Note 3 - Consolidation of Variable Interest Entity
|9 Months Ended|
Sep. 30, 2016
|Notes to Financial Statements|
|Variable Interest Entity Disclosure [Text Block]||
– 3 CONSOLIDATION OF VARIABLE INTEREST ENTITY
Milestone Medical is
approximately 91% owned by Milestone Scientific as of September 30, 2016. Milestone Medical was established to develop and commercialize intra-articular and epidural drug delivery instruments, utilizing an exclusive royalty-free license to Milestone Scientific’s CompuFlo technology. The license was contributed by Milestone Scientific for our initial ownership in Milestone Medical.
Since our initial investment in Milestone Medical we have accounted for the investment in
accordance with the equity method of accounting. However, during 2015, Milestone Scientific provided short term bridge financing to Milestone Medical in anticipation of the completion of a secondary stock offering in Poland. In December 2015, Milestone Medical suspended this capital raise efforts meriting re-consideration of the initial accounting for the investment as an equity method investment. In April 2016, Milestone Medical cancelled the uplisting of its shares to the Poland Warsaw Stock Exchange.
As a result of the change in circumstances around the proposed offering in December 2015 by Milestone Medical, we reevaluated our relationship and Milestone Medical
’s status as a VIE and determined that Milestone Medical does not have sufficient capital at risk to support its activities without additional financial support from us. Since the factors giving rise to concluding that Milestone Medical is a VIE happened so close to the end of fiscal year 2015, the date for measuring the consolidation of Milestone Medical has been deemed to be December 31, 2015.
In the second quarter of
2016, Milestone Scientific initiated a share exchange program pursuant to which we would exchange one share of common stock for every two outstanding shares of Milestone Medical common stock. As there was no change in control, the acquisition of the non-controlling interest is reflected as an equity transaction with the carrying value of the non-controlling interest adjusted to reflect Milestone Scientific’s increased ownership interest in the subsidiary. As of September 30, 2016, 5,035,042 shares of common stock have been issued in exchange for 9,005,000 shares of Milestone Medical common stock. As a result of these exchanges, Milestone Scientific owns approximately 91% of Milestone Medical at September 30, 2016.
As a result of our increased ownership in Milestone Medical, we have determined that we continue to have control of Milestone Medical and have consolidated Milestone Medical in the accompanying condensed cons
olidated financial statements.
Milestone Education LLC
Milestone Education is a 50% owned subsidiary of Milestone Scientific which began operations in 2013 to provide training and education to dentists throughout the world. Milestone Scientific accounted f
or its investment in Milestone Education using the equity method of accounting through December 31, 2015. Approximately 83% of the revenue earned by Milestone Education is from services performed for Milestone Scientific. As a result of this relationship, we determined that we have the power to direct the activities that most significantly impact Milestone Education’s economic performance, and that it is a VIE and should be consolidated in the financials of Milestone Scientific.
The financial information in the table below
summarizes the combined results of operations of Milestone Scientific and its subsidiaries, including Milestone Medical and Milestone Education, on a pro forma basis as though the companies had been combined as of the beginning of the earliest period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the result of operations that would have been achieved if the consolidation had taken place at the beginning of the period presented.
The financial statements o
f Milestone Education have been consolidated in the accompanying condensed consolidated financial statements.
The financial information in the table below summarizes the combined results of operations of Milestone
Scientific and its subsidiaries, including Milestone Medical and Milestone Education, on a pro forma basis as though the companies had been combined as of the beginning of the earliest period presented. The pro forma financial information is presented for informational purposes only and is not indicative of the result of operations that would have been achieved if the consolidation had taken place at the beginning of the period presented.
The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss.
Reference 1: http://www.xbrl.org/2003/role/presentationRef