Note K – Commitments and Contingencies

[1]	Operating Leases:

The Company leases office space under an operating lease which was renewed in February 2018 and expires June 2023. The terms of the lease include an escalation clause for a portion of certain operating expenses. At December 31, 2018, the annual future minimum rental payments under operating leases are as follows:

Year Ending December 31,

2019	$	42,000
2020		43,000
2021		45,000
2022		46,000
2023		24,000
	$	200,000

Rent expense was $42,000 for 2018 and $46,000 for 2017.

[2]	NYU Gamma Knife:

Capital Lease Obligations (Notes D and G):

In 2009, the Company installed a new gamma knife PERFEXION model at the NYU Medical Center. This new equipment and certain space improvements, costing approximately $3,742,000 in total, were financed through a seven-year lease arrangement. This PERFEXION equipment was recorded as a total loss as a result of flooding from Hurricane Sandy in October 2012.

In early 2014, the Company entered into a six-year lease in the amount of $4.7 million for the purchase of the replacement equipment and associated leasehold improvements. The first payment of $78,000 was made on September 1, 2014, including $18,000 of interest, and the final payment is due on May 1, 2020.

The Company entered into a second capital lease in 2014 to finance an additional $250,000 of installation and construction costs, which was repaid in July 2016.

In April 2016 the Company obtained lease financing of $879,000 to finance the acquisition of the ICON technology for the NYU Gamma Knife and associated installation costs. Monthly lease payments of $20,000 began in October 2016, and the final payment is due in September 2020.

In October 2018, the Company entered into an additional capital lease in the amount of $833,000 to partially finance the reload of the cobalt to be repaid over 30 months with the final payment due in March 2021.

Maintenance Contract:

The new gamma knife installed in April 2014 included a one-year warranty. The new maintenance agreement began in April of 2015. The monthly payment increased from $20,000 to $26,000 effective August 2017, due to the addition of the ICON maintenance agreement and is in effect for 5 years.

[3]	Guarantees:

USNC is a 20% guarantor on NeuroPartners, LLC’s lease, terminating March 2021, with respect to the gamma knife equipment, cobalt reload and associated construction, and certain leasehold improvements located at the Southern California Regional Gamma Knife Center at SARH in Upland, California. The outstanding balance on the lease obligations was $765,000 and $1,121,000 at December 31, 2018 and 2017, respectively

Holdings is a guarantor of the full amount of the outstanding loan with BB&T Bank entered into in 2017, as described In Note C[2]. The other interests in FOP also guarantee this loan. The outstanding balance on this loan was $3,660,000 and $4,100,000 at December 31, 2018 and 2017, respectively.

USNC is a 10% guarantor on 50% of the outstanding balance of Boca West IMP’s ten-year mortgage. This mortgage had an original balance of $3,000,000 and is secured by the medical office building in which BOP operates. The outstanding balance on the mortgage is $2,303,000 and $2,417,000 at December 31, 2018 and 2017, respectively. The Company expects any potential obligations from this guarantee to be reduced by the recovery of the real estate collateral and expects any amounts arising from this guarantee to be insignificant.

Through May 2018, USN was a guarantor for a maximum of $1,433,000, approximately 25% of the original lease amount, on FOP’s LLC’s seven-year lease. It was a guarantor jointly with most of the other members (except USNC who is not a named guarantor) of FOP. The lease was fully repaid in May 2018. The outstanding balance on the lease obligation was $468,000 at December 31, 2017.

The Company expects any potential obligations from these guarantees to be reduced by the recoveries of the respective collateral and has recorded a liability of $11,000. See Note C for further discussion of investments in unconsolidated entities.

[4]	Product liability:

Although USN does not directly provide medical services, it has obtained professional medical liability insurance, and has general liability insurance as well. USN’s professional medical liability and general liability policies have limits of $3 million each. The Company believes that its insurance is adequate for providing treatment facilities and non-medical services, although there can be no assurance that the coverage limits of such insurance will be adequate or that coverage will not be reduced or become unavailable in the future.