NOTE E

– CONSOLIDATION OF VARIABLE INTEREST ENTITY

Milestone Medical

As of

December

31,

2016,

Milestone Medical is approximately

91%

owned by Milestone Scientific. Milestone Medical was established to develop and commercialize intra-articular and epidural drug

delivery instruments, utilizing an exclusive royalty-free license to Milestone Scientific's CompuFlo technology. The license was contributed by Milestone Scientific for its initial

50%

ownership in Milestone Medical in

September,

2011.

Since its initi

al investment in Milestone Medical, Milestone Scientific had accounted for the investment in accordance with the equity method of accounting. However, during

2015,

Milestone Scientific provided short term bridge financing to Milestone Medical in anticipation of the completion of a

secondary

stock offering in Poland. In

December

2015,

Milestone Medical suspended this capital raise efforts meriting re-consideration of the initial accounting for the investment as an equity method investment. In

April

2016,

Milestone Medical cancelled the uplisting of its shares to the Poland Warsaw Stock Exchange.

As a result of the change in circumstances around the proposed offering in

December

2015

by Milestone Medical, Milestone Scientific reevaluated its relatio

nship with Milestone Medical and Milestone Medical's status as a VIE and determined that Milestone Medical did not have sufficient capital at risk to support its activities without additional financial support from Milestone Scientific. Since the factors giving rise to concluding that Milestone Medical is a VIE happened proximate to the end of fiscal year

2015,

the date for measuring the consolidation of Milestone Medical was deemed to be

December

31,

2015.

In the

second

quarter of

2016,

Milestone Scientific initiated a share exchange program pursuant to which it would exchange

one

share of common stock for every

two

outstanding shares of Milestone Medical common stock. As there was no change in control, the acquisition of the non-controlling interest is reflected as an equity transaction with the carrying value of the non-controlling interest adjusted to reflect Milestone Scientific's increased ownership interest in the subsidiary. As a result of these exchanges, Milestone Scientific owns approximately

91%

of Milestone Medical at

December

31,

2016.

Milestone Education LLC

Milestone Education is a

50%

owned subsidiary of Milestone Scientific which began operations in

2013

to provide training and education to dentists throughout the world. Milestone Scientific

accounted for its investment in Milestone Education using the equity method of accounting through

December

31,

2015.

Approximately

81%

of the revenue earned by Milestone Education is from services performed for Milestone Scientific as of

December

31,

2016.

As a result of this relationship, we determined that we have the power to direct the activities that most significantly impact Milestone Education's economic performance, and that it is a VIE and should be consolidated in the financials of Milestone Scientific effective

January

2016.

The

financial information in the table below summarizes the combined results of operations of Milestone Scientific and its subsidiaries, including Milestone Medical and Milestone Education, on a pro forma basis as though the companies had been combined as of the beginning of the earliest period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the result of operations that would have been achieved if the consolidation had taken place at the beginning of the period presented.

	December 31, 2015 Pro Forma (unaudited)
Revenue
Sales	$	9,624,375
Cost of products sold		3,061,299
Gross Profit		6,563,076
Selling, general and administrative expenses		12,781,813
Research and development expenses		892,255
Operating expenses		13,674,068
Loss from operations		(7,110,992	)
Other expenses		(6,845	)
Interest income		3,846
Loss before provision for income tax and equity in net earnings of equity investments		(7,113,991	)
Provision for Income Tax		(36,157	)
Loss before equity in net earnings of equity investments		(7,150,148	)
Loss on earnings from China Joint Venture		(418,432	)
Loss in equity investments		(418,432	)
Net loss		(7,568,580	)
Less: Net loss attributable to the noncontrolling interests		(2,101,056	)
Net loss attributable to Milestone Scientific Inc.	$	(5,467,524	)