Note

– Commitments and Contingencies

Operating Leases

As of

December 31, 2018,

the Company leases facilities under lease commitments that expire through

April 2024

. 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,
2019	$	746
2020		671
2021		477
2022		284
2023		106
Thereafter		36
Total	$	2,320

Rent expense under operating leases for the years ended

December 31, 2018

and

2017

were approximately

$849,000

and

$804,000,

respectively.

HydroFLOW Agreement

Pursuant to a Sales Agreement with HydroFLOW USA, HWWM had 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 was 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 was required to 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 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 became self-insured under its Employee Group Medical Plan, and currently is responsible to pay the

first

$50,000

in medical costs per individual participant for claims incurred in the calendar year up to a maximum of approximately

$1.8

million per year in the aggregate based on enrollment. The Company had an accrued liability of approximately

$60,000

and

$102,000

as of

December 31, 2018

and

December 31, 2017,

respectively, for insurance claims that it anticipates paying in the future related to claims that occurred prior to

December 31, 2018.

Effective

April 1, 2015,

the Company had 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 was 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

$1.8

million over the term of the policy (an amount that was variable with changes in annualized compensation amounts). As of

December 31, 2018,

a former employee of ours had an open claim relating to injuries sustained while in the course of employment, and the projected maximum cost of the policy as determined by the insurance carrier included estimated claim costs that have

not

yet been paid or incurred 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. Per the terms of our insurance policy, through

December 31, 2018,

we had paid in approximately

$1.8

million of the projected maximum plan cost of

$1.8

million, and had recorded approximately

$1.6

million as expense over the term of the policy. Subsequent to

March 31, 2018,

additional claims related to incidents that occurred prior to

March 31, 2018

were processed pursuant to the agreement, and we recorded approximately

$267,000

in additional costs under the plan, reducing the balance of the long-term asset. We recorded the remaining approximately

$189,000

in payments made under the policy as a long-term asset, which we expect will either be recorded as expense in future periods, or refunded to us by the insurance carrier, depending on the outcome of the individual claim described above, and the final cost of any additional open claims incurred under the policy. As of

December 31, 2018,

we believe we have paid all amounts contractually due under the policy. Effective

April 1, 2018,

we entered into a new workers’ compensation policy with a fixed premium amount determined annually, and therefore are

longer partially self-insured for workers' compensation and employer's liability.

Litigation

Enservco and Heat Waves were defendants in a civil lawsuit in federal court in Colorado, Civil Action

No.

1:15

-cv-

00983

-RBJ (“Colorado Case”), that alleged 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”)-

i.e.

, the

‘993

Patent and the

‘875

Patent. In

March

2019,

the parties moved to dismiss the Colorado Case. On

March 15, 2019,

the Colorado Case was dismissed in its entirety without any finding of wrongdoing by Enservco or Heat Waves.

HOTF dismissed its claims with regard to the

‘993

Patent with prejudice and its claims with regard to the

‘875

Patent without prejudice. However, HOTF agreed

not

to sue Enservco or Heat Waves in the future for infringement of the

‘875

Patent based on the same type of frac water heating services offered by Heat Waves prior to and through

March 13, 2019.

Heat Waves dismissed its counterclaims against HOTF without prejudice in order to preserve its defenses.

While the Colorado Case was pending, HOTF was issued

two

additional patents, which were related to the

‘993

and

‘875

Patents, but were

not

part of the Colorado Case. However, in

March

2015,

a North Dakota federal court determined in an unrelated lawsuit (

not

involving Enservco or Heat Waves) that the

‘993

Patent was invalid. The same court also found that the

‘993

Patent was unenforceable due to inequitable conduct by the patent owner and/or the inventor. The Federal Circuit Court of Appeals later confirmed, among other things, the North Dakota court’s findings of inequitable conduct. In light of the foregoing, Management believes that final findings of invalidity and/or unenforceability of the

‘993

Patent based on inequitable conduct could serve as a basis to affect the validity and/or enforceability of these additional HOTF patents.