Note

– Commitments and Contingencies

Operating Leases

As of

December 31, 2017,

the Company leases facilities under lease commitments that expire through

August 2022

. All of these facility leases are accounted for as operating leases. Future minimum lease commitments for these facilities and other operating leases are as follows (in thousands):

Year Ended December 31,
2018	$	654
2019		633
2020		574
2021		377
2022		181
Thereafter		-
Total	$	2,419

Rent expense under operating leases for the years ended

December 31, 2017

and

2016

were approximately

$808,000

and

$789,000,

respectively.

HydroFLOW Agreement

Pursuant to a Sales Agreement with HydroFLOW USA, HWWM has the exclusive right to sell or rent patented hydropath devices in connection with bacteria deactivation and scale treatment services for treating injection and disposal wells, fracking water and recycled water in the oil and gas industry to HWWM customers in the United States. Pursuant to the sales agreement, HWWM is required to pay

3.5%

royalties of its gross revenues on certain rental transactions

and, in order to maintain the exclusivity provision under the agreement, the Company must purchase approximately

$655,000

of equipment per year commencing in

2016

and ending

2025.

November 2016,

the Company and HydroFLOW USA agreed to allocate

$220,000

of the

2016

commitment to

2017,

thereby increasing the minimum purchase requirement for

2017

$875,000.

During the year ended

December 31, 2017,

the Company completed the purchase of

$280,000

of equipment to fulfill its

2016

purchase commitment for exclusivity. During the years ended

December 31, 2017

and

2016,

the Company did

not

accrue or pay any royalties to HydroFLOW. The Company has negotiated a release of all

2016

and

2017

purchase commitments, while leaving intact the exclusive right to sell or rent the patented hydropath devices through

2017.

As of

January 9, 2018,

the Company terminated its Sales Agreement with HydroFLOW USA.

Self-Insurance

June 2015,

the Company elected to become self-insured under its

Employee Group Medical Plan for the

first

$50,000

per individual participant. The Company has accrued a liability of approximately $

102,000

and

$23,000

for the years ended

December 31, 2017

and

2016,

respectively, for insurance claims that it anticipates paying in the future related to incidents that occurred during the years ended

December 31, 2017

and

2016.

Effective

April 1, 2015,

the Company entered into a workers

’ compensation and employer’s liability insurance policy with a term through

March 31, 2018.

Under the terms of the policy, the Company is required to pay premiums in addition to a portion of the cost of any claims made by our employees, up to a maximum of approximately

$1.5

million over the term of the policy. In

June

2017,

an employee of

one

of our subsidiaries sustained bodily injury while in the course of employment, and the projected cost of the claim exceeded the amount we had previously paid in under the policy. As a result, during the year ended

December 30, 2017,

we made a payment of approximately

$612,000

under the terms of the policy. The amount was based on an estimate of the total cost of the claim, including costs that, as of

December 31, 2017,

have

not

yet been paid in connection with the claim. During the year ended

December 31, 2017,

our insurance carrier formally denied the workers' compensation claim and is moving to close the claim entirely. We recorded approximately

$438

,000

in payments made under the plan as a long-term asset, which we expect will either be recorded as expense or refunded to us by our insurance carrier, depending on the outcome of the claim described above and any additional claims incurred under the policy. Per the terms of our policy, through

December 31, 2017,

we had paid in approximately

$1.6

million of the projected maximum plan cost of

$1.6

illion. As of

December 31, 2017,

we estimate that our maximum continued exposure to this and other workers' compensation claims through the term of our policy and additional policy premiums is approximate

$161,000.

Litigation

Enservco Corporation (“

Enservco”) and its subsidiary Heat Waves Hot Oil Service LLC (“Heat Waves”) are defendants in a civil lawsuit in federal court in Colorado, Civil Action

No.

1:15

-cv-

00983

-RBJ (“Colorado Case”), that alleges that Enservco and Heat Waves, in offering and selling frac water heating services, infringed and induced others to infringe

two

patents owned by Heat-On-The-Fly, LLC (“HOTF”). The complaint relates to only a portion of the frac water heating services provided by Heat Waves. The Colorado Case is now stayed pending resolution of an appeal by HOTF of a North Dakota court’s ruling that the primary patent (“the

‘993

Patent”) in the Colorado Case was invalid. Neither Enservco nor Heat Waves is a party to the North Dakota Case, which involves other energy companies.

In the event that HOTF

’s appeal is successful and the

‘993

Patent is found to be valid and/or enforceable in the North Dakota Case, the Colorado Case

may

resume. To the extent that Enservco and Heat Waves are unsuccessful in their defense of the Colorado Case, they could be liable for enhanced damages/attorneys’ fees (both of which

may

be significant) and Heat Waves could possibly be enjoined from using any technology that is determined to be infringing. Either result could negatively impact Heat Waves’ business and operations. At this time, the Company is unable to predict the outcome of this case, and accordingly has

not

recorded an accrual for any potential loss.