NOTE P — COMMITMENTS

(

) 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

July 2019,

the company entered into a new purchase commitment for the delivery of

1,400

STA CompuDent® instruments. As of

December 31, 2019,

the purchase order commitment was

$1,067,073,

and advances of

$437,512

is 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

December 31, 2019,

we have an open purchase order of

$299,000

for

100

Epidural instruments and have advanced

$149,500

against this purchase commitment. The company also has advances on an open purchase order for long lead items for a future purchase order for the manufacturing of Epidural instrument in

2021,

in which an advance of

$123,649

is reported in inventory advances.

See Note R-

Subsequent Events

(

) Leases

Operating Leases

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 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.

August 2019,

the Company made the decision to

not

renew the existing office lease and instead signed a

seven

(

) year lease in a new facility (the “Roseland Facility”). The new facility is located in Roseland, New Jersey, the monthly lease payment is escalating, with a range of

$9,275

$10,898,

and commences

April 1,

2020.The

Company is also responsible for electric charge equal to

$2.00

per square foot which is equal to

$11,130

annually, which shall be paid in equal monthly installments of

$927.50.

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.

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 non-cancellable 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

December 31, 2019

were as follows:

Lease cost	As of December 31,2019
Operating lease expense	$	158,218
Total lease expense	$	158,218

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	158,218
Right-of-use assets obtained in exchange for new operating lease liabilities		-
Weighted-average remaining lease term - operating leases	0.2 years
Weighted-average discount rate - operating leases		9.20	%

Maturity of lease liabilities	As of December 31, 2019

2020		16,030
2021		-
2022		-
2023		-
2024		-
Thereafter		-
Total lease payments		16,030
Less: interest		(53	)
Present value of lease liabilities		15,977

Total lease payments presented in the table above excludes legally binding minimum lease payments for operating leases signed for a the Roseland Facility that will commence

April 1, 2020.

Milestone Scientific had

not

taken physical control of the Roseland Facility as of

December 31, 2019

and as a result has

not

recorded lease liabilities or right of use assets for the Roseland Facility as of

December 31, 2019.

(

) 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

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

$403,000

and

$465,000

for the years ended

December 31, 2019

and

2018,

respectively. Additionally, Milestone Scientific expensed consulting fees to the Director of Clinical Affairs of

$156,000

and

$186,000

for the years ended

December 31, 2019,

and

2018,

respectively. As of

December 31, 2019

and

2018

Milestone Scientific owed the Director Clinical Affairs for royalties of approximately

$390,000

and

$364,000,

respectively, which is included in accounts payable, related party and accrued expense, related party.