6. Commitments and Contingencies

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

In March 2013, the Company, Dr. M. Karen Newell Rogers, Ph.D., the Company’s Chief Scientist pursuant to her consulting agreement, and Scott & White Healthcare entered into a two year Funding Agreement to reimburse the Company for its sole sponsorship of the Phase I clinical trial research expenses it has or will incur during the term of the agreement, conducted for the benefit of the Company’s licensed MDT and TPT technologies. The agreement can be cancelled by any party to it on 30 days advance notice, but all parties would remain obligated for their performance through the date or any such termination. This research is in part funded through grants and other non-Company funding provided to the lab of Dr. Newell from donated funds received for this purpose by Scott & White Healthcare (a non-profit organization) (“S&W”). Among other obligations under this agreement, the Company must (i) indemnify S&W and Dr. Newell from and against all liabilities, claims, losses and damages they may incur arising from this agreement or any act or omission of the Company related to its sponsorship of the clinical trial and (ii) procure and maintain certain commercial general, professional liability and clinical professional liability insurance in the amount of $10 million for damages that may arise from the agreement or any act or omission by the Company related to the Company’s sponsorship of the clinical trial. Payments by S&W are to total $410,852 plus an additional $63,000 on behalf of Dr. Newell for past expenses of the Company related to the preparation and drafting of the study protocol. In the year ended December 31, 2013, the Company received $403,578 in reimbursements from Scott & White Health Sciences Center at San Antonio (including $63,000 on behalf of Dr. Newell). Through December 31, 2013, $267,927 has been paid to the University of Texas by the Company and the remaining $135,650 is included in accrued expenses. Actual amounts determined upon completion will be recorded at that time. Pursuant to the agreement, the Company has agreed to incur at least $100,000 of expenses associated with the clinical trial during the term of this agreement.

Effective July 2013 and amended in September 2014, the Company entered into a Patent License Agreement (“Agreement”) with S&W with respect to certain intellectual property and patents developed or co-developed by Dr. Newell for her employer, Texas A&M University Hospital Science Center (“HSC”). HSC has previously granted S&W the exclusive right to market and license these rights. Under the Agreement, S&W granted the Company an exclusive license under the patent rights and intellectual property to make, have made, use and sell the licensed products worldwide and in all applications, to the end of the patent term. The U.S. and International provisional patent rights include MHC Engagement and CLIP Modulation for the Treatment of Disease, CLIP Modulation for the Treatment of Mucosal Diseases, Cancer Biomarkers, Therapeutics and Methods and Products For Treating Preeclampsia and Modulating Blood Pressure, and Treating Neurological Diseases.

The Company was required to make an initial $50,000 payment to S&W, and was obligated to make royalty payments to S&W of 3% of net sales in developed countries and 0.5% of net sales in underdeveloped countries, of licensed products or services requiring their use, subject to adjustment as defined in the agreement. In consideration for Amendment 1 dated September 9, 2014, the Company was required to make an additional payment of $25,000 to S&W. Additionally, in order to maintain the license, the Company was required to pay S&W minimum annual consideration, in combination with the aforementioned royalties, as follows:

(a)	Calendar Year 2013, payable January 1, 2014	$	20,000
(b)	Calendar Year 2014, payable January 1, 2015	$	20,000
(c)	Calendar Year 2015, payable January 1, 2016	$	87,500
(d)	Calendar Year 2016, payable January 1, 2017	$	125,000
(e)	Calendar Year 2017, payable January 1, 2018	$	187,000
(f)	Calendar Year 2018, payable January 1, 2019 and each January 1 year thereafter through the expiration of the Agreement	$	250,000

In addition, the Company was obligated for certain milestone payments –

	·	For each Phase I clinical trial - $100,000
	·	Upon successful conclusion of each Phase III clinical trial or any other clinical trial following a Phase II clinical trial for each licensed product - $500,000
	·	Upon each regulatory/market approval on each licensed product/indication - $2,000,000.

The Company was responsible for prosecution and maintenance of the patent rights after the effective date and would have been directly responsible for such future expenses of filing and protection of patent claims, including counsel fees. The Agreement contained other obligations for timely periodic reporting of its activities and other matters that are material to maintenance of the patent rights.

The Company is in compliance with these payment terms, except that the payment due January 1, 2015 was not made, nor was the additional $25,000 payment required in consideration of Amendment 1. As a result, the Company received notice of termination dated March 10, 2015, which resulted in termination under the original Agreement on May 9, 2015. S&W has the right under the Agreement to charge daily interest on overdue payments commencing on the 31^st day after the payment is due at the lower of either one and a half percent per month or the highest legal interest rate. This right does not terminate upon the termination of the Agreement.

Effective January 1, 2015, on May 21, 2015, the Company reinstated the Amended Patent License Agreement with S&W after its termination. In consideration for the reinstatement of the Amended Patent License Agreement, the Company was required to and did pay $45,000 and submitted the required annual due diligence report in accordance with Section 5.2(b) of the Amended Patent License Agreement by June 15, 2015.

On March 28, 2014, as amended May 9, 2014, September 4, 2014 and February 5, 2015 the Company entered into an Investment Agreement (“the Agreement”) with Dutchess Opportunity Fund II L.P. (“Dutchess”) whereby Dutchess may purchase up to that number of common shares having an aggregate purchase price of $5,000,000. This agreement is referred to by the parties as the Equity Line. Under terms of the Agreement, the Company may, at its sole discretion, deliver a Put Notice to Dutchess stating the dollar amount of common shares, which the Company intends to sell to Dutchess on a closing date. The maximum amount that Dutchess can be required to purchase at any one time shall be equal to (1) 200% of the average daily volume for the three trading days immediately preceding the formal date of the notice to Dutchess or (2) $150,000, determined at the sole discretion of the Company. The share purchase price is 94% of the lowest daily volume-weighted average price of Company stock for the 5 consecutive trading days beginning with the notice date and the ensuing four trading days. The Agreement is for a term of three years from the date of execution, or, if earlier, the sale of $5,000,000 or written notice to Dutchess by the Company. The Company and Dutchess amended the original agreement to require the Company to file a Registration Statement on Form S-1 (or other appropriate form) with the SEC covering 5 million common shares, the registrable securities that may be issued under the Investment Agreement within 30 days of the completion of the review of the Form 10 by the SEC. The Company was notified by the SEC that the required registration statement filed by the Company with respect to the registrable securities was declared effective on February 22, 2015. Pursuant to the Equity Line Agreement with Dutchess, on March 19, 2015, the Company exercised its right to issue a Put Notice in the amount of $25,000. The pricing period ran from March 19, 2015 to March 25, 2015 with a floor price of $0.06 per share. The per share purchase price was calculated as $0.0664 in the pricing period. The Company received $5,713 in net proceeds of this put and issued 89,800 common shares on April 2, 2015.

Effective April 16, 2015, the Company entered into a Memorandum of Understanding (“MOU”) with Tg IT, Inc., dba “Anchor Point IT-Solutions” (“Anchor Point”). The MOU extends the services and terms provided in the MOU dated February 1, 2014, in which Anchor Point provides IT services and support for $600 per month. The MOU is cancellable by either party on 30 days’ notice. Anchor Point is owned in part by two of the Company’s directors, David Odell and John Tynan.

VG Life Sciences Inc. 10-Q