorporation. This control could delay, deter, or prevent a change in control and could adversely affect the price that investors might be willing to pay in the future for Milestone Scientific’s securities.  In addition, because of the concentration of ownership of our shares of common stock, our stockholders may from time to time, observe instances where there may be less liquidity in the public markets for our securities.

 

Failure to implement effective internal controls required by the Sarbanes-Oxley Act of 2002 could result in material misstatements in our financial statements, cause investors to lose confidence in the Company’s reported financial information and have a negative effect on the trading price of our common stock.

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual and interim financial statements will not be prevented or detected on a timely basis. Any failure to complete the Company’s assessment of its internal controls over financial reporting or to remediate any material weaknesses that management may identify could harm the Company’s operating results, cause the Company to fail to meet its reporting obligations or result in material misstatements in the Company’s financial statements. Inadequate disclosure controls and procedures and internal controls over financial reporting could also cause investors to lose confidence in the Company’s public disclosures and reported financial information, which could have a negative effect on the trading price of our common stock.

 

 

The market price of our common stock may be volatile and may fluctuate significantly, and stockholders could lose all or part of their investment in Milestone Scientific

 

Our stock price may experience substantial volatility because of many factors, including:

 

●

our failure to meet analysts’ expectations;

●

sales or potential sales of substantial amounts of our common stock;

●

delay or failure in initiating our strategy to commercialize our CompuFlo Epidural System;

●

the success of our strategy to commercialize our CompuFlo Epidural System;

●

announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions that could adversely impact the market acceptance or competitive advantages of our CompuFlo Epidural System;

●

developments concerning our licensors or product manufacturers;

●

litigation and other developments relating to our patents or other proprietary rights or those of our competitors;

●

our ability to successfully develop and commercialize products and services for the healthcare industry;

●

conditions in the medical device industry;

●

governmental regulation and legislation;

●

variations in our anticipated or actual operating results; and

●

change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations.

 

Many of these factors are beyond our control. The stock markets in general, and the market for small, medical device companies, in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our common stock, regardless of our actual operating performance.

 

We have never paid and do not intend to pay cash dividends in the foreseeable future.  As a result, capital appreciation, if any, will be your sole source of gain.

 

We have never paid cash dividends on any of our capital stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business. In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

 

Provisions in our certificate of incorporation, our by-laws and Delaware law might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

 

Provisions of our certificate of incorporation, our by-laws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests.  These provisions include:

 

●

the inability of stockholders to call special meetings;

●

the ability of our Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our Board of Directors; and

●	limitations on filling of vacancies.

 

All of which could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.

 

In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years, has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.  The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock.  They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition. 

 

If we fail to adhere to the strict listing requirements of NYSE American, we may be subject to delisting.  As a result, our stock price may decline, and our common stock may be de-listed.  If our stock were no longer listed on NYSE American, the liquidity of our securities likely would be impaired.

 

Our common stock currently trades on the NYSE American under the symbol “MLSS”. If we fail to adhere to NYSE American's strict listing criteria, including with respect to stock price, our market capitalization and stockholders’ equity, our stock may be de-listed. This could potentially impair the liquidity of our securities not only in the number of shares that could be bought and sold at a given price, which may be depressed by the relative illiquidity, but also through delays in the timing of transactions and the potential reduction in media coverage.  As a result, an investor might find it more difficult to dispose of our common stock.  Any failure at any time to meet the continuing NYSE American listing requirements could have an adverse impact on the value of and trading activity in our common stock.

 

 

Your percentage of ownership in Milestone Scientific may be diluted in the future

 

In the future, your percentage ownership in Milestone Scientific may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that Milestone Scientific will grant to its directors, officers, employees and consultants. Such awards will have a dilutive effect on outstanding share count which could adversely affect the market price of Milestone Scientific’s common stock.

 

Risks Related to Our Intellectual Property 

 

If we are unable to adequately protect our patents, trade secrets and other proprietary rights, if our patents are challenged or if our provisional patent applications do not get approved, our competitiveness and business prospects may be materially damaged.

 

Intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names and trade address, are important to our business. We will endeavor to protect our intellectual property rights in key jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. Our success will depend to a significant degree upon our ability to protect and preserve our intellectual property rights. However, we may be unable to obtain or maintain protection for our intellectual property in key jurisdictions.  

 

Although we own and have applied for patents and trademarks throughout the world, we may have to rely on judicial enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised. A failure to protect, defend or enforce our intellectual property could have an adverse effect on our financial condition and results of operations. Similarly, third parties may assert claims against us and our customers and distributors alleging our products infringe upon third party intellectual property rights.

 

We believe that the intellectual property underlying our products is a competitive advantage. We rely on a combination of patent rights, trade secrets and nondisclosure and non-competition agreements to protect our proprietary intellectual property, and we will continue to do so. There can be no assurance that our patents, trade secret policies and practices or other agreements will adequately protect our intellectual property.  Our issued patents may be challenged, found to be over-broad or otherwise invalidated in subsequent proceedings before courts or the U.S. Patent and Trademark Office. Even if enforceable, we cannot provide any assurances that they will provide significant protection from competition. The processes, systems, and/or security measures we use to preserve the integrity and confidentiality of our data and trade secrets may be breached, and we may not have adequate remedies resulting from such breaches.  In addition, our trade secrets may otherwise become known or be independently discovered by competitors. There can be no assurance that the confidentiality, nondisclosure and non-competition agreements with employees, consultants and other parties with access to our proprietary information to protect our trade secrets, proprietary technology, processes and other proprietary rights, or any other security measures relating to such trade secrets, proprietary technology, processes and proprietary rights, will be adequate, will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge.  To the extent that our consultants, contractors, or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

 

If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention, and we may not prevail in any such suits or proceedings.  A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our results of operations.

 

Third parties could obtain patents that may require us to negotiate licenses to commercialize our technologies, and we cannot assure you that the required licenses would be available on reasonable terms or at all.

 

Third parties may claim that one or more aspects of our technologies or products may infringe on their intellectual property rights. 

 

Our computer-controlled anesthesia systems are complex systems and numerous U.S. and foreign patents and pending patent applications owned by third parties exist in fields that relate to the development and commercialization of drug delivery systems.  In addition, many companies have employed intellectual property litigation as a strategy to gain a competitive advantage.  It is possible that infringement claims may occur as the number of products and competitors in our market increases.  In addition, to the extent that we gain greater visibility and market exposure as a public company, we face a greater risk of being the subject of intellectual property infringement claims.  We cannot be certain that the conduct of our business does not and will not infringe intellectual property or other proprietary rights of others in the U.S. and in foreign jurisdictions.  If any of our computer-controlled anesthesia systems are found to infringe third party patent rights, we could be prohibited from manufacturing and commercializing the infringing technology unless we obtain a license under the applicable third-party patent and pay royalties or are able to design around such patent.  

 

We may be unable to obtain a license on terms acceptable to us, or at all, and we may not be able to redesign the system to avoid infringement.  Even if we can redesign our products or processes to avoid an infringement claim, our efforts to design around the patent could require significant time, effort and expense and ultimately may lead to an inferior or costlier product.  Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim and could distract our management from our business. 

 

Furthermore, if any such claim is successful, a court could order us to pay substantial damages, including compensatory damages for any infringement, plus prejudgment interest and could, in certain circumstances, treble the compensatory damages and award attorney fees.  These damages could be substantial and could harm our reputation, business, financial condition, and operating results.  A court also could enter orders that temporarily, preliminary, or permanently prohibit us, our licensees, if any, and our customers from making, using, selling, offering to sell, or importing one or more of our products or using our proprietary technologies or processes, or could enter an order mandating that we undertake certain remedial activities. 

 

 

Any of these events could seriously harm our business, operating results, and financial condition.

 

General Business Risks

 

Continued instability in the credit and financial markets may negatively impact our ability to commercialize our products.

 

Financial markets in the United States, Canada, Europe, and Asia continue to experience disruption, including, among other things, significant volatility in security prices, declining valuations of certain investments, as well as severely diminished liquidity and credit availability.  Business activity across a wide range of industries and regions continues to be reduced.  As a small medical device company, we rely on third parties for several important aspects of our business, including contract manufacturing of products, distribution of our products and sales and marketing.  These third parties may be unable to satisfy their commitments to us due to tightening of global credit from time to time, which would adversely affect our business.  The continued volatility in the credit and financial market conditions may also negatively impact our ability to access capital and credit markets and our ability to manage our cash balance.  While we are unable to predict the continued duration and severity of any adverse conditions in the United States and other countries, any of the circumstances mentioned above could adversely affect our business, financial condition, operating results and cash flow or cash position.

 

Our business and operations would suffer in the event of cybersecurity or other system failures. 

 

Despite the implementation of security measures, our internal computer systems, and those of any third parties with which we partner are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any cybersecurity or system failure, accident or breach to date, if an event were to occur, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure, if possible, and potentially violation of HIPAA and other privacy laws applicable to our operations. If any disruption or security breach resulted in a loss of or damage to our data or applications or inappropriate disclosure of confidential or protected information, we could incur liability, further development of our products could be delayed, and our operations could be disrupted, any of which could severely harm our business and financial condition. Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.

 

In general, our success depends upon the quality of our products.  Quality management plays an essential role in meeting customer requirements, preventing defects, improving our products and services, and assuring the safety and efficacy of our products.  Our future success depends on our ability to maintain and continuously improve our quality management program.  A quality or safety issue may result in adverse inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses.  An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products.

 

Insurance coverage may be inadequate or unavailable to cover any product liability losses we incur.

 

Our business exposes us to potential product liability claims that are inherent in the design, manufacture, testing, inspection, and sale of dental and medical devices. We are subject to product liability lawsuits alleging that component failures, manufacturing flaws, manufacturing defects, negligence in manufacturing, design defects, negligence in design, or inadequate disclosure of product-related risks, warnings, or product-related information resulted in an unsafe condition, injury, or death to customers. The risk of one or more product liability claims or lawsuits may be even greater after we launch new products with new features or enter new markets where we have no prior experience selling our products and rely on newly-hired staff or new independent distributors or contractors to provide new customer training and customer support. In addition, the misuse of our products or the failure of customers to adhere to operating guidelines could cause significant harm to customers, including death, which could result in product liability claims. Product liability lawsuits and claims, safety alerts or product recalls, with or without merit, regardless of any available insurance coverage, could cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business, harm our reputation and adversely affect our ability to attract and retain customers, any of which could have a material adverse effect on our business, financial condition and operating results.

 

Item1B. Unresolved Staff Comments

 

None.

 

 

Item 2. Description of Property

 

The headquarters for Milestone Scientific is located at 425 Eagle Rock Avenue, Roseland, New Jersey 07068, and our telephone number is (973) 535-2717. In August 2019, the Company signed a seven year lease for a facility in Roseland, New Jersey (the “Roseland Facility”). The Roseland Facility carries monthly lease payments of $9,275, commencing April 1, 2021. The Company is also responsible for electric charges equal to $2.00 per square foot, which is equal to $11,130 annually, payable in equal monthly installments of $928. 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. A third-party distribution and logistics center in Pennsylvania handles shipping and order fulfillment on a month-to-month basis.

 

Milestone Scientific does not own or intend to invest in any real property. Milestone Scientific currently has no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.

 

Item 3. Legal Proceedings

 

Milestone Scientific is not involved in any material litigation.

 

Item 4. Mine Safety Disclosure

Not applicable. 

 

 

PART II

 

Item 5. Market for Common Equity, and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

 

Market Information

 

On June 1, 2015, our common stock was listed on the NYSE American under the symbol “MLSS”. The following table sets forth the high and low sales prices of Milestone’s common stock for the periods presented.

 

2022		High				Low			2021		High				Low
First Quarter		$	2.20			$	1.13		First Quarter		$	4.85			$	2.11
Second Quarter		$	1.60			$	0.75		Second Quarter		$	3.83			$	1.88
Third Quarter		$	1.27			$	0.71		Third Quarter		$	2.51			$	1.47
Fourth Quarter		$	0.87			$	0.45		Fourth Quarter		$	3.00			$	1.79

 

Holders

 

As of March 31, 2023, we had approximately 99 stockholders of record of our common stock. We believe that we have approximately 3,911 beneficial owners of our common stock.

 

Dividends

 

The holders of common stock are entitled to receive such dividends as may be declared by Milestone Scientific’s Board of Directors. Milestone Scientific has not paid and does not expect to declare or pay any dividends in the foreseeable future.

 

Sales of Unregistered Securities

 

Not applicable.

 

ITEM 6. Selected Financial Data

 

Milestone Scientific is a “smaller reporting company” as defined by Regulations S-K and as such, is not required to provide the information contained in this item pursuant to Regulation S-K. 

 

ITEM 7. 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" elsewhere in this Form 10-K.

 

OVERVIEW

 

Milestone Scientific is a biomedical technology research and development company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical, dental and cosmetic use. Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets. We believe our technologies are proven and well established. Our common stock was initially listed on the NYSE American on June 1, 2015, and trades under the symbol “MLSS”.

 

We have focused our resources on redefining the worldwide standard of care for injection techniques by making the experience more comfortable for the patient by reducing the anxiety and stress of receiving injections from the healthcare provider. Our computer-controlled injection devices make injections precise, efficient, and virtually painless.

 

Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery device, using The Wand®, a single use disposable handpiece. The device is marketed in dentistry under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and is suitable for all dental procedures that require local anesthetic. Our proprietary DPS Dynamic Pressure Sensing technology® is our technology platform that advances the development of next-generation devices. It regulates flow rate and monitoring pressure from the tip of the needle, through platform extensions for local anesthesia for subcutaneous drug delivery, used in various dental and medical injections. It has specific medical applications for epidural space identification in regional anesthesia procedures and intra-articular joint injections.

 

Milestone Scientific remains focused on advancing efforts to achieve the following three primary objectives:

 

●	Establishing Milestone’s DPS Dynamic Pressure Sensing technology platform as the standard-of-care in painless and precise drug delivery, providing for the first time, objective visual and audible in-tissue pressure feedback, and continuing to expand platform applications;

 

●	Following obtaining successful FDA clearance of our first medical device, Milestone Scientific is transitioning from a research and development organization to a commercially focused medical device company; and

 

●	Expanding our global footprint of our CompuFlo Epidural and CathCheck System by utilizing a targeted field sales force and partnering with distribution companies worldwide.

 

Because of combining the ability to regulate the flow rate and monitor pressure at the tip of the needle, Milestone Scientific developed the industry’s first solution for painlessly administering an intra-ligamentary injection, i.e., “single-tooth anesthesia” which could be used as the only injection necessary for achieving dental anesthesia, foregoing the need to administer traditional injections such as a nerve branch block. In addition to single-tooth anesthesia, the STA System can effectively perform all the traditional injections that dentists routinely give but can provide them virtually pain free and with numerous clinical advantages. This device, which also utilizes a disposable handpiece, is currently marketed by Milestone Scientific as the Wand STA® System. 

 

Our dental devices have been used to administer tens of millions of injections worldwide. Each of our devices has a related single use disposable handpiece, leading to a continuing revenue stream following sale of the device. At present, we sell disposable handpieces unique to our legacy product (the Wand and CompuDent) to users who have not upgraded to our current dental product, the Wand STA System. 

 

Building on the success of our proprietary, core technology platform for dental injections, and desiring to pursue other growth opportunities, we have recently begun to expand the uses and applications of our proprietary, patented technologies to achieve greater operational efficiencies, enhanced patient safety and therapeutic adherence, patient satisfaction, and improved quality of care across a broad range of medical specialties. In June 2017, we received FDA regulatory clearance to sell the CompuFlo Epidural Computer Controlled Anesthesia System in the United States for certain medical applications. We intend to continue to expand the uses and applications of our DPS Dynamic Pressure Sensing technology. We believe that we and our technology solutions are widely recognized by key opinion leaders (i.e., academics, anesthesiologists and practicing dentists whose opinions are widely respected), industry experts and medical and dental practitioners as a leader in the emerging, computer-controlled injection industry.

 

 

Wand/STA Dental Product

 

Since its market introduction in early 2007, the Wand STA System and prior C-CLAD devices have been used to deliver over 80 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.

 

Medical Market Product

 

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 Epidural System.  In June 2017, the FDA approved the CompuFlo Epidural System for epidural injections.

 

The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by business segment product category: 

 

		For the Year Ended December 31, 2022
Domestic: US		Dental				Medical				Grand Total
Instruments		$	524,715			$	7,500			$	532,215
Handpieces			2,653,914				25,250				2,679,164
Accessories			78,493				-				78,493
Grand Total		$	3,257,122			$	32,750			$	3,289,872
International: Rest of World		Dental				Medical				Grand Total
Instruments		$	1,413,525			$	-			$	1,413,525
Handpieces			3,391,748				20,000				3,411,748
Accessories			60,797				-				60,797
Grand Total		$	4,866,070			$	20,000			$	4,886,070
International: China		Dental				Medical				Grand Total
Instruments		$	270,000			$	-			$	270,000
Handpieces			359,964				-				359,964
Accessories			-				-				-
Grand Total		$	629,964			$	-			$	629,964
Total Product Sales		$	8,753,156			$	52,750			$	8,805,906

 

		For the Year  Ended December 31, 2021
Domestic: US		Dental				Medical				Grand Total
Instruments		$	560,424			$	-			$	560,424
Handpieces			2,905,354				35,200				2,940,554
Accessories			69,271				1,300				70,571
Grand Total		$	3,535,049			$	36,500			$	3,571,549
International: Rest of World		Dental				Medical				Grand Total
Instruments		$	1,226,486			$	70,000			$	1,296,486
Handpieces			3,246,302				44,900				3,291,202
Accessories			46,546				800				47,346
Grand Total		$	4,519,334			$	115,700			$	4,635,034
International: China		Dental				Medical				Grand Total
Instruments		$	303,000			$	-			$	303,000
Handpieces			1,795,128				-				1,795,128
Accessories			-				-				-
Grand Total		$	2,098,128			$	-			$	2,098,128
Total Product Sales		$	10,152,511			$	152,200			$	10,304,711

 

 

Current Product Platform

 

See Item 1. Description of Business.

 

Summary of Critical Accounting Policies and Significant Judgments and Estimates

 

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Milestone Scientific evaluates its estimates, including those related to accounts receivable, inventories, stock-based compensation, and contingencies. Milestone Scientific bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not clear from other sources. Actual results may differ from those estimates under different assumptions or conditions.

 

While significant accounting policies are more fully described in Note C to the consolidated financial statements included elsewhere in this report, Milestone Scientific believes that the following accounting policies and significant judgment and estimates are most critical in understanding and evaluating the reported financial results. 

 

Principles of Consolidation

 

Milestone Scientific's discussion and analysis of the financial condition and results of operations is based upon its consolidated financial statements that 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, and Milestone Medical. All significant, intra-entity transactions and balances are eliminated in the consolidation. 

 

If Milestone Scientific determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary. Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity. Milestone Scientific has completed the VIE analysis relating to Milestone China and Anhui Maishida Medical Technology, Co. Ltd. (“Anhui”).

 

Milestone Scientific has determined that due to the loss of equity investment in Anhui, the company no longer has significant influence of Anhui and therefore Anhui is not a variable interest. 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 of Milestone China who have the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note F.

 

Assessment of our Ability to Continue as a Going Concern   

 

In accordance with  (“ASC”) 205-40, “Presentation of Financial Statements – Going Concern”, the Company continually  evaluates 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 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.

 

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 consolidated financial statements are issued. Total operating losses since inception of $116.4 million.  The operating losses were $8.8 million and $7.4 million, for the years ended December 31, 2022, and 2021, respectively. Management has prepared cashflow forecasts covering a period of 12 months from the date of issuance of these financial statements. These forecasts include several revenue and operating expense assumptions which indicate that the Company’s current cash and liquidity is sufficient to finance the operating requirements for at least the next 12 months. Management believes that the Company will have sufficient cash reserves to meet its anticipated obligations for at least the next twelve months from the filing date of this report. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical 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 until it achieves profitability, if ever.

 

 

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 and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence and product expiration requirement and regulations. 

 

Revenue Recognition

 

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

 

	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 and that includes both exclusive and non-exclusive distribution agreements with related and third parties.

 

Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon date of shipment. 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. 

 

Results of Operations.

 

The following table sets forth the consolidated results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.

		December 31, 2022				December 31, 2021
Operating results:
Product sales, net		$	8,805,906			$	10,304,711
Cost of products sold			3,905,092				3,992,811
Gross profit			4,900,814				6,311,900
Operating expenses:
Selling, general and administrative expenses			12,514,323				12,738,362
Research and development expenses			1,150,209				878,210
Depreciation and amortization expense			63,755				73,836
Total operating expenses			13,728,287				13,690,408
Loss from operations			(8,827,473)				(7,378,508	)
Other income, and interest expense net			54,607				502,076
Net loss			(8,772,866	)			(6,876,432	)
Net loss attributable to noncontrolling interests			66,735				58,115
Net loss attributable to Milestone Scientific Inc.			(8,706,131	)		$	(6,818,317	)

 

Cash flow:		December 31, 2022				December 31, 2021
Net cash used in operating activities		(6,031,996)				(4,033,664)
Net cash used in investing activities		(8,527)				(15,189)
Net cash (used in) provided by financing activities		(8,544)				4,589,282

 

 

Year ended December 31, 2022, compared to year ended December 31, 2021.

 

Net sales for years ended December 31, 2022, and  2021were as follows: 

		2022				2021				Change
Dental		$	8,753,156			$	10,152,511			$	(1,399,355	)
Medical			52,750				152,200			$	(99,450	)
Total sales, net		$	8,805,906			$	10,304,711			$	(1,498,805	)

 

Consolidated revenue for the years ended December 31, 2022, and 2021 was approximately $8.8 million and $10.3 million, respectively. Dental revenue for the years ended December 31, 2022 and 2021 was approximately $8.8 million and $10.1 million, respectively.  The decrease in Dental revenue of  approximately $1.4 million for the year ended December 31, 2022, as compared to 2021 was driven by lower revenue from China of approximately $1.5 million and a decrease in domestic revenue of approximately $278,000 of which $179,000 related to an allowance for sales returns from Henry Schein due to the termination of the distribution agreement. Dental international revenue increased approximately $347,000 compared to December 31, 2021. Medical revenue decreased approximately $100,000 for the year ended December 31, 2022 , as compared to December 31, 2021, which was primarily the result of changes to the Company’s near term commercial strategy.

 

Gross Profit for years ended December 31,  2022 and 2021 were as follows:

		2022				2021				Change
Dental		$	5,446,175			$	6,223,051			$	(776,876	)
Medical			(545,361	)			88,849			$	(634,210	)
Total gross profit		$	4,900,814			$	6,311,900			$	(1,411,086	)

Consolidated gross profit for the years ended December 31, 2022 and 2021 decreased approximately $1.4 million or 22%. The decrease was driven by an allowance of approximately $550,000 on slow moving Medical finished goods.  

 

Selling, general and administrative expenses for years ended December 31,  2022 and 2021 were as follows: 

		2022				2021				Change
Dental		$	3,225,032			$	2,946,108			$	278,924
Medical			4,183,983				4,106,689				77,294
Corporate			5,105,308				5,685,565				(580,257	)
Total selling, general and administrative expenses		$	12,514,323			$	12,738,362			$	(224,039	)

 

Consolidated selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were approximately $12.5 million and $12.7 million, respectively. The decrease of approximately $224,000 is categorized in several areas. Employee salaries, and benefits expenses decreased approximately $886,000 during the year ended December 31, 2022 compared to the same period in 2021. The Company reduced director fees, bonuses, employee recruiting fees, and medical insurance for year ended December 31, 2022. The Company reduced marketing expense for the year ended December 31, 2022 by approximately $86,000 due to decreased trade show participation and decrease royalties expenses by approximately $4,000. The Company increased employee travel and professional fees by approximately $322,000 for the years ended December 31, 2022 compared to December 31, 2021 due to international commercial efforts. During year ended December 31, 2022 warehousing, and quality control expenses associated with quality assurance in connection with ISO certification and digitizing parts of our quality control increased approximately $379,000, and other selling, general and administrative expenses increased approximately $51,000 due to the additional professional services quality control required in the compliance and regulations

 

Research and Development for years ended December 31,  2022 and 2021 were as follows:

		2022				2021				Change
Dental		$	1,095,523			$	797,509			$	298,014
Medical			54,686				80,701				(26,015	)
Corporate			-				-				-
Total research and development		$	1,150,209			$	878,210			$	271,999

 

Consolidated research and development expenses for the years ended December 31, 2022, and 2021, were approximately $1.2 million and $878,000, respectively. The increase of approximately $272,000 is related to the Company developing the next generation to the STA Single Tooth Anesthesia System product line.

 

 

Profit (Loss) from Operations for years ended December 31,  2022 and 2021 were as follows: 

		2022				2021				Change
Dental		$	1,121,815			$	2,475,059			$	(1,353,244	)
Medical			(4,788,105	)			(4,105,854	)			(682,251	)
Corporate			(5,161,183	)			(5,747,713	)			586,530
Total loss from operations		$	(8,827,473	)		$	(7,378,508	)		$	(1,448,965	)

 

The loss from operations was approximately $8.8 million and $7.4 million for the years ended December 31, 2022 and 2021, respectively.  The increase in the loss from operations was primarily driven the decrease in gross profit.

 

Liquidity and Capital Resources

 

Milestone Scientific has incurred annual operating losses and negative cash flows from operating activities since its inception. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business and the medical business worldwide, and a reduction in operating expenses. On December 31, 2022, Milestone Scientific had cash and cash equivalents of approximately $8.7 million and working capital of approximately $9.7 million. Forthe years ended December 31, 2022 and 2021, we had cash flows used in operating activities of approximately $6.0 million and $4.0 million, respectively

 

Management believes that the Company has sufficient cash, along with the current cash flow and support from the dental business to  mitigate the expected selling expenditures for commercialization of the Epidural medical device, as well as other operating expenditures and planned new product development programs, over the next twelve months from the filing date of this report.

 

Contractual Obligations

 

The impact of the consolidated contractual obligations at December 31, 2022, expected on the liquidity and cash flows in future periods, is as follows:                                                                                                                         

Payments Due by Period
		Total				Less than 1 Year				1-3 Years				3-5 Years
Operating lease obligations		$	597,196			$	141,518			$	420,201			$	35,477
Purchase obligations (1)		$	2,233,838			$	2,233,838			$	-			$	-
Total		$	2,831,034			$	2,375,356			$	420,201			$	35,477

 

(1)    Purchase obligations include agreements for the purchase of dental devices, including purchase obligations entered into post year end, which will require payment in during the year ended 2023.

 

Recent Accounting Pronouncements

 

See “Note C - Summary of Significant Accounting Policies” to the consolidated financial statements for explanation of recent accounting pronouncements impacting Milestone Scientific.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Milestone Scientific is a “smaller reporting company” as defined by Regulation S-K and, as such, is not required to provide the information required by this item.

 

Item 8. Financial Statements

 

The financial statements of Milestone Scientific required by this Item are set forth beginning on page F-1.

 

Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures 

 

Evaluation of Disclosure Controls and Procedure

 

We maintain disclosure controls and procedures designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer, and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer, and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. Based on this evaluation, our Chief Executive Officer, and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were effective at December 31, 2022. 

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organization of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.

 

Changes in Internal Control over Financial Reporting

 

During the year ended December 31, 2022, the Company remediated the identified material weakness from December 31, 2021.

 

Item 9B. Other Information

 

None. 

 

Item 9C. Disclosure regarding Foreign Jurisdiction that Prevent inspections

 

None.

 

PART III
 
The information required by Part III is omitted from this Annual Report because it will be included in our definitive proxy statement to be filed pursuant to Regulation 14A for our 2023 Annual Meeting of Stockholders, or the 2023 Proxy Statement, and such information is incorporated herein by reference.
 
Item 10.    Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section 16 (a) of the Exchange Act
 
The information required under this item will be contained in the 2023 Proxy Statement and is hereby incorporated by reference.
 
Item 11.    Executive Compensation
 
The information required under this item will be contained in the 2023 Proxy Statement and is hereby incorporated by reference.
 
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
 
The information required under this item will be contained in the 2023 Proxy Statement and is hereby incorporated by reference.
 
Item 13.    Certain Relationships and Related Transactions, and Director Independence
 
The information required under this item will be contained in the 2023 Proxy Statement and is hereby incorporated by reference.
 
Item 14.    Principal Accountant Fees and Services
 
The information required under this item will be contained in the 2023 Proxy Statement and is hereby incorporated by reference.

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

The following documents are filed as part of this Report:

 

1	Financial Statements. See Index to Financial Statements on page F-1.
2	Financial Statement Schedule
3	Exhibits
	Certain of the following exhibits were filed as Exhibits to previous filings filed by Milestone Scientific under the Securities Act of 1933, as amended, or reports filed under the Securities and Exchange Act of 1934, as amended, and are hereby incorporated by reference.

 

Exhibit No	Description
3.1	Restated Certificate of Incorporation of Milestone filed on September 6, 2013 (11)
3.2	Form of Certificate of Designation filed on April 18, 2014 (12)
3.3	Certificate of Correction to the Certificate of Designation filed on May 12, 2014 (13)
3.4	Amended and Restated By-laws of Milestone  filed April 1, 2019 (23)
3.5	Certificate of Amendment to Restated Certificate of Incorporation (24)
4.1	Specimen stock certificate (2)
4.3	Form of Common Stock Purchase Warrant issued in the 2016 Public Offering (16)
4.4	Form of Common Stock Purchase Warrant issued in the Feb. 2019 Public Offering (21)
4.5	Form of Common Stock Purchase Warrant issued in the Feb. 2019 Private Placement (22)
4.6	Description of Registrant’s Securities (30)
4.7	Form of Common Stock Purchase Warrant issued in the Apr. 2021  Public offering  (25)
4.8	Form of Common Stock Purchase Warrant issued in the Jun. 2021  Public Offering (26)
10.1	Lease dated November 25, 1996 between Livingston Corporate Park Associates, L.L.C. and Milestone (3)
10.2	Lease amendment dated April 28, 2004 between Livingston Corporate Park Associates, L.L.C. And Milestone (4)
10.3	2011 Equity Compensation Plan (7)
10.4	Master Supply and Distribution Agreement, dated July 3, 2013, between Milestone Scientific Inc and Tri-anim Health Services, Inc (9)
10.5	Agreement with Mark Hochman, dated July 2015 (13)
10.6	Investment Agreement, dated April 15, 2014, between Milestone Scientific Inc. and BP4 S.p.A. (12)
10.7	Exclusive Distribution and Supply Agreement, dated as of June 20, 2016, among Milestone Scientific Inc., Wand Dental, Inc. and Henry Schein, Inc. (14)
10.8	Amended and Restated Employment Agreement, dated December 1, 2016, between Wand Dental Inc. and Gian Domenico Trombetta (15)
10.9	Final Form of Asset Purchase Agreement, dated June 2, 2017, among APAD Octrooi B.V., APAD B.V., and Milestone Scientific Inc. (17)
10.10	Final form of the Memorandum of Agreement, dated June 6, 2017, between Solee Science & Technology U.S.A. Ltd. and Milestone Scientific Inc. (18)
10.11	Final form of the Promissory Note, dated June 6, 2017, in the principal amount of $1,275,000 made by Solee Science & Technology U.S.A. Ltd. to Milestone Scientific Ltd. (18)
10.12	Final form of the Stock Option Agreement, dated June 6, 2017, Solee Science & Technology U.S.A. Ltd. and Milestone Scientific Inc. (18)
10.13	New Employment Agreement between Milestone Scientific Inc. and Leonard Osser dated as of July 11, 2017. (19)
10.14	Employment Agreement between Milestone Scientific Inc. and Daniel Goldberger dated as of July 11, 2017. (19)
10.15	Covenant Agreement between Milestone Scientific Inc. and Daniel Goldberger dated and effective as of July 11, 2017. (19)
10.16	Consultant Agreement between Milestone Medical Inc. and U.S. Asian Consulting Group, LLC dated as of July 10, 2017. (20)
10.17	Underwriting Agreement, dated as of February 1, 2019 between Milestone Scientific Inc. and Maxim Group LLC, as underwriter (21)
10.18	Stock Purchase Agreement, dated as of February 8, 2019 between Milestone Scientific Inc. and BP4 S.p.A. (22)
10.19	Underwriting Agreement, dated as of April 9, 2021  between the Company and Maxim Group LLC (25)

 

 

10.20	Underwriting Agreement, dated as of June 25, 2021  between the Company and Maxim Group  LLC (26)
10.21	Buy Sell Agreement, dated as of November 22, 2021, by and between Wand Dental, Inc. and Michelle Zhang dba Solee Science & Technology USA (31)
10.22	Succession Agreement between Leonard Osser and Milestone Scientific Inc. (27)
10.23	Amended and Restated 2021  Equity Incentive Plan (28)
10.24	Employment Agreement, dated and effective as of January 1, 2022, between Arjan Haverhals and Milestone Scientific Inc.** (29)
10.25	Offer Letter, dated as of February 1, 2023, between Peter Milligan and Milestone Scientific Inc.* **
21.1	List of Subsidiaries*
23.1	Consent of Marcum LLP*
23.2	Consent of Friedman, LLP*

 

31.1	Rule 13a-14(a) Certification-Chief Executive Officer*
31.2	Rule 13a-14(a) Certification-Financial Officer*
32.1	Section 1350 Certifications-Chief Executive Officer***
32.2	Section 1350 Certifications-Chief Financial Officer***
101.INS	Inline XBRL Instance Document*
101.SCH	Inline XBRL Taxonomy Extension Schema Document*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document*
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith.
**	Indicates management contract or compensatory plan or arrangement.
***	Furnished, not filed, in accordance with item 601(32) (ii) of Regulations-S-K.
2)	Incorporated by reference to Amendment No. 1 to Milestone Scientific’s Registration Statement on Form 10-KSB for the year ended May 15, 1995
3)	Incorporated by reference to Milestone Scientific’s Form 10-KSB for the year ended December 31, 1996.
4)	Incorporated by reference to Milestone Scientific’s Form 10-KSB for the year ended December 31, 2004.
7)	Filed as Appendix A to Milestone Scientific’s Proxy Statement filed with the SEC on May 2, 2011 and incorporated herein by reference.
9)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on July 9, 2013.
11)	Incorporated by reference to Milestone Scientific’s Form 10-K for the year ended December 31, 2013.
12)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on April 18, 2014.
13)	Incorporated by reference to Milestone Scientific’s Form 10-K for the year ended December 31, 2015.
14)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 30, 2016.
15)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on December 2, 2016.
16)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on December 16, 2016.
17)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 2, 2017.
18)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on June 7, 2017.
19)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on July 10, 2017.
20)	Incorporated by reference to Milestone Scientific’s Form 10-Q filed with the SEC on August 14, 2017.
21)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on February 1, 2019.
22)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on February 14, 2019.
23)	Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on April 1, 2019.
24)	Incorporated by reference to Milestone Scientific’s Form 10-K/A filed with the SEC on April 2, 2021 .
25)	Incorporated by reference to Milestone Scientific’s Form 8-K filed with the SEC on April 9, 2021 .
26)	Incorporated by reference to Milestone Scientific’s Form 8-K  filed with the SEC on June 25, 2021
27)	Incorporated by reference to Milestone Scientific’s Form 8-K  filed with the SEC on April 7, 2021
28)	Incorporated by reference to Milestone Scientific’s Proxy Statement on Schedule 14A filed with the SEC on April 30, 2021
29)	Incorporated by reference to Milestone Scientific’s Form 10-Q filed with the SEC on August 15, 2022.
30)	Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on March 31, 2022
31)	Incorporated by reference to Milestone Scientific’s Form 10-K filed with the SEC on March 31, 2022

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Milestone Scientific Inc.
By:	/s/Arjan Haverhals
	Chief Executive Officer

 

 

Milestone Scientific Inc.
By:	/s/ Peter Milligan
	Chief Financial Officer

 

Date: March 30, 2023

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

Signature	Date	Title
/s/ Neal Goldman	March 30, 2023	Chairman and Director
Neal Goldman
/s/ Leonard Osser	March 30, 2023	Vice Chairman and Director
Leonard Osser
/s/ Gian Domenico Trombetta	March 30, 2023	Director
Gian Domenico Trombetta
/s/ Benedetta Casamento	March 30, 2023	Director
Benedetta Casamento
/s/ Michael McGeehan	March 30, 2023	Director
Michael McGeehan
/s/ Arjan J. Haverhals	March 30, 2023	Director
Arjan J. Haverhals

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

See notes to Consolidated Financial Statements

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,

 

See notes to Consolidated Financial Statements

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31 2022 AND  2021

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

 

See notes to Consolidated Financial Statements

 

 

MILESTONE SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE A — 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 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 August 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 dentistry under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and in medicine under the trademark CompuMed®. CompuDent® is suitable for all dental procedures that require local anesthetic. CompuMed® is suitable for many medical procedures regularly performed in plastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedics, and many other disciplines. The dental devices are sold in the United States, Canada and in 60 other countries. Certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries. In June 2017, Milestone Scientific received 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System (“Epidural”).

 

We are in the process of meeting with medical facilities and device distributors within the United States, Middle East and Europe.  Certain of our medical instruments have obtained European CE mark approval and can be marketed and sold in most European countries.

 

In 2020, the Company received a Notice of Allowance from the United States Patent and Trademark Office (USPTO) related to its new CompuPulse System, which combines the benefits of our CompuWave technology with a manual syringe. The new CompuPulse System allows one to identify a pulsatile pressure waveform in a variety of applications, thereby improving the reliability and safety of a drug delivery procedure. Importantly, not all procedures require the sophistication of our CompuFlo system, which precisely controls the administration and flow rate of medication as it is being administered. This new technology provides an efficient and low-cost alternative for procedures where a manual syringe may suffice, while still providing the ability to verify needle and subsequent catheter placement.

NOTE B-  LIQUIDITY AND UNCERTAINTIES

 

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 consolidated financial statements are issued. Total operating losses since inception of $116.4 million.  The operating losses were $8.8 million and $7.4 million, for the years ended December 31, 2022, and 2021, respectively. Management has prepared cashflow forecasts covering a period of 12 months from the date of issuance of these financial statements. These forecasts include several revenue and operating expense assumptions which indicate that the Company’s current cash and liquidity is sufficient to finance the operating requirements for at least the next 12 months Management believes that the Company will have sufficient cash reserves to meet its anticipated obligations for at least the next twelve months from the filing date of this report. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical 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 until it achieves profitability, if ever.

 

In addition to its employees, the Company relies on (i) distributors, agents, and third-party logistics providers in connection with product sales and distribution and (ii) raw material and component suppliers in the U.S., Europe, and China. If the Company, or any of these entities encounter any disruptions to its or their respective operations or facilities, or if the Company or any of these third-party partners were to shut down for any reason, including by fire, natural disaster, such as a hurricane, tornado or severe storm, power outage, systems failure, labor dispute, pandemic or other public health crises, or other unforeseen disruption, then the Company or they may be prevented or delayed from effectively operating its or their business, respectively.

 

The coronavirus (COVID-19) adversely impacted the Company's operations, our distributors and suppliers in recent years. Notwithstanding the reopening of dental offices, hospitals, and pain clinics throughout the country and the rest of the world, revenues for years ended December 31, 2022, and 2021 were adversely affected. Any business interruptions, resulting from COVID-19, or new variant, could significantly disrupt our operations further and could have a material adverse impact on our business in the future.

 

F- 8

---

 

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

 

NOTE C — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

1.  Principles of Consolidation

 

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

 

2. Use of Estimates

 

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

 

3.  Revenue Recognition

 

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

 

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 and that includes both exclusive and non-exclusive distribution agreements with related and third parties.

 

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

 

Sales Returns

 

The Company records allowances for product returns as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including the customers’ return rights and the Company’s historical experience with returns and the amount of product in the distribution channel not consumed by end users and subject to return. The Company relies on historical return rates to estimate returns. In the future, if any of these factors and/or the history of product returns change, adjustments to the allowance for product returns may be required. The Company recorded allowance of approximately $179,000 for sales returns from Henry Schein due to the termination of  the contract on December 31, 2022.

 

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Financing and Payment

 

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

 

Disaggregation of Revenue

 

The Company operates in two operating segments: dental and medical. Therefore, results of the Company operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. See Note M for revenues by geographical market, based on the customer’s location, and product category for the twelve months ended December 31, 2022, and 2021.

 

4.  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 Milestone Scientific determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary. Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity. Milestone Scientific has completed the VIE analysis relating to Milestone China and Anhui Maishida Medical Technology, Co. Ltd. (“Anhui”).

 

Milestone Scientific has determined that due to the loss of equity investment in Anhui, the company no longer has significant influence of Anhui and therefore Anhui is not a variable interest. 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 of Milestone China who have the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note F.

 

5.  Cash and Cash Equivalents

 

Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2022, and 2021 Milestone Scientific has approximately $8.7 million and $14.8 million, respectively, invested in cash. As of December 31, 2022, and 2021 Milestone Scientific had approximately $8.3 million and $13.9 million, respectively, invested in cash that exceeded the Federal Deposit Insurance Corporation insurance limit of $250,000.

 

6.  Accounts Receivable

 

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

 

7.  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.

 

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The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis.

 

8.  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 Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the provision for income tax on the Consolidated Statements of  Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.

 

9.  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 three to seven years. The costs of maintenance and repairs are charged to operations as incurred.

 

 

10.  Intangible Assets – Patents and Developed Technology

 

Patents are recorded at cost to prepare and file the applicable documents with the United States Patent Office, or internationally with the applicable governmental office in 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 recorded at acquisition cost and be amortized at the estimated useful life.  Patent defense costs, to the extent applicable, are expensed as incurred.

                      

 

11. 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.

 

12. Note Payable

 

On April 27, 2020, the Company received a loan (the “Loan”) from Savoy Bank. in the aggregate amount of approximately $276,000, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The Company received forgiveness for the Loan during the year ended December 31, 2021 and recorded a gain on debt extinguishment of $276,180.

 

13.  Research and Development

 

Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred.

 

 

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14.  Income Taxes

 

Milestone Scientific accounts for income taxes under the asset and liability method which requires deferred 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 December 31, 2022 and 2021, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2019, 2020, and 2021 years are subject to audit by federal and state jurisdictions.

 

15.  Basic and Diluted Net Loss Per Common Share

 

Milestone Scientific presents “basic” earnings (loss) per common share applicable to common stockholders and, if applicable, “diluted” earnings (loss) per common share applicable to common stockholders pursuant to the provisions of ASC 260, “Earnings per Share”. Basic earnings (loss) per common share is calculated by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding and to be issued common shares of 70,607,338 and 68,829,860 during the years ended December 31, 2022 and 2021, respectively. The calculation of diluted earnings per common share is like that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants were issued during the period.

 

Since Milestone Scientific had net losses in the years ended December 31, 2022 and 2021, the assumed effects of the exercise of potentially dilutive outstanding stock options, unissued restricted stock awards (“RSA”) and warrants, were not included in the calculation as their effect would have been anti-dilutive. Such outstanding options, RSA and warrants totaled 7,855,160 and 7,291,800 on December 31, 2022 and 2021, respectively.

 

16.  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). The Company 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 Company 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. As of December 31, 2022 and 2021, the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.

 

17. Stock-Based Compensation 
 

Milestone Scientific accounts for stock-based compensation under ASC Topic 718, Share-Based Payment. ASC Topic 718 requires all share-based payments to employees, non-employees, directors, and officers, including grants of employee stock options, to be recognized in the consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values.

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18.  Reclassifications

 

Certain reclassification has been made to the 2021 consolidated financial statements to conform to the 2022 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

 

19.  Recent Accounting Pronouncements

 

In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which, generally, provides guidance for accounting regarding derivatives relating to entities common stock and earnings per share. ASU 2020-06 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of this standard did not have an impact on the Company's consolidated financial statement.

 

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables. The FASB has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard. This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability.

 

In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effective dates, which deferred the effective date of ASU 2016-13 for the Company. As a result of ASU 2019-10, ASU 2016-13 is effective for all entities with fiscal years beginning after December 15, 2022, including interim periods. The adoption of this update is not expected to have a material impact on the Company's consolidated financial statement.

NOTE D — INVENTORIES

 

		December 31, 2022				December 31, 2021
Dental finished goods		$	1,315,263			$	342,465
Medical finished goods			334,124				1,119,709
Component parts and other materials			142,948				79,339
Total inventories		$	1,792,335			$	1,541,513

 

The Company recorded an allowance on slow moving Medical finished goods of approximately $582,000, and $450,000 as of December 31, 2022 and 2021, respectively due to the slow adoption of the epidural instruments and handpieces. The Company recorded an allowance on slow moving Dental finished goods of approximately $0 as of December 31, 2022 and 2021, respectively.

NOTE E — ADVANCES ON CONTRACTS

 

The advances on contracts represent funding of future dental STA "Single Tooth Anesthesia System" and epidural inventory purchases and epidural replacements parts. The balance of the advances as of December 31, 2022 and 2021 was approximately $1.3 million. 

NOTE F – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES

 

Milestone China Ltd.

 

Ownership

 

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

 

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

 

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

 

Though management believes that this conveyance by Milestone China to Lidong Zhang is outside of the laws of Hong Kong and/or China, as may be applicable, at this juncture Milestone Scientific has no ownership in Anhui and Milestone China has no assets or operations. After considering taking action to assert our rights in the matter, and based on the acknowledgement that such course of action is not without its procedural and substantive challenges in Hong Kong and/or China and, importantly, in view of Michelle Zhang dba Solee Science & Technology USA (“Solee”) (see below), a company located in New Jersey, then becoming the independent distributor for Milestone China and its subsidiaries, and due to the good working relationship then developing between Milestone Scientific and Solee and to the reduction of Milestone Scientific’s credit exposure to a Chinese entity, management is not pursuing any legal action at this time to recover our equity interest. The Company does not believe it is prudent at this time to continue to pursue its investigation of any options it may have regarding its Chinese distributor, and therefore, in order to preserve cash the Company is for the time being suspending its investigation. 

 

At this time, Milestone Scientific has not received any consideration, does not know if any of such consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, whether it can recover its share of such consideration. Unless circumstances change, Milestone Scientific does not expect it will receive any of the consideration received by Milestone China for its assets without pursuing legal action. As a result, Milestone Scientific has not recorded a gain or receivable related to the transfer of Anhui. As of December 31, 2022 and December 31, 2021, the investment in Milestone China was zero.

 

Related Party Transactions 

 

Milestone China Distribution Agreement

 

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

 

Beginning in mid- November 2021, Milestone Scientific entered into discussions with Michelle Zhang dba Solee Science & Technology USA (“Solee”), a company located in New Jersey, to become Milestone Scientific’s independent distributor for China, replacing its former distributor Milestone China and its subsidiaries. On November 22, 2021, Wand Dental, Inc., a United States subsidiary of Milestone Scientific, entered into a Buy and Sell Agreement with Solee, pursuant to which Milestone Scientific granted Solee the right to sell Milestone Scientific’s STA instruments, associated handpieces, and spare parts in China to Anhui.

 

For the twelve months ended December 31, 2022, Milestone Scientific shipped instruments or handpieces to Solee for sale to Anhui and recognized revenue of approximately $630,000. For the twelve months ended December 31, 2021, Milestone Scientific shipped instruments or handpieces to Solee for sale to Anhui and recognized revenue of approximately $2.1 million. As of December 31, 2022, the Company had no deposits from Solee for future shipment of goods included in accrued expenses on the accompanying consolidated balance sheet.  As of December 31, 2021, the Company had approximately $89,000 of deposits from Solee for future shipment of goods included in accrued expenses on the accompanying consolidated balance sheet. 

 

Gross Profit Deferral

 

Due to timing differences of when the inventory sold to Milestone China, Anhui or their agent is recognized and when Milestone China and Anhui sells the acquired inventory to third parties, an elimination of the recorded profit is required as of the balance sheet date. In accordance with ASC 323 Investment Equity Method and Joint Ventures, Milestone Scientific has deferred its ownership percentage of the gross profit associated with recognized revenue from sales to Milestone China, Solee as an agent, and Anhui until that product is sold to third parties.

 

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As of December 31, 2022 and 2021, the Company had no deferred profit in the consolidated balance sheets. For the twelve months ended December 31, 2021 Milestone Scientific recorded loss on equity investment of approximately $242,000 in relation to gross profit previously deferred on product sold to Milestone China, Anhui, and Solee, recorded as deferred profit and divesture-equity investment on the accompanying consolidated statement of operations. 

NOTE G— FURNITURE, FIXTURES AND EQUIPMENT  

 

		December 31, 2022				December 31, 2021
Leasehold improvements		$	24,734			$	24,734
Office furniture and equipment			178,058				174,147
Molds			7,200				7,200
Trade show displays			151,462				151,462
Computers and software			280,066				275,364
Tooling Safety Wand			125,022				125,022
Tooling equipment-STA & Wand			11,100				11,100
EPI and IA Instruments			82,363				82,363
STA Trials Instruments			63,752				63,752
Total			923,757				915,144
Less accumulated depreciation			(905,611	)			(891,431	)
Total		$	18,146			$	23,713

 

Depreciation expense was $14,180 and $22,205 for the years ended December 31, 2022, and 2021, respectively.

NOTE H — PATENTS

 

		December 31, 2022
		Cost				Accumulated Amortization				Net
Patents-foundation intellectual property		$	1,377,863			$	(1,149,907	)		$	227,956
Total		$	1,377,863			$	(1,149,907	)		$	227,956

 

		December 31, 2021
		Cost				Accumulated Amortization				Net
Patents-foundation intellectual property		$	1,377,863			$	(1,100,244	)		$	277,619
Total		$	1,377,863			$	(1,100,244	)		$	277,619

 

Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was $49,663 and $53,011 for the years ended December 31, 2022 and 2021 , respectively. The annual amortization expense expected to be recorded for existing intangibles assets for the years 2023 through 2027 is approximately $52,000, $34,000, $28,000, $28,000 and $86,000, respectively.

NOTE I — STOCKHOLDERS’ EQUITY

 

At the annual shareholders meeting in 2021, the Company received approval to increase its authorized shares of common stock from 85,000,000 to 100,000,000 shares.

 

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WARRANTS

 

The following table summarizes information about shares issuable under warrants outstanding at December 31, 2022:

 

		Warrant shares outstanding				Weighted Average exercise price				Weighted Average remaining life				Intrinsic value
Outstanding at January 1, 2022			4,268,221				2.18				1.50				1,187,546
Issued			-				-				-				-
Exercised			-				-				-				-
Outstanding and exercisable at December 31, 2022			4,268,221				2.18				.50				-

 

SHARES TO BE ISSUED

 

As of December 31, 2022 and 2021 , there were 2,057,976 and 1,891,979, respectively shares to be issued whose issuance has been deferred under the terms of an employment agreements with the former Interim Chief Executive Officer, former Chief Financial Officer, and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment. 

 

As of December 31, 2022 and 2021, there were 382,697 and 174,364, respectively shares to be issued to non-employees, 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.

 

The following table summarizes information about shares to be issue at December 31, 2022 and 2021

 

		December 31, 2022				December 31, 2021
Shares-to-be-issued, outstanding			2,066,343				2,428,329
Granted in current period			524,814				93,918
Issued in current period			(150,484	)			(455,904	)
Shares-to be issued outstanding			2,440,673				2,066,343

NOTE J — STOCK OPTION PLANS

 

The Milestone Scientific Inc. 2020 Equity Compensation Plan, as amended and restated (the "2020 Plan"), provides for awards of restricted common, stock restricted stock units, options to purchase and other awards, up to a maximum 4,000,000 shares of common stock and expires in June 2031. Options may be granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a price not less than the fair market value of common stock on the date of grant. Generally, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. As of December 31, 2022 and 2021, the Company had 323,190 and 811,597, respectively, remaining options available for grants under the Plan.

 

 

On April 8, 2021, as part of its Succession Plan going into effect on April 23, 2021, the Company announced that Leonard Osser, the Interim Chief Executive Officer, would be accepting the role of Vice Chairman of the Board of Directors. As part of accepting this role, he would be granted options to purchase 2,000,000 shares of common stock, exercisable at the fair market value of the common stock on the date of grant, vesting over the five-year period after he steps down as Interim Chief Executive Officer of the Company or ten years from the date of grant, whichever shall end first. The options were issued pursuant to the 2020 Plan.

 

 

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Milestone Scientific recognizes compensation expense over the requisite service period and in the case of performance-based options over the period of the expected performance. For the years ended December 31, 2022 and 2021, Milestone Scientific recognized approximately $961,000 and $763,000 of total employee compensation cost, respectively, recorded in general and administrative expenses on the statement of operations.

 

As of December 31, 2022 and 2021, there was $2.5 million and $3.2 million of total unrecognized compensation cost related to non-vested options, respectively. Milestone Scientific expects to recognize these costs over a weighted average period of 3.09 and 3.49 years as of December 31, 2022 and 2021, respectively.

 

A summary of option activity for employees under the plans and changes the year ended  December 31, 2022 is presented below:

 

		Number of Options				Weighted Averaged Exercise Price $				Weighted Average Remaining Contractual Life (Years)				Aggregate Intrinsic Options Value $
Options outstanding January 1, 2022			2,843,693				2.39				7.69				49,246
Granted during 2022			216,296				1.52				2.23				-
Exercised during 2022			-				-				-				-
Forfeited or expired during 2022			-				-				-				-
Options outstanding December 31, 2022			3,059,989				2.36				6.38				-
Exercisable, December 31, 2022			1,026,987				2.18				4.93				-

 

The weighted-average grant date fair value per share of options granted to employees during the years ended December 31, 2022 and 2021 was $0.82 and $1.56, respectively. The aggregate intrinsic value of options granted to employees exercised was $0 and $290,688 for the years ended December 31, 2022 and 2021, respectively.

 

The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the year ended December 31, 2022, risk free interest rate of 2.45%, Volatility of 89.60% (which is based on the Company’s historical volatility over the expected term), expected term of 3 years, 0% dividend rate and closing price of the stock of $1.52.   

 

A summary of option activity for non-employees under the plans and changes during the year ended  December 31, 2022 is presented below:

 

		Number of Options				Weighted Averaged Exercise Price $				Weighted Average Remaining Contractual Life (Years)				Aggregate Intrinsic Options Value $
Options outstanding January 1, 2022			83,330				1.85				3.33				49,748
Granted during 2022			8,333				0.73				4.80				-
Exercised during 2022			-				-				-				-
Options outstanding December 31, 2022			91,663				1.75				2.55				1,083
Exercisable, December 31, 2022			77,776				1.66				2.30				1,083

 

The fair value of the non-employee options was estimated on the date of grant using the Black Scholes option-pricing model at the date of grant. For the years ended December 31, 2022 and 2021, Milestone Scientific recognized approximately $22,900 and $27,600 expense related to non-employee options, respectively.

 

The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the year ended December 31, 2022, risk free interest rate of 4.12%, Volatility of 91.46% expected term of 5 years, 0% dividend rate and closing price of the stock of $0.73.  

 

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The information below summarizes the restricted stock award activity for year ended December 31, 2022:

		Number of Shares				Weighted Average Grant-Date Fair Value per Award
Non-vested as January 1, 2022			96,557				2.33
Granted			975,148				0.86
Vested			(449,695	)			-
Cancelled			(186,717	)			-
Non-vested as December 31, 2022			435,293				1.18

 

As of December 31, 2022, there were 49,615 restricted shares granted and deferred under the terms of an employment agreements with the Territory Manager of Milestone Scientific. Such shares will be issued to each party upon completion of 2 years of employment. For the years ended December 31, 2022 and 2021, the Company recognized negative stock compensation expense and stock compensation expense of approximately ($20,000) and $70,000, respectively. As of December 31, 2022, the total unrecognized compensation expense was $37,500 related to unvested restricted stock awards for Territory Managers, which the Company expects to recognize over an estimated weighted-average period of 1.03 years.

 

As of  December 31, 2022, the Company entered into restricted stock agreements with members of the Board of Directors of the Company. The Company granted 899,390 restricted stock awards with a fair market value of $0.82 per share. Such restricted stock vests as follows: 25% on the grant date in June 2022, and 25% quarterly, on the first day of the following months:   October 2022,  January 2023, and  April 2023. These awards vest immediately upon a change of control as defined in the agreements. For the year ended  December 31, 2022, the Company recognized approximately $549,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operation. As of  December 31, 2022, the total unrecognized stock compensation expense was approximately $160,000 related to non-vested restricted stock awards with the members of the Board of Directors, which the Company expects to recognize over an estimated weighted average period of 0.25 years.

NOTE K–EMPLOYMENT CONTRACT AND CONSULTING AGREEMENTS

 

Employment Contracts

 

 K. Tucker Andersen, a significant stockholder of Milestone Scientific, has an agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $100,000 for years ended December 31, 2022 and 2021, respectively. 

 

The Director of Clinical Affairs’ royalty fee was approximately $442,000 and $446,000 for the years ended December 31, 2022 and 2021, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of  $154,000 and $158,000 for the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022, and 2021, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $120,000 and $123,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the consolidated balance sheet.

 

On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s then Interim Chief Executive Officer, pursuant to which Mr. Osser sold, transferred and assigned to the Company all of his rights in and to a certain patent application as to which he is a co-inventor with Dr. Hochman, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (2.5%) on net sales that would otherwise be payable to Dr. Hochman and his wife under their Technology Sale Agreement with the Company, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from 5% to 2.5% the payments due to them on May 9, 2027 and thereafter, with respect to dental products.

 

F- 18

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Pursuant to a Succession Agreement dated April 6, 2021 between Mr. Osser and the Company: (i) the Employment Agreement dated as of July 10, 2017 between Mr. Osser and the Company, pursuant to which upon Mr. Osser stepping down as Interim Chief Executive Officer of the Company, the Company agreed to employ him as Managing Director, China Operations of the Company (the “China Operations Agreement”), and (ii) the Consulting Agreement dated as of July 10, 2017 (the “Consulting Agreement”) between the Company and U.S. Asian Consulting Group, LLC, a company of which Mr. Osser is a principal, the compensation under the China Operations Agreement was modified to reduce the overall compensation by $100,000 to $200,000, split equally between a cash amount and an amount in shares, and the compensation under the Consulting Agreement is increased by $100,000 to $200,000, equally split between a cash amount and an amount in shares, which shares were formerly payable under the China Operations Agreement.  Compensation under the China Operations Agreement and the Consulting Agreement are payable for 9.5 years from May 19, 2021. The Company recorded expense of $200,000 and $125,000 related to the Managing Director, China Operations for the year ended December 31, 2022, and 2021, respectively. The Company recorded expense of $200,000 and $125,000 related to the US Asian Consulting Group, LLC for the year ended December 31, 2022, and 2021, respectively. 

NOTE L — INCOME TAXES

 

Due to Milestone Scientific's history of operating losses, a full valuation allowances have been provided for all of Milestone Scientific's deferred tax assets. At December 31, 2022 and 2021, no recognition was given to the utilization of the remaining net operating loss carry forwards in each of these periods.

 

Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at  December 31, 2022 and 2021 are as follows:     

 

		2022				2021
Allowance for Doubtful Accounts			2,000			$	2,000
Warranty Reserve			2,000				3,000
Impaired Assets			-				-
Capitalized Sec. 174 R&D			242,000				-
Inventory Reserve			242,000				108,000
Deferred Officer's Compensation			428,000				439,000
Depreciation and Amortization			(56,000	)			(52,000	)
Net Operating Loss Carryforwards			19,315,000				18,895,000
Tax Credits			688,000				660,000
Other			155,000				45,000
Subtotal			21,018,000				20,100,000
Valuation allowance			(21,018,000	)			(20,100,000	)
Non-current deferred tax asset			-				-

 

As of December 31, 2022 and 2021,  federal net operating loss carry-forwards are approximately $71,700,000 and $68,300,000, respectively. As of December 31, 2022, Milestone Scientific has net operating losses generated before December 31, 2017 will be available to offset future income, if any, through December 2037. Net operating losses generated in 2018 or after can be carried forward indefinitely.

 

State net operating losses were approximately $60,500,000 and $63,400,000 for the periods ended December 31, 2022 and 2021, respectively. Net operating losses will be available to offset future taxable income, if any, through December 2041.

 

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. Milestone Scientific has established a 100% valuation allowance for all of its deferred tax assets due to uncertainty as to their future realization.

 

Accounting for uncertainties in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure, and transition. At December 31, 2022 and 2021, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Statements of Operations. No interest and penalties are present for periods open. Tax returns for the 2019, 2020, and 2021 years are subject to audit by federal and state jurisdictions.

 

F- 19

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A reconciliation of the statutory tax rates for the years ended December 31, is as follows:   

 

		2022				2021
Statutory Rate			21.00	%			21.00	%
State income tax - all states			-2.74	%			7.44	%
Stock compensation			-2.57	%			0.00	%
NOL Expiration			-4.69	%			-9.13	%
Other			-0.56	%			-7.79	%
Subtotal			10.44	%			11.52	%
Valuation Allowance			-10.44	%			-11.52	%
Effective tax Rate			-0.00	%			0.00	%

 

NOTE M — SEGMENT AND GEOGRAPHIC DATA

 

The Company conducts its business through two reportable segments: Dental and Medical. These segments offer different products and services to different customer base. The Company provides general corporate services to its segments; however, these services are not considered when making operating decisions and assessing segment performance. These services are reported under “Corporate Services” below and these include costs associated with executive management, investor relations, patents, trademarks, licensing agreements, new instruments developments, financing activities and public company compliance.

 

The following tables present information about our reportable and operating segments:

 

		Year ended December 31,
Sales
Net Sales:		2022				2021
Dental		$	8,753,156			$	10,152,511
Medical			52,750				152,200
Total net sales		$	8,805,906			$	10,304,711
Operating Income (Loss):		2022				2021
Dental		$	1,121,815			$	2,475,059
Medical			(4,788,105	)			(4,105,854	)
Corporate			(5,161,183	)			(5,747,713	)
Total operating loss		$	(8,827,473	)		$	(7,378,508	)
Depreciation and Amortization:		2022				2021
Dental		$	3,805			$	4,351
Medical			4,075				7,313
Corporate			55,875				62,172
Total depreciation and amortization		$	63,755			$	73,836
Income (loss) before taxes and equity in earnings of affiliates:		2022				2021
Dental		$	1,116,598			$	2,544,730
Medical			(4,794,089	)			(4,111,159	)
Corporate			(5,095,375	)			(5,552,259	)
Total loss before taxes and equity in earnings of affiliate		$	(8,772,866	)		$	(7,118,688	)
Total Assets		December 31, 2022				December 31, 2021
Dental		$	3,875,978			$	6,163,169
Medical			620,373				1,373,511
Corporate			9,205,735				12,273,064
Total assets		$	13,702,086			$	19,809,744

 

F- 20

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The following table presents information about our operations by geographic area as of December 31, 2022 and 2021. Net sales by geographic area are based on the respective locations of our subsidiaries.

 

		2022												2021
Domestic: US		Dental				Medical				Grand Total				Dental				Medical				Grand Total
Instruments		$	524,715			$	7,500			$	532,215			$	560,424			$	-			$	560,424
Handpieces			2,653,914				25,250				2,679,164				2,905,354				35,200				2,940,554
Accessories			78,493				-				78,493				69,271				1,300				70,571
Grand Total		$	3,257,122			$	32,750			$	3,289,872			$	3,535,049			$	36,500			$	3,571,549
International: Rest of World			Dental				Medical				Grand Total			Dental				Medical					Grand Total
Instruments		$	1,413,525			$	-			$	1,413,525			$	1,226,486			$	70,000			$	1,296,486
Handpieces			3,391,748				20,000				3,411,748				3,246,302				44,900				3,291,202
Accessories			60,797				-				60,797				46,546				800				47,346
Grand Total		$	4,866,070			$	20,000			$	4,886,070			$	4,519,334			$	115,700			$	4,635,034
International: China			Dental				Medical				Grand Total			Dental				Medical					Grand Total
Instruments		$	270,000			$	-			$	270,000			$	303,000			$	-			$	303,000
Handpieces			359,964				-				359,964				1,795,128				-				1,795,128
Accessories			-				-				-				-				-				-
Grand Total			629,964				-			$	629,964			$	2,098,128			$	-			$	2,098,128
Total Product Sales		$	8,753,156			$	52,750			$	8,805,906			$	10,152,511			$	152,200			$	10,304,711

NOTE N-- CONCENTRATIONS

 

Milestone Scientific has informal arrangements with third-party U.S. manufacturers of the STA, CompuDent and CompuMed devices, 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 December 31, 2022 and 2021. 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.  

 

We had two customers that accounted for 32%, and 11% amount of revenue respectively for the year ended December 31, 2022. We had two customers that accounted for 35%, and 20% amount of revenue respectively for the year ended December 31, 2021.

 

We had two customers that accounted for 33%, and 20% amount of accounts receivable, respectively as of December 31, 2022. We had three customers that accounted for 29%, 28%, and 13% amount of accounts receivable, respectively as of December 31, 2021.

 

We had one vendor that accounted for 42%, of accounts payable and accounts payable related party, respectively as of December 31, 2022. We had two vendor that accounted for 14% and 34 %, of accounts payable and accounts payable related party, respectively as of December 31, 2021.

NOTE O -- RELATED PARTY TRANSACTIONS

 

United Systems

 

Milestone Scientific has a supply agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal supplier  of its handpieces, pursuant to which it procures manufactured products under specific purchase orders, but without minimum purchase commitments. Purchases from this supplier were approximately $3.4 million and $1.7 million for the twelve months ended December 31, 2022, and 2021, respectively.  As December 31, 2022, and December 31, 2021, Milestone Scientific owed this supplier approximately $819,000 and $548,000, respectively, which is included in accounts payable and accrued expenses related party on the consolidated balance sheets. In June 2021, the Company signed a ten-year agreement with United Systems for supplier of the handpieces.

 

Milestone China

 

See Note F.

 

F- 21

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Other

 

 K. Tucker Andersen, a significant stockholder of Milestone Scientific, has an agreement with  Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $100,000 for years ended December 31, 2022 and 2021, respectively. 

 

The Director of Clinical Affairs’ royalty fee was approximately $442,000 and $446,000 for the years ended December 31, 2022 and 2021, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of  $154,000 and $158,000 for the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022, and 2021, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $120,000 and $123,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the consolidated balance sheet.

 

On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s then Interim Chief Executive Officer, pursuant to which Mr. Osser sold, transferred and assigned to the Company all of his rights in and to a certain patent application as to which he is a co-inventor with Dr. Hochman, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (2.5%) on net sales that would otherwise be payable to Dr. Hochman and his wife under their Technology Sale Agreement with the Company, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from 5% to 2.5% the payments due to them on May 9, 2027 and thereafter, with respect to dental products.

 

Pursuant to a Succession Agreement dated April 6, 2021 between Mr. Osser and the Company: (i) the Employment Agreement dated as of July 10, 2017 between Mr. Osser and the Company, pursuant to which upon Mr. Osser stepping down as Interim Chief Executive Officer of the Company, the Company agreed to employ him as Managing Director, China Operations of the Company (the “China Operations Agreement”), and (ii) the Consulting Agreement dated as of July 10, 2017 (the “Consulting Agreement”) between the Company and U.S. Asian Consulting Group, LLC, a company of which Mr. Osser is a principal, the compensation under the China Operations Agreement was modified to reduce the overall compensation by $100,000 to $200,000, split equally between a cash amount and an amount in shares, and the compensation under the Consulting Agreement is increased by $100,000 to $200,000, equally split between a cash amount and an amount in shares, which shares were formerly payable under the China Operations Agreement.  Compensation under the China Operations Agreement and the Consulting Agreement are payable for 9.5 years from May 19, 2021.The Company recorded expense of $200,000 and $125,000 related to the Managing Director, China Operations for the year ended December 31, 2022, and 2021, respectively. The Company recorded expense of $200,000 and $125,000 related to the US Asian Consulting Group, LLC for the year ended December 31, 2022, and 2021, respectively. 

NOTE P — COMMITMENTS

 

(1)  Contract Manufacturing Agreement

 

Milestone Scientific has informal arrangements with third-party manufacturers of the STA, CompuDent® and CompuMed® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. The company entered a new purchase commitment for the delivery of 2,040 STA CompuDent® instruments. As of December 31, 2022, the purchase order commitment was approximately $1.7 million, and approximately $1.2 million was paid and reported in advances on contracts in the consolidated balance sheet. As of  December  31, 2021, the purchase order commitment was approximately $2.6 million, approximately $1.3 million was paid and  reported in advances on contracts in the consolidated balance sheet. As of December 31, 2022 and 2021 the company also has advances on an open purchase order for long lead items for a future purchase order for the manufacturing of Epidural instrument of approximately $76,000 and $34,000, respectively.

 

F- 22

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(2)  Leases

 

Operating Leases

 

In August 2019, the Company made the decision to not renew its existing office lease for its corporate headquarters located in Livingston, New Jersey and instead signed a new seven year lease in a new facility located in Roseland, New Jersey (the “Roseland Facility”), which commenced of January 8, 2021 . Under the Roseland Facility lease, rent payments commence on April 1, 2021 , and the monthly lease payments escalate annually on January 1 of each year, and range from $9,275 to $10,898 per month over the lease term. The Company is also required to pay a fixed electric charge equal to $2.00 per square foot which is  paid in equal monthly installments over the lease term or $11,130 annually. These fixed monthly payments have been included in the measurement of the operating lease liability and related operating lease right-of-use asset as the Company has elected the practical expedient to not separate lease and non-lease components for all leases. The Company is also required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises more than new base year amounts, which are accounted for as variable lease expenses. 

 

As of December 31, 2022, total finance right-of-use assets were $17,645 and total finance liabilities were $20,063 of which $9,365 and $10,698 were classified as current and non-current, respectively. As of December 31, 2022, total operating right-of use assets were$443,685 and total operating lease liabilities were $476,980, of which $91,701 and $385,279 were classified as current and non-current, respectively.  As of December 31, 2021, total  finance right-of-use assets were $26,294 and total finance liabilities were $28,607 of which $8,545 and $20,062 were classified as current and non-current, respectively. As of December 31, 2021, total operating right-of use assets were $524,217 and total operating lease liabilities were $557,981, of which $81,001 and $476,980 were classified as current and non-current, respectively. 

 

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.

 

The components of lease expense were as follows:

 

		December 31, 2022				December 31, 2021
Cash paid for operating lease liabilities		$	127,995			$	127,526
Cash paid for finance lease liabilities			10,740				10,740
Right-of-use assets obtained in exchange for new operating lease liabilities (1)			-				663,009
Property and equipment obtained in exchange for new finance lease liabilities			-				43,242
Weighted Average Remaining Lease Term
Finance leases (years)		2.04 years				3.04 years
Operating leases (years)		4.25 years				5.25 years
Weighted-average discount rate – operating leases			9.20	%			9.20	%
Weighted-average discount rate – finance leases			9.20	%			9.20	%

 

Maturity of lease liabilities as of December 31, 2022		Operating Leases				Finance Leases
2023		$	130,778			$	10,740
2024			133,560				10,740
2025			136,343				433
2026			139,125				-
2027			35,477				-
Total future minimum lease payments			575,283				21,913
Less: interest			(98,303	)			(1,850	)
Present value of lease liabilities		$	476,980			$	20,063

 

F- 23

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NOTE Q — BENEFIT PLAN

 

Milestone Scientific has a Defined Contribution Plan that allows eligible employees to contribute part of their salary through payroll deductions. Milestone Scientific does not contribute to this plan, but does pay the administrative costs of the plan, which were not significant.

 

NOTE R — SUBSEQUENT EVENTS

 

On January 3, 2023 ,the Company launched an E-Commerce platform, selling and shipping STA Single Tooth Anesthesia System® (STA) and handpieces directly to dental office, and dental groups within the US.

 

On January 4, 2023, Leslie Bernhard tendered her resignation to Milestone Scientific Inc. (the "Company”) as a director, Chairman of the Audit Committee and Chairman of the Board of the Company. Ms. Bernhard’s resignation comes after nearly 20 years of service as a director of the Company. Ms. Bernhard indicated that her decision to resign was not the result of a disagreement with the Company. The Company thanks Ms. Bernhard for her long, dedicated service on the Board and wishes her well in her future pursuits.

 

In connection with Ms. Bernhard’s resignation, on January 4, 2023, the Company’s Board of Directors (the "Board”) unanimously appointed Neal Goldman, who has been a member of the Board since 2019, as Chairman of the Board. Mr. Goldman is the President and Founder of Goldman Capital Management, Inc., a family office since 2018, which was previously an investment advisory firm founded in 1985. Mr. Goldman was First Vice President of Research at Shearson Lehman Hutton. He has also held senior positions as a money manager and research analyst with a variety of firms including Neuberger Berman, Moseley Hallgarten Estabrook and Weeden, Bruns Nordeman, and Russ and Company. Mr. Goldman has served as Chairman of Charles & Colvard, Ltd. since 2016 and served on the board of directors of Imageware Systems, Inc. until November 2020. He also serves on the board of directors of Koil Energy Solutions Inc. Prior to their respective acquisitions, he served on the boards of Blyth Industries and IPASS Corporation. Mr. Goldman received his B.A. degree in Economics from The City University of New York (City College).

 

Also on January 4, 2023, the Board unanimously appointed Arjan Haverhals as a director of the Company. Mr. Haverhals has been the Company’s Chief Executive Officer since May 2021 and President since September 2020. Mr. Haverhals has also been the President and Chief Executive Officer of the Company’s Dental Division (Wand Dental, Inc.) since June 2020.

 

On January 10, 2023, the Company announced it has entered into a distribution agreement granting TEKMIKA Health Technologies exclusive distribution rights to market Milestone’s STA Single Tooth Anesthesia System® (STA) in Brazil. TEKMIKA Health Technologies is a leading distributor in Brazil, focused on importing, promotion, marketing and distribution of high-tech medical equipment and device.

 

On January 12, 2023, the Company announced it has entered into a distribution agreement with Sweden & Martina, a leading European dental distributor and manufacturer. Under the agreement, Sweden & Martina has been awarded the exclusive rights to market Milestone’s STA Single Tooth Anesthesia System® (STA) in the new markets of Spain, Portugal and France. In addition, Sweden & Martina will replace the Company’s current distributor in Italy and become its exclusive STA distributor in this market.

 

On February 6, 2023, Milestone Scientific Inc. (the "Company”) announced the appointment of Peter Milligan as the Company’s Chief Financial Officer, on a part-time basis, effective February1, 2023. In connection with serving as the Company’s Chief Financial Officer, Mr. Milligan will be entitled to receive an annual salary of $120,000 and be eligible to receive an annual incentive bonus with a target of 40% of his annual cash compensation, which shall be payable in shares of the Company’s common stock. Mr. Milligan will also be entitled to receive $100,000 in shares of the Company’s common stock on an annual basis, of which, $50,000 shall have a grant date of February 1 and $50,000 shall have a grant date as of August 1 of each year beginning in 2023, valued at the closing price of the Company’s common stock on the NYSE American on the grant date, and which shares are to be issued to Mr. Milligan following the expiration of sixty (60) days after the termination of his employment with the Company. Mr. Milligan holds an M.B.A. from New York University with a concentration in Finance and Economics and a B.B.A. in Accounting from Hofstra University. There are no family relationships between Mr. Milligan and any of the Company’s directors or executive officers, and there is no arrangement or understanding between Mr. Milligan or any other person and the Company or any of its subsidiaries pursuant to which he was appointed as an officer of the Company. There are no transactions between Mr. Milligan or any of his immediate family members and the Company or any of its subsidiaries that would be required to be reported under Item 404(a) of Regulation S-K.

 

On February  27, 2023, the Company  announced that its CompuFlo® Epidural System has received 510(k) FDA clearance for use in the thoracic region of the spine, including the cervical thoracic junction. This approval expands upon the Company’s prior approval of CompuFlo for use within the lumbar region of the spine, where the focus has been on labor and delivery.