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Investment in Unconsolidated Subsidiaries
3 Months Ended
Mar. 31, 2015
Equity Method Investments And Joint Ventures [Abstract]  
Investment in Unconsolidated Subsidiaries

NOTE – 4 INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES

 

Milestone Medical Inc

 

In March 2011, Milestone entered into an agreement with shareholders of Beijing 3H Scientific Technology Co., Ltd (“Beijing 3H”), a People’s Republic of China ("PRC") Company, and a group of other investors, to establish a medical joint venture entity in the PRC to develop intra-articular and epidural drug delivery instruments utilizing Milestone’s patented CompuFlo technology. Shareholders of Beijing 3H and other investors contributed $1.5 million and Milestone contributed an exclusive worldwide royalty-free license to use CompuFlo technology to this medical joint venture entity.

 

Milestone, with the consent of Beijing 3H, organized a domestic research and development corporation now known as Milestone Medical Inc. (“Milestone Medical”) to which the principal shareholders of Beijing 3H and a group of other investors completed a capital contribution of $1,500,000.  Milestone Medical was initially owned fifty percent by shareholders of Beijing 3H and a group of other investors, and fifty percent by Milestone. Milestone Medical had a remaining net book value of approximately $507,000 at March 31, 2015. Milestone has accounted for its investment in Milestone Medical using the equity method of accounting. Further, Milestone was authorized by the Milestone Medical to manage and oversee the development of the epidural and intra-articular instruments. In connection with this authorization, Milestone also entered into an agreement with a significant vendor to develop these two instruments.

 

Milestone has distribution responsibility in the U.S. and Canada. Beijing 3H was responsible for distribution in Macao, Hong Kong and other regions of Asia. Milestone Medical will distribute the epidural instruments in the PRC. In the rest of the world, responsibilities are shared by Milestone and Beijing 3H.

 

In July 2013, Milestone entered a strategic partnership with the largest provider of specialty sales and distribution solutions for healthcare in the United States. During the three year strategic partnership, the distributor will hold the exclusive rights to market, resell, label and distribute Milestone’s CompuFlo injection technology for use in epidural applications for childbirth and other pain management needs in hospitals in the U.S. This agreement will begin after FDA approval.

 

In the fourth quarter of 2013, Milestone Medical issued 2 million shares of its common stock in a private placement offering at $1.50 per share ($3.0 million) in Poland. As a result of this sale, Milestone Medical received net proceeds of $2,363,000. The effect of this private placement was to reduce Milestone’s percentage of ownership of Milestone Medical from 50% to 45.5% (post transaction). Consistent with the equity method of account, the ownership percentage is treated as if the decreased percentage of ownership was the result of the sale of these shares. As a result, Milestone recorded in the fourth quarter of 2013, a $1,363,650 gain on dilutive effect of the sale of equity in Milestone Medical.

 

In the fourth quarter of 2014, Milestone purchased an additional 995,000 shares of Milestone Medical from another shareholder for $447,750 ($0.45 per share), which increased its percentage of ownership to 49.98% of Milestone Medical.   Also in the fourth quarter of 2014, Milestone Medical terminated its distribution agreement with Beijing 3H and contracted with Milestone China (defined below) to become its new distributor in Asia for both the epidural and intra-articular instruments. Milestone China is forty percent owned by Milestone.

 

Milestone recorded a loss on its investment in Milestone Medical of $450,160 and $130,523 for the three months ended March 31, 2015 and 2014, respectively. The losses described represent 49.98% and 45.5% of the applicable losses reported by Milestone Medical during the three months ended March 31, 2015 and 2014, respectively. Milestone utilizes the equity method of accounting to recognize its financial results of the joint venture.

 

Milestone expensed $45,000 and $39,153 on behalf of the Milestone Medical for the three months ended March 31, 2015 and 2014, respectively, for legal expenses related to seeking U.S. Food and Drug Administration (“FDA”) marketing clearance for the epidural and intra-articular devices under section 510k. As part of the joint venture agreement, Milestone is to pay all fees related to the FDA clearance process.

 

Milestone had an investment in Milestone Medical of $506,947 and $852,295 as of March 31, 2015 and 2014, respectively, and there are no remaining suspended losses.

 

On July 1, 2013, Milestone and Milestone Medical signed an agreement for the reimbursement of specific expenses incurred by Milestone specifically for the benefit of Milestone Medical. The expenses related to the agreement that have not been paid are $162,214 and $48,641 as of March 31, 2015 and 2014, respectively. This includes $246,505 and $24,553 of charges for the three months ended March 31, 2015 and 2014, respectively.

 

Milestone Medical is a Development Stage Company and does not have revenues at this time.

 

Milestone Education LLC.

 

The Education Joint Venture has been providing training and education to our dentists throughout the world. Milestone accounted for its investment in the Education Joint Venture using the equity method of accounting. The Education Joint Venture incurred a loss of $4,215 and $3,415 for the three months ended March 31, 2015 and 2014, respectively. Fifty percent of these losses were recorded in the consolidated statements of operations.

 

Milestone China Inc

 

In June 2014, Milestone agreed to invest $1.0 million through the contribution of 772 STA instruments (at a distributor price of approximately $1,295 per instrument) for a forty percent ownership in Milestone China Inc., a Hong Kong based medical and dental distribution company (“Milestone China”). The instruments will be shipped to the distributors over a period of two years. Milestone China will purchase STA handpieces on a cash basis as required. 772 STA instruments were shipped in 2014 and are recorded at Milestone’s cost in the investment account for Milestone China on the balance sheet at December 31, 2014. Milestone China did not begin operations until July 2014. Milestone Scientific had recognized  income of $96,674, which is forty (40) percent of the $241,696 net income recognized by Milestone China, for the three months ended March 31, 2015, which was recorded in the condensed consolidated statement of operations for the three months ended March 31, 2015 Milestone’s investment in Milestone China is $445,325 and $348,651 sa of March 31, 2015 and December 31, 2014, respectively.