(8) Commitments and Contingencies

(a) Leases

The Company leases its office facilities under a month-to-month operating lease. Total rental expense was $41,603 and $34,351 for the years ended December 31, 2020 and 2019, respectively.

(b) License Agreement

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 (“Licensor”). Payments by the Company under the license agreement include a one-time non-refundable fee of $50,000, a minimum annual fee 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 fee 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. The Company had deferred payment of the minimum annual fees prior to the IPO. During the year ended December 31, 2020, the Company paid an aggregate of $494,000 to the Licensor in satisfaction of deferred minimum annual fees through November 2020.

At December 31, 2020 and December 31, 2019, the Company had accrued $3,833 and $506,000, respectively, in license payments under the terms 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 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 December 31, 2020.

Royalties shall be paid to 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 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 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.

The Company has agreements with its executive officers that provide for severance payments to the employee upon termination of the agreement by the Company for any reason other than for cause, death or disability or by the employee for good reason The maximum aggregate severance payments under the agreements were approximately $720,000 at December 31, 2020.

(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 December 31, 2020 and December 31, 2019, the Company did not have any pending legal actions.

(e) Risks and Uncertainties

In March 2020, the clinical trial sites participating in the Company's Phase 2a trial in AD patients in collaboration with the Alzheimer's Disease Cooperative Study temporarily suspended enrollment of new patients because of the ongoing COVID-19 pandemic. Prior to suspension of enrollment, 14 patients had been enrolled and completed treatment, out of a total trial size of 24 patients. The trial sites have reopened and patient recruitment and treatment have resumed. In addition, due to restrictions related to COVID-19 during 2020, the Company experienced delays in opening clinical trial sites for its Phase 2a clinical trial in AD and PD (the “AD/PD Trial”). In early 2021, all of the remaining sites which are participating in the AD/PD Trial opened for recruitment and treatment of patients. Although the Company currently believes its clinical trials will be completed on time, the extent to which the COVID-19 pandemic could have a material impact on the clinical trials is dependent on the spread of the disease and government and healthcare system responses to such spread, which are presently highly uncertain. Management continues to evaluate the potential impact. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.