NOTE 20.

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 continues until April 1, 2013. The lease required a minimum monthly lease obligation of $9,330, which is inclusive of monthly operating expenses, until April 1, 2011 and at such time increased to $9,776, which is inclusive of monthly operating expenses. As of December 31, 2012 our current monthly lease obligation is $9,872, which is inclusive of monthly operating expenses.

On December 10, 2010, we entered into a lease agreement for certain office equipment. The lease, which commenced on February 1, 2011 and continues until February 1, 2015, requires a minimum lease obligation of $744 per month.

The future minimum lease payments under the 2006 office lease and the 2010 equipment lease are as follows as of December 31, 2012:

Calendar Years	Future Lease Expense
2013	$	38,542
2014		8,926
2015		744
2016		---
2017		---
Total	$	48,212

Rent expense for our operating leases amounted to $130,065 and $124,772 for the years ended December 31, 2012 and 2011, respectively.

Indemnification

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

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. There have been no claims to date and 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.

Employment Agreements

As of December 31, 2012, we are party to employment agreements with our Vice President and Chief Financial Officer, Terrance K. Wallberg, and Daniel G. Moro, Vice President – Polymer Drug Delivery. The employment agreements with Messrs. Wallberg and Moro each have a term of one year and include an automatic one-year term renewal for each year thereafter. Each employment agreement provides for a base salary, bonus, stock options, stock grants, and eligibility for Company provided benefit programs. Under certain circumstances, the employment agreements provide for certain severance benefits in the event of termination or a change in control. The employment agreements also contain non-solicitation, confidentiality and non-competition covenants, and a requirement for the assignment of certain invention and intellectual property rights to the Company.

Separation Agreement

As of December 31, 2012, we continue to be a party to a separation agreement with Kerry P. Gray, dated March 9, 2009. Mr. Gray currently serves as our Chairman of the Board, Chairman of the Board's Executive Committee, Chief Executive Officer, and President. Pursuant to the terms of the separation agreement, we provide or have provided, as applicable, certain benefits to Mr. Gray, including: (i) payments totaling $400,000 during the initial 12 month period following March 9, 2009; (ii) commencing March 1, 2010 and continuing for a period of forty-eight (48) months, a payment of $12,500 per month; (iii) full acceleration of all vesting schedules for all outstanding Company stock options and shares of restricted stock of the Company held by Mr. Gray, with all such Company stock options exercisable by Mr. Gray having expired on March 1, 2012, provided that Mr. Gray forfeited 20,000 stock options previously held by him; and (iv) for a period of twenty-four (24) months following March 9, 2009 we were required to maintain and provide coverage under Mr. Gray's existing health coverage plan. The separation agreement contains a mutual release of claims, certain stock lock-up provisions, and other standard provisions.

Related Party Obligations

As part of a plan to conserve the Company's cash and financial resources during 2012 and 2011, our named executive officers and certain key executives temporarily deferred portions of their compensation.

The following table summarizes the compensation temporarily deferred during 2012 and 2011:

Name	2012			2011		Total
Kerry P. Gray	$	220,673		$	140,313	$	360,986
Terrance K. Wallberg	$	24,230		$	36,539	$	60,769
Renaat Van den Hooff (1)	$	( 30,769	)	$	30,769	$	---
Key executives	$	27,253		$	20,986	$	48,239

(1) During 2011, Mr. Van den Hooff temporarily deferred compensation of $30,769 earned pursuant to a Separation Agreement with such amount being repaid to Mr. Van den Hooff in 2012.

The Company's obligation for temporarily deferred compensation was $469,994, of which $310,000 was included in accounts payable and $159,994 was included in accrued liabilities, and $228,607 of which $107,500 was included in accounts payable and $121,107 was included in accrued liabilities, as of December 31, 2012 and 2011, respectively.

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 December 31, 2012, 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.

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.