Note 13 - Commitments and Contingencies

(a) Leases

In February 2015, the Company’s corporate headquarters were relocated to New York, NY under a lease agreement with Alexandria Real Estate, which expires in 2020. On August 13, 2015, the Company signed an amendment to the New York, NY lease agreement with Alexandria Real Estate for lab space and offices for an additional 1,674 square feet commencing on September 1, 2015 and ending in 2020. The total base rent for offices and lab space, as amended, is $30,000 per month, subject to annual rent escalations. The Company recorded rent expense relating to the New York, NY lease agreements of $0.1 million and $0, respectively, for the three months ended September 30, 2015 and 2014, and $0.2 million and $0, respectively, for the nine months ended September 30, 2015 and 2014.

Future minimum lease payments under non-cancelable leases for office space and lab space are as follows (in thousands):

Period ending December 31,	Amount
2015 (3 months)	$	111
2016		456
2017		378
2018		391
2019		405
2020		139
	$	1,880

(b) Licensing Agreements

As disclosed more fully in our Form 10-K for the year ended December 31, 2014 filed on April 15, 2015, the Company is a party to a number of research and licensing agreements, including iCo, MabLife, Yissum, Dalhousie, Lonza and Shire, which may require the Company to make payments to the other party upon the Company attaining certain milestones as defined in the respective agreements. The Company may be required to make future milestone payments under these agreements. No such payments were due under these agreements as of September 30, 2015. There were no significant changes in any of our research and license agreements since December 31, 2014.

On July 7, 2015, the Company entered into an amendment (the “Amendment”) to the license agreement (the “License Agreement”), dated as of December 18, 2003, by and between the Company and Endo Pharmaceuticals Inc. (“Endo”). Pursuant to the Amendment, effective as of July 7, 2015, the License Agreement was terminated and the Company transferred to Endo the right in and to certain patents related to the use of topical lidocaine in acute and chronic back pain and the Company was granted a royalty-free, non-exclusive, transferable license to such patents. In addition, in the event Endo obtains regulatory approval for either acute or chronic lower back pain indication for its product, Lidoderm®, or any other lidocaine based product, Endo shall pay the Company certain milestone payments and royalties as set forth in the License Agreement. Pursuant to the Amendment, the Company has re-gained full exclusive rights to develop, commercialize and license LidoPain®, a high-dose lidocaine patch for the treatment of acute pain. LidoPain is currently in Phase II clinical trial development.

On June 25, 2015, the Company entered into a definitive research and license agreement (the “License”) with The Hebrew University of Jerusalem, Ltd. (“Yissum”). Under the License, the Company has obtained an exclusive, worldwide license from Yissum, with certain sublicensing rights, to make commercial use of certain of Yissum’s patents and know-how in connection with a topical nano-formulated delivery of AmiKet for the development, manufacturing, marketing, distribution and commercialization of products based on the technology. In consideration for the License, the Company shall pay Yissum the following payments throughout the term of the License:

An annual maintenance fee of $30,000 commencing on June 25, 2020, which maintenance fee shall increase by 30% each year, up to a maximum annual maintenance fee of $0.1 million and may be credited against royalties or milestone payments payable in the same calendar year.

Royalties on net sales of products (as such term is defined in the License) by the Company in the amount of up to 3%, subject to certain possible reductions in certain jurisdictions.

Milestones payments of up to approximately $4.5 million upon the achievement of certain regulatory, clinical development and commercialization milestone.

In addition, the Company shall reimburse Yissum within 60 days for all of Yissum’s past, documented expenses and costs, if any, relating to the registration and maintenance of the licensed patents. The Company has also certain indemnification obligations under the License and it is obligated to procure and maintain certain comprehensive general liability insurance policies. As of September 30, 2015, Yissum had not incurred any expenses subject to reimbursement by the Company.

Furthermore, the Company will sponsor a research program to be determined by the parties, which program will be conducted by, or under the supervision of Prof. Simon Benita. The Company will pay Yissum an annual research fee of $0.4 million, plus VAT and any applicable taxes, commencing on October 1, 2015 (or such other time as mutually agreed between the parties). The results of the research, including any patents or patent applications shall automatically be licensed to the Company.

On June 10, 2015, the Company entered into a binding memorandum of understanding (the “MOU”) with Yissum regarding certain of Yissum’s patents developed by Prof. Simon Benita in connection with nanoparticles for topical delivery of active agents for cyclosporine A. Oral cyclosporine A was approved by the U.S. Food and Drug Administration for the treatment of psoriasis and by the European Medicines Agency for psoriasis and atopic dermatitis. Topical cyclosporine A may be used, subject to regulatory approval, as an alternative to the oral formulation and other topical drugs and it will expand our dermatology development portfolio. Pursuant to the MOU, the Company will enter into a definitive license agreement (the “License”) with BNS, Ltd., a company to be established by Yissum and Prof. Benita (“BNS”), within six months of the date of the MOU (subject to an extension), for the commercial development and marketing of the technology worldwide. In addition, the Company will sponsor Yissum’s further research and development of the technology for cyclosporine A.

In consideration for the License to be executed between the parties, the Company will be obligated to pay Yissum the following payments:

	·	An annual maintenance fee of $30,000 commencing five years following the execution of the License, which maintenance fee shall increase at a rate of 30% each year, up to a maximum of $0.1 million, and may be credited against royalties or milestone payments payable in the same calendar year.
	·	Royalties on net sales of products by the Company in the amount of up to 5%, subject to certain possible reductions.
	·	License fees of $0.5 million, payable in four quarterly installments, commencing upon the execution of the License.
	·	Up to approximately $4.5 million upon the achievement of certain regulatory, clinical development and commercialization milestones.

In addition, the Company will sponsor the further research of the technology to be conducted by Yissum, with a minimum payment of $0.3 million for the first year, which amount shall be reviewed and approved by the parties on an annual basis. Furthermore, in consideration for Yissum not offering the technology to any third party for a period of six-months after the execution of the MOU, the Company has agreed to issue BNS, upon the execution of the License, 250,000 shares of the Company’s common stock and provide BNS certain piggy- back registration rights with respect to those shares.

On May 4, 2015, the Company announced the entry into a strategic partnership with STC Biologics to accelerate the development of NanomAbs, a new generation of Antibody Nanoparticle Conjugates allowing the targeted delivery of chemo-therapeutics. The collaboration is focused on the development of an HER2 targeted NanomAb toward an IND and clinical trials.

(c) Litigation

Immune Pharmaceuticals Inc. was the defendant in litigation involving a dispute with the plaintiffs Kenton L. Cowley and John A. Flores. The complaint alleges breach of contract, breach of covenant of good faith and fair dealing, fraud and rescission of contract with respect to the development of a topical cream containing ketamine and butamben, known as EpiCept NP-2. A summary judgment in Immune’s favor was granted in January 2012 and the plaintiffs filed an appeal in the United States Court of Appeals for the Ninth Circuit in September 2012. A hearing on the motion occurred in November 2013. In May 2014, the court scheduled the trial in November 2014 and a mandatory settlement conference in July 2014. In July 2014, the parties failed to reach a settlement at the mandatory settlement conference. The case was tried by a jury, which rendered a decision on March 23, 2015, in favor of the Company on all causes of action. During the nine months ended September 30, 2015, in connection with the trial, the Company incurred approximately $0.4 million of legal costs, $0.2 million which were settled in cash, and 116,594 shares of stock, with a fair value of $0.2 million which is included in general and administrative expenses in the condensed consolidated statements of operations for the nine months ended September 30, 2015. The Company issued an additional 40,000 shares on April 1, 2015, with a fair value of $70,000 to settle current outstanding legal costs. In April 2015, the plaintiffs filed a motion for a new trial, which was heard by the Court on June 8, 2015. In October 2015, the court denied the plaintiff’s motion for a new trial and on October 9, 2015; the plaintiffs filed a notice of appeal to the court. No ruling has been made by the court on plaintiff’s motion.

In October 2014, the Company received a written demand from a former lender (“Lender”), for $9.1 million, which is based on an agreement with Immune Ltd., from 2011, relating to a loan of $0.3 million, which was repaid in full in 2011. The Lender demands to receive certain warrants to purchase shares of the Company’s common stock, to participate in a future public offering or merger of the Company, with certain discounted terms and cash damages. The Company currently estimates that its future loss would range between $0.3 million (as accrued for) to $1.0 million, which if determined to be payable to Lender, the Company believes would be likely to be settled in equity. The Company intends to vigorously defend itself against those demands, if and when official legal proceedings relating to this matter will be initiated.

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on its results of operations or financial condition.

(d) Consulting Agreements

On February 13, 2015, the Company entered into an agreement with third parties which provided these parties the right to participate in future financings of the Company and to receive a minimum of $0.8 million over the next twelve months and $0.1 million in restricted stock, fully vested upon issuance consisting of 53,476 shares at a price of $1.87 per share which was recognized as deferred financing costs in other current assets in the Company’s consolidated balance sheets. On April 15, 2015, the agreements were amended to extend the payment term to May 30, 2016. As of September 30, 2015, the Company has not paid any amounts under these agreements.