UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
Milestone Scientific Inc.
(Exact name of registrant as specified in its charter)
| | |
| State or other jurisdiction of Incorporation or organization | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered |
| Common Stock, par value $.001 per share | |
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of Exchange on which registered |
| | | |
As of August 15, 2022 the registrant has a total of
DOCUMENTS INCORPORATED BY REFERENCE
None
MILESTONE SCIENTIFIC INC.
Form 10-Q
TABLE OF CONTENTS
| PART I—FINANCIAL INFORMATION |
||
| Item 1. |
Unaudited Condensed Consolidated Financial Statements |
4 |
| Balance Sheets as of June 30, 2022 and December 31, 2021 |
4 |
|
| Statements of Operations for the three and six months ended June 30, 2022 and 2021 |
5 |
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| Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 |
6 |
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| Statements of Cash Flows for the six months ended June 30, 2022 and 2021 |
8 |
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| Notes to Condensed Consolidated Financial Statements |
9 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
31 |
| Item 4. |
Controls and Procedures |
31 |
| PART II—OTHER INFORMATION |
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| Item 1. |
Legal Proceedings |
31 |
| Item 1A. |
Risk Factors |
31 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
32 |
| Item 3. |
Defaults Upon Senior Securities |
32 |
| Item 4. |
Mine Safety Disclosures |
33 |
| Item 5. |
Other Information |
33 |
| Item 6. |
Exhibits |
34 |
| Signatures |
35 |
|
FORWARD-LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q, the words “may”, “will”, “should”, “expect”, “believe”, “anticipate”, “continue”, “estimate”, “project”, “intend” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding events, conditions and financial trends that may affect Milestone Scientific’s future plans of operations, business strategy, results of operations and financial condition. Milestone Scientific wishes to ensure that such statements are accompanied by meaningful cautionary statements pursuant to the safe harbor established in the Private Securities Litigation Reform Act of 1995. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Milestone Scientific’s plans and objectives are based, in part, on assumptions involving the continued expansion of its business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Milestone Scientific. Although Milestone Scientific believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Considering the significant uncertainties inherent in the forward-looking statements included herein, our history of operating losses that are expected to continue during the ongoing COVID-19 pandemic, the early stage operations of and relative lack of acceptance of our medical products, relying exclusively on two third parties to manufacture our products, changes in our informal manufacturing arrangements made by the manufacturers of our products and disruptions at the manufacturing facilities of our manufacturers exposes us to risks that may harm our business, restrict our operations or require us to relinquish proprietary rights, if physicians do not accept or use our CompuFlo® Epidural Computer Controlled Anesthesia System our ability to generate revenue from sales will be materially impaired, exposure to the risks inherent in international sales and operations, including China, and developments by competitors may render our products or technologies obsolete or non-competitive, the inclusion of such information should not be regarded as a representation by Milestone Scientific or any other person that the objectives and plans of Milestone Scientific will be achieved. Prospective investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and the actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth herein and others set forth from time to time in Milestone Scientific’s reports, including without limitation, Milestone Scientific's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”). Milestone Scientific disclaims any intent or obligation to update such forward-looking statements.
Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent®; CompuMed®; CompuFlo®; DPS Dynamic Pressure Sensing technology®; Milestone Scientific ®; CathCheck TM; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia Device®; and The Wand ®.
Part I- Financial Information
Item 1. Financial Statements
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, related party net | - | |||||||
| Prepaid expenses and other current assets | ||||||||
| Inventories, net | ||||||||
| Advances on contracts | ||||||||
| Total current assets | ||||||||
| Furniture, fixtures and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Right of use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Accrued expenses and other payables | ||||||||
| Accrued expenses, related party | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current portion of finance lease liabilities | ||||||||
| Non-current portion of operating lease liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, par value $;authorized shares; and shares issued at June 30, 2022 and December 31, 2021 and and shares outstanding as June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Total Milestone Scientific, Inc. stockholders' equity | ||||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Product sales, net |
$ | $ | $ | $ | ||||||||||||
| Cost of products sold |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Research and development expenses |
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| Depreciation and amortization expense |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income (expense) |
( |
) | ( |
) | ( |
) | ||||||||||
| Gain on debt extinguishment-PPP |
||||||||||||||||
| Loss before provision for income taxes and equity investments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes |
( |
) | ( |
) | ||||||||||||
| Loss before equity investment |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Deferred profit and divesture-equity investment (See Note 6) |
( |
) | ( |
) | ||||||||||||
| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to noncontrolling interests |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to Milestone Scientific Inc. |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share applicable to common stockholders— |
||||||||||||||||
| Basic |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Diluted |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Weighted average shares outstanding and to be issued— |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(UNAUDITED)
| Common Stock Share |
Common Stock Amount |
Additional Paid in Capital |
Accumulated Deficit |
Noncontrolling Interest |
Treasury Stock |
Total |
||||||||||||||||||||||
| Balance January 1, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock based compensation |
- | - | - | - | - | |||||||||||||||||||||||
| Common stock to be issued to employees for bonuses |
- | - | - | - | - | |||||||||||||||||||||||
| Net loss |
- | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||
| Balance March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock based compensation |
- | - | - | - | - | |||||||||||||||||||||||
| Common stock issued to employee for compensation |
- | - | ||||||||||||||||||||||||||
| Common stock to be issued for payment of consulting services |
- | - | ||||||||||||||||||||||||||
| Common stock issued to board of directors for services |
- | - | ||||||||||||||||||||||||||
| Common stock issued to the board of directors for vested awards | ( |
) | ||||||||||||||||||||||||||
| Common stock to be issued to employees for bonuses |
( |
) | - | - | - | - | ||||||||||||||||||||||
| Net loss |
- | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||
| Balance June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
(UNAUDITED)
| Common Stock Share |
Common Stock Amount |
Additional Paid in Capital |
Accumulated Deficit |
Noncontrolling Interest |
Treasury Stock |
Total |
||||||||||||||||||||||
| Balance January 1, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock based compensation |
- | - | - | |||||||||||||||||||||||||
| Common stock issued to employee for compensation expensed in prior periods |
- | - | - | - | ||||||||||||||||||||||||
| Common stock to be issued for payment of consulting services expensed in prior periods |
- | - | - | - | ||||||||||||||||||||||||
| Common stock issued to board of directors for services expensed in prior periods |
- | - | - | - | ||||||||||||||||||||||||
| Common stock issued to employee for stock options exercised |
- | - | - | |||||||||||||||||||||||||
| Common stock to be issued to employees for bonuses |
- | - | - | - | - | |||||||||||||||||||||||
| Common stock issued for warrants exercised |
- | - | - | |||||||||||||||||||||||||
| Net loss |
( |
) | ( |
) | - | ( |
) | |||||||||||||||||||||
| Balance March 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock based compensation |
- | - | - | - | - | |||||||||||||||||||||||
| Common stock issued to employee for compensation |
- | - | - | |||||||||||||||||||||||||
| Common stock to be issued for payment of consulting services |
- | - | - | |||||||||||||||||||||||||
| Common stock issued to board of directors for services |
- | - | - | |||||||||||||||||||||||||
| Common stock issued for warrants exercised |
- | - | - | |||||||||||||||||||||||||
| Net loss |
( |
) | ( |
) | - | ( |
) | |||||||||||||||||||||
| Balance June 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
MILESTONE SCIENTIFIC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
| June 30, 2022 | June 30, 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Amortization of intangibles | ||||||||
| Stock based compensation | ||||||||
| Inventory Reserve | ||||||||
| Employees paid in stock | ||||||||
| Expense paid in stock | ||||||||
| Non-cash operating lease expense | ( | ) | ||||||
| Deferred profit and divesture-equity investment (See Note 6) | ||||||||
| Gain on debt extinguishment-PPP | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | ||||||||
| (Increase) in accounts receivable, related party | ( | ) | ||||||
| (Increase) decrease in inventories | ( | ) | ||||||
| (Increase) in advances on contracts | ( | ) | ( | ) | ||||
| (Increase) in prepaid expenses and other current assets | ) | |||||||
| Increase in accounts payable | ||||||||
| Increase (decrease) in accounts payable, related party | ( | ) | ||||||
| (Decrease) increase in accrued expenses | ( | ) | ||||||
| Decrease in accrued expenses, related party | ( | ) | ( | ) | ||||
| Decrease operating right of use lease asset | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| Cash flows from investing activities: | ||||||||
| Purchase of furniture, fixtures, and equipment | ( | ) | ||||||
| Net cash provided by (used in) investing activities | $ | $ | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Payments finance lease obligations | ( | ) | ( | ) | ||||
| Common stock issued to employee for option exercised | ||||||||
| Net cash (used in) provided by financing activities | $ | ( | ) | $ | ||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
MILESTONE SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 — ORGANIZATION AND BUSINESS
All references in this report to “Milestone Scientific,” “us,” “our,” “we,” the “Company” or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Inc., Milestone 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 ®; CathCheckTM; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand ®.
Milestone Scientific was incorporated in the State of Delaware in August 1989. Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery device, using The Wand®, a single use disposable handpiece. The device is marketed in dentistry under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and is suitable for all dental procedures that require local anesthetic. The dental devices are sold in the United States, Canada and in
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. To date there have been seventeen medical devices sold in the United States and limited amounts sold internationally.
In May 2022, the Company initiated Corrective Action Preventative Action (CAPA) investigation of the Epidural Disposable Kit, Part # 6100-01, lot HC 51, the scope of the voluntary market withdrawal needed to be expanded to include Part # 6100-03, lot HC 50. A new non-conformance was initiated, and Lot HC 50 was added to the scope of the CAPA initiated above. The investigation via the CAPA identified that there is an issue with the id adaptors used in both lot’s HC 51 and HC 50. However, the health hazard evaluation shows that there is no risk to the patient or the user, thus management has determined there are no potential impacts to patients or users. Lot’s HC 51 and HC 50 are worth approximately $
In May 2022, the Company was notified that Wand STA handpieces, reference # STA—5050-2725, lot B210113 were packaged incorrectly. The Company initiated a Corrective Action Preventative Action (CAPA) investigation to determine the root cause and implement corrective actions. The Health Hazard Evaluation (HHE) was completed and showed that there is no risk to the patient or the user due to this discrepancy, thus management has determined there are no potential impacts to patients or users. However, to provide the highest quality products to the market, Milestone Scientific decided to initiate a voluntary market withdrawal on May 13, 2022. Lot B210113 is worth approximately $
NOTE 2- LIQUIDITY AND UNCERTAINTIES
The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. As of June 30, 2022 the Company had an accumulated deficit of $
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. In spite of the reopening of dental offices, hospitals, and pain clinics throughout the country and the rest of the world, revenues for the three and six months ended June 30, 2022 and 2021 were adversely affected in particular for the medical business. However, any business interruptions, resulting from COVID-19, or new strain, could significantly disrupt our operations and could have a material adverse impact on our business in the future.
In addition, it is uncertain as to what effect the continuing spread of COVID-19 will have on the commercialization efforts of our CompuFlo Epidural and CathCheck systems. Such future developments could have a material adverse effect on the Company financial results and its ability to conduct business as expected.
Sanctions imposed by the United States and other western democracies, against Russia as a result 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. Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats. So far, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia, as a direct impact from the conflict. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations and financial condition.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation.
2. Basis of Presentation
The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in Milestone Scientific's Annual Report on Form 10-
K
3. Use of Estimates
The preparation of the unaudited condensed 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.
4. Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To perform revenue recognition, the Company performs the following five steps:
| i. | identification of the promised goods or services in the contract; | |
| ii. | determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; | |
| iii. | measurement of the transaction price, including the constraint on variable consideration; | |
| iv. | allocation of the transaction price to the performance obligations based on estimated selling prices; and | |
| v. | recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. |
The Company derives its revenues from the sale of its products, primarily dental instruments, handpieces, and other related products. The Company sells its products through a global distribution network and that includes both exclusive and non-exclusive distribution agreements with related and third parties.
Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon date of shipment. The Company has no obligation on product sales for any installation, set-up, or maintenance, these being the responsibility of the buyer. Milestone Scientific's only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.
Sales Returns
The Company records allowances for product returns as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including the customers’ return rights and the Company’s historical experience with returns and the amount of product in the distribution channel not consumed by end users and subject to return. The Company relies on historical return rates to estimate returns. In the future, if any of these factors and/or the history of product returns change, adjustments to the allowance for product returns may be required.
Financing and Payment
The Company's payment terms differ by geography and customer, but payment is generally required within 90 days from the date of shipment or delivery.
Disaggregation of Revenue
The Company operates in
5. Variable Interest Entities
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE.
If Milestone Scientific determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary. Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity. Milestone Scientific has completed the VIE analysis relating to Milestone China and Anhui Maishida Medical Technology, Co. Ltd. (“Anhui”).
Milestone Scientific has determined that due to the loss of equity investment in Anhui, the Company no longer has significant influence of Anhui and therefore Anhui is not a variable interest. Milestone Scientific has a variable interest in Milestone China, it considered the guidance in ASC 810, “Consolidation” as it relates to determining whether Milestone China is a VIE and, if so, identifying the primary beneficiary. Milestone Scientific would be considered the primary beneficiary of the VIE if it has both of the following characteristics:
| ● | Power Criterion: The power to direct the activities that most significantly impact the entity’s economic performance; and |
| ● | Losses/Benefits Criterion: The obligation to absorb losses that could potentially be significant or the right to receive benefits that could potentially be significant to the VIE |
Milestone Scientific does not have the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has not been met. Management placed the most weight on the relationship and significance of activities of Milestone China to the CEO of Milestone China who have the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is not the primary beneficiary under ASC 810. Accordingly, Milestone China has not been consolidated into the financial statements of Milestone Scientific and is accounted for under the equity method. See Note 6.
6. 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 June 30, 2022 and December 31, 2021 Milestone Scientific has approximately $
7. 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 June 30, 2022 and December 31, 2021, accounts receivable was recorded, net of allowance for doubtful accounts of
8. Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence, and product expiration requirements.
The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis.
9. 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 unaudited Condensed Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the provision for income tax on the unaudited Condensed Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
10. Intangible Assets – Patents and Developed Technology
Patents are recorded at cost to prepare and file the applicable documents with the U.S. Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. Patents and other developed technology acquired from another business entity are recorded at acquisition cost and be amortized at the estimated useful life. Patent defense costs, to the extent applicable, are expensed as incurred.
11. Impairment of Long-Lived Assets
Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment review process is based upon an estimate of future undiscounted cash flow. Factors the Company considers that could trigger an impairment review include the following:
| • | significant under performance relative to expected historical or projected future operating results, | |
| • | significant changes in the manner of our use of the acquired assets or the strategy for our overall business | |
| • | significant negative industry or economic trends | |
| • | 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. Research and Development
Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method.
13. Income Taxes
Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
At June 30, 2022 and December 31, 2021, we had
14. 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
Since Milestone Scientific had net losses in the three and six months ended June 30, 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
15. Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). The Company required to classify fair value measurements in one of the following categories:
| ● | Level 1 inputs which are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. | |
| ● | Level 2 inputs which are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly. | |
| ● | Level 3 inputs are defined as unobservable inputs for the assets or liabilities. |
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. As of June 30, 2022, and December 31, 2021 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.
16. 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 unaudited condensed consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values.
17. Recent Accounting Pronouncements
In January 2020, FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which, generally, provides guidance for investments in entities accounted for under the equity method of accounting. ASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of this standard did not have an impact on the Company's condensed consolidated financial statement.
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 condensed consolidated financial statement.
In October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with Topic ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”). To achieve this, an acquirer may assess how the acquire applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquirer's financial statements. The amendments of ASU 2021-08 are for fiscal years beginning after December 15, 2022, including interim periods. Early adoption is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company will evaluate the impact of ASU 2021-08 on any future business combinations the Company may enter in the future.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables. The FASB has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard. This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effective dates, which deferred the effective date of ASU 2016-13 for the Company. As a result of ASU 2019-10, ASU 2016-13 is effective for all entities with fiscal years beginning after December 15, 2022, including interim periods. The adoption of this update is not expected to have a material impact on the Company's condensed consolidated financial statements.
NOTE 4 — INVENTORIES
Inventories consist of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Dental finished goods, net | $ | $ | ||||||
| Medical finished goods, net | ||||||||
| Component parts and other materials | ||||||||
| Total inventories | $ | $ | ||||||
The Company maintains an allowance for doubtful accounts on slow moving Medical finished goods of approximately $
NOTE 5 — ADVANCES ON CONTRACTS
The advances on contracts represent funding of future STA inventory purchases, epidural instruments, and epidural replacements parts. The balance of the advances as of June 30, 2022, and December 31, 2021 is approximately $
NOTE 6 – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES
Milestone China Ltd.
Ownership
In June 2014, Milestone Scientific invested $
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
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 equity stake in Anhui was transferred to Lidong Zhang, the CEO of Milestone China and Anhui, in exchange for RMB
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, who became the independent distributor, former agent, for Milestone China and its subsidiaries, and due to the good working relationship developing between Milestone Scientific and Solee and 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. Given the significant deterioration of the economy in China, caused by in large part the actions of the Chinese central government in dealing with COVID-19, the crash of the real estate market and the moves against independent companies, 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.
However, management has determined to pursue an investigation of whether the above-described consideration payable by LiDong Zhang to Milestone China was actually paid to Milestone China and, if so, its recovery. Nevertheless, 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. As a result, at this time, Milestone Scientific has not received any consideration and does not know if any of the consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, 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 June 30, 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 $
For the three months ended June 30, 2022, Milestone Scientific shipped
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, the former agent, for 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. As of June 30, 2022 and December 31, 2021, there have been no shipment under the new agreement to Solee.
Gross Profit Deferral
Due to timing differences of when the inventory sold to Milestone China, Anhui or their agent is recognized and when Milestone China and Anhui sells the acquired inventory to third parties, an elimination of the recorded profit is required as of the balance sheet date. In accordance with ASC 323 Investment Equity Method and Joint Ventures, Milestone Scientific has deferred its ownership percentage of the gross profit associated with recognized revenue from sales to Milestone China, Solee as an agent, and Anhui until that product is sold to third parties.
At June 30, 2022, and December 31, 2021 the Company had
NOTE 7 — PATENTS
| June 30, 2022 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Patents-foundation intellectual property | ( | ) | ||||||||||
| Total | ( | ) | ||||||||||
| December 31, 2021 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Patents-foundation intellectual property | ( | ) | ||||||||||
| Total | ( | ) | ||||||||||
Patents are amortized utilizing the straight-line method over estimated useful lives ranging from
NOTE 8— STOCKHOLDERS’ EQUITY
Warrants
The following table summarizes information about shares issuable under warrants outstanding as of June 30, 2022
| Warrant shares outstanding | Weighted Average exercise price | Weighted Average remaining life | Intrinsic value | |||||||||||||
| Outstanding at January 1, 2022 | ||||||||||||||||
| Issued | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Outstanding and exercisable at June 30, 2022 | ||||||||||||||||
Shares to Be Issued
As of June 30, 2022, and 2021, there were
The following table summarizes information about shares to be issued on June 30, 2022, and 2021, respectively.
| June 30, 2022 | June 30, 2021 | |||||||
| Shares-to-be-issued, outstanding January 1, 2022 and 2021, respectively | ||||||||
| Granted in current period | ||||||||
| Issued in current period | ( | ) | ( | ) | ||||
| Shares-to be issued outstanding June 30, 2022 and 2021, respectively | ||||||||
Stock Options 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
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
Milestone Scientific recognizes stock compensation expense over the requisite service period. For three and six months ended June 30, 2022 Milestone Scientific recognized approximately $
As of June 30, 2022 and 2021, there was approximately $
A summary of option activity for employees under the plans and changes during the six months ended June 30, 2022, is presented below:
| Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||||||||||
| Options outstanding January 1, 2022 | ||||||||||||||||
| Granted during 2022 | - | |||||||||||||||
| Exercised during 2022 | - | - | ||||||||||||||
| Forfeited or expired during 2022 | - | - | ||||||||||||||
| Options outstanding June 30, 2022 | ||||||||||||||||
| Exercisable, June 30, 2022 | ||||||||||||||||
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 six months ended June 30, 2022 , risk free interest rate of
A summary of option activity for non-employees under the plans and changes during the six months ended June 30, 2022 presented below:
| Number of Options | Weighted Averaged Exercise Price $ | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Options Value $ | |||||||||||||
| Options outstanding January 1, 2022 | ||||||||||||||||
| Granted during 2022 | - | - | - | - | ||||||||||||
| Exercised during 2022 | - | - | - | - | ||||||||||||
| Options outstanding June 30, 2022 | ||||||||||||||||
| Exercisable, June 30, 2022 | ||||||||||||||||
For the three and six months ended June 30, 2022, Milestone Scientific recognized approximately $
The information below summarizes the restricted stock award activity for year ended June 30, 2022 .
| Number of Shares | Weighted Average Grant-Date Fair Value per Award | |||||||
| Non-vested as January 1, 2022 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | - | |||||
| Cancelled | ( | ) | - | |||||
| Non-vested as June 30, 2022 | ||||||||
As of June 30, 2022, there were
As of June 30, 2022 the Company entered in a restricted stock agreements with the members of the Board of Directors of the Company. The Company granted
NOTE 9 — INCOME TAXES
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
NOTE 10 — SEGMENT AND GEOGRAPHIC DATA
We conduct our business through 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:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| Sales | ||||||||||||||||
| Net Sales: | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Dental | $ | $ | $ | $ | ||||||||||||
| Medical | ||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||
| Operating Income (Loss): | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Dental | $ | $ | $ | $ | ||||||||||||
| Medical | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Depreciation and Amortization: | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Dental | $ | $ | $ | $ | ||||||||||||
| Medical | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Income (loss) before taxes and equity in earnings of affiliates: | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Dental | $ | $ | $ | $ | ||||||||||||
| Medical | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total loss before taxes and equity in earnings of affiliate | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Total Assets | June 30, 2022 | December 31, 2021 | ||||||
| Dental | $ | $ | ||||||
| Medical | ||||||||
| Corporate | ||||||||
| Total assets | $ | $ | ||||||
The following table presents information about our operations by geographic area for the three and six months ended June 30, 2022 and 2021. Net sales by geographic area are based on the respective locations of our subsidiaries:
| Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||||||||
| Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Handpieces | ||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| International: Rest of World | ||||||||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Handpieces | ||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| International: China | ||||||||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Handpieces | ||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total Product Sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||||||||
| Domestic: US | Dental | Medical | Grand Total | Dental | Medical | Grand Total | ||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Handpieces | ||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| International: Rest of World | ||||||||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Handpieces | ||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| International: China | ||||||||||||||||||||||||
| Instruments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Handpieces | ||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||
| Grand Total | $ | $ | $ | $ | ||||||||||||||||||||
| Total Product Sales | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 11 -- 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 June 30, 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.
For the three months ended June 30, 2022, an aggregate of approximately
For the six months ended June 30, 2022 , we had the four distributors that accounted for
NOTE 12 -- RELATED PARTY TRANSACTIONS
United Systems
Milestone Scientific has a manufacturing agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were approximately $
As of June 30, 2022 and December 31, 2021, Milestone Scientific owed this manufacturer approximately $
Milestone China
See Note 6 of the notes to the unaudited condensed consolidated financial statements.
Other
In August 2016, K. Tucker Andersen, a significant stockholder of Milestone Scientific, entered into a three-year agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $
The Company engaged Mr. Trombetta as a consultant for a period of twelve months (beginning October 1, 2020, and ending September 30, 2021), to provide international business dental information and business contacts to the Company and provide consulting services for new international business and dental segments. For the three and six months ended June 30, 2021, the Company expensed $
The Director of Clinical Affairs’ royalty fee was approximately $
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 (
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 $
The Company recorded expense of and related to the Managing Director, China Operations for three and six months ended June 30, 2022, respectively. The Company recorded expense of and related to the US Asian Consulting Group, LLC for three and six months ended June 30, 2022, respectively. The Company recorded expense of related to the Managing Director, China Operations for three and six months ended June 30, 2021, respectively. The Company recorded expense of $
NOTE 13 — 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
As of June 30, 2022, the purchase order commitment was approximately $
As of June 30, 2022 and December 31, 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 $
(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 (
As of June 30, 2022, total operating lease and finance right-of-use assets were $
The components of lease expense were as follows:
| Three months ended | Six months ended | |||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| Cash paid for operating lease liabilities | ||||||||||||||||
| Cash paid for finance lease liabilities | ||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities (1) | - | - | - | |||||||||||||
| Property and equipment obtained in exchange for new finance lease liabilities | - | - | - | |||||||||||||
| Weighted Average Remaining Lease Term | ||||||||||||||||
| Finance leases (years) |
|
| ||||||||||||||
| Operating leases (years) |
|
| ||||||||||||||
(3) Other Commitments
On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s 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 Mr. Hochman, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussions of the financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements contained in this report and in connection with management's discussion and analysis and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC on March 31, 2022. 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.
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 cosmetic botulinum toxin injections, epidural space identification in regional anesthesia procedures and intra-articular joint injections.
Milestone Scientific remains focused on advancing efforts to achieve the following three primary objectives:
| ● |
Establishing Milestone’s DPS Dynamic Pressure Sensing technology platform as the standard-of-care in painless and precise drug delivery, providing for the first time, objective visual and audible in-tissue pressure feedback, and continuing to expand platform applications; |
| ● |
Following obtaining successful FDA clearance of our first medical device, Milestone Scientific is transitioning from a research and development organization to a commercially focused medical device company; and |
| ● |
Expanding our global footprint of our CompuFlo Epidural and CathCheck System by utilizing a direct field sales force and partnering with distribution companies worldwide. |
Because of combining the ability to regulate the flow rate and monitor pressure at the tip of the needle, Milestone Scientific developed the industry’s first solution for painlessly administering an intra-ligamentary injection, i.e., “single-tooth anesthesia” which could be used as the only injection necessary for achieving dental anesthesia, foregoing the need to administer traditional injections such as a nerve branch block. In addition to single-tooth anesthesia, the STA System can effectively perform all the traditional injections that dentists routinely give but can provide them virtually pain free and with numerous clinical advantages. This device, which also utilizes a disposable handpiece, is currently marketed by Milestone Scientific as the Wand STA® System.
Milestone Scientific believes its dental devices have set a new standard of care for dental injections. Our dental devices have been used to administer tens of millions of injections worldwide. Each of our devices has a related single use disposable handpiece, leading to a continuing revenue stream following sale of the device. At present, we sell disposable handpieces unique to our legacy product (the Wand and CompuDent) to users who have not upgraded to our current dental product, the Wand STA System.
Building on the success of our proprietary, core technology platform for dental injections, and desiring to pursue other growth opportunities, we have recently begun to expand the uses and applications of our proprietary, patented technologies to achieve greater operational efficiencies, enhanced patient safety and therapeutic adherence, patient satisfaction, and improved quality of care across a broad range of medical specialties. In June 2017, we received FDA regulatory clearance to sell the CompuFlo Epidural Computer Controlled Anesthesia System in the United States for certain medical applications. We intend to continue to expand the uses and applications of our DPS Dynamic Pressure Sensing technology.
We believe that we and our technology solutions are widely recognized by key opinion leaders (i.e., academics, anesthesiologists and practicing dentists whose opinions are widely respected), industry experts and medical and dental practitioners as a leader in the emerging, computer-controlled injection industry.
Wand STA Dental Market
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.
Beginning January 1, 2016, Milestone Scientific entered into a non-exclusive distribution agreement with Henry Schein, Inc. (“Henry Schein”). In June 2016, that agreement was replaced with an exclusive distribution arrangement for our dental products for the United States and Canada with Henry Schein. In December 2020, the exclusive distribution arrangement with Henry Schein was replaced with a non-exclusive distribution arrangement, for distribution in the United States and Canada.
In January 2021, the Company began a process of signing non-exclusive dental distribution arrangements with dental distributors in specific geographical locations in the United States and Canada. To date there are twelve new non-exclusive dental distributors engaged in the United States and Canada. The goal is to add not only additional non-exclusive distributors in the United States, but as well as exploring other co-operation opportunities with Dental Service Organization, education institutions, dental schools and entities in specific dental market segments. To date there are two of such channel partners in the United States.
The goal of changing our marketing plan from a sole exclusive distributor in the USA and Canada, to a large number of non-exclusive distributors is to increase placement of our Wand STA System and thus the expansion of our dental disposables usage.
On the global front, we have granted exclusive marketing and distribution rights for the Wand STA System to select dental suppliers in various international regions in Asia, Africa, South America, and Europe. They include FM Produkty Dla Stomatologii in Poland and Unident AB in the countries of Denmark, Sweden, Norway, and Iceland. Additionally, the Company is in the process of evaluating current international distributors and adding new distributors, globally as required based on the economics of the region.
Sanctions imposed by the United States and other western democracies, as a result of the Ukrainian-Russian conflict, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations. Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats. So far, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia, a direct impact from the conflict. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations and financial condition.
Medical Market
During 2016, Milestone Scientific filed for 510(k) marketing clearance with the U.S. Food and Drug Administration (FDA) for both intra-articular and epidural injections with the CompuFlo Epidural System. In June 2017, the FDA approved the CompuFlo Epidural System for epidural injections.
In December 2016, we received notification from the FDA that based upon the 510(k)-application submitted for intra-articular injections, we did not adequately document that the device met the equivalency standard required for 510(k) clearances. Following consultation with the FDA Office of Device Evaluation, we intended to file a new 510(k) application for the device in 2019. However, due to financing constraints, a new 510(k) application was not filed in 2019. The Company has decided not to proceed with securing FDA approval for the intra-articular instrument at the present time.
In April 2020, Milestone Scientific, announced that it has validated and integrated the new CathCheck™ feature into the CompuFlo® Epidural System. Using CathCheck, physicians and nurses can now monitor the placement of a catheter to determine the presence or absence of a pulsatile waveform (heartbeat), providing new information that can be used to determine if the catheter is in place or has become dislodged from the epidural space. This can be performed within seconds by measuring the pulsatile waveform within the epidural space.
In March 2022, the Company was notified by a territory manager, that Epidural Disposable Kit, Part # 6100-01, lot HC 51 potentially had an issue. The Company opened an investigation and decided to initiate a voluntary market withdrawal for the Epidural Disposable Kit, Part # 6100-01, lot HC 51. Management has determined that there are no potential impacts to patients or users.
On April 11, 2022, the Company announced that it has commenced sales of its CompuFlo Epidural and CathCheck Verification System disposables to a leading northeast medical center in the U.S. This approval follows an extensive trial and evaluation, which validates the safety and efficacy of the technology. As a teaching hospital, the Company's tools provide residents, fellows, and seasoned physicians greater accuracy through real-time verification of epidural needle placement, as well as subsequent monitoring of catheter placement.
On May 27, 2022, the Company announced on that it has commenced sales of its CompuFlo Epidural instrument disposables at a leading veterinary and academic institution following a successful research study and evaluation. The veterinary institution has initially begun using the CompuFlo Epidural instrument for maxillary nerve block procedures in horses with plans to expand into epidural procedures. The CompuFlo Epidural instrument can provide fellow veterinarians and students greater accuracy through real-time verification of needle location when performing a maxillary nerve block.
In addition, the recent receipt of chronology-Specific CPT Code for the Company's CompuFlo Epidural System by American Medical Association marks an important milestone, that could increase the potential number of anesthesia pain management clinics adopting the CompuFlo. CPT code expands potential for reimbursement of epidural procedures in pain management utilizing the CompuFlo Epidural System., thereby helping accelerate the commercial roll-out of CompuFlo in the U.S.
The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by business segment product category:
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
|||||||||||||||||||||||
| Domestic: US |
Dental |
Medical |
Grand Total |
Dental |
Medical |
Grand Total |
||||||||||||||||||
| Instruments |
$ | 155,028 | $ | - | $ | 155,028 | $ | 178,752 | $ | - | $ | 178,752 | ||||||||||||
| Handpieces |
801,533 | 18,600 | 820,133 | 802,916 | - | 802,916 | ||||||||||||||||||
| Accessories |
22,621 | - | 22,621 | 18,974 | - | 18,974 | ||||||||||||||||||
| Grand Total |
$ | 979,182 | $ | 18,600 | $ | 997,782 | $ | 1,000,642 | $ | - | $ | 1,000,642 | ||||||||||||
| International: Rest of World |
||||||||||||||||||||||||
| Instruments |
$ | 160,814 | $ | - | $ | 160,814 | $ | 156,588 | $ | 15,500 | $ | 172,088 | ||||||||||||
| Handpieces |
459,799 | 20,000 | 479,799 | 709,624 | 5,500 | 715,124 | ||||||||||||||||||
| Accessories |
9,973 | - | 9,973 | 12,548 | 12,548 | |||||||||||||||||||
| Grand Total |
$ | 630,586 | $ | 20,000 | $ | 650,586 | $ | 878,760 | $ | 21,000 | $ | 899,760 | ||||||||||||
| International: China |
||||||||||||||||||||||||
| Instruments |
$ | - | $ | - | $ | - | $ | 78,000 | $ | - | $ | 78,000 | ||||||||||||
| Handpieces |
- | - | - | 447,336 | - | 447,336 | ||||||||||||||||||
| Accessories |
- | - | - | - | - | |||||||||||||||||||
| Grand Total |
$ | - | $ | - | $ | - | $ | 525,336 | $ | - | $ | 525,336 | ||||||||||||
| Total Product Sales |
$ | 1,609,768 | $ | 38,600 | $ | 1,648,368 | $ | 2,404,738 | $ | 21,000 | $ | 2,425,738 | ||||||||||||
| Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||||||||||||||||||
| Domestic: US |
Dental |
Medical |
Grand Total |
Dental |
Medical |
Grand Total |
||||||||||||||||||
| Instruments |
$ | 277,996 | $ | - | $ | 277,996 | $ | 354,768 | $ | - | $ | 354,768 | ||||||||||||
| Handpieces |
1,597,392 | 26,150 | 1,623,542 | 1,597,900 | 8,150 | 1,606,050 | ||||||||||||||||||
| Accessories |
47,481 | - | 47,481 | 36,882 | - | 36,882 | ||||||||||||||||||
| Grand Total |
$ | 1,922,869 | $ | 26,150 | $ | 1,949,019 | $ | 1,989,550 | $ | 8,150 | $ | 1,997,700 | ||||||||||||
| International: Rest of World |
||||||||||||||||||||||||
| Instruments |
$ | 614,374 | $ | - | $ | 614,374 | $ | 539,841 | $ | 58,000 | $ | 597,841 | ||||||||||||
| Handpieces |
1,383,751 | 20,000 | 1,403,751 | 1,663,559 | 25,900 | 1,689,459 | ||||||||||||||||||
| Accessories |
22,162 | - | 22,162 | 33,109 | - | 33,109 | ||||||||||||||||||
| Grand Total |
$ | 2,020,287 | $ | 20,000 | $ | 2,040,287 | $ | 2,236,509 | $ | 83,900 | $ | 2,320,409 | ||||||||||||
| International: China |
||||||||||||||||||||||||
| Instruments |
$ | - | $ | - | $ | - | $ | 228,000 | $ | - | $ | 228,000 | ||||||||||||
| Handpieces |
359,964 | - | 359,964 | 804,336 | - | 804,336 | ||||||||||||||||||
| Accessories |
- | - | - | - | - | |||||||||||||||||||
| Grand Total |
$ | 359,964 | $ | - | $ | 359,964 | $ | 1,032,336 | $ | - | $ | 1,032,336 | ||||||||||||
| Total Product Sales |
$ | 4,303,120 | $ | 46,150 | $ | 4,349,270 | $ | 5,258,395 | $ | 92,050 | $ | 5,350,445 | ||||||||||||
Current Product Platform
See Note 1, “Organization and Business”.
Results of Operations
The following table sets forth the consolidated results of operations for the three and six months ended June 30, 2022 and 2021, respectively. The trends suggested by this table may not be indicative of future operating results:
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
|||||||
| Operating results: |
||||||||
| Product sales, net |
$ | 1,648,368 | $ | 2,425,738 | ||||
| Cost of products sold |
967,720 | 1,056,384 | ||||||
| Gross profit |
680,648 | 1,369,354 | ||||||
| Operating expenses: |
||||||||
| Selling, general and administrative expenses |
3,282,322 | 4,011,672 | ||||||
| Research and development expenses |
266,560 | 215,420 | ||||||
| Depreciation and amortization expense |
16,645 | 14,834 | ||||||
| Total operating expenses |
3,565,527 | 4,241,926 | ||||||
| Loss from operations |
(2,884,879 | ) | (2,872,572 | ) | ||||
| Other income, and interest expense net |
3,550 | (100,401 | ) | |||||
| Gain on debt extinguishment-PPP |
- | 276,180 | ||||||
| Net loss |
(2,881,329 | ) | (2,696,793 | ) | ||||
| Net loss attributable to noncontrolling interests |
(22,848 | ) | (16,325 | ) | ||||
| Net loss attributable to Milestone Scientific Inc. |
$ | (2,858,481 | ) | $ | (2,680,468 | ) | ||
| Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||
| Operating results: |
||||||||
| Product sales, net |
$ | 4,349,270 | $ | 5,350,445 | ||||
| Cost of products sold |
1,986,196 | 2,178,797 | ||||||
| Gross profit |
2,363,074 | 3,171,648 | ||||||
| Operating expenses: |
||||||||
| Selling, general and administrative expenses |
6,397,948 | 6,760,969 | ||||||
| Research and development expenses |
731,027 | 231,864 | ||||||
| Depreciation and amortization expense |
33,460 | 35,760 | ||||||
| Total operating expenses |
7,162,435 | 7,028,593 | ||||||
| Loss from operations |
(4,799,361 | ) | (3,856,945 | ) | ||||
| Other income, and interest expense net |
(1,193 | ) | (101,885 | ) | ||||
| Gain on debt extinguishment-PPP |
- | 276,180 | ||||||
| Net loss |
(4,800,554 | ) | (3,682,650 | ) | ||||
| Net loss attributable to noncontrolling interests |
(40,350 | ) | (29,313 | ) | ||||
| Net loss attributable to Milestone Scientific Inc. |
$ | (4,760,204 | ) | $ | (3,653,337 | ) | ||
| Cash flow: |
June 30, 2022 |
June 30, 2021 |
||||||
| Net cash used in operating activities |
$ | (3,801,065 | ) | $ | (2,070,310 | ) | ||
| Net cash provided by (used in) investing activities |
$ | 85 | $ | (13,075 | ) | |||
| Net cash (used in) provided by financing activities |
$ | (4,234 | ) | $ | 3,836,798 | |||
Three months ended June 30, 2022 compared three months ended June 30, 2021
Net sales for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 1,609,768 | $ | 2,404,738 | $ | (794,970 | ) | |||||
| Medical |
38,600 | 21,000 | $ | 17,600 | ||||||||
| Total sales, net |
$ | 1,648,368 | $ | 2,425,738 | $ | (777,370 | ) | |||||
Consolidated revenue for the three months ended, June 30, 2022, and 2021 were approximately $1.6 million and $2.4 million, respectively. Dental revenue decreased approximately $795,000 for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. For the three months ended June 30, 2022 dental domestic revenue decreased approximately $21,000, and dental international revenue decreased approximately $248,000 compared to June 30, 2021. For the three months ended June 30, 2022 the Company recorded no revenue from China as compared to approximately $525,000 for the three months ended June 30, 2021. Medical revenue increased approximately $17,000 for the three months ended June 30, 2022 as compared to the three months ending June 30, 2021.
Gross Profit for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 1,083,603 | $ | 1,358,226 | $ | (274,623 | ) | |||||
| Medical |
(402,955 | ) | 11,128 | $ | (414,083 | ) | ||||||
| Total gross profit |
$ | 680,648 | $ | 1,369,354 | $ | (688,706 | ) | |||||
Consolidated gross profit for each of the three months ended June 30, 2022 and 2021 decreased approximately $689,000 or 50%. The decrease is related to the Company recording an allowance of approximately $430,000 on slow moving Medical finished goods during the three months ended June 30, 2022.
Selling, general and administrative expenses 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 683,428 | $ | 648,170 | $ | 35,258 | ||||||
| Medical |
1,181,009 | 1,113,918 | 67,091 | |||||||||
| Corporate |
1,417,885 | 2,249,584 | (831,699 | ) | ||||||||
| Total selling, general and administrative expenses |
$ | 3,282,322 | $ | 4,011,672 | $ | (729,350 | ) | |||||
Consolidated selling, general and administrative expenses for the three months ended June 30, 2022 and 2021, were approximately $3.3 million, and $4.0 million respectively. The decrease of approximately $729,000 is categorized in several areas. Employee salaries, and benefits expenses decreased approximately $874,000 during the three months ended June 30, 2022, compared to the same period in 2021. The Company reduced director fees, accrued bonus, employee recruiting fees, and medical insurance for the three months ended June 30, 2022. During the three months ended June 30, 2022, employee travel increased approximately $131,000, warehousing, quality control, increase approximately $127,000 and marketing increased approximately $136,000 due to the Company's continue efforts to commercialize the epidural and grow the dental market. The Company's professional fees, and other selling, general and administrative expenses decreased approximately $255,000 for three months ended June 30,2022.
Research and Development for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 236,260 | $ | 184,376 | $ | 51,884 | ||||||
| Medical |
30,300 | 31,044 | (744 | ) | ||||||||
| Corporate |
- | - | - | |||||||||
| Total research and development |
$ | 266,560 | $ | 215,420 | $ | 51,140 | ||||||
Consolidated research and development expenses for the three months ended, June 30, 2022 and 2021, were approximately $267,000 and $215,000, respectively. The increase of approximately $51,000 is related to the Company exploring possible enhancements to the STA Single Tooth Anesthesia System product line.
Profit (Loss) from Operations for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 163,022 | $ | 524,798 | $ | (361,776 | ) | |||||
| Medical |
(1,615,283 | ) | (1,135,001 | ) | (480,282 | ) | ||||||
| Corporate |
(1,432,618 | ) | (2,262,369 | ) | 829,751 | |||||||
| Total loss from operations |
$ | (2,884,879 | ) | $ | (2,872,572 | ) | $ | (12,307 | ) | |||
The loss from operations was approximately $2.9 million for the three months ending June 30, 2022 and 2021, respectively.
Six months ended June 30, 2022 compared six months ended June 30, 2021
Net sales for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 4,303,120 | $ | 5,258,395 | $ | (955,275 | ) | |||||
| Medical |
46,150 | 92,050 | $ | (45,900 | ) | |||||||
| Total sales, net |
$ | 4,349,270 | $ | 5,350,445 | $ | (1,001,175 | ) | |||||
Consolidated revenue for the six months ended, June 30, 2022, and 2021 were approximately $4.3 million and $5.4 million, respectively. Dental revenue decreased approximately $1.0 million for the six months ending June 30, 2022 as compared to the six month ended June 30, 2021. For the six months ended June 30,2022, dental domestic revenue decreased approximately $67,000, and dental international revenue decreased approximately $216,000 compared to June 30, 2021. For the six months ended June 30, 2022 the Company revenue to China decreased approximately $672,000 compared to June 30, 2021. Medical revenue decreased approximately $46,000 for the six months ending June 30,2022 as compared to the six months ended June 30,2021.
Gross Profit for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 2,761,265 | $ | 3,117,908 | $ | (356,643 | ) | |||||
| Medical |
(398,191 | ) | 53,740 | $ | (451,931 | ) | ||||||
| Total gross profit |
$ | 2,363,074 | $ | 3,171,648 | $ | (808,574 | ) | |||||
Consolidated gross profit for each of the six months ended June 30, 2022 and 2021 decreased approximately $809,000 or 25%. The decreased is related to the Company recorded an allowance of approximately $430,000 on slow moving Medical finished goods, and reduction in dental revenue during the six months ended June 30, 2022.
Selling, general and administrative expenses 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 1,549,441 | $ | 1,280,110 | $ | 269,331 | ||||||
| Medical |
2,412,895 | 2,031,956 | 380,939 | |||||||||
| Corporate |
2,435,612 | 3,448,903 | (1,013,291 | ) | ||||||||
| Total selling, general and administrative expenses |
$ | 6,397,948 | $ | 6,760,969 | $ | (363,021 | ) | |||||
Consolidated selling, general and administrative expenses for the six months ended June 30, 2022 and 2021, were approximately $6.4 million, and $6.8 million respectively. The decrease of approximately $363,000 is categorized in several areas. Employee salaries, and benefits expenses decreased approximately $543,000 during the six months ended June 30, 2022, compared to the same period in 2021. The Company reduced director fees, accrued bonus, employee recruiting fees, and medical insurance for the six months ended June 30, 2022. During the six months ended June 30, 2022, employee travel increased approximately $208,000, warehousing, quality control, increase approximately $111,000 and marketing increased approximately $99,000 due to the Company continue efforts to commercialize the epidural and grow the dental market. The Company's professional fees, and other selling, general and administrative expenses decreased approximately $232,000 for six months ended June 30,2022.
Research and Development for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 692,776 | $ | 184,376 | $ | 508,400 | ||||||
| Medical |
38,251 | 47,488 | (9,237 | ) | ||||||||
| Corporate |
- | - | - | |||||||||
| Total research and development |
$ | 731,027 | $ | 231,864 | $ | 499,163 | ||||||
Consolidated research and development expenses for the six months ended, June 30, 2022 and 2021, were approximately $731,000 and $231,000, respectively. The increase of approximately $499,000 is related to the Company exploring possible enhancements to the STA Single Tooth Anesthesia System product line.
Profit (Loss) from Operations for 2022 and 2021 were as follows:
| 2022 |
2021 |
Change |
||||||||||
| Dental |
$ | 517,262 | $ | 1,650,831 | $ | (1,133,569 | ) | |||||
| Medical |
(2,851,374 | ) | (2,030,720 | ) | (820,654 | ) | ||||||
| Corporate |
(2,465,249 | ) | (3,477,056 | ) | 1,011,806 | |||||||
| Total loss from operations |
$ | (4,799,361 | ) | $ | (3,856,945 | ) | $ | (942,416 | ) | |||
The loss from operations was approximately $4.8 million and $3.9 million for the six months ending June 30, 2022 and 2021, respectively. The increase is related to a decrease in revenue and gross profit; the Company incurred additional freight cost due to importing delays from China, the Company recorded an allowance on slow moving Medical finished goods, and an increase in selling, general and administrative expenses as discussed above.
Liquidity and Capital Resources
On June 30, 2022 , Milestone Scientific had cash and cash equivalents of approximately $11.0 million and working capital of approximately $12.3 million versus working capital of $15.8 million on December 31, 2021. For the six months ended June 30, 2022 and 2021, we had cash flows used in operating activities of approximately $3.8 million and $2.1 million, respectively. The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. As of June 30, 2022 the Company had an accumulated deficit of $112.5 million and has incurred a net loss of approximately $2.9 million $4.8 million for the three and six months ended June 30, 2022 respectively. Management believes that Milestone Scientific will have sufficient cash reserves to meet its anticipated obligations at least the next twelve months from the filing date of this quarterly report. During the first six months ended June 30, 2022, the cash burn from operations has increased. In order to secure the Company’s cash and cash equivalent, aiming at sufficient funds for the next 12 months, management implemented a cost restructuring program to reduce the cash burn. This resulted in a reduction of the direct medical sales organization by half, whereas additional cost savings have been identified in other functional areas. The Company expects the cost savings will sort its effect during the third and fourth quarter of this year. Management believes that these measures are sufficient to take the company forward in the next 18 months.
Item 3. 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 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Milestone Scientific’s Chief Executive Officer has evaluated the effectiveness of the design and operation of Milestone Scientific’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, Milestone Scientific’s Chief Executive Officer has concluded that the disclosure controls and procedures as of June 30, 2022 are effective to ensure that information required to be disclosed in the reports Milestone Scientific files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Milestone Scientific's management, including the Chief Executive Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2022, the Company has remediated the previously identified material weakness in its internal control over financial reporting, as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, in connection with the safeguard of an indirect investment in a downstream entity of one of its direct equity method investments, by re-implementing an entity level risk assessment control and policy, which is designed to limit the Company’s risk by conducting an at least quarterly Risk Assessment process to determine if there are any indicators of risk within the Company’s controls or within the controls of its equity method investees, and issuing a risk assessment report to the Audit Committee or the Board of Directors, as needed, in accordance with the Company’s entity-level risk assessment policies.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Milestone Scientific is not involved in any material litigation.
Item 1A. Risk Factors
The COVID-19 pandemic has and may continue to adversely affect the Company’s business. Additional factors could exacerbate such negative consequences and/or cause other materially adverse effects.
The COVID-19 pandemic did materially adversely affect the Company’s financial results and business operations in the Company’s six months ended June 30, 2022 , while economic and health conditions in the United States and across most of the globe have continued to change rapidly due to the Omicron variant since the end of 2021. In the short-term, demand for the Company’s dental products is showing an increase in sell through activity to dental offices. However the change in demand may or may not continue and/or demand may or may not increase from historical levels depending on the duration and severity of the COVID-19 pandemic, the effectiveness of the ongoing vaccination process, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. Such events may result in business and manufacturing disruption, inventory shortages, delivery delays, and reduced sales and operations, any of which could materially affect our business, financial condition, and results of operations.
The ability of the Company’s employees to work may be significantly impacted by the Coronavirus.
The Company’s employees are being affected by the COVID-19 pandemic. From time to time, we have had employees working in the office, depending on the local positivity rate of COVID-19. As a result of the Omicron variant, beginning in December 2021, most of our office and management personnel were working remotely. As of March 15, 2022, the employees returned in full to the office. The health of the Company’s workforce is of primary concern and the Company may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus. Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic. If these conditions worsen, or last for an extended period of time, the Company’s ability to manage its business may be impaired, and operational risks, cybersecurity risks and other risks facing the Company even prior to the pandemic may be elevated
The COVID-19 pandemic is affecting the Company’s customers, suppliers, vendors, and other business partners, but the Company is not able to assess the full extent of the current impact nor predict the ultimate consequences that will result therefrom.
The full effects of the COVID-19 pandemic are highly uncertain and cannot be predicted.
The COVID-19 pandemic affected the Company’s operations during the six months ended June 30, 2022 and may continue to do so for an indeterminable period thereafter. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, manufacturing, distribution, marketing, sales operations, customer, and consumer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.
Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three and six month period ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year. Management cannot predict the continued impact of the COVID-19 pandemic on the Company’s sales channels, supply chain, manufacturing, and distribution nor to economic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.
Our business and operations would suffer in the event of cybersecurity or other system failures.
Despite the implementation of security measures, our internal computer systems and those of any third parties with which we partner are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any cybersecurity or system failure, accident or breach to date, if an event were to occur, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure, if possible, and potentially violation of HIPAA and other privacy laws applicable to our operations. If any disruption or security breach resulted in a loss of or damage to our data or applications or inappropriate disclosure of confidential or protected information, we could incur liability, further development of our products could be delayed, and our operations could be disrupted, any of which could severely harm our business and financial condition.
Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.
In general, our success depends upon the quality of our products. Quality management plays an essential role in meeting customer requirements, preventing defects, improving our products and services, and assuring the safety and efficacy of our products. Our future success depends on our ability to maintain and continuously improve our quality management program. A quality or safety issue may result in adverse inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products.
Item 2. Unregistered Sales of Equity Securities and use of proceeds
Not applicable.
Item 3. Default upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
The Company has entered into an Employment Agreement (the “Agreement”) with Arjan Haverhals, its President and Chief Executive Officer, effective as of January 1, 2022 and ending on December 31, 2024, unless extended by the parties or terminated earlier pursuant to the terms thereof. Under the terms of the Agreement, Mr. Haverhals is entitled to receive a base salary of $350,000 per year. Mr. Haverhals is also entitled to receive an annual incentive bonus of up to $400,000 per year, comprised of (i) three separate performance-based bonuses, each up to $100,000 per year, based upon the Company’s achievement of three performance or financial goals, as established by the Company’s Compensation Committee, and (ii) a discretionary bonus up to $100,000, as determined by the Compensation Committee in its sole discretion. In addition, Mr. Haverhals is entitled to a car allowance in the amount of $1,200 per month (the “Car Payments”).
Any bonus compensation will be paid 33% in cash and 67% in shares of the Company’s Common Stock. With respect to any bonus compensation that is payable in shares of Common Stock (“Bonus Shares”), Mr. Haverhals shall also be entitled to receive stock options to acquire twice the number of Bonus Shares earned pursuant to a non-qualified stock option grant agreement under the Company’s Amended and Restated 2020 Equity Compensation Plan (the “Plan”), which shall provide for a five-year term and shall vest in three equal annual installments on each of the first, second and third anniversary of the grant date, subject to continued employment on such vesting date (“Bonus Options”). The exercise price of the Bonus Options shall be the fair market value of a share of Common Stock on the date of grant, subject to adjustment as provided for in the Plan.
Upon termination of Mr. Haverhals’ employment due to a Termination Other Than for Cause (as that term is defined in the Agreement) or if Mr. Haverhals terminates his employment for Good Reason (as that term is defined in the Agreement), Mr. Haverhals will be entitled to continued payment, for six months, of his base salary plus the Car Payments, and continued provision of the his health benefits. In addition, all of Mr. Haverhals unvested Bonus Options and the unvested portion of any Bonus Compensation shall automatically vest in full.
In connection with the Agreement, Mr. Haverhals also entered into a Covenant Agreement with the Company, where he has agreed, among other things, to abide by customary non-solicit and non-compete provisions for a period of 36 months and 12 months, respectively, following the termination of his employment with the Company.
Item 6. Exhibits and Financial Statement Schedules
| Exhibit No |
Description |
|
| 10.1 | Employment Agreement effective as f January 1, 2022 between Arjan Haverhals and Milestone Scientific Inc. | |
| 31.1 |
||
| 32.1 |
||
| 101.INS |
Inline XBRL Instance Document* |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document* |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document* |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document* |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
Filed herewith. |
| ** |
Furnished herewith and not filed, in accordance with item 601(32) (ii) of Regulation S-K. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MILESTONE SCIENTIFIC INC. |
||
| /s/ Arjan Haverhals |
||
| Arjan Haverhals |
||
| Chief Executive Officer |
||
| Principal Financial Officer |
||
| Date: August 15, 2022 |
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this “Agreement”) dated as of January 1 2022 between ARJAN HAVERHALS (the “Executive”) and MILESTONE SCIENTIFIC INC. (the “Company”).
WHEREAS, the Executive is currently the President and Chief Executive Officer of the Company; and
WHEREAS, the parties desire, by this Agreement, to set forth the terms and conditions of the employment relationship between the Company and the Executive.
NOW, THEREFORE, in consideration of the premises and covenants herein contained, the parties hereto agree as follows:
1. Employment Term. Subject to the terms and conditions hereof, the Company hereby employs the Executive and the Executive hereby accepts such employment for the three-year period (the “Employment Term”) commencing January 1, 2022 (the “Effective Date”) and ending December 31 2024, unless the Employment Term is extended by mutual written agreement of the parties or terminated pursuant to Section 6 hereof.
2. Duties and Responsibilities; Board Observer.
(a) Duties and Responsibilities. During the Employment Term, the Executive shall serve as the President and Chief Executive Officer of the Company and such other senior executive positions consistent therewith as the Company’s Board of Directors (the “Board”) may determine. The Executive shall perform from time to time such services as are customary for a president and chief executive officer of a company such as the Company and other duties and services as the Board of Directors may reasonably request. Subject to the foregoing, the Executive shall report to, and be subject to, the direction of the Board. The Executive agrees to devote his entire business time and attention the business and affairs of the Company and to use his reasonable best efforts to perform faithfully and efficiently the duties and responsibilities of his positions and to accomplish the goals and objectives of the Company as may be established by the Board. Notwithstanding the foregoing, the Executive may engage in the following activities (and shall be entitled to retain all economic benefits thereof including fees paid in connection therewith) as long as they do not interfere in any respect with the performance of the Executive’s duties and responsibilities hereunder and, with respect to item (i) below, that such activity is pre-approved by the Board: (i) serve on corporate, civic, religious, educational and/or charitable boards or committees, provided that the Executive shall not serve on any board or committee of any corporation or other business which competes with the Company’s business; and (ii) make investments in businesses or enterprises and manage his personal investments; provided that with respect to such activities the Executive shall comply with any business conduct and ethics policy, including, but not limited to, the Company’s Insider Trading Policy, applicable to employees of the Company.
(b) Board Observer. During the Employment Term, the Executive shall be invited to attend all meetings of the Board of Directors as a non-voting observer; provided, however, in the sole discretion of the Chairman of the Board, the Executive shall be excused from portions of meeting and, further provided, that the Executive shall not be entitled to attend executive sessions of the Board among the independent members of the Board.
3. Compensation.
(a) Base Compensation. In payment for services to be rendered by the Executive hereunder, the Executive shall be entitled to base compensation, payable in cash, less any withholding required by law, at the rate of $350,000 per annum, payable in accordance with the Company’s normal payroll policy as in effect from time to time during the Employment Term (“Base Compensation”).
(b) Bonus. For each calendar year during the Employment Term, the Executive shall be entitled to receive an annual aggregate incentive bonus of up to $400,000 per year, comprised of (i) three (3) separate performance-based bonuses, each up to $100,000 per year, based upon the Company’s achievement of three (3) performance or financial goals, as established by the Compensation Committee in its reasonable discretion; and (ii) a discretionary bonus up to $100,000, as determined by the Compensation Committee, in its sole discretion (the “Bonus Compensation”). Amounts and goals or targets for partial calendar years will be pro rated. Satisfaction of bonus goals will be determined by the Compensation Committee from time to time in its reasonable discretion. In the event that (A) the Company does not achieve one or more of the specific bonus goals established by the Compensation Committee in full, the Committee will give consideration to a pro rata or lesser bonus amount, and (B) in the event that the Company exceeds one or more of the specific bonus goals established by the Compensation Committee, the Committee will give consideration to a discretionary bonus amount, in each case based on the value to the Company of the actions taken by or the milestones not achieved and the milestones exceeded by the Executive, as applicable; however, it being understood that any such pro rata/lesser bonus or discretionary bonus for exceeding any specific bonus goal shall be in the Compensation Committee’s sole discretion and the Compensation Committee shall be under no obligation to approve any such bonus to the Executive.
EXECUTIVE UNDERSTANDS THAT EXECUTIVE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF HIS RECEIPT OR DISPOSITION OF THE SHARES. EXECUTIVE REPRESENTS (a) THAT EXECUTIVE HAS CONSULTED WITH ANY TAX ADVISER THAT EXECUTIVE DEEMS ADVISABLE IN CONNECTION WITH THE RECEIPT OR DISPOSITION OF THE SHARES AND (b) THAT EXECUTIVE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
Bonus compensation, if any, shall be payable annually in arrears thirty-three percent (33%) in cash and sixty-seven percent (67%) in shares of the Company’s common stock (“Common Stock”) valued at the average closing price of the Common Stock on the NYSE American stock exchange, or such other market or exchange on which such shares are then traded, during the period of each calendar year during the Employment Term in accordance with the then practice of the Company for valuing bonus compensation for senior executives, or if the Company has no such practice, then during the first fifteen (15) trading days of December of each calendar year during the Employment Term. With respect to any Bonus Compensation earned hereunder that is payable in cash, such cash amount shall be determined and paid on or before March 31 of the following year. With respect to any Bonus Compensation earned hereunder that is payable in shares of Common Stock (“Bonus Shares”), in addition to such Bonus Shares, the Executive shall be entitled to receive stock options to acquire twice the number of Bonus Shares earned pursuant to a non-qualified stock option grant agreement under the Company’s Amended and Restated 2020 Equity Compensation Plan, or such successor plan in effect at such time (the “Plan”) in the Company’s standard form, which shall provide for a five-year term and shall vest in three equal annual installments on each of the first, second and third anniversary of the grant date, subject to continued employment on such vesting date (“Bonus Options”). The exercise price of the Bonus Options shall be the fair market value of a share of Common Stock on the date of grant (or 110% of such value if at the time of grant the Executive beneficially own ten (10%) or more of the Common Stock), subject to adjustment as provided for in the Plan. Any Bonus Shares earned by Executive hereunder in any calendar year during the Employment Term shall be issued to the Executive, or his estate, if applicable, within the number of days after cessation of employment of Executive for any reason in accordance with the then practice of the Company for issuing bonus shares to senior executive upon cessation of their employment, or if the Company has no such practice, then within ninety (90) days after the cessation of employment of Executive for any reason.
(c) Restricted Securities. The Executive acknowledges that all shares of Common Stock issuable to him hereunder shall be acquired for investment purposes and not for distribution thereof and will not be sold or otherwise disposed of in violation of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(d) Section 409A of the Code. Notwithstanding anything herein to the contrary, if any payment of money or other benefits due to the Executive hereunder could cause the application of an accelerated or additional tax or penalty under Section 409A of the Internal Revenue Code (the “Code”), such payment or other benefits will be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code (for instance, if the Executive is a “specified employee” within the meaning of Section 409A of the Code and the Executive receives a payment or benefit constituting deferred compensation hereunder at or a specified time following a separation from service, such payment or benefit shall not be delivered to the Executive until the earlier of the Executive’s death or six months and one day following the Executive’s separation from service), or otherwise any such payment or other benefits that would not be in compliance with Section 409A of the Code so as to avoid accelerated or additional taxation or penalties thereunder will be restructured but not reduced, to the extent possible, in a manner, reasonably determined by the Company, that does not cause such an accelerated or additional tax or penalty. This Agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly and will be automatically modified to the extent necessary to so comply. With regard to any payment or benefit that constitutes a deferral of compensation subject to Section 409A of the Code, references under this Agreement to the Executive’s termination of employment shall be deemed to refer to the date upon which the Executive has experienced a “separation from service” within the meaning of Section 409A of the Code. Each payment made under this Agreement constitutes a “separate payment” for purposes of Section 409A of the Code. It is intended that each such separate payment under Paragraph 3(b), to the maximum extent possible, be deemed to constitute a short-term deferral under Treasury Regulation §1.409A-1(b)(4) and, to the extent not excluded as a short-term deferral, to the maximum extent possible and applying this rule to the earliest in time of such payments, be deemed to constitute amounts payable under the “two-years/two-times” exclusion from being a deferral of compensation under Treasury Regulation § 1.409A-1(b)(9)(iii). To the extent any reimbursements or in-kind benefits due to the Executive under this Agreement constitute “deferred compensation” under Section 409A of the Code, any such reimbursement or in-kind benefits shall be paid to the Executive in a manner consistent with Treasury Regulation § 1.409A-3(i)(1)(iv). The foregoing and other provisions of this Agreement notwithstanding, the Executive will be responsible for all taxes (including excise taxes and tax penalties) owed by the Executive relating to the Executive’s compensation hereunder or otherwise paid by the Company or any of its affiliates, and the Company and its affiliates shall not and does not indemnify the Executive for any such taxes owed by him.
4. Expenses; Relocation.
(a) Business Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. Air travel for executives and employees is generally in economy class, though from time to time based on circumstances exceptions may be made to business class. All business travel, including hotel arrangements, must be made through the Company. Every effort will be made by the Company to accommodate the Executive’s requested airlines, date, time of travel and hotel selection.
(b) Relocation Expenses. The Company will reimburse the Executive for his moving expenses to relocate to New Jersey, based on at least two (2) competitive estimates from reputable moving companies, including two (2) round trip airline tickets (based on the lowest cost available, other than basic economy) for the Executive and his wife for house hunting purposes.
5. Other Benefits. The Executive shall be entitled to the following additional benefits:
(a) four weeks of paid vacation during each year of the Employment Term, which vacation time will accrue during the term of the Executive’s employment in accordance with the Company’s PTO policy, as set forth in the Employee Handbook, from time to time, but subject to the satisfaction of the needs and requirements of the Company, without roll-over;
(b) paid holidays and personal days in accordance with the Company’s standard policies applicable to its full time employees;
(c) the Executive and his eligible dependents shall have the right to participate in any retirement plans (qualified and non-qualified), pension, insurance, health, disability or other benefit plan or program that has been or is hereafter adopted by the Company (or in which the Company participates), according to the terms of such plan or program, on terms no less favorable than the most favorable terms granted to senior executives of the Company; provided, that the health insurance contribution of the Company shall be up to $2,500 per month and the cost of such coverage in excess of such amount shall be available at the Executive’s expense. The Company reserves the right to change, terminate and rescind any of its benefit plans and programs, alter employee contribution levels or replace any of such plans or programs at its discretion; and
(d) a car allowance in the amount of $1,200 per month (the “Car Payments”).
6. Termination.
(a) Disability. The Company shall have the right to terminate the employment of the Executive under this Agreement for disability in the event the Executive suffers an injury, or physical or mental illness or incapacity of such character as to substantially disable him from performing his duties hereunder for a period of more than ninety (90) consecutive days upon the Company giving at least thirty (30) days written notice of termination; provided, however, that (i) through the effective date of such termination, the Executive shall be entitled to receipt of his compensation as provided for in the Agreement, and (ii) if the Executive is eligible to receive disability payments pursuant to a disability insurance policy paid for by the Company, the Executive shall assign such benefits to the Company for all periods as to which he is receiving payment under this Agreement.
(b) Death. This Agreement shall terminate upon the death of the Executive.
(c) Termination by the Company.
(i) Termination For Cause. The Company may terminate the Term and the employment of Executive hereunder at any time for Cause (as hereinafter defined) (such termination being referred to herein as a “Termination for Cause”) by giving Executive written notice of such termination, effective immediately upon the giving of such notice to Executive, subject to any required cure periods. As used in this Agreement, unless otherwise mutually agreed by Executive and the Company in writing referencing this Agreement, “Cause” shall mean any of the following: (A) the indictment of or plea of guilty or no contest by the Executive to (I) a felony (other than driving related offenses which do not impair the Executive’s ability to perform his duties hereunder) or other serious crime involving dishonesty, fraud, moral turpitude or unethical business conduct, or a violation of such rules and regulations of the Securities and Exchange Commission as may result in criminal action or material fines against the Company; (ii) materially breaches any term of this Agreement or (II) theft, embezzlement, obtaining funds or property under false pretenses; (B) any material and intentional violation or breach of this Agreement or any written and lawful required (but excluding aspirational or expectational) Company policy furnished or otherwise made available to the Executive; provided, that if any matter dealt with in such policies is in conflict with the provisions of this Agreement, the provisions in this Agreement shall control; or (C) intentional or repeated disregard by Executive of a lawful directive given to Executive by the Board or the willful and persistent failure or refusal by Executive to perform Executive’s material duties to the Company or its subsidiaries under this Agreement, in each case other than by reason of Executive’s physical or mental illness or impairment or any such disregard, failure or refusal after a notice of termination for Good Reason by Executive or notice of termination without Cause by the Board. No Cause shall exist unless the Board has, within ninety (90) days of becoming aware of such alleged conduct, event or circumstance, provided Executive with written notice describing the particular circumstances giving rise to Cause, and has provided Executive the opportunity to cure, to the extent reasonably susceptible to cure, such circumstances within thirty (30) days after receiving such notice. If Executive so effects a cure to the satisfaction of the Board, the notice of Cause shall be deemed rescinded and of no force or effect. If, following Executive’s termination of employment hereunder for other than Cause, it is determined in good faith by the Board that Executive’s employment could have been terminated for Cause for the reasons set forth in clause (A)(I) of this Section 6(c)(i) or clause (A)(II) of this Section 6(c)(i), in each case to the extent that such conduct involves or relates to the Company and occurs prior to such termination, Executive’s employment shall be deemed to have been terminated for Cause retroactively to the date of termination.
(ii) Termination Other Than for Cause. The Company may terminate the Term and the employment of the Executive hereunder at any time other than for Cause or Disability (such termination shall be defined as a “Termination Other Than for Cause”) by giving the Executive written notice of such termination, which notice shall be effective thirty (30) days after the giving of such notice or such later date set forth therein; provided, that the Company’s obligations to Executive under this Agreement shall be as set forth in Section 7(c) hereof.
(d) Termination by Executive. If at any time during the Term, the Executive elects to terminate the Term and his employment with the Company other than for “Good Reason” (as defined below), then the Company’s obligations to the Executive under this Agreement shall be as set forth in Section 7(d) hereof. If the Executive elects to terminate the Term and his employment with the Company for Good Reason, then the Company shall pay the Executive the amounts set forth in Section 7(c) hereof. As used herein, unless otherwise mutually agreed by the Executive and the Company in writing referencing this Agreement, “Good Reason” shall mean (i) a material diminution in duties or responsibilities or material change in his reporting obligations or titles as provided of in this Agreement, other than a change in the Executive’s duties or responsibilities in accordance with Section 2(a) or that results from becoming part of a larger organization following a Change in Control; (ii) a material reduction in the amount of the Executive’s Base Compensation, other than in connection with an “across-the-board” reduction for all senior executives; (iii) the failure to pay when due Base Salary or incentive compensation; (iv) a violation or breach by the Company of any of its other material obligations contained in this Agreement; provided, that Good Reason shall not occur unless the Executive shall have (A) given a detailed written notice to the Company of any fact or circumstance believed by the Executive to constitute Good Reason within ninety (90) days of the occurrence of such fact or circumstance, (B) given the Company thirty (30) days therefrom to cure, to the extent reasonably susceptible to cure, such fact or circumstance and the Company shall have failed to so cure (it being understood that if the Company cures the fact or circumstance giving rise to Good Reason, the notice of Good Reason shall be deemed rescinded and of no force or effect), and (C) the Executive in fact resigns his employment within ninety (90) days from the date that such circumstance first occurs. For purposes of this Agreement, “Good Reason” shall be interpreted in a manner, and limited to the extent necessary, so that it shall not cause, to the extent possible, adverse tax consequences for either party with respect to Section 409A of the Code and any successor statute, regulation and guidance thereto.
7. Effect of Termination.
(a) Upon the termination of the Term and Executive’s employment hereunder due to a Termination for Cause (as defined in Section 6(a) above), neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company, except the right to receive (i) the Executive’s earned but unpaid Base Compensation and accrued but unused and outstanding vacation, as provided in Section 3, through the termination date, (ii) reimbursement for any reimbursable expenses for which the Executive shall not have been reimbursed as provided in Section 4(a) and which were incurred prior to the termination date and (iii) all vested benefits under employee benefit programs of the Company to which it or the Executive contributes or participates (the amounts described in clauses (i) through (iii) hereof being referred to as the “Accrued Benefits”).
(b) Upon the termination of the Term and the Executive’s employment hereunder due to death or Disability, neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company except the right to receive (i) the Accrued Benefits, (ii) any earned but unpaid Bonus Compensation from the prior fiscal year, payable in accordance with the Company’s standard payroll practices and on the date that such bonus would otherwise be payable hereunder, and (iii) payment of any Bonus Compensation with respect to the then-current fiscal year based on actual performance and pro-rated based on the number of completed months the Executive was employed with the Company in such fiscal year through the date of termination, payable in accordance with the Company’s standard payroll practices and on the date that such bonus would otherwise be payable hereunder.
(c) Upon the termination of the Term and the Executive’s employment due to a Termination Other Than for Cause or a termination of the Executive’s employment by Executive for Good Reason, neither the Executive nor his beneficiary nor his estate shall have any rights or claims against the Company except the right to receive (i) the Accrued Benefits, (ii) any earned but unpaid Bonus Compensation from the prior fiscal year, payable in accordance with the Company’s standard payroll practices and on the date that such bonus would otherwise be payable hereunder, (iii) payment of any Bonus Compensation with respect to the then-current fiscal year based on actual performance and pro-rated based on the number of completed months the Executive was employed with the Company in such fiscal year through the date of termination or resignation, as applicable, payable in accordance with the Company’s standard payroll practices and on the date that such bonus would otherwise be payable hereunder, (iv) accelerated vesting in full of all unvested Bonus Options held by the Executive as of the date of termination and the unvested portion of any Bonus Compensation deferred pursuant to the terms hereof or the applicable plan and the Executive’s elections thereunder, if any, and (v) continued payment, for six (6) months (the “Severance Period”), of (A) Executive’s Base Compensation, in accordance with the Company’s standard payroll practices and subject to applicable withholding taxes, plus (B) the Car Payments, and (C) continued provision of the benefits with respect to health, vision and dental pursuant to and to the extent required by Section 5(c) herein ((iv) and (v), collectively, “Severance”).
(d) Upon the termination of the Term and the Executive’s employment by the Executive (other than for Good Reason or death or Disability), neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company, except the right to receive the Accrued Benefits.
(e) Notwithstanding anything to the contrary in this Agreement, payment of Severance shall be subject to and conditioned on (i) the Executive’s resignation from any positions the Executive may hold by virtue of his employment with the Company, (ii) the Executive delivering to the Company an executed copy of a release in form and substance satisfactory to the Company (the “Release”), within thirty-five (35) days following the Executive’s termination of employment (the “Release Period”) and such release becoming effective, enforceable and irrevocable in accordance with its terms, (iii) the Executive’s continued compliance with the Company’s Employee Proprietary Information, Invention and Non-Solicitation Agreement, provided, that in the event of a claimed breach under this clause (iii), the Company shall provide the Executive with notice and five (5) days to cure such breach, to the extent reasonably susceptible to cure, and (iv) Executive’s continued compliance with Covenant Agreement, subject to any right to notice and cure as provided in the Covenant Agreement. It is understood and agreed that the Executive’s right to payment called for by Section 6(c) shall be unaffected by any other compensation he might receive from outside sources during the period of the payments called for by such Section. If the Release Period spans two (2) calendar years (that is, includes December 31 of one year and the next day (January 1) of the first day of next year), then payments that would otherwise have been made prior to the end of the Release Period will be made, after the release becomes irrevocable, in lump sum on the first payroll date that occurs in the next calendar year.
(f) Upon the expiration of this Agreement, neither the Executive nor his beneficiary or estate shall have any further rights or claims against the Company, except the right to receive (i) the Accrued Benefits, and (ii) any earned but unpaid Bonus Compensation from such fiscal year, payable in accordance with the Company’s standard payroll practices and on the date that such bonus would otherwise be payable hereunder.
(g) The Executive shall not be required to seek other employment or otherwise to mitigate the Executive’s damages on or after the Executive’s date of termination, and the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation or benefits received by Executive from outside sources.
(h) Notwithstanding anything to the contrary in the foregoing, the Executive shall continue to have any rights (i) in the nature of indemnification which the Executive may have with respect to claims against the Executive relating to or arising out of his employment with the Company, any benefit to which the Executive is entitled under any tax qualified pension plan of the Company, COBRA continuation coverage benefits or any other similar benefits required to be provided by statute, (ii) in respect of the shares or other securities or options to purchase shares or other securities of the Company owned or held by the Executive as of the date of termination, in all cases in accordance with the terms of the plan, agreement or arrangement governing such rights, it being the intention and agreement of the Company that whether Executive shall be deprived or be entitled to retain by reason of any termination of employment any payments, options or benefits which have been vested or have been earned or to which Executive is entitled as of the effective date of such termination shall be governed by the terms of payment, grant or benefits or written agreement between the Company and Executive, and (iii) any rights to COBRA or any other statutorily required rights. For the avoidance of doubt, for purposes of determining the amount of any Base Compensation, Bonus Compensation or other payments, the vesting of any grant or benefit, or the calculation of any other amount under this Agreement or otherwise, the Severance Period shall not be included.
8. Representations and Covenants of the Executive.
(a) The Executive represents and warrants that he has the full right and authority to enter into this Agreement and fully perform his obligations hereunder, that he is not subject to any non-competition agreement that limits or restricts his ability to perform the services provided for in this Agreement, and that his past, present and anticipated future activities have not and will not infringe on the proprietary rights of others. The Executive further represents and warrants that he is not obligated under any contract (including, but not limited to, licenses, covenants or commitments of any nature) or other agreement or subject to any judgment, decree or order of any court or administrative agency which would conflict with his obligation to use his best efforts to perform his duties hereunder or which would conflict with the Company’s business and operations as presently conducted or proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business as officer and employee by the Executive will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract, covenant or instrument to which the Executive is currently a party.
(b) Simultaneous with the execution of this Agreement, the Executive and the Company shall enter into the Covenant Agreement in the form of Exhibit A to this Agreement. The Executive agrees and acknowledges that the execution and delivery of the Covenant Agreement is a material inducement to the Company to enter into this Agreement.
9. Miscellaneous.
(a) (a) Integration; Amendment. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters set forth herein and supersedes and renders of no force and effect all prior understandings and agreements between the parties with respect to the matters set forth herein. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is contrary to, prohibited by, or deemed invalid under applicable law or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited, or invalid, but the remainder of this Agreement shall not be invalid and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to require performance by the other party of any provision of this Agreement, even if known, shall not affect the right of such party to require performance of that provision or to exercise any right, power, or remedy hereunder, and any waiver by any party of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right, power, or remedy under this Agreement. No notice to or demand on any party in any case shall, of itself, entitle such party to other or further notice or demand in similar or other circumstances.
(d) Power and Authority. The Company represents and warrants to the Executive that it has the requisite corporate power to enter into this Agreement and perform the terms hereof; that the execution, delivery and performance of this Agreement by it has been duly authorized by all appropriate corporate action; and that this Agreement represents the valid and legally binding obligation of the Company and is enforceable against it in accordance with its terms.
(e) Burden and Benefit. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, personal and legal representatives, successors and assigns.
(f) Governing Law; Headings. This Agreement and its construction, performance, and enforceability shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its conflict of laws principles. Headings and titles herein are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.
(g) Arbitration; Remedies. Any dispute or controversy arising under this Agreement or as a result of or in connection with Executive’s employment (other than disputes arising under the Covenant Agreement) shall be arbitrated and settled pursuant to the National Rules for the Resolution of Employment Disputes of the American Arbitration Association which are then in effect in a proceeding held in New York, New York. This provision shall also apply to any and all claims that may be brought under any federal or state anti-discrimination or employment statute, rule or regulation, including, but not limited to, claims under: the National Labor Relations Act; Title VII of the Civil Rights Act; Sections 1981 through 1988 of Title 42 of the United States Code; the Employee Retirement Income Security Act; the Immigration Reform and Control Act; the Americans With Disabilities Act; the Age Discrimination in Employment Act; the Fair Labor Standards Act; the Occupational Safety and Health Act; the Family and Medical Leave Act; and the Equal Pay Act. The decision of the arbitrator and award, if any, is final and binding on the parties and the judgment may be entered in any court having jurisdiction thereof. The parties will agree upon an arbitrator from the list of labor arbitrators supplied by the American Arbitration Association. The parties understand and agree, however, that disputes arising under the Covenant his Agreement may be brought in a court of law or equity without submission to arbitration.
(h) Jurisdiction. Except as otherwise provided for herein, each of the parties (a) submits to the exclusive jurisdiction of any state court sitting in New York, New York or federal court sitting in New York County in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of the action or proceeding may be heard and determined in any such court, (c) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court and (d) waives any right such party may have to a trial by jury with respect to any action or proceeding arising out of or relating to this Agreement. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto. Any party may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for giving of notices in Section 9(i). Nothing in this Section, however, shall affect the right of any party to serve legal process in any other manner permitted by law.
(i) Notices. All notices called for under this Agreement shall be in writing and shall be deemed given upon receipt if delivered personally or by confirmed facsimile transmission and followed promptly by mail, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at their respective addresses (or at such other address for a party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof) set forth below, or to any other address or addressee as any party entitled to receive notice under this Agreement shall designate, from time to time, to others in the manner provided in this subsection 9(i) for the service of notices.
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If to the Company:
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addressed to: |
Milestone Scientific Inc. 425 Eagle Rock Avenue Suite 403 Roseland, New Jersey 07068 Attn.: Chairman of the Board Email: LBernhard@milestonescientific.com |
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with a copy to: |
Golenbock Eiseman Assor Bell & Peskoe LLP 711 Third Avenue New York, New York 10017 Attn.: Lawrence M Bell, Esq. Email: LBell@golenbock.com |
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If to the Executive: |
Mr. Arjan Haverhals 41 Hidden Court North Andover, Massachusetts 01845 Email: arjan.haverhals@gmail.com |
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with a copy to: |
Elizabeth Haverhals Email: elizabethjan.1975@gmail.com |
(j) Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or such holiday.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first written above written.
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The Company:
MILESTONE SCIENTIFIC INC. |
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By: |
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| The Executive: | |||
| Arjan Haverhals | |||
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
Exhibit A
AGREEMENT
This COVENANT AGREEMENT (the “Agreement”), dated and effective as of January 1, 2022, is made by and between MILESTONE SCIENTIFIC INC., a Delaware corporation (together with its successors and affiliates, the “Company”) and ARJAN HAVERHALS (the “Executive”). This Agreement is entered into pursuant to the Employment Agreement, dated January 1, 2022, between the Company and Executive regarding Executive’s employment with the Company (as amended from time to time, the “Employment Agreement”). As used herein, the term “Company” shall include the Company and its direct and indirect subsidiaries. Other capitalized terms used but not defined in this Agreement have the meanings ascribed to them on Annex 1 attached hereto.
1. Nondisclosure of Proprietary Information.
(a) Except in connection with the faithful performance of the Executive’s duties under the Employment Agreement and as provided herein, the Executive shall, in perpetuity, maintain in confidence and shall not directly, indirectly or otherwise, use, disseminate, disclose or publish, or use for the Executive’s benefit or the benefit of any person, firm, corporation or other entity any Proprietary Information or deliver to any person, firm, corporation or other entity any document, record, notebook, computer program or similar repository of or containing any such Proprietary Information. The parties hereby stipulate and agree that as between them the Proprietary Information is important, material and affects the successful conduct of the businesses of the Company (and of any successor or assignee of the Company). The Executive acknowledges and agrees that these steps to maintain the confidentiality of its Proprietary Information are reasonable and that it is reasonable and necessary for the Company to take such steps.
(b) Upon termination of the Executive’s employment with the Company for any reason, the Executive will promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, computer disk drives, flash drives, disks, or any other materials consisting of, including or relating to Proprietary Information in his possession.
(c) Notwithstanding the foregoing, the Executive may respond to a lawful and valid subpoena or other legal or administrative process but: (i) shall give the Company the earliest practicable notice thereof, (ii) shall, as much in advance of the return date as practicable, make available to the Company and its counsel the documents and other information sought and (iii) shall assist such counsel at the Company’s expense in resisting or otherwise responding to such process.
(d) Nothing in this Agreement shall prohibit the Executive from (i) disclosing information and documents when required by law, subpoena, court or administrative order (subject to the requirements of Section 1(c) above), (ii) disclosing information and documents related to his own personal benefits, entitlements and obligations in confidence to his attorney or tax or financial adviser for the purpose of securing legal or tax advice, (iii) disclosing the post-employment restrictions in this Agreement in confidence to any potential new employer, (iv) reporting possible violations of federal law or regulations to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulations, or (v) retaining, at any time, his personal correspondence, his personal rolodex and documents related to his own personal benefits, entitlements and obligations.
1 NTD: Has Arjan already signed an Employee Proprietary Information, Inventions and Non-Solicitation Agreement? See Sec. 6 of his Letter Agreement.
2. Non-Solicitation; Non-Compete; Non-Disparagement.
(a) At any time during the term of his employment with the Company (the “Employment Period”) and for a period of thirty-six (36) months immediately following the end of the Employment Period, the Executive shall not, directly or indirectly, either for himself or on behalf of any other person, firm, corporation or other entity, (i) recruit or otherwise solicit, encourage or induce any employee, client, customer or investor of any Company Party to terminate such person or entity’s employment or other arrangement with a Company Party, or otherwise to change such person or entity’s relationship with a Company Party, (ii) hire or offer to employ or retain or offer to retain as a consultant or advisor or in any other capacity (or cause or influence any other person or entity to hire or offer to employ or retain or offer to retain as a consultant or advisor or in any other capacity) any person who was employed by the Company in a similar capacity as such person is employed by the Company in a manner which would deprive the Company of the services of such person or (iii) cause or seek to cause any client or customer of, or investor in, any Company Party to become a client or customer of, or investor in, any business or activity that competes with the Business and in which the Executive becomes engaged (directly or indirectly) or otherwise has a financial interest.
(b) At any time during the Employment Period and for a period of twelve (12) months immediately following the end of the Employment Period, the Executive shall not, directly or indirectly, either for himself or on behalf of any other person, firm, corporation or other entity, shall not, directly or indirectly; (i) in any manner, engage in any business which competes with any business conducted by the Company (including any subsidiary) and will not directly or indirectly own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with any corporation, firm or business that is so engaged (provided, however, that nothing herein shall prohibit the Executive from owning not more than three percent (3%) of the outstanding stock of any publicly held corporation).
(c) The Executive agrees not to make any disparaging remarks about any Company Party, or any of their practices, or any Company Party’s directors, managers, officers, equity holders or trustees either orally or in writing, at any time.
3. Inventions and Other Works. During the Employment Period, the Executive may either alone or with others, author, create, conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, or assist in the authoring, creation, conception, development or reduction to practice of documents, materials, designs, drawings, processes, Proprietary Information and other works which relate to the Business or are otherwise capable of being used by the Company (“Works”). The Executive agrees that any and all Works and the related intellectual property and other rights in those Works including, without limitation, inventions, patents, copyrights, mask works, design rights, database rights, trademarks, service marks, internet rights/domain names, trade secrets and know-how (whether registered or unregistered and including any applications or rights to apply) subsisting anywhere in the world in any and all media now existing or hereafter created (collectively, “Works IP Rights”) will belong solely to and be the absolute property of the Company. The Executive agrees that all original works of authorship which are made by the Executive (solely or jointly with others) within the scope of and during the period of his employment with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act. The Executive hereby assigns with full title guarantee to the Company by way of present assignment of all Works IP Rights, all intellectual property rights in the Works. The Executive hereby irrevocably and unconditionally waives any moral rights which he may have in any Works. The Executive shall immediately disclose to the Company all Works and all Works IP Rights, and shall immediately on request by the Company (whether during or after the termination of his Employment Period) and at the expense of the Company execute all instruments and do all things necessary for vesting in the Company (or such other person as the Company may designate) all right, title and interest to and in the Works and Works IP Rights and as otherwise necessary for giving to the Company the full benefit of this clause. Notwithstanding the foregoing, Works and Works IP Rights does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive’s own time, unless (a) the invention relates (i) to the Business, or (ii) to the Company’s actual or demonstrably anticipated research or development, or (b) the invention results from any work performed by the Executive for the Company.
4. Patent and Copyright Registrations. The Executive agrees to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. The Executive further agrees that his obligation to execute or cause to be executed, when it is in his power to do so, any such instrument or papers shall continue after the termination of this Agreement.
5. Injunctive Relief. It is recognized and acknowledged by the Executive that a breach of one or more of the covenants contained in Sections 1 and 2 may cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach may be inadequate. Accordingly, the Executive agrees that in the event of a breach or threatened breach of any of the covenants contained in Sections 1 or 2, in addition to any other remedy which may be available at law or in equity, the Company shall be entitled to seek injunctive relief and special performance to prevent or prohibit such breach. The Executive agrees to waive any requirements for the securing or posting of any bond in connection with such remedy.
6. Tolling. In the event of the breach by the Executive of any covenants contained in Sections 1 or 2 the running of the applicable period of restriction shall be automatically tolled and suspended for the amount of time that the breach continues, and shall automatically recommence when the breach is remedied so that the Company shall receive the benefit of the Executive’s compliance with such covenants.
7. Assignment and Successors. The Company may assign its rights and obligations under this Agreement to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise), and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its affiliates. This Agreement shall be binding upon and inure to the benefit of parties to this Agreement and their respective heirs, executors, administrators, personal and legal representatives, successors and assigns. None of the Executive’s rights or obligations may be assigned or transferred by the Executive, other than the Executive’s rights to payments hereunder, which may be transferred only by will or operation of law.
8. Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the State of New York, without reference to the principles of conflicts of law or choice of law of the State of New York or of any other jurisdiction, and where applicable, the laws of the United States.
9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile shall be deemed effective for all purposes.
10. Entire Agreement. The terms of this Agreement and the Employment Agreement are intended by the parties to be the final expression of their agreement with respect to the subject matter hereof and to supersede all prior understandings and agreements, whether written or oral. The parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
11. Amendments; Waivers. This Agreement may not be modified or amended except by an instrument in writing, signed by the Executive and the Chairman of the Board of the Company. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party with any specifically identified provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent breach or failure to comply or perform. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity. Except as otherwise set forth in this Agreement, the respective rights and obligations of the parties under this Agreement shall survive any termination of the Executive’s employment by the Company.
12. Dispute Resolution. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively in accordance with the provisions of Section 5 of this Agreement and Section 9 of the Employment Agreement.
13. Enforcement. If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to exceed the limitations permitted by applicable law, as determined by such court in such action, then the provisions will be deemed reformed to the maximum limitations permitted by applicable law and the parties hereby expressly acknowledge their desire that in such event such action be taken. If any provision of this Agreement is held to be illegal, invalid or unenforceable during the term of this Agreement after application of the first sentence of this Section 13, then such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
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IN WITNESS WHEREOF, the parties have executed this Covenant Agreement on the date and year first above written.
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The Company:
MILESTONE SCIENTIFIC INC. |
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By: |
/s/ Leonard Osser |
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Title: Vice-Chairman of Board Directors |
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| By: | /s/ Leslie Bernhard | ||
| Title: Chairman of Board of Directors | |||
| The Executive: | |||
| /s/ Arjan Haverhals | |||
[SIGNATURE PAGE TO COVENANT AGREEMENT]
ANNEX 1
Defined Terms
“Business” means all commercial activities of the Company.
“Company Party” means the Company and the Company’s customers, distributors, vendors, suppliers and consultants.
“Proprietary Information” means and includes any confidential or proprietary information, trade secrets or intellectual property of or relating to any Company Party; provided, however, that Proprietary Information does not include information which (i) becomes publicly available, other than by disclosure by the Executive in violation of this Agreement, (ii) is contained in a publicly available document or (iii) was known to the Executive before the Executive commenced discussion with the Company regarding the prospect of employment by the Company.
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification
I, Arjan Haverhals, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Milestone Scientific Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, considering the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under the supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under the supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report the conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 15, 2022
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/s/ Arjan Haverhals |
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Arjan Haverhals |
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Chief Executive Officer |
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Principal Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Milestone Scientific Inc. (“Milestone”) on Form 10-Q for the period ending June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arjan Haverhals Chief Executive Officer of Milestone, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of Milestone.
Date August 15, 2022
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/s/ Arjan Haverhals |
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Arjan Haverhals Chief Executive Officer Principal Financial Officer |
A signed original of this certification has been provided to Milestone and will be retained by Milestone and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
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| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
| Common stock, shares issued (in shares) | 68,811,482 | 68,153,336 |
| Common stock, shares outstanding (in shares) | 68,778,149 | 68,120,003 |
| Treasury stock, at cost, shares (in shares) | 33,333 | 33,333 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
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| Product sales, net | $ 1,648,368 | $ 2,425,738 | $ 4,349,270 | $ 5,350,445 |
| Cost of products sold | 967,720 | 1,056,384 | 1,986,196 | 2,178,797 |
| Gross profit | 680,648 | 1,369,354 | 2,363,074 | 3,171,648 |
| Selling, general and administrative expenses | 3,282,322 | 4,011,672 | 6,397,948 | 6,760,969 |
| Research and development expenses | 266,560 | 215,420 | 731,027 | 231,864 |
| Depreciation and amortization expense | 16,645 | 14,834 | 33,460 | 35,760 |
| Total operating expenses | 3,565,527 | 4,241,926 | 7,162,435 | 7,028,593 |
| Loss from operations | (2,884,879) | (2,872,572) | (4,799,361) | (3,856,945) |
| Interest income (expense) | 3,550 | (4,461) | (1,193) | (6,996) |
| Gain on debt extinguishment-PPP | 0 | 276,180 | 0 | 276,180 |
| Loss before provision for income taxes and equity investments | (2,881,329) | (2,600,853) | (4,800,554) | (3,587,761) |
| Provision for income taxes | 0 | (83) | 0 | (333) |
| Loss before equity investment | (2,881,329) | (2,600,936) | (4,800,554) | (3,588,094) |
| Deferred profit and divesture-equity investment (See Note 6) | 0 | (95,857) | 0 | (94,556) |
| Net loss | (2,881,329) | (2,696,793) | (4,800,554) | (3,682,650) |
| Net loss attributable to noncontrolling interests | (22,848) | (16,325) | (40,350) | (29,313) |
| Net loss attributable to Milestone Scientific Inc. | $ (2,858,481) | $ (2,680,468) | $ (4,760,204) | $ (3,653,337) |
| Net loss per share applicable to common stockholders— | ||||
| Basic (in dollars per share) | $ (0.04) | $ (0.04) | $ (0.07) | $ (0.05) |
| Diluted (in dollars per share) | $ (0.04) | $ (0.04) | $ (0.07) | $ (0.05) |
| Weighted average shares outstanding and to be issued— | ||||
| Basic (in shares) | 70,356,796 | 69,220,795 | 70,585,590 | 68,286,033 |
| Diluted (in shares) | 70,356,796 | 69,220,795 | 70,585,590 | 68,286,033 |
Note 1 - Organization and Business |
6 Months Ended |
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Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
NOTE 1 — ORGANIZATION AND BUSINESS
All references in this report to “Milestone Scientific,” “us,” “our,” “we,” the “Company” or “Milestone” refer to Milestone Scientific Inc., and its consolidated subsidiaries, Wand Dental, Inc., Milestone 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 ®; CathCheckTM; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand ®.
Milestone Scientific was incorporated in the State of Delaware in August 1989. Milestone Scientific has developed a proprietary, computer-controlled anesthetic delivery device, using The Wand®, a single use disposable handpiece. The device is marketed in dentistry under the trademark CompuDent®, and STA Single Tooth Anesthesia System® and is suitable for all dental procedures that require local anesthetic. The dental devices are sold in the United States, Canada and in 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. To date there have been seventeen medical devices sold in the United States and limited amounts sold internationally.
In May 2022, the Company initiated Corrective Action Preventative Action (CAPA) investigation of the Epidural Disposable Kit, Part # 6100-01, lot HC 51, the scope of the voluntary market withdrawal needed to be expanded to include Part # 6100-03, lot HC 50. A new non-conformance was initiated, and Lot HC 50 was added to the scope of the CAPA initiated above. The investigation via the CAPA identified that there is an issue with the id adaptors used in both lot’s HC 51 and HC 50. However, the health hazard evaluation shows that there is no risk to the patient or the user, thus management has determined there are no potential impacts to patients or users. Lot’s HC 51 and HC 50 are worth approximately $22,000 and $10,000 respectively. Management has determined that no other lot's were affected, and the Company is working with the supplier to reproduce, and replace the handpiece.
In May 2022, the Company was notified that Wand STA handpieces, reference # STA—5050-2725, lot B210113 were packaged incorrectly. The Company initiated a Corrective Action Preventative Action (CAPA) investigation to determine the root cause and implement corrective actions. The Health Hazard Evaluation (HHE) was completed and showed that there is no risk to the patient or the user due to this discrepancy, thus management has determined there are no potential impacts to patients or users. However, to provide the highest quality products to the market, Milestone Scientific decided to initiate a voluntary market withdrawal on May 13, 2022. Lot B210113 is worth approximately $25,000. Management has determined that no other lot were affected, and the Company is working with the supplier to reproduce, and replace the handpiece. |
Note 2 - Liquidity and Uncertainties |
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| Notes to Financial Statements | |
| Substantial Doubt about Going Concern [Text Block] |
NOTE 2- LIQUIDITY AND UNCERTAINTIES
The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. As of June 30, 2022 the Company had an accumulated deficit of $112.5 million and has incurred a net loss of approximately $2.9 million $4.8 million for the three and six months ended June 30, 2022, respectively. Management believes that Milestone Scientific will have sufficient cash reserves to meet its anticipated obligations at least the next twelve months from the filing date of this quarterly report. During the first six months ended June 30, 2022, the cash burn from operations has increased. In order to secure the Company’s cash and cash equivalent, aiming at sufficient funds for the next 12 months, management implemented a cost restructuring program to reduce the cash burn. This resulted in a reduction of the direct medical sales organization by half, whereas additional cost savings have been identified in other functional areas. The Company expects the cost savings will sort its effect during the third and fourth quarter of this year. Management believes that these measures are sufficient to take the company forward in the next 18 months.
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. In spite of the reopening of dental offices, hospitals, and pain clinics throughout the country and the rest of the world, revenues for the three and six months ended June 30, 2022 and 2021 were adversely affected in particular for the medical business. However, any business interruptions, resulting from COVID-19, or new strain, could significantly disrupt our operations and could have a material adverse impact on our business in the future.
In addition, it is uncertain as to what effect the continuing spread of COVID-19 will have on the commercialization efforts of our CompuFlo Epidural and CathCheck systems. Such future developments could have a material adverse effect on the Company financial results and its ability to conduct business as expected.
Sanctions imposed by the United States and other western democracies, against Russia as a result 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. Already the conflict has caused market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats. So far, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia, as a direct impact from the conflict. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations and financial condition. |
Note 3 - Summary of Significant Accounting Policies |
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| Significant Accounting Policies [Text Block] |
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation.
2. Basis of Presentation
The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in Milestone Scientific's Annual Report on Form 10- K
3. Use of Estimates
The preparation of the unaudited condensed 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.
4. 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:
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.
Financing and Payment
The Company's payment terms differ by geography and customer, but payment is generally required within 90 days from the date of shipment or delivery.
Disaggregation of Revenue
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 10 for revenues by geographical market, based on the customer’s location, and product category for the three and six months ended June 30, 2022 and 2021.
5. 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 6.
6. 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 June 30, 2022 and December 31, 2021 Milestone Scientific has approximately $10.7 million and $13.9 million, respectively, of investments with short term maturities classified as cash equivalents. At times, such cash, may be more than the Federal Deposit Insurance Corporation insurance limit.
7. 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 June 30, 2022 and December 31, 2021, accounts receivable was recorded, net of allowance for doubtful accounts of
8. Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence, and product expiration requirements.
The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis.
9. 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 unaudited Condensed Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the provision for income tax on the unaudited Condensed Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
10. Intangible Assets – Patents and Developed Technology
Patents are recorded at cost to prepare and file the applicable documents with the U.S. 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:
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. Research and Development
Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method.
13. Income Taxes
Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
At June 30, 2022 and December 31, 2021, we had no uncertain tax positions that required recognition in the unaudited condensed consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the unaudited condensed Consolidated Statements of Operations. interest and penalties are present for periods open. Tax returns for the 2019 and 2020 years are subject to audit by federal and state jurisdictions. The 2021 tax returns have not yet been filed.
14. 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 70,356,796 and 69,220,795 for the three months ended June 30, 2022, and 2021 respectively. 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 70,585,590 and 68,286,033 for the six months ended June 30, 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. The Company also includes shares to be issued to employees in the calculation of basic earnings per share because the shares to be issued settle a compensation obligation in a fixed number of shares.
Since Milestone Scientific had net losses in the three and six months ended June 30, 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 8,166,380 and 8,015,193 for the six months ended on June 30, 2022, and 2021, respectively.
15. 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 June 30, 2022, and December 31, 2021 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis.
16. 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 unaudited condensed consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values.
17. Recent Accounting Pronouncements
In January 2020, FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which, generally, provides guidance for investments in entities accounted for under the equity method of accounting. ASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of this standard did not have an impact on the Company's condensed consolidated financial statement.
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 condensed consolidated financial statement.
In October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with Topic ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”). To achieve this, an acquirer may assess how the acquire applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquirer's financial statements. The amendments of ASU 2021-08 are for fiscal years beginning after December 15, 2022, including interim periods. Early adoption is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company will evaluate the impact of ASU 2021-08 on any future business combinations the Company may enter in the future.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables. The FASB has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard. This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effective dates, which deferred the effective date of ASU 2016-13 for the Company. As a result of ASU 2019-10, ASU 2016-13 is effective for all entities with fiscal years beginning after December 15, 2022, including interim periods. The adoption of this update is not expected to have a material impact on the Company's condensed consolidated financial statements.
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Note 4 - Inventories |
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| Inventory Disclosure [Text Block] |
NOTE 4 — INVENTORIES
Inventories consist of the following:
The Company maintains an allowance for doubtful accounts on slow moving Medical finished goods of approximately $880,000 and $450,000 as of June 30, 2022 and December 31, 2021, respectively. |
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Note 5 - Advances on Contracts |
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| Advances to Contract Manufacturer [Text Block] |
NOTE 5 — ADVANCES ON CONTRACTS
The advances on contracts represent funding of future STA inventory purchases, epidural instruments, and epidural replacements parts. The balance of the advances as of June 30, 2022, and December 31, 2021 is approximately $1.6 million and $1.3 million, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory. |
Note 6 - Investment in and Transactions With Equity Investees |
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| Equity Method Investments and Joint Ventures Disclosure [Text Block] |
NOTE 6 – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES
Milestone China Ltd.
Ownership
In June 2014, Milestone Scientific invested $1 million in Milestone China Ltd. (“Milestone China”), by contributing dental instruments to Milestone China for a 40% ownership interest. Milestone China owns approximately 75% of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”). 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.
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 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, who became the independent distributor, former agent, for Milestone China and its subsidiaries, and due to the good working relationship developing between Milestone Scientific and Solee and 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. Given the significant deterioration of the economy in China, caused by in large part the actions of the Chinese central government in dealing with COVID-19, the crash of the real estate market and the moves against independent companies, 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. However, management has determined to pursue an investigation of whether the above-described consideration payable by LiDong Zhang to Milestone China was actually paid to Milestone China and, if so, its recovery. Nevertheless, 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. As a result, at this time, Milestone Scientific has not received any consideration and does not know if any of the consideration promised to Milestone China for its interest in Anhui has been paid and, if paid, 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 June 30, 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.
For the three months ended June 30, 2022, Milestone Scientific shipped no instruments or handpieces to Solee. For the six months ended June 30, 2022, Milestone Scientific shipped handpieces to Solee for sale to Anhui and recognized revenue of approximately $370,000. At June 30, 2022, approximately $270,000 was included in account receivable related party. For the three and six months ended June 30, 2021, Milestone Scientific shipped instruments and handpieces to Solee for the sale to Anhui and recognized revenue of $525,000, and $1.0 million, respectively. As of December 31, 2021, the Company has approximately $89,000 of deposits from Solee for future shipment of goods included in accrued expenses on the accompanying condensed consolidated balance sheet. As of June 30, 2022, the Company had no deposits from Solee for future shipment of goods included in accrued expenses on the accompanying condensed consolidated balance sheet.
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, the former agent, for 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. As of June 30, 2022 and December 31, 2021, there have been no shipment under the new agreement to Solee.
Gross Profit Deferral
Due to timing differences of when the inventory sold to Milestone China, Anhui or their agent is recognized and when Milestone China and Anhui sells the acquired inventory to third parties, an elimination of the recorded profit is required as of the balance sheet date. In accordance with ASC 323 Investment Equity Method and Joint Ventures, Milestone Scientific has deferred its ownership percentage of the gross profit associated with recognized revenue from sales to Milestone China, Solee as an agent, and Anhui until that product is sold to third parties.
At June 30, 2022, and December 31, 2021 the Company had no deferred profit in the unaudited condensed consolidated balance sheets. For the three and six months ended June 30, 2022, Milestone Scientific did record any loss on equity investment in relation to gross profit on product sold to Milestone China, Anhui, and Solee. For the three and six months ended June 30, 2021, Milestone Scientific recorded loss on equity investment of approximately $95,000 and $94,000 respectively 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 unaudited condensed consolidated statement of operations. |
Note 7 - Patents |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
NOTE 7 — PATENTS
Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was approximately $13,000 and $27,000 for the three and six months ended June 30, 2022, respectively. Amortization expense was approximately $11,000 and $23,000 for the three and six months ended June 30, 2021, respectively The annual amortization expense expected to be recorded for existing intangibles assets for the years 2022 through 2026 and thereafter, is approximately $27,000, $52,000, $34,000, $28,000 and $110,000. |
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Note 8 - Stockholders' Equity |
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| Stockholders' Equity Note Disclosure [Text Block] |
NOTE 8— STOCKHOLDERS’ EQUITY
Warrants
The following table summarizes information about shares issuable under warrants outstanding as of June 30, 2022
Shares to Be Issued
As of June 30, 2022, and 2021, there were 1,852,789 and 2,264,127 shares respectively, to be issued whose issuance has been deferred to the employees of Milestone Scientific, Inc. respectively. As of June 30, 2022, and 2021, there were 174,364 and 144,024 shares, respectively, to be issued to non-employees, that will be issued 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 issued on June 30, 2022, and 2021, respectively.
Stock Options 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.
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 -year period after he steps down as Interim Chief Executive Officer of the Company or ten years from the date of grant, whichever shall end first. The options were issued pursuant to the 2020 Plan.
Milestone Scientific recognizes stock compensation expense over the requisite service period. For three and six months ended June 30, 2022 Milestone Scientific recognized approximately $223,000, and $501,000 of total employee stock compensation cost, respectively, recorded in general and administrative expenses on the statement of operations. For three and six months ended June 30, 2021 Milestone Scientific recognized approximately $168,000, and $286,000 of total employee stock compensation cost, respectively, recorded in general and administrative expenses on the statement of operations.
As of June 30, 2022 and 2021, there was approximately $2.9 million and $3.5 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
A summary of option activity for employees under the plans and changes during the six months ended June 30, 2022, is presented below:
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 six months ended June 30, 2022 , risk free interest rate of 2.45%, Volatility of 89.76% (which is based on the Company’s historical over the expected term), expected term 3 years, dividend rate 0% and closing price of the Company’s common stock was $1.52.
A summary of option activity for non-employees under the plans and changes during the six months ended June 30, 2022 presented below:
For the three and six months ended June 30, 2022, Milestone Scientific recognized approximately $5,000 and $10,000 expense related to non-employee options, respectively. For the three and six months ended June 30, 2021, Milestone Scientific recognized approximately $5,000 and $15,000 expense related to non-employee options, respectively.
The information below summarizes the restricted stock award activity for year ended June 30, 2022 .
As of June 30, 2022, there were 80,292 restricted shares granted and deferred under the terms of an employment agreements with the Territory Manager of Milestone Scientific, Inc. Such shares will be issued to each party upon completion of 2 years of employment. For the three and six months ended June 30, 2022, the Company recognized negative stock compensation of approximately $54,000 and $27,000, respectively, due to termination of certain employees who had not vested in their grant in the current period. For the three and six months ended June 30, 2021, the Company recognized stock compensation expense of approximately $21,000. As of June 30, 2022, the total unrecognized stock compensation expense was $86,458 related to non-vested restricted stock awards, which the Company expects to recognize over an estimated weighted average period of 1.41 years.
As of June 30, 2022 the Company entered in a restricted stock agreements with the members of the Board of Directors of the Company. The Company granted 899,300 restricted stock awards with a fair market value of $0.82 per share. The restricted stock vest as follows: twenty-five percent (25%) shall be vested on the grant date, and twenty-five percent (25%) shall vest quarterly, which will be on the first day of the following months; October 2022, January 2023, and April 2023. These awards will vest immediately upon a change of control as defined in the agreements For the three and six months ended June 30, 2022 the Company recognized approximately $213,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operation. |
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Note 9 - Income Taxes |
6 Months Ended |
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Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
NOTE 9 — INCOME TAXES
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 its deferred tax assets due to uncertainty as to their future realization. |
Note 10 - Segment and Geographic Data |
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| Product Sales and Significant Customers and Vendors Disclosure [Text Block] |
NOTE 10 — SEGMENT AND GEOGRAPHIC DATA
We conduct our business through 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:
The following table presents information about our operations by geographic area for the three and six months ended June 30, 2022 and 2021. Net sales by geographic area are based on the respective locations of our subsidiaries:
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Note 11 - Concentrations |
6 Months Ended |
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Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Concentration Risk Disclosure [Text Block] |
NOTE 11 -- 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 June 30, 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.
For the three months ended June 30, 2022, an aggregate of approximately 49% of the Company’s net product sales were from one distributors. For the six months ended June 30, 2022 , an aggregate of approximately 11%, and 38% of the Company’s net product sales were from two distributors. For the three months ended June 30, 2021, an aggregate of approximately 38% of the Company’s net product sales were from one distributors. For the six months ended June 30, 2021, an aggregate of approximately 33% of the Company’s net product sales were from one domestic distributor. Additionally, for the three and six months ended June 30, 2021, approximately 19% and 21% of the Company’s net product sales are to Milestone China, respectively.
For the six months ended June 30, 2022 , we had the four distributors that accounted for 13%, 14%, 25% and 31% amount of accounts receivable, respectively. As of December 31, 2021 we had three distributors that accounted for 13%, 28%, and 29% amount of accounts receivable, respectively. |
Note 12 - Related Party Transactions |
6 Months Ended |
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Jun. 30, 2022 | |
| Notes to Financial Statements | |
| Related Party Transactions Disclosure [Text Block] |
NOTE 12 -- RELATED PARTY TRANSACTIONS
United Systems
Milestone Scientific has a manufacturing agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were approximately $436,000 and $1.7 million, respectively for three and six months ended June 30, 2022. Purchases from this manufacturer were approximately $493,000 and $878,000, respectively for three and six months ended June 30, 2021.
As of June 30, 2022 and December 31, 2021, Milestone Scientific owed this manufacturer approximately $720,000, and $548,000, respectively, which approximately $720,000 and $395,000 is included in accounts payable, related party, respectively, and $0 and approximately $153,000 is included in accrued expense, related party, respectively, on the unaudited condensed consolidated balance sheets.
Milestone China
See Note 6 of the notes to the unaudited condensed consolidated financial statements.
In August 2016, K. Tucker Andersen, a significant stockholder of Milestone Scientific, entered into a three-year agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $25,000 and $50,000 for three and six months ended June 30, 2022, and 2021.
The Company engaged Mr. Trombetta as a consultant for a period of twelve months (beginning October 1, 2020, and ending September 30, 2021), to provide international business dental information and business contacts to the Company and provide consulting services for new international business and dental segments. For the three and six months ended June 30, 2021, the Company expensed $15,000 and $30,000, respectively, for services rendered by Mr. Trombetta. Mr. Trombetta received shares of the Company’s common stock. This agreement was terminated September 30, 2021, and therefore, no expenses were incurred for services rendered by Mr. Trombetta for the three and six months ended June 30, 2022.
The Director of Clinical Affairs’ royalty fee was approximately $81,000 and $213,000 for three and six months ended June 30, 2022, respectively. The Director of Clinical Affairs’ royalty fee was approximately $111,000 and $248,000 for three and six months ended June 30, 2021, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 and $78,000 for three and six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $81,000 and $123,000, respectively, which is included in accrued expense, related party, in the condensed 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 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 to 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 and related to the Managing Director, China Operations for three and six months ended June 30, 2022, respectively. The Company recorded expense of and related to the US Asian Consulting Group, LLC for three and six months ended June 30, 2022, respectively. The Company recorded expense of related to the Managing Director, China Operations for three and six months ended June 30, 2021, respectively. The Company recorded expense of $25,000 related to the US Asian Consulting Group, LLC for three and six months ended June 30, 2021, respectively. As of June 30, 2022 and December 31, 2021 the Company owed Mr. Osser approximately $58,000 and $0, respectively, which is included accrued expense, related party in the condensed consolidated balance sheet.
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Note 13 - Commitments |
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| Commitments and Contingencies Disclosure [Text Block] |
NOTE 13 — 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 2,950 STA CompuDent® instruments.
As of June 30, 2022, the purchase order commitment was approximately $2.4 million and advances of approximately $1.6 million are reported in advances on contracts in the condensed consolidated balance sheet. As of December 31, 2021, the purchase order commitment was approximately $2.6 million and advances of approximately $1.3 million are reported in advances on contracts in the condensed consolidated balance sheet.
As of June 30, 2022 and December 31, 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 $41,000 and $34,000, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.
(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 (7) year lease in a new facility located in Roseland, New Jersey (the “Roseland Facility”), which commenced of January 8, 2020. Under the Roseland Facility lease, rent payments commence on April 1, 2020, 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 June 30, 2022, total operating lease and finance right-of-use assets were $530,999 and total operating lease and finance liabilities were $518,408, of which $86,228 and $432,180 were classified as current and non-current, respectively. As of June 30, 2022, total finance lease liabilities were $24,433 of which $8,946 and $15,487 were classified as current and non-current, respectively. As of December 31, 2021, total operating lease and finance right-of-use assets were $550,511 and total operating lease and finance liabilities were $577,981, of which $81,001 and $476,980 were classified as current and non-current, respectively. As of December 31, 2021, total finance lease liabilities were $28,607, of which $8,545 and $20,062 were classified as current and non-current, respectively.
The components of lease expense were as follows:
(3) Other Commitments
On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s 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 Mr. 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 Mr. Hochman and his wife under the Technology Sale Agreement referred to above, 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 the payments due to them on May 9, 2027 and thereafter, with respect to dental products.
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||
| Consolidation, Policy [Policy Text Block] | 1. Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation. |
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| Basis of Accounting, Policy [Policy Text Block] | 2. Basis of Presentation
The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, included in Milestone Scientific's Annual Report on Form 10- |
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| Use of Estimates, Policy [Policy Text Block] | 3. Use of Estimates
The preparation of the unaudited condensed 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. |
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| Revenue [Policy Text Block] | 4. 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:
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. |
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| Consolidation, Variable Interest Entity, Policy [Policy Text Block] | 5. 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 6. |
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| Cash and Cash Equivalents, Policy [Policy Text Block] | 6. 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 June 30, 2022 and December 31, 2021 Milestone Scientific has approximately $10.7 million and $13.9 million, respectively, of investments with short term maturities classified as cash equivalents. At times, such cash, may be more than the Federal Deposit Insurance Corporation insurance limit. |
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| Accounts Receivable [Policy Text Block] | 7. 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 June 30, 2022 and December 31, 2021, accounts receivable was recorded, net of allowance for doubtful accounts of |
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| Inventory, Policy [Policy Text Block] | 8. Inventories
Inventories principally consist of finished goods and component parts stated at the lower of cost (first-in, first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, defective, and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence, and product expiration requirements.
The valuation allowance creates a new cost basis for the inventory, and it is not subsequently marked up through a reduction in the valuation allowance based on any changes in the underlying facts and circumstances. When the valuation allowance is initially recorded, the increase to the allowance is recognized as an increase in cost of sales. The valuation allowance is only reduced if or when the underlying inventory is sold or destroyed, at which time cost of sales recognized would include the previous adjusted cost basis. |
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| Equity Method Investments [Policy Text Block] | 9. 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 unaudited Condensed Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the provision for income tax on the unaudited Condensed Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. |
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| Intangible Assets, Finite-Lived, Policy [Policy Text Block] | 10. Intangible Assets – Patents and Developed Technology
Patents are recorded at cost to prepare and file the applicable documents with the U.S. 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. |
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| Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | 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:
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. |
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| Research and Development Expense, Policy [Policy Text Block] | 12. Research and Development
Research and development costs, which consist principally of new product development costs payable to third parties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method. |
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| Income Tax, Policy [Policy Text Block] | 13. Income Taxes
Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
At June 30, 2022 and December 31, 2021, we had no uncertain tax positions that required recognition in the unaudited condensed consolidated financial statements. Milestone Scientific's policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the unaudited condensed Consolidated Statements of Operations. interest and penalties are present for periods open. Tax returns for the 2019 and 2020 years are subject to audit by federal and state jurisdictions. The 2021 tax returns have not yet been filed. |
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| Earnings Per Share, Policy [Policy Text Block] | 14. 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 70,356,796 and 69,220,795 for the three months ended June 30, 2022, and 2021 respectively. 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 70,585,590 and 68,286,033 for the six months ended June 30, 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. The Company also includes shares to be issued to employees in the calculation of basic earnings per share because the shares to be issued settle a compensation obligation in a fixed number of shares.
Since Milestone Scientific had net losses in the three and six months ended June 30, 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 8,166,380 and 8,015,193 for the six months ended on June 30, 2022, and 2021, respectively. |
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | 15. 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 June 30, 2022, and December 31, 2021 the Company does not have any assets or liabilities that were measured at fair value on a recurring basis. |
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| Share-Based Payment Arrangement [Policy Text Block] | 16. 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 unaudited condensed consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values. |
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| New Accounting Pronouncements, Policy [Policy Text Block] | 17. Recent Accounting Pronouncements
In January 2020, FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which, generally, provides guidance for investments in entities accounted for under the equity method of accounting. ASU 2020-01 is effective for all entities with fiscal years beginning after December 15, 2021, including interim periods therein. The adoption of this standard did not have an impact on the Company's condensed consolidated financial statement.
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 condensed consolidated financial statement.
In October 2021, FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides guidance on accounting for contract assets and contract liabilities acquired in a business combination in accordance with Topic ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”). To achieve this, an acquirer may assess how the acquire applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquirer's financial statements. The amendments of ASU 2021-08 are for fiscal years beginning after December 15, 2022, including interim periods. Early adoption is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company will evaluate the impact of ASU 2021-08 on any future business combinations the Company may enter in the future.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables. The FASB has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard. This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions, and supportable forecasts that impact collectability. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842): Effective dates, which deferred the effective date of ASU 2016-13 for the Company. As a result of ASU 2019-10, ASU 2016-13 is effective for all entities with fiscal years beginning after December 15, 2022, including interim periods. The adoption of this update is not expected to have a material impact on the Company's condensed consolidated financial statements. |
Note 4 - Inventories (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 7 - Patents (Tables) |
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| Deferred Compensation Arrangement with Individual, Share-based Payments [Table Text Block] |
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Note 10 - Segment and Geographic Data (Tables) |
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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| Sales by Product and by Geographical Region [Table Text Block] |
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Note 13 - Commitments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease, Cost and Other Information [Table Text Block] |
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Note 1 - Organization and Business (Details Textual) |
Jun. 30, 2022 |
May 13, 2022
USD ($)
|
|---|---|---|
| Number of Countries in which Entity Operates | 60 | |
| Lot HC 51 [Member] | ||
| Market Value of Product | $ 22,000 | |
| Lot HC 50 [Member] | ||
| Market Value of Product | 10,000 | |
| Lot B210113 [Member] | ||
| Market Value of Product | $ 25,000 |
Note 2 - Liquidity and Uncertainties (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Retained Earnings (Accumulated Deficit), Total | $ (112,464,478) | $ (112,464,478) | $ (107,704,274) | ||
| Net Income (Loss) Attributable to Parent, Total | $ (2,858,481) | $ (2,680,468) | $ (4,760,204) | $ (3,653,337) | |
Note 3 - Summary of Significant Accounting Policies (Details Textual) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
|
Jun. 30, 2022
USD ($)
shares
|
Jun. 30, 2021
shares
|
Jun. 30, 2022
USD ($)
shares
|
Jun. 30, 2021
shares
|
Dec. 31, 2021
USD ($)
|
|
| Number of Operating Segments | 2 | ||||
| Short-Term Investments, Total | $ 10.7 | $ 10.7 | $ 13,900,000 | ||
| Accounts Receivable, Allowance for Credit Loss, Ending Balance | 10,000 | 10,000 | 10,000 | ||
| Unrecognized Tax Benefits, Ending Balance | $ 0 | 0 | $ 0 | ||
| Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense, Total | $ 0 | ||||
| Open Tax Year | 2018 2019 2020 2021 | ||||
| Weighted Average Number of Shares Outstanding, Basic, Total (in shares) | shares | 70,356,796 | 69,220,795 | 70,585,590 | 68,286,033 | |
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | shares | 8,166,380 | 8,015,193 | |||
Note 4 - Inventories (Details Textual) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Slow Moving Medical Finished Goods [Member] | ||
| Inventory Valuation Reserves | $ 880,000 | $ 450,000 |
Note 4 - Inventories - Summary of Inventories (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Component parts and other materials | $ 169,630 | $ 79,339 |
| Total inventories | 1,505,435 | 1,541,513 |
| Dental Segment [Member] | ||
| Finished goods, net | (834,624) | (342,465) |
| Finished goods, net | 834,624 | 342,465 |
| Medical Segment [Member] | ||
| Finished goods, net | (501,181) | (1,119,709) |
| Finished goods, net | $ 501,181 | $ 1,119,709 |
Note 5 - Advances on Contracts (Details Textual) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Advances on Inventory Purchases | $ 1,630,857 | $ 1,309,260 |
Note 7 - Patents (Details Textual) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Amortization of Intangible Assets | $ 26,768 | $ 22,705 | ||
| Finite-Lived Intangible Asset, Expected Amortization, Remainder of Fiscal Year | $ 27,000 | 27,000 | ||
| Finite-Lived Intangible Asset, Expected Amortization, Year One | 52,000 | 52,000 | ||
| Finite-Lived Intangible Asset, Expected Amortization, Year Two | 34,000 | 34,000 | ||
| Finite-Lived Intangible Asset, Expected Amortization, Year Three | 28,000 | 28,000 | ||
| Finite-Lived Intangible Asset, Expected Amortization, after Year Three | 110,000 | 110,000 | ||
| Patents [Member] | ||||
| Amortization of Intangible Assets | $ 13,000 | $ 11,000 | $ 27,000 | $ 23,000 |
| Patents [Member] | Minimum [Member] | ||||
| Finite-Lived Intangible Asset, Useful Life (Year) | 3 years | |||
| Patents [Member] | Maximum [Member] | ||||
| Finite-Lived Intangible Asset, Useful Life (Year) | 20 years | |||
Note 7 - Patents - Summary of Patents (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Patents, cost | $ 1,377,863 | $ 1,377,863 |
| Patents, accumulated amortization | (1,127,013) | (1,100,244) |
| Patents-foundation intellectual property | 250,850 | 277,619 |
| Foundation Intellectual Property Patents [Member] | ||
| Patents, cost | 1,377,863 | 1,377,863 |
| Patents, accumulated amortization | (1,127,013) | (1,100,244) |
| Patents-foundation intellectual property | $ 250,850 | $ 277,619 |
Note 8 - Stockholders' Equity - Warrants (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Outstanding, number of shares (in shares) | 4,268,221 | |
| Outstanding , weighted average exercise price (in dollars per share) | $ 2.18 | |
| Outstanding, weighted average remaining life (Year) | 1 year | 1 year 6 months |
| Outstanding, intrinsic value | $ 130,704 | $ 1,187,546 |
| Issued, number of shares (in shares) | 0 | |
| Issued, weighted average exercise price (in dollars per share) | $ 0 | |
| Exercised, number of shares (in shares) | 0 | |
| Exercised, weighted average exercise price (in dollars per share) | $ 0 | |
| Outstanding , number of shares (in shares) | 4,268,221 | 4,268,221 |
| Outstanding , weighted average exercise price (in dollars per share) | $ 2.18 | $ 2.18 |
Note 8 - Stockholders' Equity - Summary of Shares to be Issued (Details) - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Shares-to-be-issued, outstanding (in shares) | 2,066,343 | 2,428,329 |
| Granted in current period (in shares) | 108,148 | 33,238 |
| Issued in current period (in shares) | (147,338) | (53,416) |
| Shares-to be issued outstanding (in shares) | 2,027,153 | 2,408,151 |
Note 8 - Stockholders' Equity - Schedule of Restricted Stock (Details) - Restricted Stock [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
$ / shares
shares
| |
| Non-vested, Shares (in shares) | 96,557 |
| Non-vested, Weighted Average Grant-Date Fair Value per Award (in dollars per share) | $ / shares | $ 2.33 |
| Granted, Shares (in shares) | 975,148 |
| Granted, Weighted Average Grant-Date Fair Value per Award (in dollars per share) | $ / shares | $ 0.86 |
| Vested, Shares (in shares) | (224,850) |
| Cancelled, Shares (in shares) | (92,017) |
| Non-vested, Shares (in shares) | 754,838 |
| Non-vested, Weighted Average Grant-Date Fair Value per Award (in dollars per share) | $ / shares | $ 1.20 |
Note 9 - Income Taxes (Details Textual) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Percentage of Valuation Allowance | 100.00% |
Note 10 - Segment and Geographic Data (Details Textual) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Number of Reportable Segments | 2 |
Note 10 - Segment and Geographic Data - Summary by Reporting and Operating Segments (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Product sales, net | $ 1,648,368 | $ 2,425,738 | $ 4,349,270 | $ 5,350,445 | |
| Operating Income (Loss) | (2,884,879) | (2,872,572) | (4,799,361) | (3,856,945) | |
| Depreciation and Amortization | 16,645 | 14,834 | 33,460 | 35,760 | |
| Income (loss) before taxes and equity in earnings of affiliates | (2,881,329) | (2,600,853) | (4,800,554) | (3,587,761) | |
| Total assets | 16,512,466 | 16,512,466 | $ 19,809,744 | ||
| Corporate, Non-Segment [Member] | |||||
| Operating Income (Loss) | (1,432,618) | (2,262,369) | (2,465,249) | (3,477,056) | |
| Depreciation and Amortization | 14,733 | 12,809 | 29,637 | 28,178 | |
| Income (loss) before taxes and equity in earnings of affiliates | (1,426,370) | (2,062,748) | (2,460,852) | (3,277,785) | |
| Total assets | 10,746,305 | 10,746,305 | 12,273,064 | ||
| Dental Segment [Member] | |||||
| Product sales, net | 1,609,768 | 2,404,738 | 4,303,120 | 5,258,395 | |
| Dental Segment [Member] | Operating Segments [Member] | |||||
| Product sales, net | 1,609,768 | 2,404,738 | 4,303,120 | 5,258,395 | |
| Operating Income (Loss) | 163,022 | 524,798 | 517,262 | 1,650,831 | |
| Depreciation and Amortization | 893 | 860 | 1,786 | 2,566 | |
| Income (loss) before taxes and equity in earnings of affiliates | 161,774 | 598,166 | 514,571 | 1,723,284 | |
| Total assets | 4,947,626 | 4,947,626 | 6,163,169 | ||
| Medical Segment [Member] | |||||
| Product sales, net | 38,600 | 21,000 | 46,150 | 92,050 | |
| Medical Segment [Member] | Operating Segments [Member] | |||||
| Product sales, net | 38,600 | 21,000 | 46,150 | 92,050 | |
| Operating Income (Loss) | (1,615,283) | (1,135,001) | (2,851,374) | (2,030,720) | |
| Depreciation and Amortization | 1,019 | 1,165 | 2,037 | 5,016 | |
| Income (loss) before taxes and equity in earnings of affiliates | (1,616,733) | $ (1,136,271) | (2,854,273) | $ (2,033,260) | |
| Total assets | $ 818,535 | $ 818,535 | $ 1,373,511 | ||
Note 13 - Commitments - Lease Expense (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Cash paid for operating lease liabilities | $ 31,999 | $ 31,303 | $ 63,881 | $ 62,606 |
| Cash paid for finance lease liabilities | $ 2,685 | $ 2,685 | $ 5,370 | 5,370 |
| Right-of-use assets obtained in exchange for new operating lease liabilities (1) | 663,009 | |||
| Property and equipment obtained in exchange for new finance lease liabilities | $ 43,242 | |||
| Finance leases (years) (Year) | 2 years 6 months | 5 years 9 months 18 days | 2 years 6 months | 5 years 9 months 18 days |
| Operating leases (years) (Year) | 4 years 9 months | 3 years 7 months 6 days | 4 years 9 months | 3 years 7 months 6 days |