In Milestone Scientific invested million in Milestone China Ltd. (“Milestone China”), by contributing dental instruments to Milestone China for a () ownership interest. Milestone China owns approximately 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. 

 

In quarter 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 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. After completion of the Transaction, Milestone Scientific is expected to have an approximate 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.

 

 

Milestone China is Milestone Scientific's exclusive distributor in China.  During and prior to the payment default during  Milestone Scientific agreed to sell inventory to Milestone China and its agent. During Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and its agents which amounted to million at the time of the payment arrangement. Milestone Scientific collected under this arrangement, until Milestone China defaulted on the payment arrangements. 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 charge for  deferred cost associated with these transactions of million during the quarter of

 

For the and months ended Milestone Scientific did ship nor recognize any deferred revenue or net revenue for Milestone China and its agents. For the and months ended Milestone Scientific did ship nor recognize any deferred revenues, but did recognize revenue of , and for Milestone China and its agents, respectively, that was previously deferred as a result of additional cash collected.

 

 

In of the Company entered into an agreement with United Systems, Inc., related party (see Note ) regarding certain handpieces supplied to Milestone China in 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 paid by Milestone China. United Systems sold their entire accounts receivable due from Milestone China for the above described handpieces and STA instruments for to Milestone Scientific. Milestone Scientific paid United Systems the sale price as follows; in cash paid in in shares of the Company's  Common Stock (priced as of the close of business on ) issued in and in cash paid in 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 million. 

 

 

 The Company has recorded a charge to the unaudited condensed consolidated statement of operations for during the months ended

 

 

In Milestone Scientific finalized an agreement for the purchase of Milestone China's interest in Advanced Cosmetic Systems Inc., for the forgiveness of 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 interest in Advanced Cosmetic Systems within year from the sale date for in cash. As a result of the purchase Milestone Scientific will own of Advanced Cosmetic Systems Inc. at the expiration of the option period.

 

 

Due to timing differences of when the inventory sold to Milestone China is recognized and when Milestone China sells the acquired inventory to parties, an elimination of the profit is required as of the balance sheet date. In accordance with ASC Equity Method and Joint Ventures, Milestone Scientific has deferred of the gross profit associated with recognized revenue from sales to Milestone China until that product is sold to parties.

 

At and the deferred profit was which is included in deferred profit, related party in the condensed consolidated balance sheets. For the and months ended and Milestone Scientific recorded earnings on equity investment of  and and and respectively, for product sold by Milestone China to parties.

 

 

As a result of the COVID- Pandemic, as previously noted, Milestone China, Milestone Beijing and Anhui have legally finalized the Transaction. Further, Milestone China and Milestone Beijing have completed the financial accounting and reporting as of and for the and months ended Consequently, the summarized financial information (unaudited) for Milestone China, Milestone Beijing are available and therefore included herein.

 

Milestone Scientific, in previous years, reduced its investment in Milestone China to and had accumulated losses over the investment balance of approximately million as of which have been suspended. Milestone Scientific believes that its equity method portion of Milestone China's expected losses for the - and -months ending do have a significant impact on and are material to the consolidated financial statements of the Company.