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, 2020,

the purchase order commitment was

$147,224

and advances of

$100,090

is reported in advances on contracts.

As of

December 31, 2020,

we have an open purchase order of

$607,735

Epidural instruments and have advanced

$259,435

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

$55,000.

See Note R-

Subsequent Events

(

) Leases

Operating Leases

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, 2019,

total operating right-of-use assets were

$15,977

and total operating lease liabilities (current) were

$15,977.

During the year ended

December 31, 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

$34,683.

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.

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

(

) 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

$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.

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, 2020

were as follows:

	Years Ended
	12/31/2020		12/31/2019
Cash paid for operating lease liabilities		109,654		158,218
Cash paid for finance lease liabilities		10,307		-
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		-

Weighted Average Remaining Lease Term
Finance leases	4.04 years		0.2 years
Operating leases	6.25 years
Weighted-average discount rate - operating leases	9.2%			9.2%

Maturity of lease liabilities	As of December 31, 2020		As of December 31, 2019

2020				16,030
2021		135,953		-
2022		138,735		-
2023		141,518		-
2024		144,300		-
2025		136,776		-
Thereafter		174,602		-
Total lease payments		871,884		16,030
Less: interest		(205,469)		(53	)
Present value of lease liabilities		666,415		15,977

(

) 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

$267,000

and

$403,000

for the years ended

December 31, 2020

and

2019,

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

$156,000

for the years ended

December 31, 2020,

and

2019,

respectively. As of

December 31, 2020

and

2019

Milestone Scientific owed the Director Clinical Affairs for royalties of approximately

$127,000

and

$390,000,

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