The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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., and Milestone Medical, Inc. (all described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent®; CompuFlo®; DPS Dynamic Pressure Sensing technology®; Milestone Scientific ®; the Milestone logo ®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand ®.
Milestone Scientific was incorporated in the State of Delaware in August 1989. Milestone Scientific has developed a proprietary, revolutionary, computer-controlled anesthetic delivery device, our DPS Dynamic Pressure Sensing Technology® System, to meet the needs of various subcutaneous drug delivery injections and fluid aspiration – enabling healthcare practitioners to achieve multiple unique benefits that cannot currently be accomplished with the 160-year-old manual syringe. The device, using The Wand®, a single use disposable handpiece, is marketed in dentistry under the trademarks CompuDent® and STA Single Tooth Anesthesia System®, and is suitable for all dental procedures that require local anesthetic. The dental devices are sold in the United States, Canada and in 38 other countries. Milestone Scientific also has 510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on the CompuFlo® Epidural Computer Controlled Anesthesia System in the lumbar spine region. In addition, certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries.
Milestone Scientific is a biomedical technology research and development company that patents, designs, develops and commercializes innovative diagnostic and therapeutic injection technologies and devices for medical and dental use. Since our inception, we have engaged in pioneering proprietary, innovative, computer-controlled injection technologies, and solutions for the medical and dental markets. Our common stock was initially listed on the NYSE American on June 1, 2015 and trades under the symbol “MLSS”. The Company is focused on building its intellectual property portfolio across numerous indications.
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. Total operating losses since inception have been $117.7 million. The operating losses were $1.3 million and $1.9 million for three months ended March 31, 2023 and 2022, respectively. Management has prepared cashflow forecasts covering a period of 12 months from the date of issuance of these financial statements. As the company completes the 1st third of 2023, it has compiled an updated forecast for the remainder of 2023 and the 1st half of 2024.As a result of the new forecast management has concluded that there is no substantial doubt about the Company’s ability to continue as a going concern. Management believes that the Company has sufficient cash, along with the current cash flow and support from the dental business to mitigate the expected selling expenditures for commercialization of the Epidural medical device, as well as other operating expenditures and planned new product development programs, over the next twelve months from the filing date of this report.
These forecasts include several revenue and operating expense assumptions which indicate that the Company’s current cash and liquidity is sufficient to finance the operating requirements for at least the next 12 months, Management believes that the Company will have sufficient cash reserves to meet its anticipated obligations for at least the next twelve months from the filing date of this report. Milestone Scientific is actively pursuing the generation of positive cash flows from operating activities through an increase in revenue from its dental business worldwide, the generation of revenue from its medical devices and disposables business in the United States and worldwide, and a reduction in operating expenses. However, the Company’s continued operations will depend on its ability to raise additional capital through various potential sources until it achieves profitability, if ever.
In addition to its employees, the Company relies on (i) distributors, agents, and third-party logistics providers in connection with product sales and distribution and (ii) raw material and component suppliers in the U.S., Europe, and China. If the Company, or any of these entities encounter any disruptions to its or their respective operations or facilities, or if the Company or any of these third-party partners were to shut down for any reason, including by fire, natural disaster, such as a hurricane, tornado or severe storm, power outage, systems failure, labor dispute, pandemic or other public health crises, or other unforeseen disruption, then the Company or they may be prevented or delayed from effectively operating its or their business, respectively.
Sanctions imposed by the United States and other western democracies, against Russia because of the Ukraine conflict, and any expansion of the conflict, are likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations. The conflict has caused market volatility, a sharp increase in certain commodity prices, and an increasing number and frequency of cybersecurity threats. As direct impact from the conflict, we have experienced a decrease in international sales to Ukraine and halted all sales to Russia. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), and the applicable rules and regulations of the Securities and Exchange Commission (SEC) include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), and Milestone Medical (majority owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation.
2. 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, 2022, included in Milestone Scientific's Annual Report on Form 10-K.
3. Use of Estimates
The preparation of 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 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 directly to consumers in U.S. and 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.
E-Commerce
As of January 3, 2023, the Company launched an E-Commerce platform, selling and shipping STA Single Tooth Anesthesia System® (STA) and handpieces directly to dental offices and dental groups within the U.S. Our E-commerce portal accepts online payments via credit and debit cards. The cost of delivery is charged to customer along with appropriate sales tax. The Company recognizes revenue from product sales at the time the product ships to a customer via a third party.
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. The Company terminated its major US distributor contract as of December 31, 2022. That distributor had return rights in connection with this contract termination that extended through March 31, 2023. The Company recorded allowance of approximately $179,000 for those returns within its December 31, 2022 financial statements. As of March 31, 2023, no returns were presented, and the Company reversed the allowance for sales returns.
Financing and Payment
The Company's payment terms differ by geography and customer, but payments from distributors are required within 90 days or less from the date of shipment. The E-commerce portal sells directly to end users and accepts online payments via credit and debit cards via a 3rd party. These payments from the 3rd party are settled within 2 business days.
Disaggregation of Revenue
The Company operates in two operating segments: dental and medical. Therefore, results of the Company's operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting. See Note 8 for revenues by geographical market, based on the customer’s location, and product category for the three months ended March 31, 2023, and 2022.
5. Cash and Cash Equivalents
Milestone Scientific considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2023 and December 31, 2022, Milestone Scientific has approximately $2.3 million and $8.7 million, respectively of cash and cash equivalents. As of March 31, 2023 and December 31, 2022, Milestone Scientific had approximately $6.5 million and $8.3 million, respectively, in cash, cash equivalents, and marketable securities that exceeded the Federal Deposit Insurance Corporation insurance limit of $250,000.
6. Marketable Securities
The Company’s marketable securities are comprised of treasury bills with original maturity greater than three months from date of purchase. The Company’s marketable securities are measured at fair value and are accounted for in accordance with ASU 2016-01. Unrealized holding gains and losses on treasury bills are recorded in net realized and unrealized gain (loss) from investments on the unaudited condensed consolidated statements of operations. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the marketable securities.
The appropriate classification of marketable securities is determined at the time of purchase and evaluated as of each reporting balance sheet date. Investments in marketable debt and equity securities classified as available-for-sale are reported at fair value. Fair value is determined using quoted market prices in active markets for identical assets or liabilities or quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Declines in the fair values of equity securities that are considered other-than-temporary, are charged to other income (expense), net. The Company considers available evidence in evaluating potential impairments of its investments, including the duration and extent to which fair value is less than cost. As of March 31, 2023, the Company held approximately $4.4 million in U.S. treasury securities which maturity within 3 and 6 months of the balance sheet date.
7. Accounts Receivable
The e-commerce portal sells directly to end users and accepts online payments via credit and debit cards via a third-party credit card processor. These payments are settled within 2 business days of the transactions. Sales to distributors are on credit terms. The Company estimates losses from the ability or inability of its distributor to make payments on amounts billed.
Distributors credit sales are due in 90 days or less from the date of invoicing. As of March 31, 2023 and December 31, 2022, accounts receivable was recorded, net of allowance for doubtful accounts of $10,000.
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. 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 72,104,234 and 69,013,001 for the three months ended March 31, 2023 and 2022, respectively. The calculation of diluted earnings per common share is like that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants were issued during the period.
Since Milestone Scientific had net losses in the three months ended March 31, 2023, and 2022, 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's and warrants totaled 7,670,661 and 7,543,252 on March 31, 2023, and 2022, respectively.
10. 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.
11. Recent Accounting Pronouncements
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. As January 1, 2023, the Company adopted ASU 2019-10, Financial Instruments - Credit Losses (Topic, 326), Derivatives and hedging (Topic 815), and Leases (Topic 842) the adoption of this ASU does not have a material impact on our financial statements.
NOTE 4 — INVENTORIES
Inventories consist of the following:
| | | March 31, 2023 | | | December 31, 2022 | |
| | | | | | | | | |
| Dental finished goods | | $ | 1,541,290 | | | $ | 1,315,263 | |
| Medical finished goods | | | 326,686 | | | | 334,124 | |
| Component parts and other materials | | | 170,322 | | | | 142,948 | |
| Total inventories | | $ | 2,038,298 | | | $ | 1,792,335 | |
The Company has recorded an allowance on slow moving Medical finished goods due to the slow adoption of the epidural instruments and handpieces for approximately $1.0 million as of March 31, 2023 and December 31, 2022, respectively.
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 March 31, 2023 and December 31, 2022 is approximately $1.2 million and $1.3 million, respectively. The advance is classified as current based on the estimated annual usage of the underlying inventory.
NOTE 6— STOCKHOLDERS’ EQUITY
Warrants
The following table summarizes information about shares issuable under warrants outstanding as of March 31, 2023:
| | | Warrant shares outstanding | | | Weighted Average exercise price | | | Weighted Average remaining life | | | Intrinsic value | |
| | | | | | | | | | | | | | | | | |
| Outstanding at January 1, 2023 | | | 4,268,221 | | | | 2.18 | | | | .50 | | | | - | |
| Issued | | | - | | | | - | | | | - | | | | - | |
| Exercised | | | - | | | | - | | | | - | | | | - | |
| Outstanding and exercisable at March 31, 2023 | | | 4,268,221 | | | | 2.18 | | | | .25 | | | | 125,828 | |
Shares to Be Issued
As of March 31, 2023, and 2022, there were 2,136,101 and 2,000,127 respectively of shares to be issued whose issuance has been deferred under the terms of an employment agreements with the Chief Executive Officer, and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment.
As of March 31, 2023, and 2022, there were 382,697 and 174,364 respectively of shares to be issued to non-employees, for services rendered. The number of shares was fixed at the date of grant and were fully vested upon grant date.
The following table summarizes information about shares to be issued on March 31, 2023 and 2022.
| | | March 31, 2023 | | | March 31, 2022 | |
| | | | | | | | | |
| Shares-to-be-issued, outstanding January 1, 2023 and 2022, respectively | | | 2,440,673 | | | | 2,066,343 | |
| Granted in current period | | | 78,125 | | | | 108,148 | |
| Issued in current period | | | - | | | | - | |
| Shares-to be issued outstanding March 31, 2023 and 2022, respectively | | | 2,518,798 | | | | 2,174,491 | |
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 common stock and other awards, up to a maximum 4,000,000 shares of common stock and expires in June 2031. Options may be granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a price not less than the fair market value of common stock on the date of grant. In general, options become exercisable over a three-year period from the grant date and expire five years after the date of grant.
Milestone Scientific recognizes compensation expense over the requisite service period. For three months ended March 31, 2023 and 2022, Milestone Scientific recognized $362,751 and $305,370 of total employee compensation cost, respectively, recorded in general and administrative expenses on the statement of operations.
A summary of option activity for employees under the plans and changes during the three months ended March 31, 2023 is presented below:
| | | Number of Options | | | Weighted Averaged Exercise Price $ | | | Weighted Average Remaining Contractual Life (Years) | | | Aggregate Intrinsic Options Value $ | |
| Options outstanding January 1, 2023 | | | 3,059,989 | | | | 2.36 | | | | 6.38 | | | | - | |
| Granted during 2023 | | | - | | | | - | | | | - | | | | - | |
| Exercised during 2023 | | | - | | | | - | | | | - | | | | - | |
| Forfeited or expired during 2023 | | | - | | | | - | | | | - | | | | - | |
| Options outstanding March 31, 2023 | | | 3,059,989 | | | | 2.36 | | | | 6.13 | | | | - | |
| Exercisable, March 31, 2023 | | | 1,081,651 | | | | 2.16 | | | | 4.55 | | | | - | |
A summary of option activity for non-employees under the plans and changes during the three months ended March 31, 2023 presented below:
| | | Number of Options | | | Weighted Averaged Exercise Price $ | | | Weighted Average Remaining Contractual Life (Years) | | | Aggregate Intrinsic Options Value $ | |
| Options outstanding January 1, 2023 | | | 91,663 | | | | 1.75 | | | | 2.55 | | | | 1,083 | |
| Granted during 2023 | | | 8,333 | | | | 0.89 | | | | 4.99 | | | | - | |
| Exercised during 2023 | | | - | | | | - | | | | - | | | | - | |
| Options outstanding March 31, 2023 | | | 99,996 | | | | 1.68 | | | | 2.53 | | | | 8,583 | |
| Exercisable, March 31, 2023 | | | 86,109 | | | | 1.78 | | | | 2.21 | | | | 7,583 | |
For the three months ended March 31, 2023 and 2022 , Milestone Scientific recognized approximately $7,798 and $4,978 expense related to non-employee options, respectively.
The information below summarizes the restricted stock award activity for three months ended March 31, 2023.
| | | Number of Shares | | | Weighted Average Grant-Date Fair Value per Award | |
| Non-vested as January 1, 2023 | | | 435,293 | | | | 1.18 | |
| Granted | | | - | | | | - | |
| Vested | | | (192,835 | ) | | | - | |
| Cancelled | | | | | | | - | |
| Non-vested as March 31, 2023 | | | 242,458 | | | | 1.33 | |
As of March 31, 2023, there are 49,615 restricted shares granted and deferred under the terms of employment agreements with each Territory Manager of Milestone Scientific. Such shares will be issued to each party upon completion of 2 years of employment. For the three months ended March 31, 2023 and 2022, the Company recognized stock compensation expense of approximately $9,400 and 22,000 respectively. As of March 31, 2023, the total unrecognized compensation expense was $28,100, related to unvested restricted stock awards, which the Company expects to recognize over an estimated weighted-average period of .78 years.
As of March 31, 2023, the Company entered into restricted stock agreements with members of the Board of Directors of the Company. The Company granted 899,390 restricted stock awards with a fair market value of $0.82 per share. Such restricted stock vests as follows: 25% on the grant date in June 2023, and 25% quarterly, on the first day of the following months: October 2023, January 2023, and April 2024. These awards vest immediately upon a change of control as defined in the agreements. As of March 31, 2023 the Company recognized approximately $140,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operations. As of March 31, 2023, the total unrecognized stock compensation expense was approximately $20,000 related to non-vested restricted stock awards with the members of the Board of Directors, which the Company expects to recognize over an estimated weighted average period of 0.1 years
NOTE 7 — 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 8 — SEGMENT AND GEOGRAPHIC DATA
We conduct our business through two reportable segments: Dental and Medical. These segments offer different products and services to different customer bases. 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:
| | | For the Three Months ended March 31, | |
| | | | | | | | | |
| Net Sales: | | 2023 | | | 2022 | |
| Dental | | $ | 2,591,398 | | | $ | 2,693,352 | |
| Medical | | | 6,200 | | | | 7,550 | |
| Total net sales | | $ | 2,597,598 | | | $ | 2,700,902 | |
| | | | | | | | | |
| Operating Income (Loss): | | 2023 | | | 2022 | |
| Dental | | $ | 641,940 | | | $ | 354,240 | |
| Medical | | | (821,933 | ) | | | (1,236,091 | ) |
| Corporate | | | (1,162,683 | ) | | | (1,032,632 | ) |
| Total operating loss | | $ | (1,342,676 | ) | | $ | (1,914,483 | ) |
| | | | | | | | | |
| Depreciation and Amortization: | | 2023 | | | 2022 | |
| Dental | | $ | 1,168 | | | $ | 893 | |
| Medical | | | 968 | | | | 1,019 | |
| Corporate | | | 15,084 | | | | 14,902 | |
| Total depreciation and amortization | | $ | 17,220 | | | $ | 16,814 | |
| | | | | | | | | |
| Income (loss) before taxes and equity in earnings of affiliates: | | 2023 | | | 2022 | |
| Dental | | $ | 641,169 | | | $ | 352,797 | |
| Medical | | | (823,768 | ) | | | (1,237,540 | ) |
| Corporate | | | (1,136,732 | ) | | | (1,034,482 | ) |
| Total loss before taxes and equity in earnings of affiliate | | $ | (1,319,331 | ) | | $ | (1,919,225 | ) |
| | | | | | | | | |
| Total Assets | | March 31, 2023 | | | December 31, 2022 | |
| Dental | | $ | 4,051,796 | | | $ | 3,875,978 | |
| Medical | | | 691,720 | | | | 620,373 | |
| Corporate | | | 7,529,837 | | | | 9,205,735 | |
| Total assets | | $ | 12,273,353 | | | $ | 13,702,086 | |
The following table shows a breakdown of Milestone Scientific’s product sales (net), domestically and internationally, by business segment product category:
| | | Three Months Ended March 31, 2023 | | | Three Months Ended March 31, 2022 | |
| Domestic: US | | Dental | | | Medical | | | Grand Total | | | Dental | | | Medical | | | Grand Total | |
| Instruments | | $ | | | | $ | 1,000 | | | $ | 225,274 | | | $ | 122,968 | | | $ | - | | | $ | 122,968 | |
| Handpieces | | | 1,139,778 | | | | 1,200 | | | | 1,140,978 | | | | 795,859 | | | | 7,550 | | | | 803,409 | |
| Accessories | | | 23,071 | | | | - | | | | 23,071 | | | | 24,860 | | | | - | | | | 24,860 | |
| Grand Total | | $ | 1,387,123 | | | $ | 2,200 | | | $ | 1,389,323 | | | $ | 943,687 | | | $ | 7,550 | | | $ | 951,237 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| International: Rest of World | | | | | | | | | | | | | | | | | | | | | | | | |
| Instruments | | $ | 398,955 | | | $ | - | | | $ | 398,955 | | | $ | 453,560 | | | $ | - | | | $ | 453,560 | |
| Handpieces | | | 789,116 | | | | 4,000 | | | | 793,116 | | | | 923,952 | | | | - | | | | 923,952 | |
| Accessories | | | 16,204 | | | | - | | | | 16,204 | | | | 12,189 | | | | | | | | 12,189 | |
| Grand Total | | $ | 1,204,275 | | | $ | 4,000 | | | $ | 1,208,275 | | | $ | 1,389,701 | | | $ | - | | | $ | 1,389,701 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| International: China | | | | | | | | | | | | | | | | | | | | | | | | |
| Instruments | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Handpieces | | | - | | | | - | | | | - | | | | 359,964 | | | | - | | | | 359,964 | |
| Accessories | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Grand Total | | $ | - | | | $ | - | | | $ | - | | | $ | 359,964 | | | $ | - | | | $ | 359,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Product Sales | | $ | 2,591,398 | | | $ | 6,200 | | | $ | 2,597,598 | | | $ | 2,693,352 | | | $ | 7,550 | | | $ | 2,700,902 | |
NOTE 9 – CONCENTRATIONS
Milestone Scientific has informal arrangements with third-party U.S. manufacturers of the STA devices, pursuant to which they manufacture these products under specific purchase orders which contain advance requirements but without any long-term contract or minimum purchase commitment. Advances on contracts have been classified as current at March 31, 2023, and 2022. 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.
On January 3, 2023, the Company launched an E-Commerce platform, selling and shipping STA Single Tooth Anesthesia System® (STA) and handpieces directly to dental offices and dental groups within the U.S. For the three months ended March 31, 2023 E-Commerce accounted for 40% of net product sales and one distributor accounted for 15% of net product sales. We had three distributors that accounted for 31%, 13%, and 13% of net product sales, respectively, for three months ended March 31, 2022.
We had two distributors that accounted for 43%, and 13% of accounts receivable, respectively for three months ended March 31, 2023. We had two customers that accounted for 33%, and 20% amount of accounts receivable, respectively as of December 31, 2022.
As of March 31, 2023, we had one vendor that accounted for 11% of accounts payable. As of March 31, 2023, we had one vendor that accounted for 35% of accounts payable related party. We had one vendor that accounted for 42% of accounts payable related party as of December 31, 2022.
NOTE 10 -- RELATED PARTY TRANSACTIONS
United Systems
Milestone Scientific has a supply agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal 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
$667,000 and $1.2 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, Milestone Scientific owed this manufacturer approximately $451,000, and $819,000, respectively, which is included in accounts payable, related party and accrued expense, related party on the unaudited condensed consolidated balance sheets.
Other
During 2022, K. Tucker Andersen, on significant stockholder of Milestone Scientific, entered into an agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were $25,000 for three months ended March 31, 2022. The agreement was not renewed in 2023.
The Director of Clinical Affairs’ royalty fee was approximately $122,000 and $133,000 for three months ended March 31, 2023 and 2022, respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of $39,000 for three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, Milestone Scientific owed the Director Clinical Affairs for royalties of approximately $122,000 and $120,000, respectively, which is included in accounts payable, related party and accrued expense, related party, in the condensed consolidated balance sheet.
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 was increased by $100,000 to $200,000, equally split between a cash amount and an amount in shares, which shares were formerly payable under the China Operations Agreement. Compensation under the China Operations Agreement and the Consulting Agreement are payable for 9.5 years from May 19, 2021. The Company recorded expense of $50,000 related to the Managing Director, China Operations for three months ended March 31, 2023 and 2022, respectively. The Company recorded expense of $50,000 related to the US Asian Consulting Group, LLC for three months ended March 31, 2023 and 2022, respectively.
NOTE 11 — COMMITMENTS
(1) Contract Manufacturing Agreement
Milestone Scientific has informal arrangements with third-party manufacturers of the STA, device pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. The Company has a purchase commitment for the delivery of 1,700 STA CompuDent® instruments as of March 31, 2023. As of March 31, 2023, the purchase order commitment was approximately $1.4 million, and approximately $1.1 million was paid and reported in advances on contracts in the condensed consolidated balance sheet. As of December 31, 2022, the purchase order commitment was approximately $1.7 million, and approximately $1.2 million was paid and reported in advances on contracts in the condensed consolidated balance sheet.
(2) Leases
Operating Leases
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
| | ● | As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the Medical Device industry. |
| | ● | Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. |
| | ● | The expected lease terms include non-cancellable lease periods. Renewal option periods are not included in the determination of the lease terms as they were not reasonably certain to be exercised. |
The components of lease expense were as follows:
| | | March 31, 2023 | | | March 31, 2022 | |
| Cash paid for operating lease liabilities | | $ | 32,694 | | | $ | 31,882 | |
| Cash paid for finance lease liabilities | | | 2,685 | | | | 2,685 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities (1) | | | | | | | 663,009 | |
| Property and equipment obtained in exchange for new finance lease liabilities | | | | | | | 43,242 | |
| Weighted Average Remaining Lease Term | | | | | | | | |
| Finance leases (years) | | 1.8 years | | | 2.8 years | |
| Operating leases (years) | | 4 years | | | 5 years | |
| Weighted-average discount rate – operating leases | | | 9.20 | % | | | 9.20 | % |
| Weighted-average discount rate – finance leases | | | 9.20 | % | | | 9.20 | % |