(8) Commitments and Contingencies

(a) Leases

The Company leases its office facilities under a month-to-month operating lease. Total rental expense was $10,394 and $10,007 for the three months ended September 30, 2020 and 2019, respectively and $31,209 and $24,344 for the nine months ended September 30, 2020 and 2019, respectively.

(b) License Agreements

In November 2008, the Company licensed the rights to certain chemical compounds, know-how and intellectual property rights that may be suitable for the development of human therapeutics. Currently, the intellectual property rights are owned by a subsidiary of Horizon Therapeutics, PLC (the “Licensor”). Payments by the Company under the license agreement include a one-time non-refundable fee of $50,000, a minimum annual commitment of $40,000 commencing in 2009, milestone payments upon attainment of certain milestone events, royalties based on net sales of products covered by the patent-related rights and a portion of any sublicense income received by the Company. The Company is responsible for the development and commercialization of the licensed products.

In May 2012, such license agreement was amended. The minimum annual commitment was increased to $46,000 and may be deferred by the Company until the Company raises at least $2 million in equity financing, then the aggregate annual payments of all amounts will become payable. During the period ended September 30, 2020, the Company paid $448,000 to the Licensor under the license agreement in satisfaction of deferred annual license commitments through November 2019.

At September 30, 2020 and December 31, 2019, the Company had accrued $38,333 and $506,000, respectively, in license payments under the term of this license, included in accrued liabilities. Expenses related to the license agreement are recognized in general and administrative expense in the statements of operations.

In further consideration for the licenses granted, the Company shall make the following milestone payments to the Licensor based upon the attainment of each milestone event indicated below.


Milestone Event	Amount
Commencement of Phase II	$	230,000
Commencement of Phase III	$	575,000
Filing of an NDA for Regulatory Approval (or equivalent in Europe or Japan)	$	1,150,000
Receipt of Regulatory Approval in the United States	$	5,750,000
Receipt of Regulatory Approval outside the United States	$	5,750,000

No milestones have been achieved as of September 30, 2020.

Royalties shall be paid to the Licensor assessed on net sales of licensed products on a country-by-country basis in an amount equal to 5.75%. Should the Company be required to obtain a license from a third party in order to sell a licensed product, the Company may deduct 50% of the royalties on such licensed product paid to the third party subject to certain minimums.

In addition to the royalties the Company shall pay the Licensor 9.2% of all sublicense income attributable to licensed products.

The Licensor also granted the Company a buy-out option which may be exercised at any time during the term of the agreement. The option price will be as follows: $500,000 if exercised prior to the commencement of the first Phase II clinical trial; $1,000,000 if exercised on or after the commencement of the first Phase II clinical trial and prior to the commencement of the first Phase III clinical trial; $5,000,000 if exercised on or after the commencement of the first Phase III clinical trial and prior to the filing of a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (the “FDA”) for the first licensed product; and $8,000,000 if exercised on or after the filing of an NDA for the first licensed product.

The Company has the right to terminate the agreement at any time by giving 90 days advance notice subject to the payment of any amounts due under the agreement at that time. If the Company does not terminate the agreement or exercise the buy-out option, the term of the agreement shall continue until the expiration of the Company’s obligation to make royalty payments. Such royalty payments continue for each product in each country until the later of the expiration of the related patent or 10 years after the initial sale of the product in the respective country. The agreement may also be terminated for cause by either party upon the breach of the material obligations of the other party or the bankruptcy or liquidation of the other party.

In March 2020, the Company entered into employment agreements with its executive officers. The maximum aggregate severance payments under the agreements are approximately $720,000.

(d) Litigation

The Company is subject, from time to time, to claims by third parties under various legal disputes. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows. At September 30, 2020 and December 31, 2019, the Company did not have any pending legal actions.