Note 3 - Summary of Significant Accounting Policies
|3 Months Ended|
Mar. 31, 2018
|Notes to Financial Statements|
|Significant Accounting Policies [Text Block]||
3— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include the accounts of Milestone Scientific and its wholly owned and majority owned subsidiaries, including, Wand Dental (wholly owned), Milestone Advanced Cosmetic (majority owned) and Milestone Medical (majority owned). Milestone Education is a variable interest entity of which Milestone Scientific is the primary beneficiary and is consolidated into Milestone Scientific's financial statements. All significant, intra-entity transactions and balances have been eliminated in the consolidation.
2.Basis of Presentation
The unaudited condensed consolidated financial statements of Milestone Scientific have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information with the instructions for Form
10of Regulation S-
X.Accordingly, they do
notinclude all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are
notnecessarily indicative of the results of operations which
maybe expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended
December 31, 2017,included in Milestone Scientific's Annual Report on Form
Certain reclassifications have been made to the
2017financial statements to conform to the condensed consolidated
2018financial statement presentation. These reclassifications had
noeffect on net loss or cash flows as previously reported.
606,the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To perform revenue recognition for arrangements within the scope of ASC
606,the Company performs the following
(i) identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration;
(iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and
(v) recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC
The Company derives its revenues from the sale of its products, primarily dental instruments, handpieces, and other related products. The Company sells its products through a global distribution network and that includes both exclusive and non-exclusive distribution agreements with
Revenue from product sales are recognized upon transfer of control of a product to a customer, generally upon date of shipment. For certain arrangements where the shipping terms are FOB destination, revenue is recognized upon delivery. The Company has
noobligation on product sales for any installation, set-up or maintenance, these being the responsibility of the buyer. Milestone Scientific's only obligation after sale is the normal commercial warranty against manufacturing defects if the alleged defective unit is returned within the warranty period.
We generally do
notaccept non-defective returns from our customers. Product returns under warranty are accepted, evaluated and repaired or replaced in accordance with the Company’s warranty policy. Returns
notwithin the warranty policy are evaluated and the customer is charged for repair.
Financing and Payment
Our payment terms differ by geography and customer, but payment is generally required within
90days from the date of shipment or delivery.
Disaggregation of Revenue
We operate in
twooperating segments: dental and medical. Therefore, results of our operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting see Note
12for revenues by geographical market, based on the customer’s location, and product category for the
March 31, 2018
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE.
If Milestone Scientific determines that it has operating power and the obligation to absorb losses or receive benefits, Milestone Scientific consolidates the VIE as the primary beneficiary. Milestone Scientific’s involvement constitutes power that is most significant to the entity when it has unconstrained decision-making ability over key operational functions within the entity.
Milestone Scientific became the primary beneficiary of Milestone Education as of
January 2017.Accordingly, the assets and liabilities of Milestone Education are included in the accompanying condensed consolidated financial statements.
Because Milestone Scientific had an increasing variable interest in Milestone China, it considered the guidance in ASC
810,“Consolidation” as it relates to determining whether Milestone China is a VIE and, if so, identifying the primary beneficiary. As Milestone China’s equity at risk and voting rights were
notproportional to their economic interest, Milestone China was determined to be a VIE. Milestone Scientific would be considered the primary beneficiary of the VIE if it has both of the following characteristics:
Milestone management does
nothave the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has
notbeen met. Management placed the most weight on the relationship and significance of activities of Milestone China to the majority shareholder/CEO of Milestone China. As majority shareholder, majority holder of voting rights, and the active CEO, the
53%investor has the power to direct the activities that most significantly impact the economic performance of Milestone China. Management has concluded that Milestone Scientific is
notthe primary beneficiary under ASC
810.Accordingly, Milestone China has
notbeen consolidated into the financial statements of Milestone Scientific and continues to be accounted for under the equity method
6.Cash and Cash Equivalents
Milestone Scientific considers all highly liquid investments purchased with an original maturity of
threemonths or less to be cash equivalents.
Milestone Scientific sells a significant amount of its product on credit terms to its major distributors. Milestone Scientific estimates losses from the inability of its customers to make payments on amounts billed. Most of credit sales are due within
90days from invoicing. There have
notbeen any significant credit losses incurred to date. As of
March 31, 2018and
December 31, 2017,accounts receivable was recorded, net of allowance for doubtful accounts of
Milestone Scientific values note receivable at historic cost less amount paid against principle. Milestone Scientific estimates losses on the note-based payments and credit quality of the debtor.
9.Product Return and Warranty
Milestone Scientific generally does
notaccept non-defective returns from its customers. Product returns under warranty are accepted, evaluated and repaired or replaced in accordance with the Company’s warranty policy. Returns
notwithin the warranty policy are evaluated and the customer is charged for the repair.
Inventories principally consist of finished goods and component parts stated at the lower of cost (
first-out method) or net realizable value. Inventory quantities on hand are reviewed on a quarterly basis and a provision for excess, slow moving, and obsolete inventory is recorded based on past and expected future sales, potential technological obsolescence and product expiration requirements. As of
March 31, 2018,and
December 31, 2017,inventory was recorded net of allowance for slow moving inventory of approximately
11.Equity Method Investments
Investments in which Milestone Scientific can exercise significant influence, but do
notcontrol, are accounted for under the equity method of accounting and are included in the noncurrent assets on the Condensed Consolidated Balance Sheets. Under this method of accounting, Milestone Scientific's share of the net earnings or losses of the investee is presented below the income tax line on the Condensed Consolidated Statements of Operations. Milestone Scientific evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments
maybe impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
12.Furniture, Fixture and Equipment
Equipment is recorded at cost, less accumulated depreciation. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which range from
sevenyears. The costs of maintenance and repairs are charged to operations as incurred.
13.Intangible Assets – Patents and Developed Technology
Patents are recorded at cost to prepare and file the applicable documents with the US Patent Office, or internationally with the applicable governmental office in the respective country. The costs related to these patents are being amortized using the straight-line method over the estimated useful life of the patent. Patents and other developed technology acquired from another business entity will be amortized at the estimated average useful life of the patent. These patents and developed technology are recorded at the acquisition cost.
Patent defense costs, to the extent applicable, are expensed as incurred. Patent applications filed, and patents obtained in foreign countries are subject to the laws and procedures that differ from those in the United States. Patent protection in foreign countries
maybe different from patent protection under United States laws and
notbe favorable to Milestone Scientific. Milestone Scientific also attempts to protect the proprietary information using confidentiality agreements and by limiting access to its facilities. There can be
noassurance that the program of patents, confidentiality agreements and restricted access to the facilities will be sufficient to protect the proprietary technology.
14.Impairment of Long-Lived Assets
March 31, 2018,Milestone Scientific has reviewed long-lived assets for any impairments. The carrying value of the assets is evaluated in relation to the operating performance and future undiscounted cash flows of the underlying assets when an impairment indicator or triggering event occurs. Milestone Scientific adjusts the net book value of an underlying asset if its fair value is determined to be less than its net book value. There have been
noimpairment indicators or triggering events and therefore, there were
noimpairments as of
March 31, 2018and
December 31, 2017.
15.Shipping and Handling Costs
Shipping and handling costs, if any, are paid by or billed to customers at the time of shipments. Domestic and international shipments are FOB warehouse; therefore,
nocosts are incurred by Milestone Scientific.
16.Research and Development
Research and development costs, which consist principally of new product development costs payable to
thirdparties, are expensed as incurred. Advance payments for the research are amortized to expense either as services are performed or over the relevant service period using the straight-line method.
Milestone Scientific accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
18.Basic and diluted net loss per common share
Milestone Scientific presents “basic” earnings (loss) per common share applicable to common stockholders and, if applicable, “diluted” earnings (loss) per common share applicable to common stockholders pursuant to the provisions of ASC
260,“Earnings per Share”. Basic earnings (loss) per common share is calculated by dividing net income or loss applicable to common stockholders by the weighted average number of common shares outstanding and to be issued during each period. The calculation of diluted earnings per common share is like that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options, warrants, and the conversion of debt were issued during the period.
Since Milestone Scientific had net losses for
2017,the assumed effects of the exercise of potentially dilutive outstanding stock options and warrants were
notincluded in the calculation as their effect would have been anti-dilutive. Such outstanding options and warrants totaled
March 31, 2018and
December 31, 2017,respectively.
19.Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, and cash flow assumptions regarding evaluations for impairment of long-lived assets and going concern considerations, and valuation allowances on deferred tax assets. Actual results could differ from those estimates
20.Fair Value of Financial Instruments
Fair Value Measurements: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). We are required to classify fair value measurements in
oneof the following categories:
1inputs which are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
2inputs which are defined as inputs other than quoted prices included within Level
1that are observable for the assets or liabilities, either directly or indirectly.
3inputs are defined as unobservable inputs for the assets or liabilities.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of an input to the fair value measurement requires judgment and
mayaffect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
Milestone Scientific accounts for stock-based compensation under ASC
718,“Compensation – Stock Compensation”. ASC
718requires all share-based payments to employees, including grants of employee stock options, to be recognized as expense over the requisite service period as an operating expense, based on the grant-date fair values.
The fair value of the non-employee options was estimated on the date of grant using the Black Scholes option-pricing model. In accordance with the provisions of ASC
505,Milestone Scientific will re-measure the value of the grant at each presentation date unless there is a significant disincentive for non-performance or until performance has been rendered. For the
March 31, 2018and
2017,Milestone Scientific recognized approximately
$4,000of expense, and
$17,100of income related to non-employee options, respectively.
22.Recent Accounting Pronouncements
May 2014,the FASB issued Accounting Standards Update (“ASU”)
09,“Revenue from Contracts with Customers (Topic
606). The standard, including subsequently issued amendments, replaces most existing revenue recognition guidance in U.S. GAAP. The key focus of the new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new standard as of
January 1, 2018by using the modified-retrospective method.
In connection with the adoption, we performed a review of our existing revenue arrangements as of
January 1, 2018following the
five-step model outlined in ASC
Based on our analysis, there were
nochanges identified that impacted the amount or timing of revenues recognized under the new guidance as compared to the previous guidance. Additionally, our analysis indicated that there were
nochanges to how costs to obtain and fulfill our customer contracts would be recognized under the new guidance as compared to the previous guidance.
February 2016,the FASB issued ASU
842)”. This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The Company will adopt this standard on
January 1, 2019.We are currently evaluating the impact of adopting this guidance on our consolidated balance sheets, results of operations and financial condition.
August 2016,the FASB issued ASU
15,"Statement Cash Flows “Classification of Certain Cash Receipts and Cash Payments" (Topic
230). The new standard provides guidance as to the conformity of presentation of certain cash receipts and disbursements. The Company adopted this standard during the quarter ended
March 31, 2018and there was
nomaterial impact on the Company’s consolidated statements of cash flows.
May 2017,the FASB issued ASU
09,“Compensation – Stock Compensation” (Topic
718). The new standard provides guidance and clarity for modification to equity-based compensation programs. The Company adopted this standard during the quarter ended
March 31, 2018and there was
nomaterial impact on the Company’s consolidated financial statements.
February 2018,the FASB issued ASU
02,“Income Statement – Reporting Comprehensive Income (Topic
220)”, which amends the previous guidance to allow for certain tax effects “stranded” in accumulated other comprehensive income, which are impacted by the Tax Cuts and Jobs Act (the “Act”), to be reclassified from accumulated other comprehensive income into retained earnings. This amendment pertains only to those items impacted by the new tax law and will
notapply to any future tax effects stranded in accumulated other comprehensive income. This standard is effective for fiscal years beginning after
December 15, 2018and allows for early adoption. The Company does
notanticipate that the adoption of this standard will have a material impact on the Company’s consolidated balance sheet.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef