NOTE F – INVESTMENT IN AND TRANSACTIONS WITH UNCONSOLIDATED SUBSIDIARIES

Milestone China Ltd.

Ownership

June 2014,

Milestone Scientific invested

million in Milestone China Ltd. (“Milestone China”) by contributing

772

STA Instruments to Milestone China for a

40%

ownership interest. Milestone Scientific recorded this investment under the equity method of accounting.

Related Party Transactions

Milestone China is Milestone Scientific’s exclusive distributor in China. During

2017

and prior to the payment default during

2018,

Milestone Scientific agreed to sell inventory to Milestone China and its agent. During

2018

Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and it’s agents which amounted to

$2.8

million at the time of the payment arrangement. The payment terms required payments of

$200,000

per month beginning in

July 2018

through

November 2018

and a balloon payment of approximately

$1,425,000

during

December 2018.

Milestone Scientific collected

$950,000

under the payment arrangement which resulted in a deferred revenue and deferred cost balance of

$1.8

million and

$1.25

million, respectively, prior to Milestone China’s default of the payment arrangement. Milestone China failed to make all the payments under the arrangement and due to the default on the arrangement and Milestone China’s liquidity constraints, Milestone Scientific halted shipments to Milestone China and the Company has adjusted the accounts receivable related party and the deferred revenue related party based on the expected payment realization and recorded a reserve against the related deferred cost of

$1.25

million during the

fourth

quarter of

2018.

During the year ended

December 31, 2019,

Milestone Scientific recognized gross revenue associated with

2018

delivered products to Milestone China and its agents of approximately

$259,000,

offset by accepted returns of approximately

$104,000.

During

2018,

Milestone Scientific recognized

$900,000

of related party sales of handpieces and instruments to Milestone China and its agent.

As of

December 31, 2018,

Milestone Scientific had recorded deferred revenues and deferred costs associated with sales to Milestone China and it’s agents of

$100,000

and

$50,000,

respectively. After

2019

collections,

deferred costs or deferred revenue remained as of

December 31, 2019.

Gross Profit Deferral

Due to timing differences of when the inventory sold to Milestone China is recognized and when Milestone China sells the acquired inventory to

third

parties, an elimination of the profit is required as of the balance sheet date. In accordance with ASC

323

Equity Method and Joint Ventures, Milestone Scientific has deferred

40%

of the gross profit associated with recognized revenue from sales to Milestone China until that product is sold to

third

parties.

December 31, 2019

and

2018,

the deferred profit was

$340,476

and

$421,800

respectively, which is included in deferred profit, related party in the consolidated balance sheets. For

twelve

months ended

December 31, 2019

and

2018,

Milestone Scientific recorded earnings on equity investment of

$81,324

and

$329,700

respectively, for product sold by Milestone China to

third

parties.

Equity Method Disclosures

As of

December 31, 2019,

and,

2018,

Milestone Scientific's investment in Milestone China was

As of

December 31, 2019,

and

2018,

Milestone Scientific’s share of cumulative losses of Milestone China were

$4,308,596

and

$3,380,388,

respectively, which have been suspended.

The following table includes summarized financial information (unaudited) of Milestone China:

	December 31, 2019			December 31, 2018
Assets:	(unaudited)			(unaudited)
Current assets	$	8,392,858		$	10,587,648
Non-current assets		5,082,313			4,603,845
Total assets:	$	13,475,171		$	15,191,493

Liabilities and stockholders’ deficit:
Current liabilities	$	17,910,452		$	17,696,393
Stockholders' deficit		(4,435,281	)		(2,504,900	)
Total liabilities and stockholders’ deficit	$	13,475,171		$	15,191,493

	December 31, 2019			December 31, 2018
	(unaudited)			(unaudited)
Net sales	$	3,401,025		$	1,710,473
Cost of goods sold		1,724,882			789,957
Gross profit		1,676,143			920,516
Other expenses		(3,996,663	)		(1,371,085	)
Net loss	$	(2,320,520	)	$	(450,569	)