Quarterly report pursuant to Section 13 or 15(d)

Note 14 - Commitments

v3.21.2
Note 14 - Commitments
6 Months Ended
Jun. 30, 2021
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. In January 2021, the Company entered into a new purchase commitment for the delivery of 2,000 dental instruments beginning in 2021. As of June 30, 2021, the purchase order commitment for dental instruments was approximately $2.9 million and advances of approximately $1 million are reported in advances on contracts in the unaudited condensed consolidated balance sheet.

 

As of June 30, 2021, the purchase order commitment for epidural instruments was approximately $328,000 and advances of approximately $150,000 are reported in advances on contract in the unaudited condensed consolidated balance sheet.

 

In February 2021, the Company entered a new purchase commitment for the delivery of 1,185 cases of Epidural and CathCheck disposable kits beginning in April  2021. As of June 30, 2021, we have an open purchase order of approximately $197,000 for 1,185 cases of Epidural and CathCheck disposable kits and have advanced approximately $172,000, reported in advances on contract in the unaudited condensed consolidated balance sheet.

 

(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 did not have a residual value guarantee. The Company was 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 were considered to be variable lease payments and were 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  existing office lease for its corporate headquarters located in Livingston, New Jersey and instead signed a new seven 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 commenced 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 June 30, 2021, total operating lease right-of-use assets were $593,049 and total operating lease liabilities were $594,416, of which $76,008 and $518,408 were classified as current and non-current, respectively. As of June 30, 2021, total finance lease liabilities were $32,595, of which $8,162 and $24,433 were classified as current and non-current, respectively.  As of December 31, 2020, total operating lease right-of-use assets were $597,770 and total operating lease liabilities were $630,012, of which $72,031 and $557,981 were classified as current and non-current, respectively. As of December 31, 2020, total finance lease liabilities were $36,403, of which $7,796 and $28,607 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 June 30,

   

Six Months Ended June 30,

 

Lease cost

 

2021

   

2020

   

2021

   

2020

 

Cash paid for operating lease liabilities

    31,303       30,820       62,606       48,084  

Cash paid for finance lease liabilities

    2,685       2,685       5,370       4,937  

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 six months ended June 30, 2021, the balance includes operating leases existing as of the adoption of ASC 842 on January 1, 2021

                               
                                 

Weighted-average remaining lease term - operating leases (years)

    -       -       5.8       6.8  

Weighted-average remaining lease term- finance leases (years)

    -       -       3.6       4.60  

 

(3)  Other Commitments

 

The technology underlying the Safety Wand® and CompuFlo®, and an improvement to the controls for CompuDent®, were developed by Dr. Mark Hochman, the Company’s Director of Clinical Affairs, .Milestone Scientific purchased this technology pursuant to that certain Technology Sale Agreement, dated January 1, 2005, as amended. 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% (or 2.5% effective as of May 9, 2027 – see below) of the total sales of products using certain other of the technologies until the expiration of the last patent covering these technologies (see Note 13).

 

On March 2, 2021, Milestone Scientific entered into a Royalty Sharing Agreement with Leonard Osser, the Company’s Interim Chief Executive Officer, pursuant to which Mr. Osser sold, transferred and assigned to the Company all of his rights in and to a certain patent application as to which he is a co-inventor with Dr. Hochman, and the Company agreed to pay to Mr. Osser, beginning May 9, 2027, half of the royalty (2.5%) on net sales that would otherwise be payable to Dr. Hochman and his wife under the Technology Sale Agreement referred to above, the Hochman's having agreed with the Company pursuant to an addendum to such Technology Sale Agreement dated February 25, 2021 to reduce from 5% to 2.5% the payments due to them on May 9, 2027 and thereafter, with respect to dental products.

 

Succession Agreement

 

With respect to (i) the Employment Agreement dated as of July 10, 2017 between Mr. Osser and the Company, pursuant to which upon Mr. Osser stepping down as Chief Executive Officer of the Company the Company agreed to employ him as Managing Director, China Operations of the Company (the “China Operations Agreement”), and (ii) the Consulting Agreement dated as of July 10, 2017 (the “Consulting Agreement”) between the Company and U.S. Asian Consulting Group, LLC, a company of which Mr. Osser is a principal, the compensation under the China Operations Agreement is modified to reduce the overall compensation by $100,000 to $200,000, split equally between a cash amount and an amount in shares, and the compensation under the Consulting Agreement is increased by $100,000 to $200,000, equally split between a cash amount and an amount in shares, which shares were formerly payable under the China Operations Agreement.  Compensation under the China Operations Agreement and the Consulting Agreement are payable for 9.5 years from May 19, 2021.