Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Investment in Unconsolidated Subsidiaries

v3.7.0.1
Note 5 - Investment in Unconsolidated Subsidiaries
6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]
NOTE
 -
5
INVESTMENTS IN
UNCONSOLIDATED SUBSIDIARIES
 
Advance Ocular Science SA
 
Advanced Ocular Sciences SA ("Advanced Ocular") is an entity organized to develop an instrument to deliver injections into the eyes. Advanced Ocular is a shell company as of
June 30, 2017,
Milestone Scientific owns
25%
of this entity. During
2015,
Milestone Scientific advanced
$78,798
for marketing and strategy planning to Advanced Ocular and it, or its organizers, are obligated to repay this advance once a public offering of Advanced Ocular equity is approved and funded in Poland during
2016.
No
public offering was completed in Poland as of
June 30, 2017. 
As a result, Milestone Scientific wrote-off the
$78,798
advanced to Advanced Ocular as of
December 31, 2016.
Advance Ocular was
not
included in the condensed consolidated financial statements at
June 30, 2017
as
no
further investment has been made by Milestone Scientific.
 
Milestone China Ltd.
 
          
In
June 2014,
Milestone Scientific invested
$1
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. Milestone Scientific recorded a loss on its investment in Milestone China of
 
$0
and
$164,837,
as of
June 30, 2017
and
2016,
respectively. Milestone Scientific's investment in Milestone China was
$0
as of
June 30, 2017
and
December 31, 2016,
respectively. Milestone Scientific incurred
cumulative 
losses on its investment in Milestone China of
$1,654,477
and
$1,124,350
as of
June 30, 2017
and
December 31, 2016,
respectively, which have been suspended.
 
       
In
June 2017,
Milestone Scientific entered into an agreement for the sale of the Milestone China Shares to an unaffiliated United States domiciled purchaser and a
10
-year option agreement to repurchase the Milestone China Shares. The purchase price for th
e Milestone China Shares was
$1,400,000
of which
$125,000
was paid in cash and
$1,275,000
was paid by delivery of a non-interest bearing secured promissory note. The note is payable in quarterly installments of
$125,000
until paid in full and is secured by the Milestone China Shares until full repayment.  In addition, pursuant to such note, the purchaser is precluded from selling all or substantially all of its assets prior to repayment of the note. The
10
-year option agreement provides Milestone Scientific an option to repurchase the
40%
equity interest at
$1,400,000
within the
first
two
years and at fair value (as defined in such agreement) for the remainder of the 
10
-year term. The transaction has been accounted for as a secured financing and Milestone Scientific will continue to account for its relationship with Milestone China under the equity method of accounting. A note receivable is presented on the Balance Sheet, along with a deferral from financing transaction (
$1,400,000
). The carrying value of the
forty
(
40%
) percent investment at the transaction date was zero. (See Note
5
). 
 
Milestone Scientific had
$356,400
and
$1,714,600
 of related party sales of handpieces and instruments to Milestone China and Milestone China’s agent during the
three
and
six
months ended
June 30, 2017.
Milestone Scientific had
$356,400
and
$1,356,000
of related party sales of handpieces and instruments to Milestone China during the
three
and
six
months ended
June 30, 2016,
respectively. As of
June 30, 2017
and
December 31, 2016,
Milestone Scientific recorded deferred revenues and deferred costs associates with sales to Milestone China of
$356,400
and
$181,116,
and
$1,001,800
and
$620,041,
respectively.  As of
June 30, 2017
and
December 31, 2016,
Milestone China owed
$356,400
and
$2,714,600,
respectively, to Milestone Scientific for handpieces and STA instruments which is included in related party accounts receivable on the condensed consolidated balance sheets.  Milestone China made payments in
April 2017
to satisfy the outstanding instruments receivable from
2016
and therefore the deferred revenue of 
$1,001,800
at
December 31, 2016
has been recorded in revenue for the
six
months ended
June 30, 2017.
 
Milestone Scientific defers the total revenue and costs of goods sold when instruments and handpieces are shipped to Milestone China and
 Milestone China’s agent due to market conditions and Milestone China liquidity concerns. However, due to timing differences of when the inventory is sold to Milestone China and when Milestone China sells the acquired inventory to
third
parties, elimination of the intra-entity profit is required as of the balance sheet date. In accordance with ASC
323
Equity Method and Joint Ventures, Milestone Scientific has deferred the gross profit associated with inventory shipped to Milestone China that has
not
been sold to
third
parties. At
June 30, 2017
and
December 31, 2016,
the deferred profit was
$659,931
and
$630,990
,
respectively, which is included in the condensed consolidated balance sheets. For the
six
months ended
June 30, 2017
and
2016,
the loss on equity investment was
$28,941
and
$222,719,
respectively, which is included in the condensed consolidated statements of operation. For the
three
months ended
June 30, 2017
and
2016,
Milestone had a profit on equity investment of
$15,460
and loss on equity investment
$57,882,
respectively, which is included in the condensed consolidated statements of operation.
 
The following table includes summarized financial information (unaudited) of Milestone China:
 
   
June 30, 2017
   
December 31, 2016
 
             
Assets:
               
Current Assets
  $
9,940,116
    $
9,362,198
 
Non-Current Assets
   
2,841,127
     
2,467,547
 
Total Assets:
   
12,781,243
     
11,829,745
 
                 
Liabilities:
               
Current Liabilities
   
12,110,291
     
9,900,611
 
Stockholders' equity
   
670,952
     
1,929,134
 
Total liabilities and stockholders
’ equity
  $
12,781,243
    $
11,829,745
 
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
                                 
Net Sales
  $
322,226
    $
57,102
    $
1,165,552
    $
329,322
 
Cost of Goods Sold
   
422,789
     
74,464
     
889,204
     
283,864
 
Gross Profit
   
(100,563
)    
(17,362
)    
276,348
     
45,458
 
Other Expenses
   
(643,570
)    
(263,540
)    
(1,601,666
)    
(643,313
)
Net Losses
  $
(744,133
)   $
(280,902
)   $
(1,325,318
)   $
(597,855
)