NOTE 6 - COMMITMENTS

Royalty Commitments

The Company is obligated to pay royalties to NATI on proceeds from the sale of products developed from research and development activities that were funded, partially, by grants from NATI or its predecessor, the OCS. At the time the grants were received, successful development of the related projects was not assured.

In the case of failure of a project that was partly financed as described above, the Company is not obligated to pay any such royalties or repay funding received from NATI or the OCS.

Under the terms of the applicable funding arrangements, royalties of 3% to 6% are payable on the sale of products developed from projects funded by NATI or the OCS, which payments shall not exceed, in the aggregate, 100% of the amount of the grant received (dollar linked), plus, commencing upon January 1, 2001, interest at an annual rate based on LIBOR. In addition, if the Company receives approval to manufacture products developed with government grants outside the State of Israel, it will be required to pay an increased total amount of royalties (possibly up to 300% of the grant amounts plus interest), depending on the manufacturing volume that is performed outside the State of Israel, and, possibly, an increased royalty rate.

Royalty expenses to NATI or the OCS are included in the statement of operations as a component of the cost of revenues both in continuing and discontinued operations and were approximately $951,000, $2.2 million and $288,000 during the years ended December 31, 2014, 2015 and 2016, respectively.

At December 31, 2015 and 2016, the maximum total royalty amount payable by the Company under these funding arrangements is approximately $33.3 million and $38.5 million, respectively (without interest, assuming 100% of the funds are payable).

The Company is a party to certain research and license agreements. Under the agreements, the Company is obligated to pay royalties at varying rates from its future revenues. The aggregate royalties payable under all of the agreements is equal to a varying range of percentages of net sales of licensed products. Royalty expenses under the agreements are included in the statement of operations as a component of the cost of revenues both in continuing and discontinued operations and were approximately $104,000, $51,000 and $286,000 during the years ended December 31, 2014, 2015 and 2016, respectively.

Under each agreement, the Company is also obligated to pay milestone, licensing and other payments to the counterparties of the agreement. The payments under the agreements are for varying amounts and are subject to varying conditions. If all of the contingencies with respect to milestone payments under the research and license agreements are met, the aggregate milestone payments total payable would be approximately $8.4 million and would be payable, if at all, as the Company’s projects progress over the course of a number of years. No milestone payments were made during 2014 and 2015, and milestones payments of $300,000 were made during 2016.

None of the agreements has a fixed termination date. Subject to earlier termination for other reasons, each agreement terminates after a certain number of years following the first commercial sale of any licensed product under the agreement or after a certain number of years without the initiation of commercial sales of any product under the agreement.

Subcontracting Agreements

The Company has entered into sub-contracting agreements with several clinical providers and consultants in Israel, the United States and certain other countries in connection with its primary product development process. As of December 31, 2016, total commitments under said agreements were approximately $12.5 million.

Lease Agreements

The Company is a party to a number of lease agreements for its facilities, the latest of which has been extended until 2021. The Company has the option to extend certain of such agreements on two additional occasions for additional five-year periods each, for a total of 10 additional years. Under the leases, the aggregate monthly rental payments are approximately $61,000. As of December 31, 2016, the Company provided bank guarantees of approximately $288,000, in the aggregate, to secure the fulfillment of its obligations under the lease agreements. The future minimum lease payments required under the operating leases for such premises are approximately $735,000, $722,000, $680,000, $680,000 and $543,000, for fiscal years 2017 through 2021, respectively. Lease expenses totaled approximately $1.0 million for each of the years ended December 31, 2014, 2015 and 2016, respectively.

Vehicle Lease and Maintenance Agreements

The Company entered into several three-year lease and maintenance agreements for vehicles which are regularly amended as new vehicles are leased. The current monthly lease fees aggregate approximately $51,000. The expected lease payments for the years ending December 31, 2017, 2018 and 2019 are approximately $563,000, $ 289,000, and $84,000 respectively.