Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2025.

This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

Milestone Scientific develops and commercializes injection technologies for dental and medical applications. See Note 1 for additional business information.

The Company operates in two reportable segments:

	●	Dental, which represents the Company's primary source of revenue and is driven by sales of instruments and recurring handpiece consumables; and
	●	Medical, which represents a strategic growth area focused on the commercialization of the CompuFlo® Epidural System.

Current Product Platform

See Note 1, "Organization and Business".

Results of Operations

The following table sets forth the consolidated results of operations for the three and nine months ended September 30, 2026 and 2025, respectively. The trends suggested by this table may not be indicative of future operating results:

		Three Months Ended September 30, 2026				Three Months Ended September 30, 2025				Nine Months Ended September 30, 2026				Nine Months Ended September 30, 2025
Product sales, net		$	2,219,747			$	2,360,117			$	7,222,818			$	6,916,003
Cost of products sold			614,218				719,247				2,143,098				2,010,092
Gross profit			1,605,529				1,640,870				5,079,720				4,905,911
Selling, general and administrative expenses			2,321,312				2,739,011				7,460,752				9,026,691
Research and development expenses			10,413				16,226				17,022				437,135
Depreciation and amortization expense			20,096				20,104				59,139				59,040
Total operating expenses			2,351,821				2,775,341				7,536,913				9,522,866
Loss from operations			(746,292	)			(1,134,471	)			(2,457,193	)			(4,616,955	)
Interest (expense) income, net			(1,253	)			(19,488	)			(10,792	)			(14,700	)
Loss before provision for income taxes			(747,545	)			(1,153,959	)			(2,467,985	)			(4,631,655	)
Provision for income taxes			-				-				-				-
Net loss		$	(747,545	)		$	(1,153,959	)		$	(2,467,985	)		$	(4,631,655	)

Three Months Ended September 30, 2026 Compared with the Three Months Ended September 30, 2025

Product Sales, Net

Product sales, net for the three months ended September 30, 2026 were approximately $2.2 million compared with approximately $2.4 million for the three months ended September 30, 2025, a decrease of approximately $140,000, or 5.9%.

The decrease was primarily attributable to lower Dental sales. Sales of Dental Devices decreased approximately $187,000, or 33.8%, to approximately $367,000 compared with approximately $554,000 for the comparable period in 2025. Sales of Dental Handpieces decreased approximately $22,000, or 1.3%, to approximately $1.7 million compared with approximately $1.8 million for the comparable prior-year period. Dental repair income also increased approximately $10,000 during the current-year quarter.

Sales of Medical Handpieces increased approximately $51,000, or 123.2%, to approximately $92,000 compared with approximately $41,000 for the comparable period in 2025. Medical Device sales were approximately $4,000 during the current-year quarter compared with no significant Medical Device sales during the comparable prior-year period.

Cost of Products Sold and Gross Profit

Cost of products sold was approximately $614,000 for the three months ended September 30, 2026 compared with approximately $719,000 for the comparable period in 2025, a decrease of approximately $105,000.

Gross profit was approximately $1.6 million for each of the three-month periods ended September 30, 2026 and 2025. Gross margin as a percentage of product sales was approximately 72.3% for the three months ended September 30, 2026 compared with approximately 69.5% for the comparable prior-year period. The improvement in gross margin was primarily attributable to an increase in the prices of our products during the current-year period

Operating Expenses

Total operating expenses decreased to approximately $2.4 million for the three months ended September 30, 2026 compared with approximately $2.8 million for the comparable period in 2025. The decrease was primarily attributable to lower salaries and compensation, stock-based compensation, professional fees and royalty expense, partially offset by increased marketing, regulatory, warehousing and travel expenses.

Salaries and compensation decreased by approximately $447,000 to approximately $914,000 for the three months ended September 30, 2026 compared with approximately $1.4 million for the comparable prior-year period. The decrease was primarily attributable to lower corporate salaries and directors' fees and lower stock-based compensation, partially offset by increases in certain Dental and Medical personnel costs. Stock-based compensation expense was approximately $155,000 for the three months ended September 30, 2026 compared with approximately $363,000 for the comparable prior-year period, a decrease of approximately $208,000.

Professional fees decreased approximately $201,000 to approximately $452,000 for the three months ended September 30, 2026 compared with approximately $653,000 for the comparable prior-year period. The decrease primarily reflected lower consulting and certain professional service expenses, partially offset by higher legal expenses during the current-year quarter.

Royalty expense for the three months ending September 30, 2026 was approximately $23,000, a decrease of $95,000 from the same period in 2025.

Warehousing and logistics expenses increased to approximately $140,000 for the three months ended September 30, 2026 compared with approximately $118,000 for the comparable prior-year period, primarily as a result of increased warehousing and logistics activity.

Quality control and regulatory expenses increased to approximately $136,000 for the three months ended September 30, 2026 compared with approximately $64,000 for the comparable prior-year period. The increase primarily resulted from higher corporate and Medical regulatory-related expenditures during the current-year period.

Travel expense increased to approximately $114,000 for the three months ended September 30, 2026 compared with approximately $37,000 for the comparable prior-year period. The increase principally reflected greater travel activity associated with the Company's commercial and Medical initiatives, including airfare, lodging, meals and ground transportation.

Marketing expense increased to approximately $140,000 for the three months ended September 30, 2026 compared with approximately $64,000 for the comparable prior-year period. The increase primarily reflected increased marketing consulting, key opinion leader, promotional, demonstration, trial and campaign-related activities supporting the Company's Dental and Medical businesses.

Research and development expense for the three months ending September 30, 2026 was approximately $10,000, a decrease of approximately $6,000 compared to the same period in 2025.

Operating Loss

Operating loss for the three months ended September 30, 2026 was approximately $746,000, compared with an operating loss of approximately $1.1 million for the three months ended September 30, 2025, an improvement of approximately $354,000, or 32.2%. The improvement in operating results was primarily attributable to the approximately $600,000 decrease in operating expenses, including lower salaries and employee benefits, stock-based compensation expense, consultants and professional services fees, together with an improvement in gross margin. These improvements were partially offset by lower product sales and increases in marketing, regulatory, warehousing, travel and other operating expenses.

Nine Months Ended September 30, 2026 Compared with the Nine Months Ended September 30, 2025

Product Sales, Net

Product sales, net for the nine months ended September 30, 2026 were approximately $7.2 million compared with approximately $6.9 million for the comparable period in 2025. Sales of Dental Devices increased approximately $202,000 to approximately $1.7 million for the nine months ended September 30, 2026 compared with approximately $1.5 million for the comparable prior-year period. Sales of Dental Handpieces decreased approximately $119,000 to approximately $5.4 million compared with approximately $5.5 million for the comparable period in 2025. Dental repair income also increased approximately $26,000 to approximately $51,000 for the nine months ended September 30, 2026 compared with approximately $25,000 for the comparable prior-year period.

Medical Handpiece sales increased approximately $154,000 to approximately $274,000 compared with approximately $120,000 for the comparable prior-year period. Medical Device sales increased approximately $31,000 to approximately $36,000 compared with approximately $5,000 for the comparable period in 2025.

Cost of Products Sold and Gross Profit

Gross profit was approximately $5.1 million for the nine-month period ended September 30, 2026 and approximately $4.9 million for the nine-month period ended September 30, 2025. Gross margin as a percentage of product sales was approximately 70.3% for the three months ended September 30, 2026 compared with approximately 70.9% for the comparable prior-year period. The improvement in gross margin was primarily attributable to an increase in the prices of our products during the current-year period. However, cost of products sold increased at a faster rate than revenue, resulting in a modest decline in gross profit margin.

Cost of products sold increased to approximately $2.1 million for the nine months ended September 30, 2026 compared with approximately $2.0 million for the comparable prior-year period.

Operating Expenses

Total operating expenses decreased approximately $2.0 million, or approximately 21%, to approximately $7.5 million for the nine months ended September 30, 2026 compared with approximately $9.5 million for the comparable period in 2025.

Salaries and compensation decreased to approximately $3.2 million for the nine months ended September 30, 2026 compared with approximately $3.5 million for the comparable prior-year period.

Professional fees decreased to approximately $1.7 million for the nine months ended September 30, 2026 compared with approximately $2.8 million for the comparable period in 2025, a decrease of approximately $1.2 million. The decrease primarily reflected lower consulting and other professional service costs during the current-year period. Royalty expense was approximately $91,000 for the nine months ended September 30, 2026, compared with approximately $351,000 for the comparable period in 2025.

Warehousing and logistics expense increased to approximately $454,000 for the nine months ended September 30, 2026 compared with approximately $378,000 for the comparable prior-year period. Travel expense increased to approximately $262,000 for the nine months ended September 30, 2026 compared with approximately $178,000 for the comparable prior-year period, reflecting increased commercial and Medical-related travel activity.

Quality control and regulatory expense decreased to approximately $361,000 for the nine months ended September 30, 2026 compared with approximately $482,000 for the comparable prior-year period. These decreases were partially offset by higher warehousing, travel and marketing expenses.

Marketing expense increased to approximately $322,000 for the nine months ended September 30, 2026 compared with approximately $253,000 for the comparable prior-year period, reflecting increased marketing programs, consulting, key opinion leader activities, demonstrations, trials and promotional activities.

Research and development expense decreased to approximately $3,000 for the nine months ended September 30, 2026 compared with approximately $432,000 for the comparable prior-year period. The prior-year period included significant product development consulting costs.

Loss from Operations

Loss from operations decreased to approximately $2.5 million for the nine months ended September 30, 2026 compared with approximately $4.6 million for the comparable period in 2025, an improvement of approximately $2.1 million.

The improvement primarily reflected significantly lower professional fees and research and development expenses, lower salaries and compensation and royalty expense, partially offset by increased warehousing, marketing and travel expenses.

Liquidity and Capital Resources

Cash Flows

The following table summarizes our sources and uses of cash for the nine months ended:

		2026				2025				Change
Cash flow:
Net cash used in operating activities			(1,244,584	)		$	(2,690,498	)		$	1,445,914
Net cash used in investing activities			(7,433	)			(12,008	)			4,575
Net cash provided by financing activities			1,454,776				789,749				665,027
		$	202,759			$	(1,912,757	)		$	2,115,516

Operating Activities

Net cash used in operating activities was approximately $1.2 million for the nine months ended September 30, 2026, compared with approximately $2.7 million for the nine months ended September 30, 2025, representing a decrease of approximately $1.4 million.

The decrease in cash used in operating activities was primarily attributable to a reduction in net loss and favorable changes in certain operating assets and liabilities, including decreases in inventories and advances on contracts, partially offset by changes in accounts receivable and related-party payables.

For the nine months ended September 30, 2026, the Company reported a net loss of approximately $2.5 million, compared with approximately $4.6 million for the corresponding period in 2025. Despite the improvement in operating cash flows, the Company continues to use cash to fund its operations.

Investing Activities

Net cash used in investing activities was approximately $7,000 for the nine months ended September 30, 2026, compared with approximately $12,000 for the corresponding period in 2025. Cash used in investing activities during both periods primarily consisted of purchases of furniture, fixtures and equipment

Financing Activities

Net cash provided by financing activities was approximately $1.5 million for the nine months ended September 30, 2026, compared with approximately $790,000 for the corresponding period in 2025, representing an increase of approximately $665,000.

On April 20, 2026, the Company completed a private placement of 7,962,963 units at a purchase price of $0.27 per unit, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock (the "Private Placement"). The Private Placement generated gross proceeds of approximately $2.15 million, consisting of approximately $1.80 million in cash and approximately $351,000 of outstanding convertible note principal applied toward the purchase of units in lieu of cash. The Company incurred approximately $333,000 in equity issuance costs related to the Private Placement.

Each warrant issued in the Private Placement entitles the holder to purchase one share of common stock at an exercise price of $0.3375 per share and is exercisable for three years. If all warrants are exercised, the Company could receive approximately $2.69 million in additional gross proceeds. However, there can be no assurance that any or all of the warrants will be exercised. As of September 30, 2026 no warrants have been exercised.

During the third quarter of 2026, the remaining outstanding convertible notes were converted into shares of the Company's common stock. As of September 30, 2026, the Company had no remaining outstanding principal balance related to these convertible notes. The conversion of the notes was a noncash financing transaction and, accordingly, did not affect net cash provided by financing activities.

Consideration of the Company's ability to continue as a going concern.

As of September 30, 2026, the Company had cash and cash equivalents of approximately $1.3 million, working capital of approximately $3.5 million, and an accumulated deficit of approximately $136.0 million. The Company has incurred recurring losses from operations and negative cash flows from operating activities. For the three and nine months ended September 30, 2026, the Company incurred operating losses of approximately $568,000 and $2.5 million, respectively. Net cash used in operating activities for the nine months ended September 30, 2026, was approximately $1.2 million.

These conditions raise substantial doubt about the Company's ability to continue as a going concern within one year after the issuance date of the accompanying unaudited condensed consolidated financial statements. The completion of the Private Placement in April 2026 improved the Company's liquidity position and provided additional capital to support operations. In addition, the conversion of the remaining convertible notes during the third quarter of 2026 eliminated the related outstanding principal obligations.

Management's plans to address the Company's liquidity requirements include increasing revenues through its dental and medical businesses, expanding domestic and international distribution opportunities, managing operating expenses, improving working capital efficiency, and pursuing additional financing opportunities, if necessary.

Management believes that existing cash resources, anticipated customer collections, and continued expense management measures will support near-term operating activities. However, the Company expects that additional financing will be required to fund its anticipated operating requirements over the assessment period.

There can be no assurance that the Company will achieve sufficient revenue growth, generate positive cash flows from operations, or obtain additional financing when needed or on terms acceptable to the Company.

As discussed in Note 2 to the accompanying unaudited condensed consolidated financial statements, management has concluded that its plans do not currently alleviate the substantial doubt regarding the Company's ability to continue as a going concern within one year after the date the financial statements are issued.