Quarterly report pursuant to Section 13 or 15(d)

Note 13 - Commitments

v3.19.1
Note 13 - Commitments
3 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
 
NOTE
13
 — COMMITMENTS
 
(
1
)  Contract Manufacturing Agreement
 
Milestone Scientific has informal arrangements with
third
-party manufacturers of the STA, CompuDent® and CompuMed® devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. In
January 2018,
Wand Dental entered into a new purchase commitment for the delivery of
1,000
devices beginning in the
first
quarter of
2019,
Milestone Scientific’s purchase commitment for this purchase order was
$748,295
 at 
March 31, 2019, 
however an advance of
$477,379
was recorded against this purchase order. At 
March 31, 2019,  
Milestone Scientific owes
$270,916
  related to this purchase order.  An advance of  approximately
$530,000
 and
$649,000
 was recorded at  
March 31, 2019,
and 
December 31, 2018,
respectively. 
 
 
(
2
)  Leases
 
Operating Leases
 
In
June 2015,
the Company amended its original office lease of approximately
6,851
square feet for its headquarters in Livingston, New Jersey. Under the amendment, the Company leased an additional
774
square feet of rentable area of the building and extends the term of the lease through
January 31, 2020 
at a monthly cost of
$12,522.
The Company has an option to further extend the term of the lease, however, this option was
not
included in the determination of the lease’s right-of-use asset or lease liability. Per the terms of the lease agreement, the Company does
not
have a residual value guarantee. The Company will also be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs are considered to be variable lease payments and are
not
included in the determination of the lease’s right-of-use asset or lease liability.
 
The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:
 
● As the Company’s leases do
not
provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the Medical Device industry.
 
● Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component.
 
● The expected lease terms include noncancelable lease periods. Renewal option periods are
not
included in the determination of the lease terms as they were
not
reasonably certain to be exercised.
 
The components of lease expense as of
March 31, 2019
were as follows:
 
   
March 31, 2019
 
Lease cost
 
 
 
 
Operating lease cost
  $
39,555
 
Total lease cost   $
39,555
 
Other information
 
 
 
 
         
Cash paid for amounts included in the measurement of lease liabilities:
       
Operating cash flows from operating leases
  $
39,555
 
Right-of-use assets obtained in exchange for new operating lease liabilities
  $
-
 
Weighted-average remaining lease term - operating leases
 
.9 years
 
Weighted-average discount rate - operating leases
   
9.2
%
 
Maturities of lease liabilities due under these lease agreements as of
March 31, 2019
are as follows:
 
2019 (excluding the 3 months ended March 31, 2019)
 
Operating Leases
 
2020
  $
118,664
 
2021
  $
15,976
 
2022   $
-
 
2023   $
-
 
Thereafter   $
-
 
Total lease payments
  $
134,640
 
Less: interest
  $
(4,658
)
Total operating lease liabilities as of March 31, 2019
  $
129,982
 
 
The Company adopted ASU
2016
-
02
on
January 1, 2019
as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments and operating lease commitments as of
December 31, 2018
were as follows:
 
   
Total
   
Less than 1 Year
   
1-3 Years
   
3-5 Years
 
Operating Lease Obligations
  $
238,939
    $
16,419
    $
-
    $
-
 
 
(
3
)  Other Commitments
 
The technology underlying the Safety Wand® and
CompuFlo
®, and an improvement to the controls for
CompuDent
® were developed by the Director of Clinical Affairs and assigned to Milestone Scientific. Milestone Scientific purchased this technology pursuant to an agreement dated
January 1, 2005.
The Director of Clinical Affairs will receive additional payments of
2.5%
of the total sales of products using certain of these technologies, and
5%
of the total sales of products using certain other of the technologies until the expiration of the last patent covering these technologies. If products produced by
third
parties use any of these technologies (under license from us) then the Director of Clinical Affairs will receive the corresponding percentage of the consideration received by Milestone Scientific for such sale or license. The Director of Clinical Affairs’ royalty fee was approximately
$91,490
 and
$85,769
 for the
three
months ended
March 31, 2019
and
2018,
 respectively.