NOTE I — STOCKHOLDERS’ EQUITY

PUBLIC OFFERING AND PRIVATE PLACEMENT

February 2019,

Milestone Scientific consummated a public offering and a private placement of Common Stock. The public offering generated gross proceeds of approximately

$2.0

million for the issuance of

5,715,000

shares of common stock and warrants to purchase

1,428,750

shares of common stock. The warrants’ term is

years and they are exercisable at

$0.50

per share. Subsequent to the public offering the underwriter exercised its over-allotment option and paid approximately

$198,000

for

567,400

additional shares of common stock and

141,850

warrants.

Also, in

February 2019,

the Company generated gross proceeds from a private placement of approximately

$250,000

for

714,286

shares of common stock and warrants to purchase

178,571

shares of common stock from

Bp4

S.p.A., a principal stockholder of Milestone Scientific, that exercised its right to participate on a pro-rata basis on the recent public offering.

Bp4’s

CEO is a director of Milestone Scientific and also Chief Executive Officer and Director of Wand Dental, a wholly owned subsidiary of Milestone Scientific. The warrants’ terms are

years and they are exercisable at

$0.50

per share.

WARRANTS

The following table summarizes information about shares issuable under warrants outstanding at

December 31, 2019:

	Warrant shares outstanding			Weighted Average exercise price		Weighted Average remaining life		Intrinsic value
Outstanding at January 1, 2019		1,592,775			2.55		0.21		-
Issued		1,749,171			0.50		4.10		1,556,762
Exercised		(675,000	)		0.50		-		532,413
Expired or cancelled		(1,592,775	)		2.55		-		-
Outstanding and exercisable at December 31, 2019		1,074,171			0.50		4.10		956,012
Exercisable at December 31, 2019		1,074,171			0.50		4.10		956,012

PREFERRED STOCK

May 2014,

Milestone completed a private placement, which raised gross proceeds of

$10

million, from the sale of

million of Milestone Scientific common stock (

two million

shares at

$1.50

per share) and

million of our Series A Convertible Preferred Stock ("preferred stock") (

7,000

shares at

$1,000

per share). These shares were convertible, at the option of the holder, into the number of shares of common stock equal to the stated value divided by

$2.545,

subject to anti-dilution adjustments, at any time before

May 14, 2019.

These shares were mandatory convertible on

May 14, 2019,

into the number of shares of common stock equal to the stated value divided by

$2.54

per share or

$1.50

per share if the common stock does

not

trade at

$3.15

for period of time, as defined by the agreements, both subject to anti-dilution adjustment.

May 14, 2019,

the mandatory conversion date, the Preferred Stock was converted at a rate of

$1.17

per common share resulting in the issuance of

5,982,906

shares of common stock.

SHARES TO BE ISSUED

As of

December 31,

2019,

there were

2,226,473

shares to be issued whose issuance has been deferred under the terms of an employment agreements with the Chief Executive Officer, Chief Financial Officer and other employees of Milestone Scientific. As of

December 31, 2018,

there were

1,908,814

shares, whose issuance has been deferred under the terms of an employment agreements with the Chief Executive Officer, Chief Financial Officer and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment.

As of

December 31, 2019

and

2018,

there were

149,287

and

561,752

shares to be issued to non-employees, respectively, that will be issued to non-employees for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date.

The following table summarizes information about shares to be issue at

December 31, 2019.

	December 31, 2019

Shares-to-be-issued, outstanding December 31, 2018		2,470,566
Granted in current year		2,103,793
Issued in current year		(2,198,599)
Shares-to-be-issued outstanding, December 31, 2019		2,375,760

OUTSTANDING EQUITY INSTRUMENTS IN EXCESS OF AUTHORIZED SHARES

As a result of the shares and warrants issued in the public and private offerings as well as other issuance of common stock during

2019,

the Company did

not

have a sufficient number of authorized shares of common stock to cover the exercise and issue of outstanding equity instruments. Therefore, certain equity instruments are classified as liabilities until there is a sufficient number of authorized shares of common stock to cover the shares issuable upon exercise of the equity instruments. As long as these equity instruments are liability-classified, they will continue to be re-measured each reporting period, with any increase or decrease in value recorded as a loss or gain in the consolidated statement of operations.

During

2019,

the Company initially reclassified approximately

1.6

million warrants issued during the

2016

capital raise,

1.7

million warrants during the

2019

capital raise,

0.6

million employee options, and

3.4

million shares to be issued, totaling approximately

$376,000,

$422,000,

and

$1,405,000,

respectively. During the year, approximately

665,000

of the warrants issued in

2019,

and

1.3

million shares to be issued were exercised and issued, respectively. Through the exercise date and issuance date, these warrants and shares to be issued were marked to market and a loss of

$0.5

million and

$0.5

million was recognized, respectively. At the exercise and issuance dates, this resulted in a reclassification of the derivative liabilities to additional paid in capital of approximately

$0.65

million and

$1.07

million, respectively.

The fair value of the Company’s shares to be issued is measured using the trading price of the Company’s stock on the measurement and reclassification dates and the fair value of the warrants and stock options is determined using a Black-Scholes option pricing model on the measurement and reclassification dates

December 17, 2019,

the Company’s shareholders increased the authorized share limit to

75,000,000,

and the Company had sufficient authorized shares to cover the exercise and issuance of all outstanding securities, settling and reclassifying the outstanding derivative liability. At time of reclassification approximately

1.6

million warrants issued during

2016

capital raise,

1.1

million warrants during the

2019

capital raise,

0.6

million employee options, and

2.1

million shares to be issued, were marked to market for reported losses (gains) totaling approximately

$-,

$860,000,

(

$40,000

), and

$1,800,000,

respectively or approximately

$2.6

million. At

December 17, 2019,

the reclassification of derivative liabilities to additional paid in capital was approximately

$-,

$1,095,000,

$380,000,

and

$2,640,000,

respectively for a total of approximately

$4.1

million.

The following assumptions were used to value the warrants and stock options at the reclassification to liability date:

	2016 Warrants			2019 Warrants			Employee Stock Options
Fair Value of Common Stock	$0.36-$.83			$	0.33		$	1.07 – 1.60
Expected Term	.2-.5 years			4.9 years			1.1 – 2.22 years
Volatility		86%-100	%		83	%		91.8 – 102.3	%
Dividend yield		0.00	%		0.00	%		0.00	%
Exercise Price	$	2.55		$	0.50		$	1.04 – 2.09
Risk-free interest rate		1.88%-2.09	%		2.30	%		1.68 – 1.53	%
Weighted average fair value of securities granted	$	-		$	0.22		$	0.72
Number of shares underlying securities granted		1,592,775			1,749,171			592,358

The reclassification to derivative liability for the

2016

warrants,

2019

warrants, and employee stock options was approximately $

$376,00

and

$422,000

respectively. The

3.4

million shares to be issued were reclassified to derivative liability at the average common stock trading price of

$0.42

in the amount of approximately

$1.4

million.

During the year ended

December 31, 2019

approximately

675,000

liability classified warrants were exercised. At time of exercise, these warrants were revalued using the following assumptions:

	2019 Warrants
Fair Value of Common Stock	$	0.83 – 1.42
Expected Term	4.2 -4.3 years
Volatility		86 - 87	%
Dividend yield		0.00	%
Exercise Price	$	0.50
Risk-free interest rate		1.38 – 1.73	%
Weighted average fair value of warrants exercised	$	0.98
Number of shares underlying warrants exercised		665,000

The reclassification to additional paid in capital was approximately

$655,000,

and a mark to market loss of approximately

$500,000

was recognized up to the date of reclassification. In addition, during

2019,

approximately

1.3

million shares to be issued were issued at a weighted average trading price

$0.84

which resulted to a reclassification to additional paid in capital of

$1.07

million and a mark to market loss of approximately

$500,000

up to the date of reclassification.

December 2019,

upon the increase of the authorized shares of common stock to

75,000,000,

the derivative liabilities associated with the lack of authorized shares were reclassified into equity and revalued using the following assumptions:

	2016 Warrants			2019 Warrants			Employee Stock Options
Fair Value of Common Stock	$	1.28		$	1.28		$	1.28
Expected Term	0.1 years			4.1 years			1- 2.1 years
Volatility		38	%		88	%		92-102	%
Dividend yield		0.00	%		0.00	%		0.00	%
Exercise Price	$	2.55		$	0.50		$	1.04 – 2.09
Risk-free interest rate		1.56	%		1.71	%		1.53 – 1.63	%
Weighted average fair value of warrants granted	$	-		$	1.01		$	0.64
Number of shares underlying warrants granted		1,592,775			1,084,171			592,358

The reclassification to additional paid in capital for the

2016

warrants,

2019

warrants, and employee stock options was approximately

$-,

$1,095,000,

$380,000,

respectively. A mark to market loss (gain) of approximately

$-,

$860,000,

and (

$40,000

) was recognized. In addition, the remaining

2.1

million shares to be issued resulted in a reclassification to additional paid in capital of approximately

$2.7

million and a loss on re-measurement up to that date of approximately

$1.8

million.