Note 8 - Investment in Unconsolidated Affiliate |
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Equity Method Investments and Joint Ventures Disclosure [Text Block] |
NOTE 8 – INVESTMENT IN UNCONSOLIDATED AFFILIATEMilestone 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 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:
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