Annual report pursuant to Section 13 and 15(d)

11. COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

12 Months Ended

Apr. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

The Company acquires assets still in development and enters research and development arrangements with third parties that often require milestone and royalty payments to the third-party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the license agreements, the Company may have to make royalty payments based upon a percentage of the sales of the pharmaceutical products if regulatory approval for marketing is obtained.

Office Lease

The Company formerly leased office space at 12510 Prosperity Drive, Suite 310, Silver Spring, Maryland 20904. The term of the lease expired on July 31, 2016 and was extended to August 31, 2016 at the same amount of monthly rent.

Effective September 1, 2016, the Company entered an office lease for the Leased Premises. The term of the lease is for 12 months. In May 2017, the Company entered into an additional two-year lease for the Leased Premises, commencing upon the expiration of the term of the first lease. The term of the new lease expires on August 31, 2019.

Rent expense for these offices for the years ended April 30, 2017 and 2016 was $45,892 and $53,225, respectively.

The following table summarizes the Company’s aggregate future minimum lease payments required under the operating lease as of April 30, 2017.

Years Ending April 30,	Amount
2018	$	33,114
2019		33,084
2020		11,028
	$	77,226

License Agreements

The Third Addendum to the SG Austria APA

The Third Addendum requires the Company to make future royalty and milestone payments as follows:

Two percent royalty on all gross sales received by the Company or its affiliates;

Ten percent royalty on gross revenues received by the Company or its affiliates from any sublicense or right to use the patents or the licenses granted by the Company or its affiliates;

Milestone payments of $100,000 due 30 days after enrollment of the first human patient in the first clinical trial for each product; $300,000 due 30 days after enrollment of the first human patient in the first Phase 3 clinical trial for each product; and $800,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each product; and

Milestone payments of $50,000 due 30 days after enrollment of the first veterinary patient in the first trial for each product and $300,000 due 60 days after having a marketing application approved by the applicable regulatory authority for each veterinary product.

The parties to the Third Addendum also entered a Manufacturing Framework Agreement pursuant to which the Company is required to pay a fee for producing the final encapsulated cell product of $647 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box® product. The fees under the Manufacturing Framework Agreement are subject to annual increases in accordance with the annual inflation rate in the country in which the encapsulated cell products are manufactured.

Diabetes Licensing Agreement

The Diabetes Licensing Agreement requires us to make future royalty and milestone payments as follows:

Ten percent royalty of gross sales of all products we sell;

Twenty percent royalty of the amount received by us from sub-licensees on a sub-licensee on its gross sales; and

Milestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated cells; $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and $1,000,000 due 90 days after having a NDA or a BLA approved by the FDA or a MAA approved in Europe or its equivalent based on the country in which it is accepted for each product.

The Diabetes Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in the amount of approximately $600,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required to be paid three months later. As of April 30, 2017, the manufacturing agreement remains unsigned. In addition, the Diabetes Licensing Agreement requires the Company to pay a fee for producing the final encapsulated cell product of approximately $600 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box^® product. This is subject to adjustment for inflation per the terms of the Diabetes Licensing Agreement.

Cannabis Licensing Agreement

Under the Cannabis Licensing Agreement, the Company is required to pay Austrianova an Upfront Payment of $2.0 million. The Company has the right to make periodic monthly partial payments of the Upfront Payment in amounts to be agreed upon between the parties prior to each such payment being made. Under the Cannabis Licensing Agreement, as amended, the Upfront Payments must be paid in full by no later than June 30, 2016. As of the April 30, 2017, the Company has paid Austrianova $2.0 million of the Upfront Payment (see Note 6).

The Cannabis Licensing Agreement requires the Company to make future royalty and milestone payments as follows:

Ten percent royalty of the gross sale of all products sold by the Company;

Twenty percent royalty of the amount received by the Company from a sub-licensee on its gross sales; and

Milestone payments of $100,000 within 30 days of beginning the first pre-clinical experiments using the encapsulated cells; $500,000 within 30 days after enrollment of the first human patient in the first clinical trial; $800,000 within 30 days after enrollment of the first human patient in the first Phase 3 clinical trial; and $1,000,000 within 90 days after having a NDA or a BLA approved by the FDA or a MAA approved in Europe or its equivalent based on the country in which it is accepted for each product.

The Cannabis Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties, a one-time manufacturing setup fee in the amount of $800,000, of which 50% is required to be paid on the signing of a manufacturing agreement for a product and 50% is required to be paid three months later. As of April 30, 2017, the manufacturing agreement remains unsigned. In addition, the Cannabis Licensing Agreement requires the Company to pay a fee for producing the final encapsulated cell product of $800 per vial of 300 capsules after production with a minimum purchased batch size of 400 vials of any Cell-in-a-Box^® product (subject to adjustment for inflation per the terms of the Cannabis Licensing Agreement).

Melligen Cell License Agreement

The Melligen Cell License Agreement requires that the Company pay royalty, milestone payments and patent costs to UTS as follows:

Six percent gross exploitation revenue on product sales;

Twenty-five percent of gross revenues if the product is sub-licensed by us; and

	·	Milestone payments of AU$ 50,000 at the successful conclusion of clinical studies, AU$ 100,000 at the successful conclusion of Phase 1 clinical trial, AU$ 450,000 at the successful conclusion of Phase 2 clinical trials and AU$ 3,000,000 upon conclusion of a Phase 3 clinical trial.

	·	Patent costs of fifteen percent paid by UTS to prosecute and maintain the patents related to the licensed intellectual property.

Consulting Agreement with Eurofins Lancaster Laboratories, Inc.

On June 5, 2017, the Company and Eurofins entered into an agreement for the preparation and characterization of a GMP production cell bank for use in the Company’s therapy for pancreatic cancer. The agreement includes pre-bank testing, MCB preparation, MCB characterization, WCB preparation, WCB characterization, end of production characterization and related analysis, as well as optional testing. The total cost, without optional testing, is approximately $300,000.

Compensation Agreements

The Company entered executive compensation agreements with its three executive officers in March 2015, each of which was amended in December 2015. Each agreement has a term of two years. The Company also entered a compensation agreement with a Board member in April 2015 which continues in effect until the member is no longer on the Board.

In March 2017, the Company amended the executive compensation agreements. The term for each agreement is three years from an effective date of January 1, 2017. At the same time, the Company amended the compensation agreement with the Board member. It continues in effect until the member is no longer on the Board.