NOTE F – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES

Milestone China Ltd.

Ownership

June 2014,

Milestone Scientific invested

million in Milestone China Ltd. (“Milestone China”), by contributing dental instruments to Milestone China for a

forty

(

40%

) ownership interest. Milestone China owns approximately

75%

of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”). Milestone Beijing has primary responsibility for the sales, marketing, and distribution of the Company's dental products in China. Milestone Scientific recorded their investment in Milestone China under the equity method of accounting.

first

quarter

2020,

Milestone China and certain marketing affiliates entered into a plan to merge (the Transaction) into an affiliated manufacturing company, Anhui Maishida Medical Technology, Co. Ltd. (Anhui). Anhui will be the surviving entity after the merger and will have complete responsibility for sales, marketing, and distribution for the Company's dental products in China. However, as of the filing date of this Annual Report, due to the COVID-

Pandemic, the regulatory documentation for the planned merger has been placed in suspense since applicable government offices are still closed in China and Hong Kong. After completion of the Transaction, Milestone Scientific is expected to have an approximate

28.4%

direct ownership in Anhui. Milestone China and certain marketing affiliates are expected to be dissolved upon completion of the merger and upon the required regulatory filings in China and Hong Kong.

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 its agents which amounted to

$2.8

million at the time of the payment arrangement. Milestone Scientific collected

$950,000

under this arrangement, until Milestone China defaulted on the payment arrangements. Milestone Scientific halted shipments to Milestone China.

During the year ended

December 31, 2020

Milestone Scientific shipped

100

instruments to Milestone China and its agents and recognized revenue of

$75,000.

As of

December 31, 2020,

the Company has approximately

$183,000

of deposits from Milestone China for future shipment of goods included in accrued expenses, related party on the accompanying consolidated balance sheet. 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

that was previously deferred as a result of additional cash collected.

April

2020,

the Company entered into an agreement with United Systems, Inc., related party (see Note O) regarding certain handpieces supplied to Milestone China in

2018,

that were billed and shipped to Milestone China by United Systems, as well as STA instruments billed to United Systems and delivered to Milestone China, and

not

paid by Milestone China. United Systems sold their entire accounts receivable due from Milestone China for the above- described handpieces and STA instruments for

$370,260

to Milestone Scientific. Milestone Scientific paid United Systems the sale price as follows;

$100,000

in cash paid in

April 2020,

$170,260

in shares of the Company's Common Stock (priced as of the close of business on

April 23, 2020,

$1.59

) issued in

June 2020,

and

$100,000

in cash paid in

July 2020.

The Company is entitled to the cash collections, if and when received, on the accounts receivable due to United Systems prior to this agreement up to approximately

$1.4

million. The Company has recorded a charge to the consolidated statement of operations for

$370,260

during the

twelve

months ended

December 31, 2020.

May 2020,

Milestone Scientific finalized an agreement for the purchase of Milestone China's

50%

interest in Advanced Cosmetic Systems Inc., for the forgiveness of

$900,000

in accounts receivable owed by Milestone China to Milestone Scientific (and previously fully reserved for), resulting in a noncash transaction. Milestone China will have the option to repurchase the

50%

interest in Advanced Cosmetic Systems within

one

year from the sale date for

$900,000

in cash. As a result of the purchase Milestone Scientific will own

100%

of Advanced Cosmetic Systems Inc. at the expiration of the option period.

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, 2020

and

2019,

the deferred profit was approximately

$243,000

and

$340,000,

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

twelve

months ended

December 31, 2020

and

2019

Milestone Scientific recorded earnings on equity investment of

$97,887

and

$81,324

respectively, for product sold by Milestone China to

third

parties.

Equity Method Disclosures

Milestone Scientific, in previous years, reduced its investment in Milestone China to

zero

and had accumulated losses over the investment balance of approximately

$4.3

million as of

December 31, 2019

and

5.9

million at

December 31, 2020,

which have been suspended.

The following includes summarized financial information of Milestone China for the year ending

December 31, 2019.

	December 31, 2019
Assets:
Current assets	$	8,392,858
Non-current assets		5,082,313
Total assets:	$	13,475,171

Liabilities and stockholders' deficit:
Current liabilities	$	17,910,452
Stockholders' deficit		(4,435,281	)
Total liabilities and stockholders' deficit	$	13,475,171

	December 31, 2019
Net sales	$	3,401,025
Cost of goods sold		1,724,882
Gross profit		1,676,143
Other expenses		(3,996,663	)
Net loss	$	(2,320,520	)

first

quarter

2020,

However, as of the filing date of this Quarterly Report, due to the COVID-

Pandemic, the regulatory documentation for the planned merger has been placed in suspense since applicable government offices are still closed in China and Hong Kong.

The following includes summarized combined financial information of Milestone China and Anhui for the year ending

December 31, 2020.

	December 31, 2020
Assets:
Current assets	$	4,726,883
Non-current assets		4,040,327
Total assets:	$	8,767,210

Liabilities and stockholders' deficit:
Current liabilities	$	10,885,019
Stockholders' deficit		(2,117,809	)
Total liabilities and stockholders' deficit	$	8,767,210

	December 31, 2020
Net sales	$	4,183,774
Cost of goods sold		2,895,092
Gross profit		1,288,682
Other expenses		(5,376,391	)
Net loss	$	(4,087,709	)