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]||
8– INVESTMENT IN UNCONSOLIDATED AFFILIATE
Milestone China Ltd.
June 2014,Milestone Scientific invested
$1million in Milestone China Ltd. (“Milestone China”) by contributing
772STA 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
September 30, 2018,and
December 31, 2017,Milestone Scientific’s share of cumulative losses of Milestone China were
$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
thirdparties, 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
notbeen sold to
thirdparties by Milestone China. At
September 30, 2018and
December 31, 2017,deferred profit was
$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 (
September 30, 2018,respectively, and
$28,941) for the
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
$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
$1.1million, respectively. Milestone Scientific recognized
$300,000related party revenue from Milestone China and it’s agents during the
September 30, 2018.Milestone Scientific recognized
$1.7million of related party revenue for the
September 30, 2017.See Note
14for related party transactions.
2018,Milestone China missed its schedule payment of
$200,000in accordance with the previously agreed upon payment terms with Milestone Scientific Inc. which requires
$200,000per month through
November 2018and a balloon payment of approximately
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
$790,189against 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:
The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef