Quarterly report pursuant to Section 13 or 15(d)

Note 12 - Related Party Transactions

v3.19.1
Note 12 - Related Party Transactions
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]
NOTE
12
 -- RELATED PARTY TRANSACTIONS
        
United Systems
 
Milestone Scientific has a manufacturing agreement with United Systems (whose controlling shareholder, Tom Cheng, is a significant stockholder of Milestone Scientific), the principal manufacturers of its handpieces, pursuant to which it manufactures products under specific purchase orders, but without minimum purchase commitments. Purchases from this manufacturer were approximately
$338,000
and
$351,000
 for the
three
months ended
March 31, 2019
and
2018,
 respectively. As
March 31, 2019
and 
2018,
Milestone Scientific owed this manufacturer
$1.2
million and
$1.0
million, respectively, which is included in accounts payable, related party on the condensed consolidated balance sheets. In
February 
2019,
Milestone Scientific board of directors granted United Systems (controlling shareholder, Tom Cheng)
285,714
shares of stock at
$0.35
or
$100,000
for consulting services. These shares were included in shares to be issued at
March 31, 2019.
 
During  
2018
Milestone Scientific through its wholly owned subsidiary, Wand Dental, entered into an agreement with United Systems. The agreement was a Royalty Agreement for handpieces sold to Milestone China by United Systems. United Systems will pay Wand Dental a royalty equal to the net profit that Wand Dental would have received if the handpieces were sold directly to Milestone China or its Agent. As of
March 31, 2019
and  
December 31, 2018, 
Wand Dental has deferred royalty income of
$342,540
that will be recognized at the earlier of when payment of the royalties is received from United Systems or when collectability is deemed to be assured and is included in accounts receivable, related party and deferred revenue, related party on the condensed  consolidated balance sheets.  
 
Also, during the year ended
December 31, 2018,
a Distribution Agreement between Wand Dental and United Systems was entered into.  Under the Distribution Agreement United Systems purchased
1,000
STA instruments in
June 2018,
for delivery to Milestone China. Due to the related party nature and collectability concerns Wand Dental has deferred the sale. During
2018,
Milestone Scientific had recorded deferred revenues and deferred costs associated with the sale to United Systems of
$750,000
and
$686,365,
respectively. Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and it’s agents which increased to $
2.8
million  at the time of the payment arrangement. The payment terms required
$200,000
payments per month beginning in
July 2018
through
November 2018
and a balloon payment of approximately
$1,425,000
during
December 2018.
 
As of
March 31, 2019
Milestone Scientific only collected
$950,000
under the payment arrangement. Due to the default on the arrangement  and Milestone China’s liquidity constraints, Milestone Scientific halted  shipments to Milestone China. 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 which includes the sales  to United Systems. The amounts due from Untied Systems described above are included in the adjustments and reserves for Milestone China. See Note
6.
 
Milestone China
 
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. See Note
6
 for a description of related party transactions with Milestone China.
 
Other
 
In
August 2016,
K. Tucker Andersen, a significant stockholder of Milestone Scientific, entered into a
three
-year agreement with Milestone Scientific to provide financial and business strategic services. Expenses recognized on this agreement were
$25,000
for the
three
months ended
March 31, 2019
and
2018,
respectively.
 
In
January 2017,
Milestone Scientific entered into a
twelve
-month agreement with Innovest S.p.A., a significant stockholder of Milestone Scientific, to provide consulting services. This agreement will renew for successive
twelve
-month terms unless terminated by Innovest S.p.A or Milestone Scientific. Expenses recognized on this agreement were
$20,000
for the
three
months ended
March 31,
2019,and
2018
respectively.
 
The Director of Clinical Affairs’ royalty fee was approximately
$91,490
 and
$85,769
 for the
three
months ended
March 31, 2019
and
2018,
 respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of
$39,000
and
$68,751
for the
three
months ended
March 31, 2019
and
2018,
 respectively. As of
March 31, 2019
and
December 31, 2018, 
Milestone Scientific owed the Director Clinical Affairs for royalties of approximately
$309,000
 and
$364,000,
respectively, which is included in accounts payable, related party and accrued expense, related party.