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:
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 WandSTA® 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 WandSTA 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.
24
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
International: Rest of World Dental Medical Grand Total
International: China Dental Medical Grand Total
Accessories - - -
For the Year Ended December 31, 2021
Domestic: US Dental Medical Grand Total
International: Rest of World Dental Medical Grand Total
International: China Dental Medical Grand Total
Accessories - - -
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Current Product Platform
See Item 1. Description of Business.
Summary of Critical Accounting Policies and Significant Judgments andEstimates
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:
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.
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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;
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.
Operating results:
Operating expenses:
Depreciation and amortization expense 63,755 73,836
Net loss attributable to noncontrolling interests 66,735 58,115
Net loss attributable to Milestone Scientific Inc. (8,706,131 ) $ (6,818,317 )
Net cash used in investing activities (8,527) (15,189)
Net cash (used in) provided by financing activities (8,544) 4,589,282
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Year endedDecember 31, 2022, compared to year ended December 31, 2021.
Net sales for years ended December 31,2022, and 2021were as follows:
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:
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 and2021 were as follows:
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 Developmentfor years ended December 31, 2022 and 2021 were as follows:
Corporate - - -
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.
28
Profit (Loss) from Operationsfor years ended December 31, 2022 and 2021 were as follows:
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
(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 andFinancial Disclosure
None.
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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.
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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.
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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
Exhibit No Description
3.2 Form of Certificate of Designation filed on April 18, 2014 (12)
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)
4.6 Description of Registrant’s Securities (30)
10.5 Agreement with Mark Hochman, dated July 2015 (13)
32
10.23 Amended and Restated 2021 Equity Incentive Plan (28)
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*
* Filed herewith.
** Indicates management contract or compensatory plan or arrangement.
33
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
34
REPORTINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022and 2021
Consolidated Financial Statements:
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8- F-24
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Milestone Scientific, Inc. and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Milestone Scientific, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and the related consolidated statement of operations, stockholders’ equity and cash flows for year ended December 31, 2022, and the related notes(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
We have served as the Company’s auditor since 2016 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum LLP effective September 1, 2022)
East Hanover, New Jersey
March 30, 2023
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Milestone Scientific, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Milestone Scientific, Inc. (the “Company”) as of December 31, 2021, the related consolidated statement of operations, stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
The valuation of inventories requires management to make significant assumptions and complex judgments about the future salability of the inventory and its net realizable value. These assumptions include the assessment of net realizable value by inventory category considering future usage and forecast product demand for the Company’s products. Changes in such assumptions could have a significant impact on the valuation of the Company’s inventories. Additionally, management makes qualitative judgments related to slow moving and obsolete inventories. This leads to a high degree of auditor judgment and an increased extent of effort is required when performing audit procedures to evaluate the methodology and reasonableness of the estimates and assumptions.
How We Addressed the Matter in Our Audit
The following are the most relevant procedures we performed to address this critical audit matter:
/s/ Friedman LLP
We have served as the Company’s auditor from 2016 to 2022.
East Hanover, New Jersey
March 31, 2022
F-3
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Furniture, fixtures and equipment, net 18,146 23,713
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of finance lease liabilities 9,365 8,545
Current portion of operating lease liabilities 91,701 81,001
Non-current portion of finance lease liabilities 10,698 20,062
Non-current portion of operating lease liabilities 385,279 476,980
Commitments
Stockholders’ equity
See notes to Consolidated Financial Statements
F-4
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
Depreciation and amortization expense 63,755 73,836
Gain on debt extinguishment-PPP - 276,180
Provision for income taxes - (333 )
Deferred profit and divesture-equity investment (See Note F) - 242,589
Net loss attributable to noncontrolling interests 66,735 58,115
Net loss attributable to Milestone Scientific Inc. $ (8,706,131 ) $ (6,818,317 )
Net loss per share applicable to common stockholders—
Basic and Diluted (0.12 ) (0.10 )
Weighted average shares outstanding and to be issued—
See notes to Consolidated Financial Statements
F-5
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31 2022 AND 2021
Common stock to be issued to employees for bonuses - - 100,000 - - - 100,000
Common stock to be issued to employees for bonuses - - 264,385 - - - 264,385
Common stock issued to employees for bonuses 147,338 147 (147 ) -
See notes to Consolidated Financial Statements
F-6
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on debt extinguishment-PPP - (276,180 )
Deferred profit and divesture-equity investment (See Note F) - (242,589 )
Changes in operating assets and liabilities:
(Increase) in advances on contracts (16,041 ) (895,058 )
Increase in accounts payable, related party 407,636 10,719
(Decrease) in accrued expenses, related party (246,692 ) (47,493 )
Decrease operating lease liability (72,353 ) (62,789 )
Cash flows from investing activities:
Purchase of furniture, fixtures, and equipment (8,527 ) (15,189 )
Net cash used in investing activities $ (8,527 ) $ (15,189 )
Cash flows from financing activities:
Payments finance lease obligations (8,544 ) (8,648 )
Proceeds from exercise of warrants - 3,216,044
Common stock issued to employee for option exercised - 1,381,886
Net cash used in (provided by) financing activities $ (8,544 ) $ 4,589,282
Net (decrease) increase in cash and cash equivalents (6,049,067 ) 540,429
See notes to Consolidated Financial Statements
F-7
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- LIQUIDITYAND 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.
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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;
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:
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 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
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): Effectivedates, 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
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 323Investment 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
Depreciation expense was $14,180 and $22,205 for the years ended December 31, 2022, and 2021, respectively.
NOTE H — PATENTS
Cost Accumulated Amortization Net
Cost Accumulated Amortization Net
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:
Issued - - - -
Exercised - - - -
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
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:
Exercised during 2022 - - - -
Forfeited or expired during 2022 - - - -
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:
Exercised during 2022 - - - -
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
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.
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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:
Allowance for Doubtful Accounts 2,000 $ 2,000
Impaired Assets - -
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.
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A reconciliation of the statutory tax rates for the years ended December 31, is as follows:
State income tax - all states -2.74 % 7.44 %
Stock compensation -2.57 % 0.00 %
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
Total depreciation and amortization $ 63,755 $ 73,836
Income (loss) before taxes and equity in earnings of affiliates: 2022 2021
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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.
Domestic: US Dental Medical Grand Total Dental Medical Grand Total
International: China Dental Medical Grand Total Dental Medical Grand Total
Accessories - - - - - -
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.
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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.
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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:
The components of lease expense were as follows:
Cash paid for operating lease liabilities $ 127,995 $ 127,526
Cash paid for finance lease liabilities 10,740 10,740
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 %
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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.
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