Quarterly report pursuant to Section 13 or 15(d)

Note 8 - Investment in Unconsolidated Affiliate

v3.10.0.1
Note 8 - Investment in Unconsolidated Affiliate
9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]
NOTE
8
 – INVESTMENT IN UNCONSOLIDATED AFFILIATE
  
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. As of
September 30, 2018,
and 
December 31, 2017,
Milestone Scientific's investment in Milestone China was
$0.
 As of
September 30, 2018,
and
December 31, 2017,
Milestone Scientific’s share of cumulative losses of Milestone China were
$3,846,513
 and
$3,147,470,
respectively, which have been suspended.
 
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 intra-entity profit is required as of the balance sheet date. In accordance with ASC
323,
“Investments – Equity Method and Joint Ventures”, Milestone Scientific has deferred
40%
of the gross profit associated with recognized revenue from Milestone China that has
not
been sold to
third
parties by Milestone China. At
September 30, 2018
and
December 31, 2017,
deferred profit was 
$492,884
 and
$751,500,
respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets. Milestone Scientific recorded earnings and loss on its investment in Milestone China of (
$143,242
) and (
$258,616
)for the
three
and
nine
months ended
September 30, 2018,
respectively, and
$0
 and (
$28,941
) for the
three
and
nine
months ended
September 30, 2017,
respectively, inclusive of the change in intra-entity deferral of profit.
 
Milestone Scientific defers the total revenue and costs of goods sold when devices and handpieces are shipped to Milestone China and Milestone China’s agents due to market conditions and Milestone China liquidity concerns, until a payment is received. As of
September 30, 2018,
Milestone Scientific had deferred revenues and deferred costs associated with sales to Milestone China and its agents was approximately 
$1.3
million and
$790,000,
respectively. As of
December 31, 2017, 
Milestone Scientific had deferred revenues and deferred costs associated with sales to Milestone China and its agents was approximately
$1.7
million and
$1.1
million, respectively. Milestone Scientific recognized
$300,000
related party revenue from Milestone China and it’s agents during the 
three
and
nine
months ended
September 30, 2018.
Milestone Scientific recognized
$356,400
and 
$1.7
 million of related party revenue for the
three
and
nine
months ended
September 30, 2017. 
See Note
14
for  related party transactions.
 
As of 
September 
30,
2018,
  Milestone China missed its schedule payment of
$200,000
in accordance with the previously agreed upon payment terms with Milestone Scientific Inc. which requires
$200,000
per month through
November 2018
and a balloon payment of approximately
$1,425,000
during
December 2018.  
Due to the delinquent nature of the scheduled payments and Milestone China’s further liquidity constraints, Milestone Scientific reduced accounts receivable, related party and deferred revenue, related party by
$1,258,995.
Additionally, Milestone Scientific recorded a reserve of
$790,189
against the associated deferred cost, related party. These reserves will be reviewed periodically and adjusted based on updated fact and circumstances.
 
The following table includes summarized financial information (unaudited) of Milestone China:
 
  
 
   
September 30, 2018
   
December 31, 2017
 
Assets:
               
Current assets
  $
14,006,025
    $
13,127,422
 
Non-current assets
   
2,920,936
     
3,213,520
 
Total assets:
  $
16,926,961
    $
16,340,942
 
                 
Liabilities:
               
Current liabilities
   
21,122,545
     
18,468,937
 
Stockholders' equity
   
(4,195,584
)    
(2,127,995
)
Total liabilities and stockholders’ equity
  $
16,926,961
    $
16,340,942
 
 
 
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net sales
  $
1,704,473
    $
1,382,588
    $
3,789,507
    $
2,548,140
 
Cost of goods sold
   
787,557
     
556,430
     
1,886,009
     
1,445,634
 
Gross Profit
   
916,916
     
826,158
     
1,903,498
     
1,102,506
 
Other Expenses
   
(1,279,454
)    
(1,886,180
)    
(3,651,106
)    
(3,487,845
)
Net Losses
  $
(362,538
)   $
(1,060,022
)   $
(1,747,608
)   $
(2,385,339
)