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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarter ended September 30, 2021

 

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

For the transition period from                      to

 

Commission file number 001-14053 

 

Milestone Scientific Inc.

(Exact name of registrant as specified in its charter)  

 Delaware

13-3545623

State or other jurisdiction of Incorporation or organization

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

 

425 Eagle Rock Avenue Suite 403, Roseland, NJ 07068

(Address of principal executive offices)

 

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

 

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

 

Title of each class

Name of each exchange on which registered

Common Stock, par value $.001 per share

NYSE American

 

Securities registered pursuant to section 12(g) of the Act:                    NONE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☑ Yes    ☐   No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☑ Yes   ☐ No

 

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

 

Large accelerated filer ☐

Accelerated filer ☐ 

Non-accelerated filer  

Smaller reporting company 

Emerging growth company 

 

 

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

 

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

 

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

 

Title of each class

Trading Symbol(s)

Name of Exchange on which registered

Common Stock

MLSS

NYSE American

 

As of November 12, 2021, the registrant has a total of  67,845,930 shares of Common Stock, $0.001 par value outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None  

 

 

 

 

MILESTONE SCIENTIFIC INC.

Form 10-Q 

TABLE OF CONTENTS

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

Balance Sheets as of September 30, 2021 and December 31, 2020

4

 

 

 

 

Statements of Operations for the three and nine months ended September 30, 2021 and 2020

5

 

 

 

 

Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020

6

 

 

 

 

Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements 

9

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

 

Signatures

36

 

 

2

 

FORWARD-LOOKING STATEMENTS

 

When used in this Quarterly Report on Form 10-Q, the words “may”, “will”, “should”, “expect”, “believe”, “anticipate”, “continue”, “estimate”, “project”, “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends that may affect Milestone Scientific’s future plans of operations, business strategy, results of operations and financial condition. Milestone Scientific wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Milestone Scientific’s plans and objectives are based, in part, on assumptions involving the continued expansion of its business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Milestone Scientific. Although Milestone Scientific believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements included herein, our history of operating losses that are expected to continue during the ongoing COVID-19 pandemic and continued disruptions to our and our customers’ supply chains, the early stage operations of and relative lack of acceptance of our medical products, relying exclusively on two third parties to manufacture our products, changes in our informal manufacturing arrangements made by the manufacturers of our products and disruptions at the manufacturing facilities of our manufacturers exposes us to risks that may harm our business, restrict our operations or require us to relinquish proprietary rights, if physicians do not accept or use our CompuFlo® Epidural Computer Controlled Anesthesia System our ability to generate revenue from sales will be materially impaired, exposure to the risks inherent in international sales and operations, including China, and developments by competitors may render our products or technologies obsolete or non-competitive, the inclusion of such information should not be regarded as a representation by Milestone Scientific or any other person that the objectives and plans of Milestone Scientific will be achieved. Prospective investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and the actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth herein and others set forth from time to time in Milestone Scientific’s reports, including without limitation, Milestone Scientific's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”). Milestone Scientific disclaims any intent or obligation to update such forward-looking statements. 


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

 

3

 

Part I- Financial Information

Item 1. Financial Statements

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

  

September 30, 2021

  

December 31, 2020

 
         

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $14,490,745  $14,223,917 

Accounts receivable, net

  968,107   1,080,656 

Prepaid expenses and other current assets

  514,417   415,915 

Inventories, net

  1,676,532   2,420,179 

Advances on contracts

  1,509,530   414,202 

Total current assets

  19,159,331   18,554,869 

Furniture, fixtures and equipment, net

  27,139   30,729 

Intangibles, net

  295,189   329,249 

Right of use assets

  571,678   632,453 

Other assets

  24,150   24,150 

Total assets

 $20,077,487  $19,571,450 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $743,879  $482,972 

Accounts payable, related party

  420,251   385,138 

Accrued expenses and other payables

  1,335,755   824,454 

Accrued expenses, related party

  535,481   586,734 

Current portion of finance leases liabilities

  8,351   7,796 

Current portion of operating lease right-of-use liabilities

  78,476   72,031 

Deferred profit, related party

  407,050   242,589 

Note payable

  -   276,180 

Total current liabilities

  3,529,243   2,877,894 

Finance lease liabilities

  22,273   28,607 

Operating lease liabilities

  497,932   557,981 

Total liabilities

 $4,049,448  $3,464,482 
         

Commitments and contingencies

          
         

Stockholders’ equity

        

Common stock, par value $.001; authorized 100,000,000 shares; 67,610,864 shares issued and 67,577,531 shares outstanding as of September 30, 2021; 64,171,435 shares issued and 64,138,102 shares outstanding as of December 31, 2020;

  67,610   64,171 

Additional paid in capital

  123,590,412   117,934,696 

Accumulated deficit

  (106,582,501)  (100,885,957)

Treasury stock, at cost, 33,333 shares

  (911,516)  (911,516)

Total Milestone Scientific Inc. stockholders' equity

  16,164,005   16,201,394 

Noncontrolling interest

  (135,966)  (94,426)

Total stockholders’ equity

  16,028,039   16,106,968 

Total liabilities and stockholders’ equity

 $20,077,487  $19,571,450 

 

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

 

4

 

 

MILESTONE SCIENTIFIC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   

For the Three Months Ended September 30,

   

For the Nine Months Ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Product sales, net

  $ 2,108,233     $ 1,246,110     $ 7,458,678     $ 3,225,170  

Cost of products sold

    747,997       409,621       2,926,794       1,024,947  

Gross profit

    1,360,236       836,489       4,531,884       2,200,223  
                                 

Selling, general and administrative expenses

    2,968,625       2,275,274       9,729,594       8,146,498  

Research and development expenses

    356,179       21,438       588,043       237,089  

Depreciation and amortization expense

    16,353       16,505       52,113       74,861  

Total operating expenses

    3,341,157       2,313,217       10,369,750       8,458,448  

Loss from operations

    (1,980,921 )     (1,476,728 )     (5,837,866 )     (6,258,225 )

Interest expense

    (4,608 )     (569 )     (11,604 )     (8,727 )

Gain on debt extinguishment-PPP

    -       -       276,180       -  

Loss before provision for income taxes and net of equity investments

    (1,985,529 )     (1,477,297 )     (5,573,290 )     (6,266,952 )

Provision for income taxes

    -       (24,717 )     (333 )     (26,217 )

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

    (1,985,529 )     (1,502,014 )     (5,573,623 )     (6,293,169 )

Loss from China Joint Venture

    (69,905 )     -       (164,461 )     -  

Net loss

    (2,055,434 )     (1,502,014 )     (5,738,084 )     (6,293,169 )

Net loss attributable to noncontrolling interests

    (12,227 )     (11,025 )     (41,540 )     (35,501 )

Net loss attributable to Milestone Scientific Inc.

  $ (2,043,207 )   $ (1,490,989 )   $ (5,696,544 )   $ (6,257,668 )
                                 

Net loss per share applicable to common stockholders—

                               

Basic

    (0.03 )     (0.02 )     (0.08 )     (0.11 )

Diluted

    (0.03 )     (0.02 )     (0.08 )     (0.11 )
                                 

Weighted average shares outstanding and to be issued—

                               

Basic

    69,573,795       65,817,132       68,609,143       56,478,151  

Diluted

    69,573,795       65,817,132       68,609,143       56,478,151  

 

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

 

5

 

 

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR Three and Nine Months Ended  September 30, 2021 and 2020

(UNAUDITED)

 

   

Common Stock Share

   

Common Stock Amount

   

Additional Paid in Capital

   

Accumulated Deficit

   

Noncontrolling Interest

   

Treasury Stock

   

Total

 

Balance, January 1, 2021

    64,171,435     $ 64,171     $ 117,934,696     $ (100,885,957 )   $ (94,426 )   $ (911,516 )   $ 16,106,968  

Stock based compensation

    -       -       113,507       -       -       -       113,507  

Common stock issued to employee for compensation expensed in prior periods

    7,075       7       -       -       -       -       7  

Common stock to be issued for payment of consulting services expensed in prior periods

    40,010       40       -       -       -       -       40  

Common stock issued to board of directors for services expensed in prior periods

    18,879       18       -       -       -       -       18  

Common stock issued to employee for stock options exercised

    435,558       436       689,754                               690,190  

Common stock to be issued to employees for bonuses

    -       -       100,000       -       -       -       100,000  

Common stock issued for warrants exercised

    1,918,925       1,919       3,010,297       -       -       -       3,012,216  

Net loss

    -       -       -       (972,869 )     (12,988 )     -       (985,857 )

Balance, March 31, 2021

    66,591,882     $ 66,591     $ 121,848,254     $ (101,858,826 )   $ (107,414 )   $ (911,516 )   $ 19,037,089  

Stock based compensation

    -       -       193,824       -       -       -       193,824  

Common stock issued to employee for compensation

    4,202       4       14,996       -       -       -       15,000  

Common stock to be issued for payment of consulting services

    96,018       94       262,589       -       -       -       262,683  

Common stock issued to board of directors for services

    277,767       280       617,887       -       -       -       618,167  

Common stock issued for warrants exercised in prior periods

    86,000       86       138,114       -       -       -       138,200  

Net loss

    -       -       -       (2,680,468 )     (16,325 )             (2,696,793 )

Balance, June 30, 2021

    67,055,869     $ 67,055     $ 123,075,664     $ (104,539,294 )   $ (123,739 )   $ (911,516 )   $ 17,568,170  

Stock based compensation

                    191,946               -       -       191,946  

Common stock issued to employee for compensation

    6,122       6       14,994               -       -       15,000  

Common stock to be issued for payment of consulting services

    96,694       97       227,748               -       -       227,845  

Common stock issued to employee for stock options exercised

    49,689       50       80,462               -       -       80,512  

Common stock issued to employee for bonus expensed in prior periods

    402,490       402       (402 )             -       -       -  

Net loss

    -       -       -       (2,043,207 )     (12,227 )     -       (2,055,434 )

Balance, September 30, 2021

    67,610,864     $ 67,610     $ 123,590,412     $ (106,582,501 )   $ (135,966 )   $ (911,516 )   $ 16,028,039  

 

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

 

6

 

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR Three and Nine Months Ended September 30, 2020

(UNAUDITED)

 

   

Common Stock Share

   

Common Stock Amount

   

Additional Paid in Capital

   

Accumulated Deficit

   

Noncontrolling Interest

   

Treasury Stock

   

Total

 

Balance, January 1, 2020

    49,410,176       49,410       96,082,324       (93,524,297 )     (67,274 )     (911,516 )     1,628,647  

Stock based compensation

    -       -       30,715       -       -       -       30,715  

Common stock issued to employee for compensation

    22,633       23       14,989       -       -       -       15,012  

Common stock to be issued for payment of consulting services

    -       -       25,000       -       -       -       25,000  

Common stock to be issued to employees for bonuses

    -       -       171,046       -       -       -       171,046  

Common stock issued for warrants

    460,725       460       229,902       -       -       -       230,362  

Net loss

    -       -       -       (1,600,215 )     (12,738 )             (1,612,953 )

Balance, March 31, 2020

    49,893,534       49,893       96,553,976       (95,124,512 )     (80,012 )     (911,516 )     487,829  

Stock based compensation

    -       -       23,946       -       -       -       23,946  

Common stock issued to employee for compensation

    11,450       11       14,989       -       -       -       15,000  

Common stock issued for payment of consulting services

    278,581       279       381,520       -       -       -       381,799  

Common stock issued to board of directors for services

    39,233       39       53,967       -       -       -       54,006  

Common stock issued to employees for bonuses

    202,617       203       (203 )     -       -       -       -  

Common stock to be issued to employees for bonuses

    -       -       462,504       -       -       -       462,504  

Common stock issued in public offering April 6,2020

    5,420,000       5,420       4,621,022       -       -       -       4,626,442  

Common stock issued in public offering-June 30, 2020

    6,770,000       6,770       13,410,074       -       -       -       13,416,844  

Acquired controlling interest in Milestone Advanced Cosmetic Systems

    -       -       -       (24,387 )     24,387               -  

Common stock issued for warrants

    620,750       621       718,029       -       -       -       718,650  

Net loss

    -       -       -       (3,166,464 )     (11,738 )     -       (3,178,202 )

Balance, June 30, 2020

    63,236,165       63,236       116,239,824       (98,315,363 )     (67,363 )     (911,516 )     17,008,818  

Stock based compensation

    -       -       18,392       -       -       -       18,392  

Common stock issued to employee for compensation

    7,692       8       14,992       -       -       -       15,000  

Common stock issued for payment of consulting services

    112,140       113       227,928       -       -       -       228,041  

Common stock issued to board of directors for services

    16,350       16       29,984       -       -       -       30,000  

Common stock issued to employees for bonuses

    180,272       180       9,422       -       -       -       9,602  

Common stock issued for warrants

    52,500       52       36,699       -       -       -       36,751  

Net loss

    -       -       -       (1,490,989 )     (11,025 )     -       (1,502,014 )

Balance, September 30, 2020

    63,605,119       63,605       116,577,241       (99,806,352 )     (78,388 )     (911,516 )     15,844,590  

 

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

 

7

 

 

MILESTONE SCIENTIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

 

   

For the Nine Months Ended September 30,

 
   

2021

   

2020

 
                 

Cash flows from operating activities:

  $ (5,738,084 )   $ (6,293,169 )

Net loss

               

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

               

Depreciation expense

    23,076       35,103  

Amortization of patents

    34,060       39,759  

Stock compensation

    499,276       76,611  

Employees paid in stock

    748,658       768,463  

Expense paid in stock

    490,614       644,865  

Loss on China joint venture

    164,461       -  

Non-cash operating lease expense

    7,172       30,175  

Gain on debt extinguishment-PPP

    (276,180 )     -  

Changes in operating assets and liabilities:

               

Decrease in accounts receivable

    112,549       747,682  

Decrease in other assets

    -       11,755  

Decrease (Increase) inventories

    743,647       (609,251 )

Increase in advances on contracts

    (1,095,328 )     (12,422 )

Increase in prepaid expenses and other current assets

    (98,501 )     (7,996 )

Increase (Decrease) in accounts payable

    260,905       (713,331 )

Increase (decrease) in accounts payable, related party

    35,113       (965,662 )

Increase in accrued expenses

    510,790       431,917  

Decrease in accrued expenses, related party

    (51,253 )     (530,659 )

Net cash used in operating activities

  $ (3,629,025 )   $ (6,346,160 )

Cash flows from investing activities:

               

Purchase of property and equipment

    (19,486 )     (21,438 )

Net cash used in investing activities

  $ (19,486 )   $ (21,438 )

Cash flows from financing activities:

               

Proceeds from exercise of warrants

    3,150,416       985,763  

Payments finance lease obligations

    (5,779 )     (4,998 )

Net proceeds from employee options exercised

    770,702       -  

Net proceeds from note payable

    -       276,180  

Net proceeds from Public Placement Offering

    -       18,043,284  

Net cash provided by financing activities

  $ 3,915,339     $ 19,300,229  

Net increase in cash and cash equivalents

    266,828       12,932,631  

Cash and cash equivalents at beginning of period

    14,223,917       1,516,272  

Cash and cash equivalents at end of period

  $ 14,490,745     $ 14,448,903  
                 

Supplemental non-cash disclosure of cash flow information:

               

Initial recognition of operating lease-right of use assets

    -       (706,071 )

Initial recognition of operating lease right to used liabilities

    -       706,071  

 

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

 

8

MILESTONE SCIENTIFIC INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)  

 

NOTE 1 — ORGANIZATION AND BUSINESS

 

All references in this report to “Milestone Scientific,” “us,” “our,” “we,” the “Company” or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Inc., Milestone Advanced Cosmetic Systems, Inc., and 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 ®; 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 is suitable for all dental procedures that require local anesthetic.. The dental devices are sold in the United States, Canada and in approximately 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. 

 

In December 2016, we received notification from the FDA that based upon the 510(k) application submitted for intra- articular injections, we did not adequately document that the device met the equivalency standard required for 510(k) clearances. Following consultation with the FDA Office of Device Evaluation, we intended to file a new 510(k) application for the device in 2019, however, due to financing constraints, a new 510(k) application was not filed in 2019 or 2020. The Company has decided not to proceed with securing the FDA approval for the intra-articular instrument at this time. Milestone Medical’s immediate focus is on marketing its epidural device throughout the United States, Europe and other countries.

 

NOTE 2 — 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 unaudited condensed consolidated financial statements are issued. As of September 30, 2021, the Company had an accumulated deficit of $106,582,501 and has incurred a net loss of approximately $2 million and $5.7 million for the three and nine month periods ending September 30, 2021, respectively.

 

In April and June of 2020, the Company completed Common Stock Offerings generating net proceeds of approximately $4.6 million and $13.4 million, respectively (see Note 9). As of September 30, 2021, cash on hand was approximately $14.5 million, an increase of $0.3 million from December 31, 2020. Management believes the Company has sufficient liquidity to support operations beyond a year after the unaudited condensed consolidated financial statements issue date.

 

The coronavirus (COVID-19) adversely impacted our operations and those of our distributors.  As a result of the reduced hours and closings of dental offices throughout the country and the rest of the world, due to the continuing spread of COVID-19, revenues for the three and nine months ended September 30, 2020, were adversely affected. Business interruptions, including any interruptions resulting from COVID-19, could significantly disrupt our operations and could have a material adverse impact on our business during the remainder of 2021 and into 2022. 

 

In addition to our employees, we rely 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 we, or any of these entities encounter any disruptions to our or their respective operations or facilities, or if we 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 we or they may be prevented or delayed from effectively operating our or their business, respectively.

 

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

 
9

 

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

1.  Principles of Consolidation

 

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

 

2. Basis of Presentation

 

The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, included in Milestone Scientific's Annual Report on Form 10-K.  

 

3.  Reclassifications

 

Certain reclassifications have been made to the 2020 unaudited condensed consolidated financial statements to conform to the 2021 unaudited condensed consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

 

4.  Use of Estimates

 

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

 

5.  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 evaluate revenue recognition for customer arrangements 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 standalone selling prices; and 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, “Revenue from Contracts with Customers”.

 

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

10

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 free-on-board (FOB) shipping, revenue is recognized upon delivery to the carrier. 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 transfer of control, except for specific contracts and arrangements that provide for customers’ right to return provisions, 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, the Company’s historical experience with returns and the amount of product in the distribution channel not consumed by end users and subject to return. The Company relies on historical return rates to estimate returns. In the future, if any of these factors and/or the history of product returns change, adjustments to the allowance for product returns may be required.

 

 Financing and Payment

 

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

 

Disaggregation of Revenue

 

We operate in two operating segments: dental and medical. Therefore, results of our operations are reported on a dental and medical basis for purposes of segment reporting, consistent with internal management reporting. See Note 11 for revenues by geographical market, and product category for the nine months ended September 30, 2021

 

6.  Variable Interest Entities

 

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. 

 

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

 

 

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

 

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

 

Milestone Scientific does not have the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has not been met. Therefore, management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. See Note 6.

 

7.  Cash and Cash Equivalents

 

Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 2021 and December 31, 2020 Milestone Scientific has approximately $14.3 million  and $13.1 million, respectively, of investments with short term maturities classified as a cash equivalent.  At times, such investment, may be more than the Federal Deposit Insurance Corporation insurance limit.

 

8.  Accounts Receivable

 

Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the inability of its customers to make payments on amounts billed. Most credit sales are due within 90 days from invoicing. There have not been any significant credit losses incurred to date. As of September 30, 2021, and December 31, 2020, accounts receivable was recorded, net of allowance for doubtful accounts of $279,973 and $10,000, respectively.

11

 

9.  Inventories

 

Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence, and product expiration requirements. 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. As of September 30, 2021 and December 31, 2020, inventory was recorded net of a valuation allowance for slow moving and defective inventory of approximately $450,000, and $453,000, respectively. See Note 4.

 

10.  Equity Method Investments

 

Investments in which Milestone Scientific can exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included within long-term assets in the unaudited Condensed Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line in the unaudited Condensed Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. See Note 6.

 

11.  Furniture, Fixture and Equipment  

 

Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from two to seven years. The costs of maintenance and repairs are charged to expense, as incurred. 

 

12.  Intangible Assets – Patents and Developed Technology

 

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

 

13.  Impairment of Long-Lived Assets

 

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

 

 

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

 

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

 

significant negative industry or economic trends; and

 

significant technological changes, which would render the technology obsolete.

 

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

12


      

14. 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. During the quarter ended June 30, 2021, the Company received forgiveness for the Loan.

 

15.  Research and Development

 

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

 

16.  Income Taxes

 

Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. See Note 10.       

 

On September 30, 2021 and December 31, 2020, we had no uncertain tax positions that required recognition in the unaudited condensed consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the condensed consolidated statements of operations. No interest and penalties are present for periods open. Tax returns for the 2017, 2018, 2019, and  2020 years are subject to audit by federal and state jurisdictions. 

 

17.  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 during each period. 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 nine months ended  September 30, 2021 and 2020, the assumed effects of the exercise of potentially dilutive outstanding stock options, and warrants, were not included in the calculation as their effect would have been anti-dilutive. Such outstanding options, warrants restricted stock totaled 7,674,239 and 7,477,171 on September 30, 2021 and 2020, respectively. 

 

18.  Fair Value of Financial Instruments

 

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

 

 

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

 

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

 

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

  

13

 

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 September 30, 2021 and December 31, 2020, the Company does not have any assets or liabilities that were measured at fair value on a recurring basis. The carrying amounts reported in the accompanying unaudited condensed consolidated financial statements for current assets and current liabilities approximate the fair value because of the immediate or short-term maturities of the financial instruments. 

 

19.  Stock-Based Compensation

 

Milestone Scientific accounts for stock-based compensation under ASC 718, "Compensation - Stock Compensation" (“ASC 718”). ASC 718 requires all share-based payments to employees, including grants of employee stock options and restricted stock units, to be recognized in the Condensed Consolidated Statements of Operations over the vesting period based on the grant-date fair values.

 

20. Leases

 

At the inception of an arrangement, we determine whether an arrangement is, or contains, a lease. An arrangement is, or contains, a lease if the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases with a term greater than one year are generally recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. We have elected not to recognize on the balance sheet leases with terms of 12 months or less. We typically only include the initial lease term in our assessment of a lease arrangement. Options to extend a lease are not included in our assessment unless there is reasonable certainty that we will renew.

 

Finance and operating lease right-of-use assets represent the Company’s right to use an underlying asset over the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. These assets and obligations are recognized at the lease commencement date based on the present value of lease payments, net of incentives, over the lease term. The interest rate implicit in our leases is typically not readily determinable. As a result, we utilize our incremental borrowing rate, which reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. 

 

We evaluate the classification of our leases as either finance leases or operating leases. Leases that are economically similar to the purchase of assets are generally classified as finance leases; otherwise, the leases are classified as operating leases. Lease cost for our operating leases is recognized on a straight-line basis over the lease term. Included in lease cost are any variable lease payments incurred in the period that are not included in the initial lease liability and lease payments incurred in the period for any leases with an initial term of 12 months or less. See Note 14. 

 

22.  Recent Accounting Pronouncements

 

Recently Adopted Accounting Pronouncements

 

In December 2019, FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which clarifies the accounting treatment for the accounting tax aspects relating, in part, to the intra-period allocations and foreign subsidiaries. ASU 2019-12 is effective for all entities with fiscal years beginning after December 15, 2020. The adoption of this standard as of January 1, 2021, did not have a material effect on the Company’s unaudited condensed consolidated financial statement presentation.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued a new standard ASU No.2016-13, “Financial Instruments – Credit Losses” (Topic 326). The new standard is intended to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. It will be effective for all smaller reporting entities for fiscal years and interim periods, beginning after December 15, 2022. The Company is analyzing the impact of the adoption of this standard.

14

In January 2020, FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)”, which, generally, provides guidance for investments in entities accounted for under the equity method of accounting. ASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The Company is analyzing the impact of the adoption of this standard; however, the adoption is not expected to have a material effect on the Company’s unaudited condensed consolidated financial statement presentation.

 

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 Company is analyzing the impact of the adoption of this standard; however, the adoption of this standard is not expected to have a material effect on the Company’s unaudited condensed consolidated financial statement.

 

In May 2021, FASB issued ASU 2021-04, Earnings Per Share (topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718) and Derivatives and Hedging – Contracts in an Entity’s Own Equity (Subtopic 815-40) – Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which provides guidance of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The amendments in this ASU are effective January 1, 2022, including interim periods. Early adoption is permitted. The Company will apply the amendments prospectively to modifications or exchanges occurring on or after January 1, 2022. The Company will evaluate the impact of ASU 2021-04 on any future changes to the terms and conditions of its warrants.

 

NOTE 4 — INVENTORIES

 

Inventories consist of the following:

   

September 30, 2021

   

December 31, 2020

 
                 

Dental finished goods, net

  $ 526,308     $ 1,888,141  

Medical finished goods, net

    1,057,476       200,327  

Component parts and other materials

    92,748       331,711  

Total inventories

  $ 1,676,532     $ 2,420,179  

 

On September 30, 2021, there are allowances for slow moving medical finished goods of approximately $450,000. As of December 31, 2020, there are allowances for slow moving medical finished goods of approximately $450,000 and damaged slow moving dental finished goods of approximately $3,000

 

NOTE 5 — ADVANCES ON CONTRACTS

 

The advances on contracts represent funding of future STA inventory purchases, epidural instruments, and epidural replacement parts. The balance of the advances as of September 30, 2021 and December 31, 2020 is $1,509,530 and $414,202, respectively. 

 

NOTE 6 — 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”). Milestone Beijing has 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 the first quarter of 2020, Milestone China and certain marketing affiliates entered into a plan to merge (the Transaction) into an affiliated manufacturing company, Anhui Maishida Medical Technology, Co. Ltd. (Anhui), with Anhui to be the surviving entity after the merger and to have complete responsibility for sales, marketing, and distribution for the Company’s dental products in China. 

 

15

 

However, as of the filing date of this Quarterly Report, due to the COVID-19 pandemic, the regulatory documentation for the planned merger has been placed in suspense because applicable government offices are still closed in China and Hong Kong. According to documentation provided to Milestone Scientific with respect to the Transaction, Milestone Scientific is expected to have an approximate 28.4% direct ownership interest in Anhui. However, this transaction has not been completed, and the participation of Milestone Scientific and the final terms may change.

 

Milestone Scientific, in previous years, reduced its investment in Milestone China to zero and had accumulated losses over its investment of approximately $5.9 million at December 31, 2020.        

 

For the three and nine months ended September 30, 2021, Milestone Scientific shipped instruments and handpieces to Milestone China and its agents and recognized revenue approximately of $360,000 and $1.4 million, respectively. The Company did not recognize any revenue related to Milestone China for the three and nine months ended September 30, 2020. As of September 30, 2021,  the Company has approximately $253,000 of deposits from Milestone China for future shipment of goods included in accrued expenses, related party on the accompanying condensed consolidated balance. Due to the current geo-economic situation and US-China relations, Milestone Scientific recorded an allowance against accounts receivable, related party and sales allowance of $269,973 for the quarter ended September 30, 2021. This reserve will be reviewed quarterly and adjusted based on updated facts and circumstances.

 

Related Party Transactions 

 

Milestone China Distribution Agreement

 

Milestone China is Milestone Scientific’s exclusive distributor in China. During 2017 and prior to the payment default during 2018, Milestone Scientific agreed to sell inventory to Milestone China and its agent. During 2018, Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and 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.

 

United Systems, Inc. Agreement

 

In April of 2020, the Company entered into an agreement with United Systems, Inc., a related party (see Note 13), regarding certain handpieces supplied to Milestone China in 2018, that were billed and shipped to Milestone China by United Systems, as well as STA instruments billed to United Systems and delivered to Milestone China, and not paid by Milestone China. United Systems sold its entire accounts receivable due from Milestone China for the above- described handpieces and STA instruments for $370,260 to Milestone Scientific. Milestone Scientific paid United Systems as follows; $100,000 in cash paid in April 2020, $170,260 in shares of the Company’s  Common Stock (priced as of the close of business on April 23, 2020, $1.59 ) issued in June 2020, and $100,000 in cash paid in July 2020. The Company is entitled to the cash collections, if and when received, on the accounts receivable due to United Systems prior to this agreement up to approximately $1.4 million. 

 

Advanced Cosmetics Systems Agreement

 

In May 2020, Milestone Scientific finalized an agreement for the purchase of Milestone China’s 50% interest in Advanced Cosmetic Systems Inc., for the forgiveness of $900,000 in accounts receivable owed by Milestone China to Milestone Scientific (and previously fully reserved for), resulting in a noncash transaction. As a result of the purchase, Milestone Scientific now owns 100% of Advanced Cosmetic Systems Inc.  Milestone China had the option to repurchase the 50% interest in Advanced Cosmetic Systems within one year from the sale date for $900,000 in cash.  On May 18, 2021, Milestone China’s repurchase option expired.  Milestone Advanced Cosmetic Systems Inc. has been dissolved.

 

16

Gross Profit Deferral

 

Due to timing differences of when the inventory sold to Milestone China is recognized and when Milestone China sells the acquired inventory to third parties, an elimination of the recorded profit is required as of the balance sheet date. In accordance with ASC 323 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 until that product is sold to third parties.

 

At September 30 ,2021 and  December 31, 2020, the deferred profit was approximately and $407,000 and $243,000, respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets. For three and nine months ended  September 30, 2021, Milestone Scientific recorded loss on equity investment of  approximately $70,000 and  $164,000 respectively in relation to gross profit on product sold to Milestone China. For three and nine months ended  September 30, 2020, Milestone Scientific did not recorded  any loss on equity investment in relation to gross profit on product sold to Milestone China. 

 

NOTE 7 — PATENTS    

 

   

September 30, 2021

 
    Cost     Accumulated Amortization     Net  

Patents-foundation intellectual property

  $ 1,377,863     $ (1,082,674 )   $ 295,189  

Total

  $ 1,377,863     $ (1,082,674 )   $ 295,189  

 

   

December 31, 2020

 
    Cost     Accumulated Amortization     Net  

Patents-foundation intellectual property

  $ 1,377,863     $ (1,048,614 )   $ 329,249  

Total

  $ 1,377,863     $ (1,048,614 )   $ 329,249  

 

Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was approximately $11,000 and $34,000 for the three and nine months ended September 30, 2021, respectively, and was approximately $13,000 and $40,000 for the three and nine months ended September 30, 2020, respectively.

 

NOTE 8 — NOTE PAYABLE   

 

On April 27, 2020, the Company, was granted 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 PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after seven weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the specified period.

 

The Loan matured on April 27, 2022, and bore interest at a rate of 1.00% per annum, payable monthly commencing on November 26, 2020. The Note was due April 27, 2022, in a balloon payment if the loan was not forgiven. The Note may be prepaid by the Borrower at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations originating before February 15, 2020. 

 

During the quarter ending June 30, 2021, the Company received forgiveness for the PPP Loan which is included in the condensed consolidated income statements as Gain on debt extinguishment-PPP. 

 

17

 
 

NOTE 9 — STOCKHOLDERS’ EQUITY

 

Public Offering and Private Placement

 

In the second quarter of 2020, the Company completed two public offerings. In April 2020, a Common Stock offering generated 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 years from the issue date. In June 2020, the Company 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 years from the issue date.

 

Warrants

 

The following table summarizes information about shares issuable under warrants outstanding as of September 30, 2021 :

 

    Warrant shares outstanding     Weighted Average exercise price     Weighted Average remaining life    

Intrinsic value

 
                                 

Outstanding at January 1, 2021

    6,369,396     $ 1.97     $ 2.48     $ 2,784,117  

Issued

    -                        

Exercised

    (2,004,926 )     1.57       -       -  

Expired or cancelled

    -       -       -       -  

Outstanding and exercisable at September 30, 2021

    4,364,470     $ 2.15     $ 1.76     $ 1,088,192  

 

The following table summarizes information about shares issuable under warrants outstanding as of  September 30, 2020

 

    Warrant shares outstanding     Weighted Average exercise price     Weighted Average remaining life    

Intrinsic value

 
                                 

Outstanding at January 1, 2020

    1,074,171     $ 0.50     $ 4.10     $ 956,012  

Issued

    6,459,000       2.01       3.00       -  

Exercised

    (1,133,975 )     0.87       -       -  

Expired or cancelled

    -       -       -       -  

Outstanding and exercisable at September 30, 2020

    6,399,196     $ 1.95     $ 2.73     $ 880,449  

 

Shares to Be Issued

 

As of September 30, 2021 and 2020, there were 1,861,639 and 2,202,229 shares, respectively, the issuance of which has been deferred to certain executives and employees of Milestone Scientific.  

 

As of September 30, 2021 and 2020, there were 144,024 and 149,498 shares, respectively, to be issued to non-employees, that will be issued for services rendered. In each case, the number of shares was fixed at the date of grant and were fully vested upon grant date.

 

The following table summarizes information about shares to be issued on September 30, 2021 and 2020, respectively:

   

September 30, 2021

   

September 30, 2020

 
                 

Shares-to-be-issued, outstanding January 1, 2021 and 2020, respectively

    2,428,329       2,375,762  

Granted in current period

    33,238       363,956  

Issued in current period

    (455,906 )     (387,991 )

Shares-to be issued outstanding September 30, 2021 and 2020, respectively

    2,005,661       2,351,727  

 

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Stock Option Plans

 

In June 2011, the stockholders of Milestone Scientific approved the 2011 Stock Option Plan (the "2011 Plan") which originally provided for stock options to our employees, directors and consultants to purchase, and restricted common stock, restricted stock units, and other awards for, up to 2,000,000 shares of common stock and was later amended in 2016 to increase the maximum number of shares reserved for grant to 4,000,000. Generally, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. As of September 30, 2021 and December 31, 2020, the Company had 2,471,659, and 424,425, respectively, remaining options available for grants under the 2011 Plan.

 

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. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. 

 

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.

 

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 nine months ended September 30, 2021 and 2020, Milestone Scientific recognized approximately $451,000 and $68,000 of total employee compensation cost, respectively. As of September 30, 2021 there was approximately $3.3 million of total unrecognized compensation cost related to non-vested options. Milestone Scientific expects to recognize these costs over a weighted average period of 4.1 years.

 

A summary of option activity for employees under the plans and changes during the nine months ended September 30, 2021 and 2020 is presented below:     

   

   

Number of Options

   

Weighted Averaged Exercise Price $

   

Weighted Average Remaining Contractual Life (Years)

   

Aggregate Intrinsic Options Value $

 

Options outstanding January 1, 2021

    1,953,443       1.88       3.09       476,964  

Granted

    2,032,175       2.48       9.48       -  

Exercised during 2021

    (485,247 )     1.59       -       -  

Forfeited or expired

    (351,759 )     1.99       -       -  

Options outstanding September 30, 2021

    3,148,612       2.30       7.14       35,776  

Exercisable, September 30, 2021

    604,817       1.95       1.90       35,776  

 

   

Number of Options

   

Weighted Averaged Exercise Price $

   

Weighted Average Remaining Contractual Life (Years)

   

Aggregate Intrinsic Options Value $

 

Options outstanding January 1, 2020

    1,212,442       1.61       2.00       -  

Granted

    80,000       -       -       -  

Exercised during 2020

    -       -       -       -  

Forfeited or expired

    (289,464 )     3.89       -       -  
      1,002,978       1.56       1.59       114,570  

Exercisable, September 30, 2020

    828,370       1.55       1.38       88,983  

 

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 nine month period ended September 30, 2021 risk free interest rate of 0.19%-1.15% , Volatility of 69.1%-94% (which is based on the Company’s historical volatility over the expected term), expected term of 3-6.5 years, 0% dividend rate and closing price of the stock of $2.46-$3.79.

 

19

 

A summary of option activity for non-employees under the plans and changes during the nine months ended September 30, 2021 and 2020 is presented below:   

 

   

Number of Options

   

Weighted Averaged Exercise Price $

   

Weighted Average Remaining Contractual Life (Years)

   

Aggregate Intrinsic Options Value $

 

Options outstanding January 1, 2021

    74,997       1.41       3.18       54,748  

Granted

    16,666       3.94       4.48          

Exercised during 2021

    (8,333 )     2.34       2.34       -  

Options outstanding September 30, 2021

    83,330       1.83       3.09       38,082  

Exercisable, September 30, 2021

    55,553       1.09       2.19       32,860  

 

   

Number of Options

   

Weighted Averaged Exercise Price $

   

Weighted Average Remaining Contractual Life (Years)

   

Aggregate Intrinsic Options Value $

 

Options outstanding January 1, 2020

    49,998       1.43       2.94       19,333  

Granted

    24,999       1.70       3.00       -  

Exercised during 2020

    -       -       -       -  

Options outstanding September 30, 2020

    74,997       1.52       2.86       19,333  

Exercisable, September 30, 2020

    52,776       1.57       2.24       14,666  

 

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 nine months ended  September 30, 2021, Milestone Scientific recognized approximately $