Quarterly report pursuant to Section 13 or 15(d)

Note 14 - Commitments

v3.20.2
Note 14 - Commitments
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
NOTE
14
 — COMMITMENTS
 
(
1
)  Contract Manufacturing Agreement 

Milestone Scientific has informal arrangements with
third
-party manufacturers of the STA, epidural, and intra-articular devices, pursuant to which they manufacture these products under specific purchase orders but without any long-term contract or minimum purchase commitment. As of
September 30, 2020,
the purchase order commitment for dental instruments was
$515,284
 and advances of
$350,311
 are reported in inventory advances.
 
In
August 2019,
the company entered a new purchase commitment for the delivery of
100
Epidural instruments beginning in
2020.
As of
September 30, 2020,
we have an open purchase order of
$299,000
for
100
Epidural instruments and have advanced
$161,000
 against this purchase commitment. In
July 2020,
the company entered a new purchase commitment for the delivery of
110
cases of Epidural and Cathcheck disposable kits beginning in
November 2020.
As of
September 30, 2020,
we have an open purchase order of
$30,395
for
110
cases of Epidural and Cathcheck disposable kits and have advanced
$21,195
 against this purchase commitment.
 
(
2
)  Leases
 
Operating Leases
 
In
June 2015,
the Company amended its original office lease 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 extended the term of the lease through
January 31, 2020
at a monthly cost of
$12,522.
The Company had 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. 
 
In
August 2019,
the Company made the decision to
not
renew the its existing office lease for its corporate headquarters located in Livingston, New Jersey and instead signed a new
seven
(
7
) year lease in a new facility located in Roseland, New Jersey (the “Roseland Facility”), which commenced of
January 8, 2020.
Under the Roseland Facility lease, rent payments commence on
April 1, 2020
and the monthly lease payments escalate annually on
January 1
of each year, and range from
$9,275
to
$10,898
per month over the lease term. The Company is also required to pay a fixed electric charge equal to
$2.00
per square foot which is  paid in equal monthly installments over the lease term or
$11,130
annually. These fixed monthly payments have been included in the measurement of the operating lease liability and related operating lease right-of-use asset as the Company has elected the practical expedient to
not
separate lease and non-lease components for all leases. The Company is also 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, which are accounted for as variable lease expenses. 
 
As of
September 30, 2020,
total operating lease right-of-use assets were
$655,870
and total operating lease liabilities were
$645,341,
of which
$68,934
and
$576,407
were classified as current and non-current, respectively. As of
December 31, 2019,
total operating right-of-use assets were
$15,977
 and total operating lease liabilities (current) were
$15,977.
During the
nine
 months ended
September 30, 2020,
the Company also entered into a
five
-year lease for copiers which resulted in the recognition of property and equipment and total finance lease liabilities of
$43,242.
As of
September 30, 2020,
total finance lease liabilities were
$38,527,
of which
$7,903
and
$30,624
were classified as current and non-current, respectively.
 
Cash flow information related to the Company's right-of-use assets and related lease liabilities were as follows:
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
Lease cost
 
2020
   
2019
   
2020
   
2019
 
Cash paid for operating lease liabilities
   
30,820
     
39,555
     
78,904
     
118,664
 
Cash paid for finance lease liabilities
   
2,658
     
-
     
7,622
     
-
 
Right-of-use assets obtained in exchange for new operating lease liabilities (1)
   
-
     
-
     
663,009
     
-
 
Property and equipment obtained in exchange for new finance lease liabilities
   
-
     
 
     
43,242
     
-
 
(1) For the nine months ended September 30, 2019, the balance includes operating leases existing as of the adoption of ASC 842 on January 1, 2019.
                               
                                 
Weighted-average remaining lease term - operating leases (years)    
-
     
-
     
6.5
     
0.4
 
Weighted-average remaining lease term- finance leases (years)
   
-
     
-
     
4.3
     
-
 
 
(
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. See note 
13
Other.