##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 o
    
    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: 001-14053
 MILESTONE SCIENTIFIC INC.
 
  Delaware
    
    13-3545623(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 45 Knightsbridge Road, Piscataway, New Jersey 08854
 (973) 535-2717 (Registrants telephone number, including area code)
 
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



PART I  FINANCIAL INFORMATIONItem 1. Finanacial StatementsCondensed Balance Sheets

March 31, 2010 (Unaudited) and December 31, 2009
    
    
    4Condensed Statements of Operations

Three Months Ended March 31, 2010 and 2009 (Unaudited)
    
    
    5Condensed Statements of Changes in Stockholders Equity (Unaudited) 

Three Months Ended March 31, 2010 (Unaudited)
    
    
    6Condensed Statements of Cash Flow 

Three Months Ended March 31, 2010 and 2009 (Unaudited)
    
    
    7Notes to Condensed Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregisterd Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24SIGNATURES
    
    
    25Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



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 and Section 21E of the Exchange Act regarding events, conditions and financial trends that may
affect Milestones future plans of operations, business strategy, results of operations and
financial condition. Milestone 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. 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s reports and registration statements filed with the Securities and Exchange
Commission (the Commission). Milestone disclaims any intent or obligation to update such
forward-looking statements.
  3




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##### Table of Contents



March 31, 2010
    
    
    December 31, 2009(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,218,027
    
    
    $
    1,029,129Accounts receivable, net of allowance for doubtful accounts of $5,000
    
    
    931,218
    
    
    
    1,063,742Inventories
    
    
    965,341
    
    
    
    804,736Advances to contract manufacturer, current
    
    
    733,183
    
    
    
    151,995Prepaid expenses and other current assets
    
    
    496,240
    
    
    
    254,501Total current assets
    
    
    4,344,009
    
    
    
    3,304,103Advances to contract manufacturer, non current
    
    
    326,020
    
    
    
    311,230Investment in distributor, at cost
    
    
    76,319
    
    
    
    76,319Furniture, Fixtures & Equipment net of accumulated depreciation of $414,280
as of March 31, 2010 and $395,630 as of December 31, 2009
    
    
    78,546
    
    
    
    77,353Patents, net of accumulated amortization of $231,950 as of March 31, 2010
and $211,539 as of December 31, 2009
    
    
    966,600
    
    
    
    947,315Other assets
    
    
    116,309
    
    
    
    133,674Total assets
    
    $
    5,907,803
    
    
    $
    4,849,994LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,951,678
    
    
    $
    1,154,013Accrued interest  6% note, current
    
    
    92,000
    
    
    $
    Accrued expenses and other payable
    
    
    363,338
    
    
    
    524,017Total current liabilities
    
    
    2,407,016
    
    
    
    1,678,030Long-term Liabilities:Accrued Interest  6% note, non current
    
    
    61,573
    
    
    
    92,000Accrued Interest  12% note, non current
    
    
    76,431
    
    
    
    Notes Payable-net of discount of $10,458 and $11,157, respectively
    
    
    439,542
    
    
    
    438,843Total long-term liabilities
    
    
    577,546
    
    
    
    530,843Commitments and ContingenciesStockholders EquityCommon stock, par value $.001; authorized 50,000,000 shares; 14,811,807 shares issued
692,498 shares to be issued and 14,778,474 shares outstanding as of March 31, 2010;
14,781,296 shares issued, 692,498 shares to be issued, and 14,747,962 shares outstanding
as of December 31, 2009
    
    
    15,502
    
    
    
    15,472Additional paid-in capital
    
    
    62,498,787
    
    
    
    62,300,619Accumulated deficit
    
    
    (58,679,532
    )
    
    
    (58,763,454
    )Treasury stock, at cost, 33,333 shares
    
    
    (911,516
    )
    
    
    (911,516
    )Total stockholders equity
    
    
    2,923,241
    
    
    
    2,641,121Total liabilities and stockholders equity
    
    $
    5,907,803
    
    
    $
    4,849,994
   4




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##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009Product sales, net
    
    $
    2,562,578
    
    
    $
    2,204,819Cost of products sold
    
    
    900,712
    
    
    
    916,550Gross profit
    
    
    1,661,866
    
    
    
    1,288,269Selling, general and administrative expenses
    
    
    1,541,702
    
    
    
    1,728,815Research and development expenses
    
    
    88,464
    
    
    
    67,622Total operating expenses
    
    
    1,630,166
    
    
    
    1,796,437Income (loss) from operations
    
    
    31,700
    
    
    
    (508,168
    )Other income (expense)Other income
    
    
    61,916
    
    
    
    Interest expense
    
    
    (9,343
    )
    
    
    (47,403
    )Amortization of debt issuance
    
    
    (699
    )
    
    
    (7,875
    )Interest income
    
    
    348
    
    
    
    1,804Total other income (expenses)
    
    
    52,222
    
    
    
    (53,474
    )Net income (loss) applicable to common stockholders
    
    $
    83,922
    
    
    $
    (561,642
    )Net income (loss) per share applicable to common stockholders Basic
    
    $
    0.01
    
    
    $
    (0.05
    )Diluted
    
    $
    0.01
    
    
    $
    (0.05
    )Weighted average shares outstanding and to be issued Basic
    
    
    13,875,278
    
    
    
    12,458,115Diluted
    
    
    14,320,821
    
    
    
    12,458,115
   5




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AdditionalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance, January 1, 2010
    
    
    15,473,794
    
    
    $
    15,472
    
    
    $
    62,300,619
    
    
    $
    (58,763,454
    )
    
    $
    (911,516
    )
    
    $
    2,641,121Options issued to employees and consultants
    
    
    
    
    
    
    
    
    
    
    147,698
    
    
    
    
    
    
    
    
    
    
    
    147,698Common stock issued for payment of
consulting services to settle accounts payable
    
    
    26,457
    
    
    
    26
    
    
    
    42,974
    
    
    
    
    
    
    
    
    
    
    
    43,000Common stock issued for payment of
employee compensation
    
    
    4,054
    
    
    
    4
    
    
    
    7,496
    
    
    
    
    
    
    
    
    
    
    
    7,500Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,922
    
    
    
    
    
    
    
    83,922Balance, March 31, 2010
    
    
    15,504,305
    
    
    $
    15,502
    
    
    $
    62,498,787
    
    
    $
    (58,679,532
    )
    
    $
    (911,516
    )
    
    $
    2,923,241
   6




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THREE MONTHS ENDED MARCH 31,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    83,922
    
    
    $
    (561,642
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation expense
    
    
    18,651
    
    
    
    15,503Amortization of patents
    
    
    20,410
    
    
    
    18,281Amortization of debt discount
    
    
    699
    
    
    
    7,875Common stock and options issued for compensation, consulting
and vendor services
    
    
    124,718
    
    
    
    220,992Changes in operating assets and liabilities:Decrease (Increase) in accounts receivable
    
    
    132,524
    
    
    
    (172,787
    )(Increase) Decrease in inventories
    
    
    (160,605
    )
    
    
    72,226(Increase) Decrease to advances to contract manufacturer
    
    
    (595,978
    )
    
    
    125,160(Increase) to prepaid expenses and other current assets
    
    
    (168,259
    )
    
    
    (10,920
    )Decrease in other assets
    
    
    17,365
    
    
    
    Increase in accounts payable
    
    
    797,665
    
    
    
    248,622(Decrease) in accrued expenses
    
    
    (22,675
    )
    
    
    (163,567
    )Net cash provided by (used in) operating activities
    
    
    248,437
    
    
    
    (200,257
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (19,844
    )
    
    
    (30,131
    )Payment for patents rights
    
    
    (39,695
    )
    
    
    (12,609
    )Net cash used in investing activities
    
    
    (59,539
    )
    
    
    (42,740
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    188,898
    
    
    
    (242,997
    )Cash and cash equivalents at beginning of period
    
    
    1,029,129
    
    
    
    743,665Cash and cash equivalents at end of period
    
    $
    1,218,027
    
    
    $
    500,668Supplemental disclosure of cash flow information:Income taxes paid
    
    $
    4,146
    
    
    $
    3,597Interest paid
    
    $
    24,000
    
    
    $
    Shares issued to employees in lieu of cash compensation
    
    $
    7,500
    
    
    $
    125,324Shares issued to settle accounts payable
    
    $
    43,000
    
    
    $
    42,000
   7




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MILESTONE SCIENTIFIC INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
        NOTE 1  SUMMARY OF ACCOUNTING POLICIES
 Cash and Cash Equivalents
   8




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Inventories
  Patents
  Revenue Recognition
  Use of Estimates
  Fair Value Measurements Fair Value Measurements and
Disclosures
      9




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Recent Accounting Pronouncements
 Accounting for Transfers of Financial Assets
 Fair
Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures
 Subsequent Events: Amendments to Certain
Recognition and Disclosure Requirements Subsequent
Events,
 NOTE  2 BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
   NOTE  3 STOCK OPTION PLANS
 Share-Based Payment
  10




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WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    OptionsOptions
    
    
    Price
    
    
    Life (Years)
    
    
    ValueOutstanding, January 1, 2010
    
    
    1,060,142
    
    
    $
    1.33
    
    
    
    3.61
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (60,000
    )
    
    
    3.27
    
    
    
    
    
    
    
    Outstanding, March 31, 2010
    
    
    1,000,142
    
    
    
    1.22
    
    
    
    3.56
    
    
    
    582,617Exercisable, March 31, 2010
    
    
    503,582
    
    
    
    1.23
    
    
    
    2.66
    
    
    
    285,824
    WeightedWeighted
    
    
    Average
    
    
    AggregateNumber
    
    
    Averaged
    
    
    Remaining
    
    
    Intrinsicof
    
    
    Exercise
    
    
    Contractual
    
    
    OptionsOptions
    
    
    Price
    
    
    Life (Years)
    
    
    ValueOutstanding, January 1, 2010
    
    
    414,999
    
    
    
    1.90
    
    
    
    2.70
    
    
    
    Granted
    
    
    120,000
    
    
    
    1.75
    
    
    
    0.94
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, March 31, 2010
    
    
    534,999
    
    
    
    1.87
    
    
    
    1.90
    
    
    
    255,833Exercisable, March 31, 2010
    
    
    518,887
    
    
    
    1.89
    
    
    
    2.04
    
    
    
    245,193
     11




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NOTE  4 CONCENTRATION OF CREDIT RISK
 CompuDent
   NOTE  5 LINE OF CREDIT AND NOTE PAYABLE
   NOTE  6 STOCK ISSUANCE
   12




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NOTE  7 SIGNIFICANT CUSTOMERS
   Three Months Ended March 31,2010
    
    
    2009Instruments
    
    $
    599,888
    
    
    $
    791,952Handpieces
    
    
    1,936,303
    
    
    
    1,395,212Other
    
    
    26,387
    
    
    
    17,655$
    2,562,578
    
    
    $
    2,204,819United States
    
    $
    1,204,972
    
    
    $
    1,478,495Canada
    
    
    182,270
    
    
    
    141,279Other Foreign
    
    
    1,175,336
    
    
    
    585,045$
    2,562,578
    
    
    $
    2,204,819
 STA CompuDent
 STA System STA System
   13




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NOTE  8 COMMITMENTS AND OTHER
 Contract Manufacturing Arrangement
 CompuDent, STA CompuMed The Wand The Wand
  STA Systems
   14




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ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 The following discussions of our financial condition and results of operations should be read in
conjunction with the financial statements and the notes to those statements included elsewhere in
this Form 10-Q. 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. Our actual results may differ materially from those anticipated in these
forward-looking statements. Factors that could cause actual results to differ materially from
those expressed or implied by forward-looking statements include, but are not limited to, the
factors set forth under the headings Business, Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2009 as filed with the United States Securities and Exchange
Commission (Commission).
 OVERVIEW
  
    
    Optimizing our tactical approach to product sales and marketing in order to
materially increase penetration of the global dental and medical markets with our
proprietary, patented Computer-Controlled Local Anesthesia Delivery (C-CLAD) solution,
the STA Single Tooth Anesthesia System(STA System); and
 
    
    Identifying and pursing strategic collaborations with third parties to jointly
develop new products utilizing our patented CompuFlopressure force technology for novel
new medical applications.
 STA System Awards  Industry Recognition
 STA System Dentistry Today STA System STA System Medical Device & Diagnostic Industry STA
System STA System
 STA System Dentaltown Magazine CompuDent/The Wand. STA System Dental Products Report DPR DPR DPRs STA System
 Second Annual Symposium on C-CLAD
 STA
System STA System
  15




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##### Table of Contents




    
    The History of C-CLAD
    
    Treating with Connection
    
    Heart Rate Study
    
    STACompassionate Care in the 21st Century
    
    Injection Advances and Challenges
    
    Physiologic and Clinical Characteristics of PDL Anesthesia Delivered by a High
Pressure Hand piece and a Computerized Device
    
    The STAfor Tots and Teens
    
    Computerized Local Anesthesia in Dentistry: A Review
    
    Todays Technology
    
    Managing a Successful Dental Practice: Why People Keep Coming Back
    
    STA The Dental Schools Perspective
    
    Futuristic Vistas: The Dentist/Hygienist Partnership
  STA System Growth
 STA System, , STA System STA
System Dental Economics STA System
 Global Distribution Network
 STA System
 STA
System
 STA
  16




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STA System, CompuDent
 Segmented Sales Performance
  Three Months Ended March 31,2010
    
    
    2009DOMESTICInstruments
    
    $
    251,597
    
    
    
    20.9
    %
    
    $
    526,413
    
    
    
    35.6
    %Handpieces
    
    
    929,984
    
    
    
    77.2
    %
    
    
    931,810
    
    
    
    63.0
    %Other
    
    
    23,391
    
    
    
    1.9
    %
    
    
    20,272
    
    
    
    1.4
    %Total Domestic
    
    $
    1,204,972
    
    
    
    100.0
    %
    
    $
    1,478,495
    
    
    
    100.0
    %INTERNATIONALInstruments
    
    $
    348,291
    
    
    
    25.7
    %
    
    $
    265,539
    
    
    
    36.6
    %Handpieces
    
    
    1,006,319
    
    
    
    74.1
    %
    
    
    463,402
    
    
    
    63.8
    %Other
    
    
    2,996
    
    
    
    0.2
    %
    
    
    (2,617
    )
    
    
    -0.4
    %Total International
    
    $
    1,357,606
    
    
    
    100.0
    %
    
    $
    726,324
    
    
    
    100.0
    %DOMESTIC/INTERNATIONAL ANALYSISDomestic
    
    $
    1,204,972
    
    
    
    47.0
    %
    
    $
    1,478,495
    
    
    
    67.1
    %International
    
    
    1,357,606
    
    
    
    53.0
    %
    
    
    726,324
    
    
    
    32.9
    %Total Product Sales
    
    $
    2,562,578
    
    
    
    100.0
    %
    
    $
    2,204,819
    
    
    
    100.0
    %
   17




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New Product Development and Commercialization Utilizing CompuFlo Technology
  CompuFlo CompuFlo CompuFlo
 CompuFlo.
  CompuFlo CompuFlo
 CompuFlo
 CompuFlo
 CompuFlo STA System CompuFlo STA System
 CompuFlo
  18




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Technology Rights
 SafetyWand CompuFlo CompuDent CompuDent STA
 Intellectual Property
 STA CompuDent CompuMed
      Accounts Receivable
   19




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##### Table of Contents



Inventories
  Impairment of Long-Lived Assets
  Revenue Recognition
  Results of Operations
 STA System CompuFlo
  Three Months Ended March 312010
    
    
    2009Products sales, net
    
    $
    2,562,578
    
    
    
    100
    %
    
    $
    2,204,819
    
    
    
    100
    %Total revenue
    
    
    2,562,578
    
    
    
    100
    %
    
    
    2,204,819
    
    
    
    100
    %Cost of products sold
    
    
    900,712
    
    
    
    35
    %
    
    
    916,550
    
    
    
    42
    %Gross Profit
    
    
    1,661,866
    
    
    
    65
    %
    
    
    1,288,269
    
    
    
    58
    %Selling, general and
administrative expenses
    
    
    1,541,702
    
    
    
    60
    %
    
    
    1,728,815
    
    
    
    78
    %Research and development expenses
    
    
    88,464
    
    
    
    3
    %
    
    
    67,622
    
    
    
    3
    %Total operating expenses
    
    
    1,630,166
    
    
    
    63
    %
    
    
    1,796,437
    
    
    
    81
    %Income (loss) from operations
    
    
    31,700
    
    
    
    1
    %
    
    
    (508,168
    )
    
    
    -23
    %Other income (expense)
    
    
    52,222
    
    
    
    2
    %
    
    
    (53,474
    )
    
    
    -2
    %Net income (loss)
    
    $
    83,922
    
    
    
    3
    %
    
    $
    (561,642
    )
    
    
    -25
    %
 Three months ended March 31, 2010 compared to three months ended March 31, 2009
 STA STA System STA
  20




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Liquidity and Capital Resources
   21




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Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4.
    
    Controls and Procedures
    22




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PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
 SMALLER REPORTING COMPANYS ARE NOT REQUIRED TO RESPOND TO THIS ITEM
  Continuing losses could exhaust our capital resources
and force us to discontinue operations.
     23




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##### Table of Contents



ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   Shares
    
    
    $Shares issued for Employee Compensation
    
    
    4,054
    
    
    $
    7,500Shares issued for services
    
    
    26,457
    
    
    
    43,00030,511
    
    
    $
    50,500
  
 ITEM 3.
    
    DEFAULT UPON SENIOR SECURTIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
  31.1
    
    Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



MILESTONE SCIENTIFIC INC.
    /s/ Leonard Osser
    
Leonard OsserChief Executive Officer/s/ Joseph DAgostinoJoseph DAgostinoChief Financial Officer   25