MILESTONE SCIENTIFIC INC.

MILESTONE SCIENTIFIC INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A—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 Innovations Inc. and Milestone Education LLC (all described below), unless the context otherwise indicates. Milestone Scientific is the owner of the following registered U.S. trademarks: CompuDent®; CompuMed®; CompuFlo®; DPS Dynamic Pressure Sensing technology®; Milestone Scientific®; the Milestone logo®; SafetyWand®; STA Single Tooth Anesthesia System®; and The Wand®.

Milestone Scientific was incorporated in the State of Delaware inAugust 1989.Milestone Scientific has developed a proprietary, computer-controlled delivery device, usingThe Wand®, a single-use disposable handpiece. The device is marketed in dentistry under the trademarkCompuDent®,andSTA Single Tooth Anesthesia System®, and in medicine under the trademarkCompuMed®. CompuDent® is suitable for all dental procedures that require a local anesthetic.CompuMed® is suitable for many medical procedures regularly performed in plastic surgery, hair restoration surgery, podiatry, colorectal surgery, dermatology, orthopedics, and many other disciplines. The dental devices are sold in the United States, Canada and in 33 other countries. Certain medical devices have obtained CE mark approval and can be marketed and sold in most European countries. InJune 2017,Milestone Scientific received510(k) marketing clearance from the U.S. Food and Drug Administration (FDA) on theCompuFlo® Epidural Computer Controlled Anesthesia System (“Epidural”).

NOTE B—GOING CONCERN AND LIQUIDITY

Our financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company on a going concern basis. The going concern basis assumes that assets are realized, and liabilities are extinguished in the ordinary course of business at amounts disclosed in the financial statements.

The Company has incurred total losses since its inception of $133.8 million. The Company’s operating losses were $5.7 million and $6.8 million, for the years ended December 31, 2025 and 2024*,* respectively. On*December 31, 2025,*Milestone Scientific had cash and cash equivalents of approximately $1.1 million and working capital of approximately $3.3 million. For the years ended December 31, 2025 and 2024, we had cash flows used in operating activities of approximately $2.9 million respectively. These conditions raise substantial doubt about the company’s ability to continue as a going concern.

The Company 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.

NOTE C —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Principles of Consolidation

The accompanying 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 Innovations Inc. (wholly owned). All significant, intra-entity transactions and balances have been eliminated in the consolidation.

2. Use of Estimates

The preparation of 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 inventory valuation and cash flow assumptions regarding evaluations of going concern considerations. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates

3. 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 followingfive steps:

The Company derives its revenues from the sale of its products, primarily dental and medical instruments, handpieces, and other related products. The Company sells its products directly to consumers in the United States and through a global distribution network that includes both exclusive and non-exclusive distribution agreements international.

Revenue is recognized at the point of shipment for all sales. The Company hasno obligation to 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

The Company sells its STA Single Tooth Anesthesia Systems® (STA) and handpieces directly to dental offices and dental groups within the United States via an online portal. The Company’s E-Commerce portal accepts online payments via credit and debit cards. The cost of delivery is charged to the customer along with appropriate sales tax. The Company recognizes revenue from product sales at the time the product ships to a customer via athird party carrier.

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 channelnot consumed by end users and subject to return. The Company relies on historical return rates to estimate returns.

Financing and Payment

The Company’s payment terms differ by geography and customer, but payments from distributors are required within90 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 athird-party. These payments from thethird party are typically settled withintwo business days.

Disaggregation of Revenue

The Company operates intwo operating segments: Dental, and Medical. The Company evaluates each of two segments based on performance, using segment financial information compiled utilizing the accounting policies listed in Note C of this Form10-K.The profitability of the segment helps the Company evaluate staffing levels, assess available cash for allocation to projects and resources, and make informed decisions on whether the segment’s activities should be modified to align with the Company’s overall near- and long-term strategies. See Note L for revenues by geographical market, based on the customer’s location, and product category for the years endedDecember 31, 2025and2024 respectively.

4. Cash and Cash Equivalents

Milestone Scientific considers all highly liquid investments purchased with an original maturity ofthree months or less to be cash equivalents. As ofDecember 31, 2025and2024 Milestone Scientific has approximately $1.1 million and $3.3 million, respectively, in cash. As ofDecember 31, 2025and,2024 Milestone Scientific had cash that exce eded the Federal Deposit Insurance Corporation insurance limit of*$250,000.*

5. Accounts Receivable

Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the ability or inability of its customers to make payments on amounts billed. Most credit sales are due within90 days from invoicing. There havenot been any significant credit losses incurred to date. As ofDecember 31, 2025and2024, accounts receivable was recorded, net of allowance for doubtful accounts of*$10,000.*

6. 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 isnot 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.

7. Furniture, Fixture and Equipment

Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from three toseven years. The costs of maintenance and repairs are charged to operations as incurred.

8. Intangible Assets - Patents and Developed Technology

Patents are recorded at cost to prepare and file the applicable documents with the United States Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. Patents and other developed technology acquired from another business entity are recorded at acquisition cost and be amortized at the estimated useful life. Patent defense costs, to the extent applicable, are expensed as incurred.

9. Impairment of Long-Lived Assets

Long-lived assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an assetmay not be recoverable. The Company’s impairment review process is based upon an estimate of future undiscounted cash flow. Factors the Company considers that could trigger an impairment review include the following:

Recoverability of assets that will continue to be used in the Company’s operations is measured by comparing the carrying value to the future net undiscounted cash flows expected to be generated by the asset or asset group. Future undiscounted cash flows include estimates of future revenues, driven by market growth rates, and estimated future costs.

10. Research and Development

Research and development costs, which consist principally of new product development costs payable tothird parties, are expensed as incurred.

11. Income Taxes

Milestone Scientific accounts for income taxes under the asset and liability method which requires deferred tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

At December 31, 2025 and 2024, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No interest and penalties are present for periods open.

In*April 2024,*we received approximately $2.0 million, net of expenses, from the sale of New Jersey net operating losses (“NOL”), that were eligible for sale under the State of New Jersey’s Economic Development Authority’s New Jersey Technology Business Tax Certificate Transfer Program (“NJEDA Program”). The Company recorded this amount within Gain on sale of net operating losses within the consolidated statement of operations.

Pursuant to the NJEDA program, the Company must retain a physical presence in the state of New Jersey for a period of 5 years after the sale of the of the NOLs. If the Company doesnot retain a physical presence during the5 years after the sale of the NOLs, the Company can be liable to pay the state of New Jersey up to $2.2 million of the surrendered NOLs.

12. Basic and Diluted Net Loss Per Common Share

Milestone Scientific presents “basic” loss per common share applicable to common stockholders and, if applicable, “diluted” loss per common share applicable to common stockholders pursuant to the provisions of ASC260, “Earnings per Share”. Basic 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 82,064,109 and 79,791,188 during the years ended December 31, 2025 and 2024, 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 years ended December 31, 2025 and 2024, the assumed effects of the exercise of potentially dilutive outstanding stock options, unissued restricted stock awards (“RSA”) and warrants, werenot included in the calculation as their effect would have been anti-dilutive. Such outstanding options, RSA and warrants 7,715,506 and 3,417,154 onDecember 31, 2025and2024, respectively.

13. Stock-Based Compensation

Milestone Scientific accounts for stock-based compensation under ASC718, “Share-Based Payment” (“ASC718”). ASC718 requires all share-based payments to employees, non-employees, directors, and officers, including grants of employee stock options, to be recognized in the consolidated statements of operations over the service period, as an operating expense, based on the grant-date fair values. The Company accounts for forfeitures as they occur.

14. Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC480, “Distinguishing Liabilities from Equity” (“ASC480”) and ASC815, “Derivatives and Hedging” (“ASC815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC480, whether they meet the definition of a liability pursuant to ASC480, and whether the warrants meet all of the requirements for equity classification under ASC815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that donot meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. Management concluded that its warrants qualify for equity accounting treatment.

15. Recent Accounting Pronouncements

Recently Issued Accounting Pronouncement

In November 2024, the Financial Accounting Standards Board, “FASB”, issued Accounting Standards Update “ASU” 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), to improve the disaggregation of expenses within the consolidated statement of operations. The amendments in ASU 2024-03 require disclosures, in the notes to the consolidated financial statements, specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period an entity disclose (a) employee compensation, (b) depreciation, and (c) intangible asset amortization included in each relevant expense caption; include specific amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements; and disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The amendments in ASU 2024-03 are effective January 1, 2027, and effective for interim periods beginning January 1, 2028. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company will evaluate the impact of ASU 2024-03 on its consolidated financial statements.

Recently Adopted Accounting Pronouncement

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid. ASU No. 2023-09 requires a public business entity (PBE) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. For entities other than PBEs, the requirements will be effective for annual periods beginning after December 15, 2025. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods or may apply the amendments retrospectively by providing the revised disclosures for all period presented. As of December 31, 2025, the Company adopted this new ASU prospectively. The adoption impacts only the Company’s income tax disclosures and has no effect on its operations, cash flows, or financial condition.

NOTE D —INVENTORIES

NOTE E —ADVANCES ON CONTRACTS

The advances on contracts represent funding of future dental STA “Single Tooth Anesthesia System” and epidural inventory purchases and epidural replacements parts. The balance of the advances as ofDecember 31, 2025and2024 was approximately $1.4 million and $1.3 million respectively.

NOTE F—FURNITURE, FIXTURES AND EQUIPMENT

Depreciation expense was $8,853 and $7,218 for the year endedDecember 31, 2025 and 2024, respectively.

NOTE G —INTANGIBLES, NET

Patents are amortized utilizing the straight-line method over estimated useful lives ranging from 3 to 20 years. Amortization expense was approximately $69,000 and $30,000 for the years ended December 31, 2025 and 2024, respectively. The annual amortization expense expected to be recorded for existing intangibles assets for the years2026 through2027 is approximately $62,000, and $17,000 respectively.

NOTE H —CONVERTIBLE NOTE RELATED PARTY

On April 9, 2025, the Company issued a series of promissory notes (the “Notes”) in the aggregate amount of $800,000, to Mr. Neal Goldman, Ms. Benedetta Casamento, and Dr. Didier Demesmin, each of whom is a director of the Company. The Notes are due April 9, 2028, and bear interest at the annual rate of prime less 2.50%, payable annually. All principal and interest shall be payable in cash and/or shares of common stock at the sole discretion of the Company.

The Notes are convertible into shares of common stock by the holder at any time and by the Company at maturity. If the Company sells equity securities for gross proceeds in excess of $4,000,000, the holders may request repayment of their note in either cash, shares of common stock or a combination of cash and shares; provided, that the holders would then be entitled to receive only so much cash as the net proceeds to the Company in such sale of equity securities, after payment of other indebtedness and other uses (other than working capital) specified as a use of the proceeds in the relevant offering or disclosure documentation, shall be in excess of $4,000,000. Upon a liquidation event of the Company, as defined in the Notes which includes a sale of the Company or assets, a merger, reorganization or combination transaction where the shareholders before the transaction own less than 50% of the Company after the transaction and a liquidation, dissolution or winding-up of the Company, the Notes will be repaid in cash or its portion of any non-cash consideration. The conversion rate for any issuance of shares of common stock will be at the then fair value of a share of common stock, with the fair value being determined with reference to the public market price of a share of common stock based on the average of the 15 most recent trading days, but not less than $0.50. The Notes are unsecured and have typical default terms. As of December 31, 2025, the Notes were convertible into 1,600,000 shares of common stock based on the floor of $0.50 per share. As of December 31, 2025 the Company recognized approximately $29,200 of interest expenses related to convertible note related party respectively.

NOTE I —STOCKHOLDERS’EQUITY

Authorized Shares

In December 2025 at the annual shareholder meeting the Company received approval to increase its authorized shares of common stock from 100,000,000 to 125,000,000.

PUBLIC OFFERING

On December 10, 2023, the Company completed a public offering for sale of 4,765,000 common stock, at $0.63 per share which generated net proceeds of approximately $2.6 million. In addition, the Company granted the Underwriter a 45-day option to purchase up to an additional 714,750 shares of Common Stock at the same price to cover over-allotments.

On January 12, 2024**the underwriter exercised its over-allotment option as to 372,110 shares of common stock for net proceeds after discounts and commission of $192,156.

WARRANTS

The following table summarizes information about shares issuable under warrants outstanding onDecember 31, 2024:

During the year endedDecember 31, 2024,the Company issued 103,500 shares of common stock for warrants issued in2019. The warrants were exercised at $0.50 for proceeds of $51,751. There were no warrants issued or exercised in 2025.

SHARES TO BE ISSUED

As of December 31, 2025 and 2024, there were 3,447,241 and 2,761,225, respectively shares to be issued whose issuance has been deferred under the terms of employment and consulting agreements with officers and directors, and other employees of Milestone Scientific. Such shares will be issued to each party upon termination of their employment or other relationship with the Company.

As of December 31, 2025 and 2024, there were 1,002,162 and 631,792 respectively shares to be issued to non-employees, that will be issued to non-employees for services rendered. The number of shares was fixed by contract prior to the date of grant, subject to performance, and were fully earned upon the grant date. at the date of grant and were fully vested upon grant date.

The following table summarizes information about shares to be issued throughDecember 31, 2025and2024.

NOTE J —STOCK OPTION PLANS

The Milestone Scientific Inc., Amended and Restated2020 Equity Incentive Plan, provides for awards of restricted common, stock restricted stock units, options to purchase and other awards. OnJune 28, 2023 the plan was amended and restated (the*“2020* Plan”) to increase the maximum shares that can be issued thereunder to 11,500,000 shares of common stock. The plan expires inJune 2031.Optionsmaybe granted to employees, directors, and consultants of Milestone Scientific for the purchase of shares of common stock at a pricenot less than the fair market value of common stock on the date of grant. Generally, options become exercisable over a three-year period from the grant date and expire five years after the date of grant. As ofDecember 31, 2025and2024, the Company had 1,021,220 and 7,579,778, respectively, remaining options available for grants under the Plan.

Milestone Scientific recognizes compensation expenses over the requisite service period and in the case of performance-based options over the period of the expected performance.

A summary of option activity for employees under the plans and changes the year endedDecember 31, 2025is presented below:

For the years ended December 31, 2025 and 2024, the Company recognized approximately $0.9 million and $0.7 million, respectively, of stock-based compensation expense, which was recorded in general and administrative expenses in the consolidated statements of operations.

The Company estimated the fair value of stock option grants on the grant date using the Black-Scholes option pricing model with the following assumptions: a risk-free interest rate of 1.75%, expected volatility of 86.6% (based on the Company’s historical volatility over the expected term), an expected term of 5 years, a dividend yield of 0%, and a stock price ranging from $0.45 to $0.50.

As of December 31, 2025, there was approximately $1.3 million of total unrecognized stock-based compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of approximately 2.2 years.

A summary of option for non-employees under the plans and changes during the year endedDecember 31, 2025is presented below:

The fair value of the non-employee options was estimated on the date of grant using the Black Scholes option-pricing model at the date of grant. For the years ended December 31, 2025 and 2024, Milestone Scientific recognized approximately $10,400 and $9,800 expense related to non-employee options, respectively.

The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model for the year ended December 31, 2025 risk free interest rate of 1% Volatility of 85.79%-86.29% (which is based on the Company’s historical volatility over the expected term), expected term of 5 years,0% dividend rate and closing price of the stock of $0.93-$0.94.

A summary of restricted stock under the plans and changes during the year endedDecember 31, 2025is presented below:

On December 18, 2025, the Company entered into restricted stock agreements with members of its Board of Directors and granted 1,333,444 restricted stock awards with a fair value of $0.34 per share. These awards vested immediately. For the year ended December 31, 2025 the Company recognized approximately $625,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operation. For the year ended December 31, 2025 there was no unrecognized stock compensation expense.

As of December 31,2024, the Company entered into restricted stock agreements with members of the Board of Directors of the Company. The Company granted 730,340 restricted stock awards with a fair market value of $0.89 per share. Such restricted stock vests as follows: 25% on the grant date in June 2024, and 25% quarterly, on the first day of the following months: October 2024, January 2025, and April 2025. These awards vest immediately upon a change of control as defined in the agreements. For the year ended December 31, 2024 the Company recognized approximately $638,000 for restricted stock expenses recorded in general and administrative expenses on the statement of operation.

NOTE K —INCOME TAXES

Milestone Scientific accounts for income taxes under the asset and liability method which requires deferred tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

At December 31, 2025 and 2024, we had no uncertain tax positions that required recognition in the consolidated financial statements. Milestone Scientific’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. No Interest and penalties are present for periods open. The statute of limitations remains open on the Company’s federal tax returns for calendar year 2022 and subsequent years, and on the Company’s state tax returns for calendar year 2021 and subsequent years.

Due to Milestone Scientific’s history of operating losses, a full valuation allowances have been provided for all of Milestone Scientific’s deferred tax assets. At December 31, 2025 and 2024, no recognition was given to the utilization of the remaining net operating loss carry forwards in each of these periods.

Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at December 31, 2025 and 2024 are as follows:

As of December 31, 2025 and 2024, federal net operating loss carry-forwards are approximately $64,100,000 and $65,000,000, respectively. As of December 31, 2025, Milestone Scientific has approximately $21,800,000 of net operating losses generated before December 31, 2017 that will be available to offset future income, if any, through December 2037. Additionally, as of December 31, 2025, Milestone Scientific has approximately $42,400,000 of net operating losses generated in 2018 or after that can be carried forward indefinitely.

State net operating losses were approximately $30,500,000 and $29,400,000 for the periods ended December 31, 2025 and 2024*,* respectively. As of December 31, 2025, $700,000 of the Company’s state net operating losses can be carried forward indefinitely to offset future income, and the remaining $29,800,000 of state net operating losses begin to expire in 2031*.*

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 of its deferred tax assets due to uncertainty as to their future realization.

All taxable losses for years ended December 31, 2025 and 2024 were generated domestically.

The reconciliation of the Company’s statutory tax rate and effective tax rate is as follows December 31, 2025 and 2024:

The Company’s effective tax rate includes the effects of state and local income taxes, net of the federal income tax benefit, which are primarily attributable to California, Florida, Illinois, and New Jersey, where the Company has significant business activities. These states have higher tax rates compared to other jurisdictions where the Company operates, and together, they account for more than half of the Company’s total state tax expense.

For the year ended December 31, 2025, the Company paid state and local income taxes of approximately $12,000, net of refunds received. No federal or foreign income taxes were paid during 2025. The following jurisdictions each individually represented more than 5% of total income taxes paid: California $3,000, Massachusetts $3,000, New Jersey $3,000, Georgia $1,640, and Texas $1,315.

NOTE L —SEGMENT AND GEOGRAPHIC DATA

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer (the “CODM”). The Company conducts its business throughtwo reportable segments: Dental and Medical. These segments offer different products and services to different customer base. The CODM assesses the financial performance of the segment and decides how to allocate resources based on Product sales, net, and Operating income (loss). The Company provides general corporate services to its segments; however, these services arenot 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. Certain reclassifications have been made to the 2025 consolidated financial statements to conform to the 2024 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

The following tables present information about our reportable and operating segments:

The following table presents information about our operations by geographic area as ofDecember 31, 2025and2024. Net sales by geographic area are based on the respective locations of our subsidiaries.

Current Product Platform

NOTE M—CONCENTRATION

Milestone Scientific has informal arrangements withthird-party U.S. manufacturers of the STA devices, and epidural instruments pursuant to which they manufacture these products under specific purchase orders which contains advance payments for long lead items for production. Advances on contracts have been classified as current atDecember 31, 2025and2024. 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 year endedDecember 31, 2025,E-Commerce accounted for 49% of net product sales. For the year endedDecember 31, 2024,*E-Commerce accounted for 60% of net product sales.

The Company hadthree distributors that accounted for 32%,21% and 11% of accounts receivable, respectively, as ofDecember 31, 2025.The Company hadthree distributors that accounted for 22%,13% and 11% of accounts receivable, respectively as ofDecember 31, 2024.

As of December 31, 2025, the Company hadthree suppliers that accounted for 38%,22% and 10%, respectively, of accounts payable and accounts payable, related party. The Company hadtwo suppliers that accounted for 31% and 30%, respectively, of accounts payable and accounts payable, related party as ofDecember 31, 2024.

NOTE N -RELATED PARTY TRANSACTIONS

United Systems

Milestone Scientific has a supply agreement with United Systems, the principal supplier of the Company’s handpieces. Pursuant to the agreement, the Company purchases manufactured products from United Systems under individual purchase orders. The agreement does not require minimum purchase commitments.

In June 2021, the Company entered into a ten-year supply agreement with United Systems for the manufacture and supply of handpieces.

Purchases from United Systems totaled approximately $1.9 million and $1.7 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and December 31, 2024, amounts owed to United Systems were approximately $1,100,000 and $664,000, respectively. These amounts are included in accounts payable related party in the Company’s consolidated balance sheets.

Director of Clinical Affairs

The Company pays royalties to its Director of Clinical Affairs pursuant to existing royalty arrangements related to certain Company products. Royalty expense paid to the Director of Clinical Affairs totaled approximately $445,000 and $442,000 for the years ended December 31, 2025 and 2024, respectively. In addition, the Company paid consulting fees to the Director of Clinical Affairs totaling approximately $128,000 and $156,000 for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, accrued but unpaid royalties owed to the Director of Clinical Affairs were approximately $289,000 and $110,000, respectively. These amounts are included in accounts payable related party and accrued expenses related party in the Company’s consolidated balance sheets.

As part of the Company’s succession planning, on April 6, 2021, Mr. Osser entered into an agreement with the Company (the “Succession Agreement”) pursuant to which he agreed to restructure certain of his existing arrangements with the Company to provide broader executive support beyond the Company’s Chinese operations and, upon stepping down as Interim Chief Executive Officer, to assume the role of Vice Chairman of the Board.

If the Company terminates Mr. Osser’s employment without cause (other than due to death or disability), or if Mr. Osser terminates his employment for good reason (each as defined in the applicable agreement), he is entitled to receive, in a lump sum, an amount equal to the aggregate present value (determined in accordance with Section 280G(d)(4) of the Internal Revenue Code) of all compensation payable from the termination date through the remainder of the employment term.

Upon stepping down as Interim Chief Executive Officer on May 19, 2021, Mr. Osser assumed the role of Vice Chairman of the Board. In connection with his acceptance of the Vice Chairman position and his agreement to provide additional consulting services, Mr. Osser was granted options to purchase 2,000,000 shares of the Company’s common stock at an exercise price equal to the fair market value on the date of grant. The options vest over thefive-year period following his resignation as Interim Chief Executive Officerten years from the date of grant, whichever period ends first. On November 7, 2025, Mr. Osser resigned as a director of the Company.

Mr. Osser beneficially owns 2,844,028 shares of the Company’s common stock. In addition,3,221,786 shares are issuable to him upon termination of his employment agreement, subject to the terms thereof. are issuable to him upon termination of his employment agreement, subject to the terms thereof.

Dr. D. Demesmin

As of February 2024, the University Pain Medicine Center (STEMMEE), of which Dr. D. Demesmin, a Company board member, is the CEO, agreed to purchase products from the Company under the same terms and conditions applying to other medical pain clinics in the United States. STEMMEE purchased medical products of $54,000 and $21,000 for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 the Company was owed approximately $25,500 which regard in related party accounts receivable.

The Company entered into a consulting agreement with Jan Adriaan (Arjan) Haverhals (the “Consulting Agreement”), effective January 1, 2025. The Consulting Agreement continues for an indefinite term unless terminated in accordance with its terms. Either party may terminate the Consulting Agreement upon 90 days’ prior written notice. The Company may terminate the Consulting Agreement upon 30 days’ prior written notice in the event of Mr. Haverhals’ inability to provide services. Under the Consulting Agreement, Mr. Haverhals is entitled to receive consulting fees at an annual rate of $350,000, payable monthly in arrears. For 2025, compensation was structured as follows:

The Company recorded consulting expense of approximately $350,000 for the year ended December 31, 2025 related to the Consulting Agreement. Mr. Haverhals is entitled to reimbursement of reasonable expenses incurred in providing services. He serves as an independent contractor and is not eligible for Company-provided health or accident insurance, life insurance, paid sick leave, or paid vacation benefits. In connection with the Consulting Agreement, Mr. Haverhals entered into the Company’s standard form of non-disclosure, non-solicitation, non-competition, and invention assignment agreement. As of December 31, 2025, the Company owed Mr. Haverhals approximately $89,000 under the Consulting Agreement, which is included in accounts payable — related party in the Company’s consolidated balance sheets.

Subsequent to December 31, 2025, Mr. Haverhals agreed to waive $66,000 of amounts payable to him, which had been included in accounts payable — related party.

Pursuant to the Consulting Agreement, Mr. Haverhals is entitled to receive 912,736 shares of the Company’s common stock six months following his resignation as Chief Executive Officer, subject to the terms of the Consulting Agreement. As of December 31, 2025, such shares hadnot been issued.

At the Company’s Annual Meeting of Stockholders held on December 18, 2025, Mr. Haverhals was not re-elected to the Board of Directors. Accordingly, his term as a director expired at the conclusion of the Annual Meeting.

NOTE O —COMMITMENTS

(1) Contract Manufacturing Agreement

Milestone Scientific has informal arrangements withthird-party manufacturers of the STA, CompuDent® and CompuMed® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment.

The company entered into a new purchase commitment for the delivery of 1,900 STA CompuDent® instruments. As of December 31, 2025, the purchase order commitment was approximately $2.3 million, and approximately $1.4 million was paid and reported in advance on contracts in the consolidated balance sheet. As ofDecember 31, 2024,the purchase order commitment was approximately $3.2 million, and approximately $1.3 million was paid and reported in advance on contracts in the consolidated balance sheet. As ofDecember 31, 2025and2024 the company also has advances on an open purchase order for long lead items for a future purchase order for the manufacturing of Epidural instrument of approximately $34,000 and $168,000, respectively.

(2) Leases

Operating Leases

The Company signed a seven-year lease in a new facility located in Roseland, New Jersey (the “Roseland Facility”), which commenced ofJanuary 8, 2021.Under the Roseland Facility lease, rent payments commence onApril 1, 2021,and the monthly lease payments escalate annually onJanuary 1of each year, and range from $9,275 to $10,898 per month over the lease term. The Company is also required to pay a fixed electric charge equal to $2.00 per square foot which is paid in equal monthly installments over the lease term or $11,130 annually. These fixed monthly payments have been included in the measurement of the operating lease liability and related operating lease right-of-use asset as the Company has elected the practical expedient tonot separate lease and non-lease components for all leases. The Company is also required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises more than new base year amounts, which are accounted for as variable lease expenses.

As of December 31, 2025, total finance right-of-use assets were $55,811 and total finance liabilities were $54,683 of which $27,347 and $27,336 were classified as current and non-current, respectively. As ofDecember 31, 2025total operating right-of use assets were $150,378 and total operating lease liabilities were $165,563, of which $130,355 and $35,208 were classified as current and non-current, respectively. As of December 31, 2024, total finance right-of-use assets were $67,201 and total finance liabilities were $67,202 of which $12,530 and $54,672 were classified as current and non-current, respectively. As ofDecember 31, 2024total operating right-of use assets were $257,842 and total operating lease liabilities were $281,852, of which $116,279 and $165,573 were classified as current and non-current, respectively

The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

The components of lease expense were as follows:

NOTE P —BENEFIT PLAN

Milestone Scientific has a Defined Contribution Plan that allows eligible employees to contribute part of their salary through payroll deductions. Milestone Scientific doesnot contribute to this plan, but does pay the administrative costs of the plan, which werenot significant.

NOTE Q —SUBSEQUENT EVENT

On January 15, 2026, the Company entered into an Amended and Restated Memorandum of Understanding (the “MOU”) with Innovest S.p.A., as the holder of certain consent and blockage rights with respect to BP4 S.r.l. (“BP4”). BP4 is a significant shareholder of the Company and is considered a related party. Pursuant to the MOU, and subject to certain conditions, BP4 agreed to enter into a lock-up agreement with the Company pursuant to which it will not distribute or sell any of its shares of capital stock of the Company for 12 months following consummation of a $2.5 million offering by the Company. The BP4 lock-up, in addition to customary underwriter exceptions, provides for early release of the lock-up restrictions if the Company’s stock price exceeds specified thresholds for a defined period, permitting partial distributions of shares to BP4’s quotaholders. Unless waived or further amended, the period for the capital raise has expired. The Company has paid to BP4 $32,000 in respect of additional disbursements accumulated in connection with the transaction contemplated by the MOU, which payments are subject to an aggregate cap of $100,000.