Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Investment in and Transactions with Unconsolidated Subsidiaries

v3.19.2
Note 6 - Investment in and Transactions with Unconsolidated Subsidiaries
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]
NOTE
6
 – INVESTMENT IN AND TRANSACTIONS WITH UNCONSOLIDATED SUBSIDIARIES
 
Milestone China Ltd.
           
Ownership
 
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. 
 
Related Party Transactions
 
Milestone China is Milestone Scientific’s exclusive distributor in China.  During
2017
and prior to the payment default during 
2018,
Milestone Scientific agreed to sell inventory to Milestone China and its agent. During
2018
Milestone Scientific entered into a payment arrangement with Milestone China to satisfy past due receivables from Milestone China and it’s agents which amounted to $
2.8
million  at the time of the payment arrangement. The payment terms required payments of
$200,000
per month beginning in
July 2018
through
November 2018
and a balloon payment of approximately
$1,425,000
during
December 2018.
Milestone Scientific collected
$950,000
under the payment arrangement which resulted in a deferred revenue and deferred cost balance of
$1.8
million and
$1.25
million, respectively. Due to the default on the arrangement  and Milestone China’s liquidity constraints, Milestone Scientific  halted  shipments to Milestone China and 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 during the
fourth
quarter of
2018.
 
Milestone Scientific recognized revenue associated with sales to Milestone China and it’s agents of
$50,000
and
$100,000
for the
three
and
six
months ended
June 30, 2019,
respectively. For the
three
and
six
months ended
June 30, 2018, 
Milestone Scientific recognized 
no
revenue associated with sales to Milestone China and it’s agents. 
 
Gross Profit Deferral
 
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 profit is required as of the balance sheet date. In accordance with ASC
323
Equity Method and Joint Ventures, Milestone Scientific has deferred
40%
of the gross profit associated with previously recognized revenue from sales to Milestone China until that product is  sold to
third
parties.
 
At
June 30, 2019
and
December 31, 2018 ,
the deferred profit was
$372,200
and
$421,800,
respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets. For the
three
and
six
months ended
June 30, 2019,
Milestone Scientific recorded income on equity investment of  
$58,664
 and
$49,100
respectively, for product sold by Milestone China to
third
parties. For the
three
and
six
months ended
June 30, 2018,
Milestone Scientific recorded an income on equity investment of 
$78,591
 and
$115,374
respectively, for product sold by Milestone China to
third
parties.
 
Equity Method Disclosures
 
As
June
30,2019
and 
December 31, 2018,
Milestone Scientific's investment in Milestone China was
$0.
 As of
June 30, 2019
and
December 31, 2018,
Milestone Scientific’s share of cumulative losses of Milestone China were
$4,223,449
 and
$3,380,388,
respectively, which have been suspended.
 
The following table includes summarized financial information (unaudited) of Milestone China:
 
   
June 30, 2019
   
December 31, 2018
 
Assets:
 
(unaudited)
   
(unaudited)
 
Current assets
  $
13,966,781
    $
10,587,648
 
Non-current assets
   
4,974,387
     
4,603,485
 
Total assets:
  $
18,941,168
    $
15,191,133
 
                 
Liabilities:
               
Current liabilities
  $
23,276,964
    $
17,696,033
 
Stockholders' deficit
   
(4,335,796
)    
(2,504,900
)
Total liabilities and stockholders’ deficit
  $
18,941,168
    $
15,191,133
 
 
   
For the three
months ended
June 30, 2019
   
For the three months ended
June 30, 2018
   
For the six
months ended
June 30, 2019
   
For the six
months ended
June 30, 2018
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
Net sales
  $
1,149,474
    $
1,328,079
    $
1,753,802
    $
2,085,034
 
Cost of goods sold
   
324,300
     
650,840
     
559,400
     
1,098,452
 
Gross profit
   
825,174
     
677,239
     
1,194,402
     
986,582
 
Other expenses
   
(1,423,353
)    
(1,119,440
)    
(3,302,057
)    
(2,371,652
)
Net loss
  $
(598,179
)   $
(442,201
)   $
(2,107,655
)   $
(1,385,070
)