NOTE 16. COMMITMENTS AND CONTINGENCIES Operating Leases On January 31, 2006 we entered into a lease agreement for office and laboratory space in Addison, Texas. The lease commenced on April 1, 2006 and originally continued until April 1, 2013. The lease required a minimum monthly lease obligation of $9,330, which was inclusive of monthly operating expenses, until April 1, 2011 and at such time increased to $9,776, which was inclusive of monthly operating expenses. On February 22, 2013, we executed an Amendment to Lease Agreement (the Lease Amendment) that renewed and extended our lease until March 31, 2015. The Lease Amendment required a minimum monthly lease obligation of $9,193, which was inclusive of monthly operating expenses, until March 31, 2014 and at such time, increased to $9,379, which was inclusive of monthly operating expenses. On March 17, 2015, we executed a Second Amendment to Lease Agreement (the Second Amendment) that renewed and extended our lease until March 31, 2018. The Second Amendment required a minimum monthly lease obligation of $9,436, which was inclusive of monthly operating expenses. On December 15, 2017, we entered into a Termination of Lease Agreement whereby we cancelled our existing lease for office and laboratory space and concurrently entered into a new lease agreement (the Office Lease) that will continue until December 2019. The Office Lease encompasses approximately 2,500 rentable square feet and currently requires a minimum monthly lease obligation of $2,729, which is inclusive of monthly operating expenses. We are also subject to two lease agreements for storage, housing, and warehouse space with each lease commencing in 2018 and continuing until no later than December 2019. The lease agreements currently require a minimum monthly lease obligation of $2,783, which is inclusive of monthly operating expenses. The future minimum lease payments under the Office Lease and the Warehouse Lease are as follows as of September 30, 2018: Calendar Years Future Lease Expense 2018 (Three months) $ 16,415 2019 60,367 2020 --- 2021 --- Total $ 76,782 Rent expense for our operating leases amounted to $13,875 and $30,301 for the three months ended September 30, 2018 and 2017, respectively, and $42,654 and $96,245 for the nine months ended September 30, 2018 and 2017, respectively. Indemnification In accordance with our restated articles of incorporation and our amended and restated bylaws, we have indemnification obligations to our officers and directors for certain events or occurrences, subject to certain limits, while they are serving at our request in their respective capacities. We have a director and officer insurance policy that enables us to recover a portion of any amounts paid for future potential claims. We have also entered into contractual indemnification agreements with each of our officers and directors. Related Party Transactions and Concentration Note, Warrant and Preferred Stock Purchase Agreement On February 27, 2017, we entered into the Purchase Agreement with Velocitas and Velo LLC, an entity controlled by Velocitas, with respect to an aggregate financing of up to $6,000,000. Refer to a description in greater detail of the financing event with Velocitas and Velo LLC in Note 9. Convertible Debt. On March 31, 2017, the second closing of the Purchase Agreement included, among other transaction components, the Company acquiring the Altrazeal distributor agreements Velocitas had with its sub-distributors in exchange for the issuance of 13,375,000 shares of Common Stock. The Company has valued the acquisition of the Altrazeal distributor agreement from Velocitas at $869,375 based on the closing price of $0.065 per share of the Companys Common Stock on March 31, 2017. For the nine months ended September 30, 2018 and 2017, the Company recorded revenues, in approximate numbers, of nil and $214,000, respectively, with Velocitas GmbH, an affiliated entity of Velocitas, which represented 0% and 51% of our total revenues, respectively. As of September 30, 2018 and December 31, 2017, Velocitas GmbH did not have any outstanding net accounts receivable. Consulting Agreement  Velocitas GmbH On April 1, 2017, the Company entered into a Consulting Agreement with Velocitas GmbH to provide the Company with operational support services in the fields of regulatory administration, finance, international customer account management, manufacturing, supply chain logistics, and other services required by the Company. Velocitas GmbH receives a monthly payment of $25,833 for providing such services to the Company. Related Party Obligations Since 2011, our named executive officers and certain key executives have temporarily deferred portions of their compensation as part of a plan to conserve and manage the Companys cash and financial resources. As of September 30, 2018 and December 31, 2017, the Companys obligation to these executives for temporarily deferred compensation was approximately $72,000 which was included in accrued liabilities. Contingent Milestone Obligations We are subject to paying Access Pharmaceuticals, Inc. (Access) for certain milestones based on our achievement of certain annual net sales, cumulative net sales, and/or our having reached certain defined technology milestones including licensing agreements and advancing products to clinical development. As of September 30, 2018, the future milestone obligations that we are subject to paying Access, if the milestones related thereto are achieved, total $4,750,000. Such milestones are based on total annual sales of 20 and 40 million dollars of certain products, annual sales of 20 million dollars of any one certain product, and cumulative sales of such products of 50 and 100 million dollars. As of September 30, 2018, the Company has accrued approximately $43,000 of expense relating to future milestone payments to Access. On March 7, 2008, we terminated the license agreement with ProStrakan Ltd. for Amlexanox-related products in the United Kingdom and Ireland. As part of the termination, we agreed to pay ProStrakan Ltd. a royalty of 30% on any future payments received by us from a new licensee in the United Kingdom and Ireland territories, up to a maximum of $1,400,000. On November 17, 2008, we entered into a licensing agreement for Amlexanox-related product rights to the United Kingdom and Ireland territories with MEDA AB. Prescription Drug User Fee Obligation The Company was assessed prescription drug user fees (PDUFA) of approximately $535,000 by the United States Department of Health and Human Services (the DHHS) for the sale and manufacture of Aphthasol from 2009 to 2012. In November 2017, the Company negotiated a settlement payment of $400,000 with DHHS thereby cancelling certain unpaid invoices and accrued penalties and interest thereon. There continues to be a PDUFA fee and accrued penalties and interest that remains unpaid as of this Report. Since the Company has not yet reached a settlement with the DHHS on the unpaid PDUFA fee, it is possible that the Company may be subject to additional collection costs.