Note 6 - Investment in and Transactions With Equity Investees

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

NOTE

6

 – INVESTMENT IN AND TRANSACTIONS WITH EQUITY INVESTEES

Milestone China Ltd.

Ownership

In

June 2014,

Milestone Scientific invested

$1

million in Milestone China Ltd. (“Milestone China”), by contributing dental instruments to Milestone China for a  (

40%

) ownership interest. Milestone China owns approximately

75%

of Milestone Beijing Medical Equipment Company, Ltd (“Milestone Beijing”). Milestone Beijing has primary responsibility for the sales, marketing, and distribution of the Company's dental products in China. Milestone Scientific recorded their investment in Milestone China under the equity method of accounting. 

In

first

quarter

2020,

Milestone China and certain marketing affiliates entered into a plan to merge (the Transaction) into an affiliated manufacturing company, Anhui Maishida Medical Technology, Co. Ltd. (Anhui). Anhui will be the surviving entity after the merger and will have complete responsibility for sales, marketing, and distribution for the Company's dental products in China. 

 However, as of the filing date of this Annual Report, due to the COVID-

19

Pandemic, the regulatory documentation for the planned merger has been placed in suspense since applicable government offices are still closed in China and Hong Kong. After completion of the Transaction, Milestone Scientific is expected to have an approximate

28.4%

direct ownership in Anhui. Milestone China and certain marketing affiliates are expected to be dissolved upon completion of the merger and upon the required regulatory filings in China and Hong Kong.

Milestone Scientific, in previous years, reduced its investment in Milestone China to

zero

and had accumulated losses over the investment balance of approximately

 $

5.9

 million at

December 31, 2020,

which have been suspended.        

For the

three

months ended

March 

31,

2021,

 Milestone Scientific shipped instruments and handpieces to  Milestone China and its agents and recognized revenue of

$506,400.

  As of

March 31, 2021

the Company has approximately

$178,000

of deposits from Milestone China for future shipment of goods included in accrued expenses, related party on the accompanying consolidated balance. The Company did

not

recognize any revenue related to Milestone China for the

three

months ended

March 31, 2020.

Related Party Transactions 

Milestone China Distribution Agreement

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 its agents which amounted to

$2.8

million at the time of the payment arrangement. Milestone Scientific collected

$950,000

under this arrangement, until Milestone China defaulted on the payment arrangements.

United Systems, Inc. Agreement

In

April

of

2020,

the Company entered into an agreement with United Systems, Inc., related party (see Note

13

) regarding certain handpieces supplied to Milestone China in

2018,

that were billed and shipped to Milestone China by United Systems, as well as STA instruments billed to United Systems and delivered to Milestone China, and

not

paid by Milestone China. United Systems sold their entire accounts receivable due from Milestone China for the above- described handpieces and STA instruments for

$370,260

to Milestone Scientific. Milestone Scientific paid United Systems as follows;

$100,000

in cash paid in

April 2020,

$170,260

in shares of the Company's  Common Stock (priced as of the close of business on

April 23, 2020,

$1.59

) issued in

June 2020,

and

$100,000

in cash paid in

July 2020.

The Company is entitled to the cash collections, if and when received, on the accounts receivable due to United Systems prior to this agreement up to approximately

$1.4

million. 

Advanced Cosmetics Systems Agreement

In

May 2020,  

Milestone Scientific finalized an agreement for the purchase of Milestone China's

50%

interest in Advanced Cosmetic Systems Inc., for the forgiveness of

$900,000

in accounts receivable owed by Milestone China to Milestone Scientific (and previously fully reserved for), resulting in a noncash transaction. Milestone China will have the option to repurchase the

50%

interest in Advanced Cosmetic Systems within

one

year from the sale date for

$900,000

in cash. As a result of the purchase Milestone Scientific now owns

100%

of Advanced Cosmetic Systems Inc., subject to Milestone China's option to repurchase.

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 our ownership percentage of the gross profit associated with recognized revenue from sales to Milestone China until that product is sold to

third

parties.

At  

March 

31,

2021,

and 

December 31, 2020,

the deferred profit was approximately and

$241,000

and

$243,000,

respectively, which is included in deferred profit, related party in the condensed consolidated balance sheets. For

three

months ended  

March 31, 2021,

and

2020

Milestone Scientific recorded income on equity investment of

$1,301

and $ zero, respectively, for product sold by Milestone China to

third

parties.