Note 14. Commitments and Contingencies

Compensation Agreements

In September 2017, the Company entered into an arrangement with certain of its non-executive officer employees to provide for retention bonus payments to those eligible employees providing continuing service to the Company through July 31, 2018 and December 31, 2018, with one half of the retention bonus commitment payable at each of these dates. For the three and nine months ended September 30, 2018 compensation expense of $249,467 and $722,280, respectively, has been included in the accompanying interim unaudited condensed statements of operations, compared to $87,965 for both the three and nine months ended September 30, 2017. The remaining retention bonuses will be accrued on a straight-line basis through December 31, 2018. No forfeiture rate has been estimated. Forfeitures will be recognized as they occur.

Legal Matters

The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property and product liability. As a result, the Company may be subject to various legal proceedings from time to time. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.

Leases

The Company leases office and laboratory space in Tucson, Arizona under two non-cancelable operating leases. There have been no changes to the Company’s office and laboratory space leases since the disclosures made by the Company in its Annual Report on Form 10-K, filed with the SEC on March 23, 2018.

The Company’s remaining minimum real estate lease payments before common area maintenance charges for each fiscal year as of September 30, 2018 are as follows:

2018	$	127,983
2019		514,977
2020		517,457
2021		43,139
	$	1,203,556

As of September 30, 2018, the Company also has remaining capital lease commitments consisting of approximately $87,444 for computer equipment varying in length from 36 to 48 months that has not been included in the minimum lease payments schedule above.

Product Warranty

The following is a summary of the Company’s general product warranty reserve for the periods indicated:

	Nine Months Ended September 30,
	2018			2017
Beginning balance	$	37,156		$	50,426
Cost of warranty claims		(2,484	)		(6,278	)
Increase in warranty reserve		20,496			3,275
Ending balance	$	55,168		$	47,423

Warranty reserve is included in accrued liabilities in the accompanying interim unaudited condensed balance sheets as of September 30, 2018 and December 31, 2017. Expense relating to the recording of this reserve is recorded in cost of revenue within the accompanying interim unaudited condensed statements of operations.