Quarterly report pursuant to Section 13 or 15(d)

11. COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

3 Months Ended

Jul. 31, 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 into a new lease for office space at 23046 Avenida de la Carlota, Suite 600, Laguna Hills, California 92653 (“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 three months ended July 31, 2017 and 2016 was $8,222 and $13,852, respectively.

The following table summarizes the Company’s aggregate future minimum lease payments required under the office leases for the Leased Premises as of July 31, 2017.

Periods Ending July 31,	Amount
2018	$	34,013
2019		33,084
2020		2,757
	$	69,854

License Agreements

The Third Addendum to APA

The Third Addendum requires the Company to make future royalty and milestone payments to SG Austria 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 Cell-in-a-Box^® encapsulated call products at a cost of $647 per vial. Each vial contains approximately of 300 capsules. A minimum of 400 vials must be ordered for each order placed by the Company. 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. In August 2017, the Company entered into a Binding Term Sheet with SG Austria and Austrianova pursuant to which the parties reached an agreement to amend certain provisions in the APA. See Note 16, Subsequent Events, for additional information.

Diabetes Licensing Agreement

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

Ten percent royalty of gross sales of all products the Company sells;

Twenty percent royalty of the amount received by the Company 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 New Drug Application (“NDA”) or a Biologics License Application (“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 encapsulated cell product.

The Diabetes Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties to be entered into, 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 the manufacturing agreement for an encapsulated cell product with the balance to be paid three months later. The Diabetes Licensing Agreement also requires the Company to pay a fee for producing an encapsulated cell product at a cost of approximately $633 per vial. Each vial contains approximately of 300 capsules. A minimum of 400 vials must be ordered for each order placed by the Company. The fees under the manufacturing agreement will be subject to annual increases in accordance with the annual inflation rate in the country in which the encapsulated cell products are manufactured. In August 2017, the Company entered into a Binding Term Sheet with SG Austria and Austrianova pursuant to which the parties reached an agreement to amend certain provisions in the Diabetes Licensing Agreement. See Note 16, Subsequent Events, for additional information.

Cannabis Licensing Agreement

The Cannabis Licensing Agreement requires the Company to make future royalty and milestone payments to Austrianova 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 encapsulated cell product.

The Cannabis Licensing Agreement requires the Company to pay Austrianova, pursuant to a manufacturing agreement between the parties to be entered into, a one-time manufacturing setup fee in the amount of $800,000, of which 50% is required to be paid on the signing of the manufacturing agreement for an encapsulated cell product and 50% with the balance to be paid three months later. The Cannabis Licensing Agreement also requires the Company to pay a fee for producing an encapsulated cell product of $800 per vial. Each vial contains approximately of 300 capsules. A minimum of 400 vials must be ordered for each order placed by the Company. The fees under the manufacturing agreement will be subject to annual increases in accordance with the annual inflation rate in the country in which the encapsulated cell products are manufactured. In August 2017, the Company entered into a Binding Term Sheet with SG Austria and Austrianova pursuant to which the parties reached an agreement to amend certain provisions in the Cannabis Licensing Agreement. See Note 16, Subsequent Events, for additional information.

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 by the Company;

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

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; and

Patent prosecution costs for the Melligen Cells plus a fifteen percent patent administration fee to UTS related to the licensed intellectual property.

Consulting Agreement with Eurofins

On June 5, 2017, the Company and Eurofins Lancaster Laboratories, Inc. (“Eurofins”) entered into an agreement for the preparation and characterization of a Master Cell Bank (“MCB”) and a Working Cell Bank ((“WCB”) 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 to the Company, 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.

In May 2017, the Company appointed Mr. Thomas C.K. Yuen to the Board to fill a vacancy created by the departure of certain members of the Board in October 2014. In connection with Mr. Yuen’s appointment to the Board, the Company entered into a Board compensation agreement with Mr. Yuen pursuant to which the Company agreed to pay Mr. Yuen $12,500 in cash for each calendar quarter of service on the Board and agreed to issue annually: (i) 500,000 fully-paid, non-assessable shares of restricted common stock (“Yuen Shares”); and (ii) a five-year option to purchase 500,000 Yuen Shares (“Yuen Option”) to Mr. Yuen at an exercise price equal to the fair market value of the Company’s common stock on the date of grant. The Yuen Shares and the Yuen Option were fully vested on the date of the grants. The Board approved the initial issuances of the Yuen Shares and the Yuen Option on May 1, 2017, and the Yuen Option has an exercise price of $0.058 per share of common stock.

In July 2017, the Board appointed Dr. Michael M. Abecassis to the Board to fill a vacancy created by the departure of certain members of the Board in October 2014. In connection with the appointment of Dr. Abecassis to the Board, the Company entered into a Board compensation agreement with Dr. Abecassis pursuant to which the Company agreed to pay Dr. Abecassis $12,500 in cash for each calendar quarter of service on the Board and agreed to issue him annually: (i) 500,000 fully-paid, non-assessable shares of the Company’s restricted common stock (“Abecassis Shares”); and (ii) a five-year Option to purchase 500,000 Abecassis Shares (“Abecassis Option”)at an exercise price equal to the fair market value of the common stock on the date of the grant. The Abecassis Shares and the Abecassis Option were fully vested on the date of the grants. The Board approved the initial issuances of the Abecassis Shares and the Abecassis Option on July 3, 2017, and the Abecassis Option has an exercise price of $0.058 per share of common stock.

In July 2017, the Board appointed Dr. Linda S. Sher to the position of the Company’s Chief Medical Officer (“CMO”). In connection with the appointment, the Company entered into a Professional Services Agreement with Dr. Sher pursuant to which the Company agreed to pay Dr. Sher $10,000 in cash for each calendar month of service as the CMO. The Company also agreed to issue Dr. Sher: (i) 1,200,000 fully-paid, non-assessable shares of the Company’s restricted common stock (“Sher Shares”); and (ii) a five-year Option to purchase 1,200,000 Sher Shares at an exercise price equal to the fair market value of the Company’s shares of commons stock on the date of the grant. The Sher Shares and the Sher Option each vest in the amount of 100,000 shares per month. The Board approved the issuances of the Sher Shares and the Sher Option on July 18, 2017, and the Sher Option has an exercise price of $0.089 per share of common stock.