Milestone Scientific(MLSS) - 2023 Q4 - Annual Report

PART I Item 1. Business Milestone Scientific Inc. develops and commercializes proprietary computer-controlled anesthetic delivery devices using DPS Dynamic Pressure Sensing Technology for global dental and medical markets - Milestone Scientific develops proprietary computer-controlled anesthetic delivery devices using DPS Dynamic Pressure Sensing Technology for dental and medical applications[10][140][142] - The company's dental products (CompuDent®, STA Single Tooth Anesthesia System®) are sold in over 41 countries, while the medical CompuFlo® Epidural System has FDA clearance and CE mark approval[11][143] - A chronology-specific CPT Code for the CompuFlo Epidural System, effective January 1, 2023, is expected to accelerate its commercial rollout in the U.S. by expanding reimbursement potential[21][144][151] - Milestone Scientific holds approximately 245 U.S. and foreign patents and 36 registered trademarks related to its drug delivery technologies[25][144] - The company relies on informal arrangements with third-party manufacturers in the U.S. and China for its products and handpieces, without minimum purchase commitments[27][28] Item 1A. Risk Factors Milestone Scientific faces significant risks including a history of operating losses, negative cash flows, and dependence on third-party manufacturers - Milestone Scientific has incurred significant operating losses ($7.1 million in 2023, $8.8 million in 2022) and negative cash flows, indicating a need for additional funding[54][56] - The company's reliance on third-party manufacturers, particularly the sole handpiece manufacturer in China, exposes it to supply chain disruptions and geopolitical risks[74][80] - International sales constituted approximately 45% of total sales in 2023, exposing the company to risks such as foreign currency fluctuations, political instability, and trade barriers[63][64] - The company's ability to generate revenue from its CompuFlo Epidural System is dependent on physician acceptance and adequate reimbursement from healthcare payers, which remains uncertain[65][67] - The market price of Milestone Scientific's common stock may be volatile due to factors such as failure to meet analyst expectations, sales of substantial amounts of common stock, and competitive developments[103][104] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[122] Item 1C. Cybersecurity Milestone Scientific's board oversees cybersecurity risks, with management responsible for administration and no material incidents identified - The board of directors, via the audit committee, oversees cybersecurity risks, receiving quarterly reports from management[123] - Management, under the CEO, administers the cybersecurity program, supported by external security service providers for monitoring and threat detection[124][126] - The company has not identified any cybersecurity incidents or threats that have materially affected its business, strategy, results of operations, or financial condition[127] Item 2. Description of Property Milestone Scientific's principal executive office is a leased facility in New Jersey, with a third-party distribution center in Pennsylvania - The company's headquarters are located at a leased facility in Roseland, New Jersey, with monthly lease payments of $9,275[128] - A third-party distribution and logistics center in Pennsylvania manages shipping and order fulfillment[128] - Milestone Scientific does not own or plan to invest in any real property[129] Item 3. Legal Proceedings Milestone Scientific is not currently involved in any material litigation - The company is not involved in any material litigation[130] Item 4. Mine Safety Disclosure This item is not applicable to Milestone Scientific Inc - Mine Safety Disclosure is not applicable to the registrant[131] PART II Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities Milestone Scientific's common stock is listed on the NYSE American, with approximately 97 stockholders of record, and no cash dividends are expected - Milestone Scientific's common stock (MLSS) has been listed on the NYSE American since June 1, 2015[132][140] Common Stock Price Range | Quarter | 2023 High ($) | 2023 Low ($) | 2022 High ($) | 2022 Low ($) | | :--- | :--- | :--- | :--- | :--- | | First Quarter | 1.00 | 0.46 | 2.20 | 1.13 | | Second Quarter | 1.22 | 0.72 | 1.60 | 0.75 | | Third Quarter | 1.35 | 0.81 | 1.27 | 0.71 | | Fourth Quarter | 1.00 | 0.56 | 0.87 | 0.45 | - As of March 29, 2024, there were approximately 97 stockholders of record and 3,318 beneficial owners of common stock[134] - The company has not paid and does not expect to declare or pay any cash dividends in the foreseeable future[105][135] Item 6. Reserved This item is reserved as Milestone Scientific is a "smaller reporting company" and is not required to provide the information - Milestone Scientific is a "smaller reporting company" and is not required to provide the information for this item[137] Item 7. Management's Discussion and Analysis or Plan of Operations Milestone Scientific reported increased consolidated revenue and gross profit in 2023, leading to a decreased operating loss, while assessing going concern viability - Consolidated revenue increased by approximately $1.0 million to $9.8 million in 2023, up from $8.8 million in 2022[163] Consolidated Revenue by Segment (2023 vs. 2022) | Segment | 2023 Sales ($) | 2022 Sales ($) | Change ($) | | :--- | :--- | :--- | :--- | | Dental | 9,761,444 | 8,753,156 | 1,008,288 | | Medical | 66,000 | 52,750 | 13,250 | | Total Sales, Net | 9,827,444 | 8,805,906 | 1,021,538 | - E-commerce revenue, launched January 3, 2023, contributed approximately $4.8 million in 2023, offsetting the termination of the Henry Schein distribution agreement[163][165] Consolidated Gross Profit (2023 vs. 2022) | Segment | 2023 Gross Profit ($) | 2022 Gross Profit ($) | Change ($) | | :--- | :--- | :--- | :--- | | Dental | 7,030,018 | 5,446,175 | 1,583,843 | | Medical | (237,406) | (545,361) | 307,955 | | Total Gross Profit | 6,792,612 | 4,900,814 | 1,891,798 | - Consolidated gross profit increased by approximately $1.9 million (40%) in 2023, driven by higher margins from E-Commerce sales[166] Consolidated Operating Expenses (2023 vs. 2022) | Expense Category | 2023 ($) | 2022 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Selling, general and administrative | 13,135,796 | 12,514,323 | 621,473 | | Research and development | 701,378 | 1,150,209 | (448,831) | | Depreciation and amortization | 61,912 | 63,755 | (1,843) | | Total Operating Expenses | 13,899,086 | 13,728,287 | 170,799 | - Loss from operations decreased by approximately $1.7 million, from $8.8 million in 2022 to $7.1 million in 2023, due to higher dental sales and increased margins[162][169][170] Cash Flows Summary (2023 vs. 2022) | Activity | 2023 ($) | 2022 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Operating Activities | (5,326,129) | (6,031,996) | 705,867 | | Investing Activities | (2,972,172) | (8,527) | (2,963,645) | | Financing Activities | 2,560,735 | (8,544) | 2,569,279 | | Net Decrease in Cash | (5,737,566) | (6,049,067) | 311,501 | - The company's current cash and liquidity are projected to be sufficient for the next 12 months, supported by potential positive cash flow from the NJ NOL Program and efforts to increase revenue and reduce expenses[159][175][176] Item 7A. Quantitative and Qualitative Disclosure about Market Risk Milestone Scientific is exempt from providing quantitative and qualitative disclosures about market risk due to its "smaller reporting company" status - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a "smaller reporting company"[179] Item 8. Financial Statements The consolidated financial statements for Milestone Scientific Inc. are presented starting on page F-1 of the report - The financial statements are located starting on page F-1 of the annual report[180] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Milestone Scientific reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[181] Item 9A. Controls and Procedures Milestone Scientific's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[182] - Management also concluded that internal control over financial reporting was effective as of December 31, 2023[183] - No material changes were made to internal control over financial reporting during the year ended December 31, 2023[184] Item 9B. Other Information No other information was required to be reported under this item - No other information was reported under this item[185] Item 9C. Disclosure regarding Foreign Jurisdiction that Prevent inspections Milestone Scientific has no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections were reported[186] PART III Item 10. Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section 16 (a) of the Exchange Act Milestone Scientific's corporate governance includes a Board with separate Chairman and CEO roles, independent directors, and policies for risk management and ethics - The Board of Directors maintains separate roles for Chairman (Neal Goldman) and CEO (Jan Adriaan Haverhals) to ensure effective governance and oversight[188][198] - The Board oversees risk management, identifying material risks and integrating risk management into corporate strategy[199] - Key committees include Audit, Compensation, and Nominating and Corporate Governance, with Benedetta Casamento, Neal Goldman, and Michael McGeehan identified as independent directors[200][201][202][204][209] - The company has an insider trading compliance policy and a code of ethics, and all Section 16(a) filing requirements were complied with for 2023[211][212][213] - A clawback policy allows for the recovery of 'excess' compensation granted based on financial reporting measures in the event of an accounting restatement[214] Item 11. Executive Compensation This section details executive compensation for the CEO and former CFO, including salary, bonuses, and equity awards, and illustrates pay versus performance Summary Compensation Table (2023 vs. 2022) | Name and Principal Position | Year | Salary ($) | Bonuses ($) | Option Awards ($) | Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Jan Adriaan (Arjan) Haverhals (CEO) | 2023 | 350,000 | 281,853 | - | 48,412 | 680,265 | | Jan Adriaan (Arjan) Haverhals (CEO) | 2022 | 350,000 | 246,603 | 216,385 | 28,153 | 841,141 | | Peter Milligan (CFO) | 2023 | 70,000 | 100,000 | - | - | 170,000 | Pay versus Performance Table (2023 vs. 2022) | Year | Summary Compensation Table Total for PEO($) | Compensation Actually Paid to PEO($) | Total Shareholder Return ($) | Net Income ($) | | :--- | :--- | :--- | :--- | :--- | | 2023 | 680,265 | 680,265 | 150.00 | (6,929,104) | | 2022 | 841,141 | 649,824 | 22.86 | (8,706,131) | - CEO Arjan Haverhals' employment agreement includes a base salary of $350,000 and performance-based bonuses up to $400,000 annually, payable in cash and stock[224][339] Outstanding Equity Awards for Named Executive Officers (December 31, 2023) | Name | Number of Securities Underlying Vested Options () | Number of Securities Underlying Nonvested Options () | Number of Shares or Units of Stock that have not vested () | Market Value of Shares or Units of Stock that have not vested ($) | | :--- | :--- | :--- | :--- | :--- | | Jan Adriaan (Arjan) Haverhals | 159,676 | 96,620 | 319,546 | 220,487 | | Leonard Osser | 1,528,400 | 1,207,293 | 2,272,713 | 1,568,172 | | Grand Total | 1,688,076 | 1,303,913 | 2,592,260 | 1,788,659 | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership of common stock by principal stockholders, executive officers, and directors, and information on equity compensation plans Beneficial Ownership of Common Stock (March 15, 2024) | Names of Beneficial Owner | Shares of Common Stock Beneficially Owned | Percentage | | :--- | :--- | :--- | | Jan Adriaan (Arjan) Haverhals | 319,546 | 0.42% | | Neal Goldman | 2,112,834 | 2.77% | | Benedetta Casamento | 269,659 | 0.35% | | Michael McGeehan | 505,407 | 0.66% | | Leonard Osser | 5,166,428 | 6.78% | | Dr. Didier Demesmin | - | -% | | Gian Domenico Trombetta | 10,484,597 | 13.76% | | All directors & executive officers as group (7 persons) | 18,858,472 | 24.75% | Equity Compensation Plan Information (December 31, 2023) | Plan | Number of Securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options ($) | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Grants under our 2020 Equity Incentive Plan | 3,128,652 | 2.30 | 9,174,520 | | Total | 3,128,652 | - | 9,174,520 | - The 2020 Equity Incentive Plan, amended in 2023, allows for awards of up to 11,500,000 shares of common stock and expires in December 2030[236][327] Item 13. Certain Relationships and Related Transactions, and Director Independence Milestone Scientific engages in various related party transactions, including supply agreements, sales to a formerly owned entity, and consulting arrangements - Milestone Scientific has a supply agreement with United Systems, a related party, for handpieces; purchases were approximately $2.3 million in 2023 and $3.4 million in 2022[237][355] - Sales to Milestone China, a formerly owned entity, amounted to approximately $270,000 in 2023 and $630,000 in 2022[238][356] - Consulting fees of $100,000 were paid to K. Tucker Andersen, a significant stockholder, in both 2023 and 2022[239][356] - Royalty fees of approximately $485,000 and consulting fees of $156,000 were expensed to the Director of Clinical Affairs in 2023[240][357] - Leonard Osser has a Royalty Sharing Agreement and Succession Agreement, with expenses of $200,000 each for his employment and consulting agreements in both 2023 and 2022[241][242][243][358][359][360][361] Item 14. Principal Accounting Fees and Services Milestone Scientific incurred audit and tax fees from Marcum LLP in 2023 and 2022, with all engagements pre-approved by the Audit Committee Principal Accounting Fees (2023 vs. 2022) | Fee Type | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Audit Fees | 295,200 | 267,000 | | Tax Fees | 42,000 | 40,000 | | Audit Related Fees | - | - | | All Other Fees | - | - | - All audit and non-audit services provided by the independent accountants were pre-approved by the Audit Committee[249][250] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K - The report includes financial statements, certificates of incorporation, by-laws, equity incentive plans, and various agreements as exhibits[251][253] SIGNATURES The Annual Report on Form 10-K was signed on March 29, 2024, by the Chief Executive Officer, Chairman, and all Directors - The report was signed by the Chief Executive Officer, Chairman, and all Directors on March 29, 2024[254][255] REPORT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS This index provides a guide to the consolidated financial statements and accompanying notes for the years ended December 31, 2023 and 2022 - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Changes in Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[257] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Marcum LLP issued an unqualified opinion on Milestone Scientific's consolidated financial statements for 2023 and 2022, with no critical audit matters identified - Marcum LLP provided an unqualified opinion, stating the financial statements present fairly in all material respects[259] - No critical audit matters were identified during the audit[263] - Marcum LLP has served as the company's auditor since 2016[264] CONSOLIDATED BALANCE SHEETS The consolidated balance sheets present Milestone Scientific's financial position as of December 31, 2023 and 2022, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (December 31, 2023 vs. 2022) | Item | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | 2,977,713 | 8,715,279 | | Marketable securities | 2,976,573 | - | | Total current assets | 10,794,469 | 12,970,504 | | Total assets | 11,371,512 | 13,702,086 | | Total current liabilities | 3,076,713 | 3,299,675 | | Total liabilities | 3,359,000 | 3,695,652 | | Total stockholders' equity | 8,012,512 | 10,006,434 | - Cash and cash equivalents decreased significantly from $8.7 million in 2022 to $3.0 million in 2023, while marketable securities increased from $0 to $3.0 million[266] - Total liabilities decreased from $3.7 million in 2022 to $3.4 million in 2023[266] CONSOLIDATED STATEMENTS OF OPERATIONS The consolidated statements of operations show Milestone Scientific's financial performance for 2023 and 2022, with increased net product sales and a decreased net loss Consolidated Statements of Operations Highlights (2023 vs. 2022) | Item | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Product sales, net | 9,827,444 | 8,805,906 | | Cost of products sold | 3,034,832 | 3,905,092 | | Gross profit | 6,792,612 | 4,900,814 | | Selling, general and administrative expenses | 13,135,796 | 12,514,323 | | Research and development expenses | 701,378 | 1,150,209 | | Loss from operations | (7,106,474) | (8,827,473) | | Net loss attributable to Milestone Scientific Inc. | (6,929,104) | (8,706,131) | | Net loss per share (Basic and Diluted) | (0.10) | (0.12) | - Net product sales increased by approximately $1.0 million, and gross profit increased by $1.9 million in 2023 compared to 2022[268] - Net loss attributable to Milestone Scientific Inc. decreased from $8.7 million in 2022 to $6.9 million in 2023[268] CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY The consolidated statements of changes in stockholders' equity reflect movements in common stock, additional paid-in capital, and accumulated deficit for 2023 and 2022 Changes in Stockholders' Equity Highlights (2023 vs. 2022) | Item | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Balance January 1 | 10,006,434 | 16,215,382 | | Stock based compensation | 1,467,425 | 1,499,302 | | Common stock issued in public offering (net) | 2,570,101 | - | | Repurchase of noncontrolling interest | (214,000) | - | | Net loss | (6,980,947) | (8,772,866) | | Balance December 31 | 8,012,512 | 10,006,434 | - Total stockholders' equity decreased from $10.0 million in 2022 to $8.0 million in 2023[270] - A public offering of common stock generated net proceeds of approximately $2.6 million in 2023[270] - The company repurchased the remaining minority stake of Milestone Medical, Inc. for $214,000 in December 2023[270][321] CONSOLIDATED STATEMENTS OF CASH FLOWS The consolidated statements of cash flows detail the sources and uses of cash for 2023 and 2022, showing changes in operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (2023 vs. 2022) | Activity | 2023 ($) | 2022 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Cash flows used in operating activities | (5,326,129) | (6,031,996) | 705,867 | | Cash flows used in investing activities | (2,972,172) | (8,527) | (2,963,645) | | Cash flows provided by (used in) financing activities | 2,560,735 | (8,544) | 2,569,279 | | Net decrease in cash and cash equivalents | (5,737,566) | (6,049,067) | 311,501 | - Cash flows used in operating activities decreased by $0.7 million in 2023, primarily due to an increase in cash used in working capital activities offset by employees paid in common stock[172][272] - Cash flows used in investing activities increased by $3.0 million in 2023, driven by the purchase of $7.9 million in marketable securities, partially offset by $5.0 million in sales[173][272] - Cash flows provided by financing activities increased by $2.6 million in 2023, mainly from $3.0 million in gross proceeds from a public offering of common stock[174][272] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The notes provide detailed information on Milestone Scientific's organization, business, liquidity, and significant accounting policies, including specific notes on inventories, fixed assets, and related party transactions - Milestone Scientific's core business involves proprietary computer-controlled anesthetic delivery devices for dental and medical markets, including the CompuFlo® Epidural System[275] - The company has incurred total losses of $123.3 million since inception and relies on cash flow forecasts and potential capital raises to address going concern uncertainties[278][279] - Revenue from product sales is recognized upon transfer of control, generally at shipment, with an E-Commerce platform launched in January 2023 for direct sales[285][286] - Inventories are stated at the lower of cost or net realizable value, with an allowance for slow-moving medical finished goods of approximately $258,000 in 2023[295][316] - The company holds approximately $3.0 million in U.S. treasury securities as marketable securities, classified as Level 1 in the fair value hierarchy[293][307] - Federal net operating loss carry-forwards totaled approximately $74.5 million as of December 31, 2023, with a full valuation allowance due to uncertainty of future realization[343][345] - Total operating lease liabilities were $385,280 as of December 31, 2023, with a weighted average remaining lease term of 3.25 years[364][365] - Subsequent events include the underwriter's exercise of an over-allotment option for 372,110 common shares and the exercise of warrants for 103,500 common shares in January 2024[368] NOTE A — ORGANIZATION AND BUSINESS This note describes Milestone Scientific's core business of developing computer-controlled anesthetic delivery devices for dental and medical applications - Milestone Scientific, incorporated in 1989, develops proprietary computer-controlled anesthetic delivery devices for dental (CompuDent®, STA Single Tooth Anesthesia System®) and medical (CompuMed®, CompuFlo® Epidural System) applications[275] - The company received 510(k) marketing clearance from the FDA for the CompuFlo® Epidural Computer Controlled Anesthesia System in June 2017[275] - A new CompuPulse System, combining CompuWave technology with a manual syringe, received a Notice of Allowance from the USPTO in 2020, offering a low-cost alternative for needle and catheter placement verification[277] NOTE B- LIQUIDITY AND UNCERTAINTIES Milestone Scientific has a history of significant operating losses and relies on cash and marketable securities, along with future capital raises, to maintain liquidity - Milestone Scientific has incurred total losses of $123.3 million since inception, with operating losses of $7.1 million in 2023 and $8.8 million in 2022[278] - As of December 31, 2023, the company had $6.0 million in cash and marketable securities and $7.7 million in working capital[278] - Management's cash flow forecasts indicate sufficient liquidity for the next 12 months, supported by the New Jersey Technology Business Tax Certificate Transfer Program (NJ NOL Program) and efforts to increase revenue and reduce expenses[279] NOTE C — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines Milestone Scientific's accounting principles, including consolidation, revenue recognition, cash management, marketable securities, and R&D expenses - The consolidated financial statements are prepared in accordance with GAAP and include wholly-owned and majority-owned subsidiaries[281] - Revenue from product sales is recognized when control is transferred to the customer, generally upon shipment, with no post-sale obligations other than normal commercial warranty[285] - The E-Commerce platform, launched January 3, 2023, sells STA Single Tooth Anesthesia Systems® and handpieces directly to dental offices in the U.S., recognizing revenue at shipment[286] - Marketable securities, primarily U.S. treasury securities, are measured at fair value (Level 1) with unrealized gains and losses recorded in interest income[292][293][307] - Research and development costs, mainly for new product development, are expensed as incurred[300] - The company adopted ASU 2016-13 (Credit Losses) and ASU 2019-10 (Effective Dates) as of January 1, 2023, with no material impact on financial statements[314][315] NOTE D — INVENTORIES This note details the composition of Milestone Scientific's inventories, including finished goods and component parts, and the allowance for slow-moving items Inventories (December 31, 2023 vs. 2022) | Item | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Dental finished goods | 2,404,970 | 1,315,263 | | Medical finished goods | 14,730 | 334,124 | | Component parts and other materials | 218,486 | 142,948 | | Total inventories | 2,638,186 | 1,792,335 | - An allowance for slow-moving medical finished goods was recorded at approximately $258,000 in 2023 and $582,000 in 2022[316] NOTE E — ADVANCES ON CONTRACTS This note describes advances on contracts representing funding for future inventory purchases for dental STA and epidural products - Advances on contracts represent funding for future dental STA and epidural inventory purchases, totaling approximately $1.4 million in 2023 and $1.3 million in 2022[317] NOTE F— FURNITURE, FIXTURES AND EQUIPMENT This note provides details on Milestone Scientific's furniture, fixtures, and equipment, including their cost, accumulated depreciation, and net value Furniture, Fixtures and Equipment, Net (December 31, 2023 vs. 2022) | Item | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Total Cost | 928,634 | 923,757 | | Less accumulated depreciation | (918,610) | (905,611) | | Total, Net | 10,024 | 18,146 | - Depreciation expense was $12,999 in 2023 and $14,180 in 2022[318] NOTE G —INTANGIBLES, NET This note outlines Milestone Scientific's intangible assets, primarily patents, including their cost, accumulated amortization, and expected future amortization expense Intangibles, Net (December 31, 2023 vs. 2022) | Item | Cost ($) | Accumulated Amortization ($) | Net ($) | | :--- | :--- | :--- | :--- | | Patents-foundation intellectual property (2023) | 1,377,863 | (1,199,227) | 178,636 | | Patents-foundation intellectual property (2022) | 1,377,863 | (1,149,907) | 227,956 | - Amortization expense for patents was approximately $49,000 in 2023 and $50,000 in 2022[319] - Expected annual amortization expense for existing intangibles is approximately $34,000 for 2024, $28,000 for 2025, $28,000 for 2026, and $86,000 for 2027[319] NOTE H — STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including a public offering, repurchase of noncontrolling interest, and information on outstanding warrants and shares to be issued - A public offering on December 10, 2023, resulted in the sale of 4,765,000 common shares at $0.63 per share, generating approximately $2.6 million in net proceeds[320] - The company repurchased the remaining minority stake of Milestone Medical, Inc. for $214,000 in December 2023, recording a charge to additional paid-in capital of approximately $485,000[321] Warrants Outstanding (December 31, 2023) | Item | Value | | :--- | :--- | | Warrant shares outstanding | 314,572 | | Weighted Average exercise price ($) | 0.50 | | Weighted Average remaining life (years) | 0.10 | | Intrinsic value ($) | 59,737 | - As of December 31, 2023, there were 3,098,917 shares to be issued, including 2,571,292 deferred under employment agreements and 527,625 for non-employees[323][324][326] NOTE I — STOCK OPTION PLANS This note describes Milestone Scientific's equity incentive plan, stock-based compensation expense, and activity related to employee and non-employee stock options - The Amended and Restated 2020 Equity Incentive Plan was amended on June 28, 2023, increasing the maximum common stock shares to 11,500,000 and expiring in June 2031[327] - Stock-based compensation expense recognized was approximately $0.9 million in 2023 and $1.0 million in 2022[328] - As of December 31, 2023, there was $1.5 million of unrecognized compensation cost related to non-vested options, expected to be recognized over a weighted average period of 2.3 years[329] Employee Stock Option Activity (December 31, 2023) | Item | Number of Options | Weighted Averaged Exercise Price ($) | | :--- | :--- | :--- | | Options outstanding January 1, 2023 | 3,059,989 | 2.36 | | Forfeited or expired during 2023 | (23,000) | - | | Options outstanding December 31, 2023 | 3,036,989 | 2.29 | | Exercisable, December 31, 2023 | 1,732,084 | 2.21 | Non-Employee Stock Option Activity (December 31, 2023) | Item | Number of Options | Weighted Averaged Exercise Price ($) | | :--- | :--- | :--- | | Options outstanding January 1, 2023 | 91,663 | 1.75 | | Granted during 2023 | 8,333 | 0.89 | | Exercised during 2023 | (8,333) | 0.75 | | Options outstanding December 31, 2023 | 91,663 | 1.76 | | Exercisable, December 31, 2023 | 83,332 | 1.86 | NOTE J–EMPLOYMENT CONTRACT AND CONSULTING AGREEMENTS This note details employment and consulting agreements with key individuals, including compensation, royalty fees, and severance provisions - K. Tucker Andersen, a significant stockholder, received $100,000 for financial and business strategic services in both 2023 and 2022[334] - The Director of Clinical Affairs received approximately $485,000 in royalty fees and $156,000 in consulting fees in 2023[335] - Leonard Osser's Royalty Sharing Agreement and Succession Agreement resulted in $200,000 expenses each for his employment and consulting agreements in 2023 and 2022[336][337][338] - Arjan Haverhals' employment agreement, effective January 1, 2022, includes a base salary of $350,000 and performance-based bonuses up to $400,000, with severance provisions[339] NOTE K — INCOME TAXES This note explains Milestone Scientific's income tax accounting, including deferred tax assets, valuation allowances, and net operating loss carry-forwards - Milestone Scientific accounts for income taxes using the asset and liability method, establishing valuation allowances for deferred tax assets when realization is uncertain[340] - A full valuation allowance has been provided for all deferred tax assets due to the company's history of operating losses and uncertainty regarding future realization[342][345] - As of December 31, 2023, federal net operating loss carry-forwards were approximately $74.5 million, with $36.4 million generated after 2018 available indefinitely[343] - State net operating losses were approximately $63.3 million as of December 31, 2023, available through December 2041[344] NOTE L — SEGMENT AND GEOGRAPHIC DATA This note provides financial data segmented by the company's Dental and Medical operations, as well as geographic sales distribution - The company operates in two reportable segments: Dental and Medical, with Corporate Services covering executive management, investor relations, and compliance costs[348] Net Sales by Segment (2023 vs. 2022) | Segment | 2023 Net Sales ($) | 2022 Net Sales ($) | | :--- | :--- | :--- | | Dental | 9,761,444 | 8,753,156 | | Medical | 66,000 | 52,750 | | Total net sales | 9,827,444 | 8,805,906 | Operating Income (Loss) by Segment (2023 vs. 2022) | Segment | 2023 Operating Income (Loss) ($) | 2022 Operating Income (Loss) ($) | | :--- | :--- | :--- | | Dental | 2,128,199 | 1,121,815 | | Medical | (3,708,170) | (4,788,105) | | Corporate | (5,526,503) | (5,161,183) | | Total operating loss | (7,106,474) | (8,827,473) | Total Product Sales by Geographic Area and Product Category (2023) | Geographic Area | Dental Instruments ($) | Dental Handpieces ($) | Dental Accessories ($) | Medical Instruments ($) | Medical Handpieces ($) | Total Product Sales ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Domestic: US | 1,002,697 | 4,270,898 | 75,285 | 1,000 | 12,000 | 5,361,880 | | International: Rest of World | 1,251,354 | 2,845,734 | 45,476 | 25,000 | 28,000 | 4,195,564 | | International: China | 270,000 | - | - | - | - | 270,000 | | Total Product Sales | 2,524,051 | 7,116,632 | 120,761 | 26,000 | 40,000 | 9,827,444 | NOTE M-- CONCENTRATION This note discusses Milestone Scientific's reliance on third-party manufacturers, the contribution of its E-Commerce platform, and concentrations in accounts receivable and payable - Milestone Scientific relies on informal arrangements with third-party U.S. manufacturers for its STA, CompuDent, and CompuMed devices, without long-term contracts or minimum purchase commitments[351] - The E-Commerce platform accounted for 48% of net product sales for the year ended December 31, 2023[352] - As of December 31, 2023, three distributors accounted for 39%, 38%, and 15% of accounts receivable, respectively[353] - Three vendors accounted for 37%, 17%, and 12% of accounts payable and related party accounts payable as of December 31, 2023[354] NOTE N -- RELATED PARTY TRANSACTIONS This note details transactions with related parties, including purchases from United Systems, sales to Milestone China, and fees paid to significant stockholders and executives - Purchases from United Systems, a related party and principal handpiece supplier, were approximately $2.3 million in 2023 and $3.4 million in 2022[355] - Sales to Milestone China, a formerly owned entity, were $270,000 in 2023 and $630,000 in 2022[356] - Royalty fees of $485,000 and consulting fees of $156,000 were expensed to the Director of Clinical Affairs in 2023[357] - Leonard Osser's employment and consulting agreements resulted in $200,000 expenses each for 2023 and 2022, related to his role as Vice Chairman and consulting services[360][361] NOTE O — COMMITMENTS This note outlines Milestone Scientific's contractual commitments, including purchase orders for instruments and lease obligations for its Roseland facility - The company has a purchase order commitment of approximately $2.3 million for STA CompuDent® instruments as of December 31, 2023, with $1.3 million already paid as advances[362] - The Roseland Facility lease, commenced January 8, 2021, has monthly payments ranging from $9,275 to $10,898 over a seven-year term[363] Maturity of Lease Liabilities (December 31, 2023) | Year | Operating Lease ($) | Finance Lease ($) | | :--- | :--- | :--- | | 2024 | 133,560 | 10,740 | | 2025 | 136,343 | 433 | | 2026 | 139,125 | - | | 2027 | 35,477 | - | | Present Value of lease liabilities | 385,280 | 10,698 | NOTE P — BENEFIT PLAN This note describes Milestone Scientific's Defined Contribution Plan, allowing eligible employees to contribute to their retirement savings - Milestone Scientific offers a Defined Contribution Plan allowing eligible employees to contribute part of their salary, with the company covering administrative costs[367] NOTE Q — SUBSEQUENT EVENTS This note reports on significant events occurring after the balance sheet date, including an underwriter's over-allotment option exercise and warrant exercises - On January 12, 2024, the underwriter exercised its over-allotment option for 372,110 common shares, generating $216,847 in net proceeds[368] - Since December 31, 2023, the company issued 103,500 common shares from warrant exercises at $0.50, yielding $51,647[368]