Quarterly report pursuant to Section 13 or 15(d)

Note 2 - Summary of Accounting Policies

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Note 2 - Summary of Accounting Policies
9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Significant Accounting Policies [Text Block]
NOTE
 -
2
SUMMARY OF ACCOUNTING POLICIES
 
1.
Basis of Consolidation
 
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accep
ted 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
10Q
and Article 
8
of Regulation S-
X.
Accordingly, they do
not
include 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
not
necessarily indicative of the results of operations which
may
be 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, 2016,
included in Milestone Scientific's Annual Report on Form
10
-K.
 
3.
 
Reclassifications
 
Certain reclassifications have been made to the
2016
financial statements to conform to the consolidated
2017
financial statement presentation. These reclassifications had
no
effect on net loss or cash flows as previously reported.
 
 
4.
Variable Inter
est Entities
 
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 control
ling 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
is the primary beneficiary of Milestone Education as of
January 2016.
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 further considered the guidance in Accounting Standard Codification ("ASC")
810
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
not
proportional 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:
 
   Power Criterion: The power to direct the activities that most significantly impact the entity’s economic performance; and
 
   Losses/Benefits Criterion: The obligation to absorb losses that could potentially be significant or the right to receive benefits that could potentially be significant to the VIE.
 
Milestone management does
not
have the ability to control the activities that most significantly impact Milestone China's economics and, therefore, the power criterion has
not
been met. Managemen
t 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
not
the primary beneficiary under ASC
810.
Accordingly, Milestone China has
not
been consolidated into the financial statements of Milestone Scientific and continues to be accounted for under the equity method.
 
5.
Cash
and Cash Equivalents
 
Milestone Scientific considers all highly liquid investments purchased with an original maturity of
three
months or less to be cash equivalents.
 
6.
Accounts Receivable
 
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. A majority of credit sales are due with
in
ninety
days from invoicing. There have
not
been any significant credit losses incurred to date.
 
7.
 
Product Return and Warranty
 
Milestone Scientific generally does
not
accept non-defective returns from its customers. Product returns under warranty are accepted, evaluated and repaired or replaced in accordance with the Warranty Policy. Returns
not
within the Warranty Policy are eva
luated and the customer is charged for the repair.
 
 
8.
Inventories
 
Inventories principally consist of finished goods and component parts stated at the lower of cost (
first
-in,
first
-out method) or market. Inventory quantities on hand are reviewed on a
quarterly basis and a provision for excess and obsolete inventory is recorded if required based on past and expected future sales, potential technological obsolescence and product expiration requirements. 
 
9.
Equity Method Investments
 
Investments in wh
ich Milestone Scientific has the ability to exercise significant influence, but do
not
control, are accounted for under the equity method of accounting and are included in the long term 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 wheneve
r events or changes in circumstance indicate that the carrying amounts of such investments
may
be 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.
 
10.
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
five
to
seven
ye
ars. The costs of maintenance and repairs are charged to operations as incurred.
 
11.
 
Intangible Assets - Patents
 
Patents are recorded at cost to prepare and file the applicable documents with the US Patent Office, or internationally with the applicable g
overnmental 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 acquired from another business entity will be amortized at the estimated average useful life of the patent. These patents are recorded at the acquisition cost and included legal fees.
 
 
12.
Impairment of Long-Lived Assets
 
Milestone Scientific reviews long-lived assets for impairment whenever events or circumstances (i.e. a triggering event) indicate that the carrying amounts
may
not
be recoverable. The carrying value of the assets is evaluated in relation to the operating
performance and future undiscounted cash flows of the underlying assets. 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
no
impairment indicators or triggering events and therefore,
no
impairment reviews have been performed in the period ending
September 30, 2017.
 
13.
Revenue Recognition
 
Revenue from product sales is recognized, net of discounts and allowances to domestic distributors, on the date of shipment for substantially all shipments, since the shipment terms are FOB warehouse. Milestone Scientific recognizes revenue on date of arr
ival of the goods at the customer's location, where shipments are FOB destination. In all cases the price to the buyer is fixed and the collectability is reasonably assured. Further, Milestone Scientific has
no
obligation on these sales for any post 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. Instrument and hand pieces are
not
bundled but rather sold separately and, as such, there are
no
multiple element determinations in connection with the revenue recognition.
 
14.
Shipping and Handling Costs
 
Milestone Scientific includes shipping and
handling costs in cost of goods sold. These costs are paid by or billed to customers at the time of shipment for domestic shipments. International shipments are FOB warehouse, therefore
no
costs are incurred by Milestone Scientific.
 
 
 
 
15.
Research and Development
 
Research and development costs, which consist principally of new product development costs payable to
third
parties, 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.
 
16.
Income Taxes
 
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 temporar
y 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.
 
17.
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to ma
ke 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
.
 
18.
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 bet
ween market participants in the principal market at the measurement date (exit price). We are required to classify fair value measurements in
one
of the following categories:
 
   Level
1
inputs which are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
    Level
2
inputs which are defined as inputs other than quoted prices included within Level
1
that are observable for the assets or liabilities, either directly or indirectly.
 
    Level
3
inputs 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 a particular input to the fair value measurement requires judgment, and
may
affect
the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
19.
Recent Accounting Pronouncements
 
In
May 2014,
the Financial Accounting Standards Board ("FASB") issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance. The guidance requires an
entity to review contracts in
five
steps:
1
) identify the contract,
2
) identify performance obligations,
3
) determine the transaction price,
4
) allocate the transaction price, and
5
) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. In
August 2015,
the FASB issued guidance approving a
one
-year deferral, making the standard effective for reporting periods beginning after
December 15, 2017.
The FASB continues to release guidance clarifying certain aspects of the revenue guidance. We do
not
believe that this new accounting pronouncement will have a material impact on our financial statements.
 
 
 
  In
November 2015,
the FASB issued guidance simplifying the balance sheet classification of deferred taxes. The new guidance requires that all deferred taxes be presented as noncurrent, rather than separated into current and noncurrent amounts. The guidance is effective for reporting periods beginning after
December 15, 2016
and early adoption is permitted. In addition, the adoption of guidance can be applied either prospectively or retrospectively to all periods presented. The Company has adopted this pronouncement as of
January 1, 2017,
and applied retrospectively, for its provision for income taxes disclosure. The adoption did
not
have an impact on the presentation of the balance sheet, as the Company assigns a full valuation allowance to its net deferred tax asset.
 
In
February 2016,
the FASB
issued a new standard Accounting Standards Update ("ASU ")
No.2016
-
02,
"Leases"(Topic
842
). The new standard is intended to increase transparency and comparability among organizations to recognize lease assets and liabilities on the balance sheet and disclose key information about leasing arrangements. It will be effective for fiscal years beginning after
December 15, 2018.
Milestone Scientific is in the process of determining what impact, the adoption of this ASU will have on its financial position, results of operations and cash flows.
 
In
March 2016,
the FASB issued a new standard ASU
No.2016
-
07,
Investments - Equity Method and Joint Ventures” (Topic
323
): The new standard is intended to eliminate the requirement that when an investment qualifies for the use of the equity method as a result of an in increase in the level of ownership or degree of influence, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect all of the previous periods that the investment was held. It will be effective for all entities for fiscal years and interim periods, beginning after
December 15, 2016.
The adoption of this standard did
not
have a material impact on our financial statements.
 
In
March 2016,
the FASB issued a new standard ASU
No.2016
-
07,
Investments - Equity Method and Joint Ventures” (Topic
323
): The new standard is intended to eliminate the requirement that when an investment qualifies for the use of the equity method as a result of an in increase in the level of ownership or degree of influence, results of operations and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect all of the previous periods that the investment was held. It will be effective for all entities for fiscal years and interim periods, beginning after
December 15, 2016.
The adoption of this standard did
not
have a material impact on our financial statements.
 
In
June 2016,
the FASB issued a new standard ASU
No.2016
-
13,
Financial Instruments – Credit Losses” (Topic
326
).: The new standard is intended to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. It will be effective for all entities for fiscal years and interim periods, beginning after
December 15, 2018.
Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows.
 
 
In
August 2016,
the FASB issued a new standard ASU
No.2016
-
15,
"Statement Cash Flows “Classification of Certain Cash Receipts and Cash Disbursements" Topic
230
). The new standard provides guidance as to the conformity of presentation of certain cash receipts and disbursements. It will be effective for all entities for fiscal years and interim periods, beginning after
December 15, 2017.
Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its presentation within the statement of cash flows.
 
In
October 2016,
the FASB issued a new s
tandard ASU
No.2016
-
17,
"Consolidation Interests Held through Related Parties That Are under Common Control"(Topic
810
). The new standard provides guidance as to consideration of consolidation requirements of a primary beneficiary and variable interest entity that are part of related party group under common control. It will be effective for fiscal years and interim periods, beginning after
December 15, 2016.
Milestone Scientific has adopted the standard, effective
January 1, 2017,
which did
not
have an impact on its financial reporting.
 
In
November 2016,
the FASB issued a new standard ASU
No.2016
-
18,
Statement of Cash Flows – Restricted Cash” (Topic
230
). The new standard provides guidance as to address the diversity of treatment of restricted cash on the statement of cash flows. It will be effective for all entities for fiscal years and interim periods, beginning after
December 15, 2017
and
interim periods therein. Milestone Scientific
 does
not
expect the adoption of this ASU to have a material effect on its presentation within the statement of cash flows.
 
In
January 2017,
the FASB issued a new standard ASU
No.2017
-
01,
Business Combinations” (Topic
805
). The new standard provides guidance to clarify the definition of a ‘business’, and assist entities in evaluation whether a transaction should be accounted for as an acquisition/disposal of assets or a business. It will be effective for public entities for fiscal years and interim periods, beginning after
December 15, 2017,
with limited early application. Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its presentation within the statement of cash flows.
 
In
May 2017,
the FASB issued a new standard ASU
No.2017
-
09,
Compensation – Stock Compensation” (Topic
718
). The new standard provides guidance and clarity for modification to equity based compensation programs. It will be effective for all entities for fiscal years and interim periods, beginning after
December 15, 2017.
Milestone Scientific is in the process of determining what impact, if any, the adoption of this ASU will have on its presentation within the statement of cash flows.