NOTE 6 - COMMITMENTS

Operating leases 

On September 28, 2010, the Company entered into a five-year lease for office space in New York City, with monthly payments escalating from approximately $10,000 in first year to approximately $11,000 in fifth year. The Company received a rent credit of $9,420 in each of the months of November 2010, December 2010 and January 2011. The Company has posted a letter of credit in the amount of approximately $60,000 for the benefit of the landlord which is collateralized by a money market account (see Note 7 - Restricted Cash).

Future minimum lease payments under the operating lease are as follows: 

Rent expense charged to operations, which differs from rent paid due to the rent credits and to increasing amounts of base rent, is calculated by allocating total rental payments on a straight-line basis over the term of the lease. During the years ended December 31, 2011 and 2010, rent expense was $128,228 and $42,570, respectively and as of December 31, 2011 and 2010 deferred rent payable was $29,083 and $19,174, respectively. The Company utilized office space in New York City provided by founders without remuneration until October 2010.

Consulting agreements

In June 2010, the Company entered into a two-year consulting agreement with L&L Technologies, an entity controlled by a member of the Company’s Board of Directors, for scientific and medical consulting services. In consideration for such services, L&L Technologies will receive $96,000 per annum and 1,026,194 shares of restricted common stock which were granted at the inception of the agreement. The consulting agreement renews automatically for subsequent terms of one year at $96,000 per annum. The restricted shares vest as follows: 25% on the grant date (June 4, 2010) and 25% on each of the first and second annual anniversaries of the grant date and, if the consulting agreement is renewed, 25% on the third anniversary of the grant date. Vesting of the unvested 513,097 restricted shares accelerated on October 7, 2011, the date of the Share Exchange.

In June 2010, the Company entered into a two-year consulting agreement with Lederman & Co., an entity controlled by a member of the Company’s Board of Directors, for clinical development, strategic, management and operational consulting services. In consideration for such services, Lederman & Co. will receive $250,000 per annum and 261,784 shares of restricted common stock which were granted at the inception of the agreement. The consulting agreement renews automatically for subsequent terms of one year at $250,000 per annum. The restricted shares vest as follows: 20% on the grant date (June 4, 2010) and 20% on each of the first and second anniversaries of the grant date and, if the consulting agreement is renewed, 20% on each of the third and fourth anniversaries of the grant date. Vesting of the unvested 157,087 restricted shares accelerated on October 7, 2011, the date of the Share Exchange.

In June 2010, the Company entered into an agreement with Burns McClellan, Inc. to provide media and investor relations services, including preparation of investor presentations and press releases, media outreach and training and investor targeting and introductions, for a fee of $20,000 per month, plus expenses. The agreement was terminated in January 2011.

In October 2010, the Company entered into an agreement with Frost & Sullivan to prepare an assessment of the U.S. fibromyalgia market, including current market size and historical and projected growth rates, as well as a formal presentation supporting their findings for a fee of $109,400, all of which was recognized in 2010.

In July 2011, the Company entered into an agreement with Catalent Pharma Solutions, LLC to investigate, for $58,080, the feasibility of developing the active pharmaceutical ingredient (“API”) used in TNX-102, one of the Company’s product candidates, for use in a new, proprietary formulation

In August 2011, the Company entered into an agreement with Porter, LeVay & Rose, Inc. to provide media and investor relations services, including preparation of investor presentations and press releases, media outreach and training and investor targeting and introductions, for a fee of $12,000 per month, plus expenses.  Also in August 2011, the Company entered into an agreement with JFC Technologies, LLC (“JFC”) for product development work for an initial fee of $75,000, of which $35,000 was paid upon signing. In September 2011, JFC was acquired by Cyalume Specialty Products, Inc. (“Cyalume”) and the Company’s agreement was transferred to Cyalume.  Additionally, in August 2011 the Company authorized the initiation of stage 2 work pursuant to a contract with Lipocine Inc. with respect to a research and development project for reformulation work on TNX-102 for a fee of $235,000, which work started in the third quarter of 2011.  

In September 2011, the Company entered into two contracts with Pharmanet Canada for contract research work with respect to the development of methods to measure the active ingredient of TNX-102 in blood and urine. The full cost of the work to be performed is approximately $90,000.  Payment is due in three installments based on the achievement of certain performance milestones. Also, in September 2011, the Company entered into a contract with Pharmanet Canada for contract research work with respect to the pharmacokinetic study for TNX-102. The full cost of the work to be performed is $637,231.  Payment is due in four installments based on the achievement of certain performance milestones.

In October 2011, the Company entered into an agreement with Applied Pharma Research to develop, and perform an exploratory pharmacokinetic study on a new formulation of the API used in TNX-102 for an approximate cost of $180,000.

Employment agreements

In 2010, the Company entered into employment agreements with the Chief Operating Officer and the Vice President of Marketing which expire in August 2012 and June 2012, respectively. Under the terms of the employment agreements, the Chief Operating Officer and the Vice President of Marketing shall receive annual base compensation of $250,000 and $150,000, respectively, which shall be adjusted to $320,000 and $200,000, respectively, or such other rate as the Board may designate from time to time, upon completion of an initial public offering with net proceeds of at least $15,000,000. The agreements will be automatically renewed for additional one-year periods (the "Renewal Terms") unless either party notifies the other in writing of its intention not to renew within 90 days prior to the expiration of the Initial Term or any Renewal Terms. Upon termination without cause, as defined in the agreements, the executives will continue to receive compensation for up to nine months if termination is in connection with or following an initial public offering.

In February 2011, the Company entered into an employment agreement with the Chief Business Officer which expires in February 2013. Under the terms of the employment agreement, the Chief Business Officer shall receive annual base compensation of $150,000 which shall increase, with a retroactive adjustment, upon the completion of an underwritten public offering, as defined, or certain other events. The employment agreement will be automatically renewed for additional renewal terms unless either party notifies the other in writing of its intention not to renew within 90 days prior to the expiration of the initial term or any renewal terms. Upon termination without cause, as defined in the employment agreement, the Chief Business Officer will continue to receive compensation for six months, or nine months if termination is in connection with or following certain events.

In April 2011, the Company terminated existing employment agreements with the three executive employees referred to in the first two paragraphs above and entered into new employment agreements which stipulate such employees will receive minimum wage salary ($7.25 per hour) for a 40 hour week until the Company receives new capital of at least $500,000 through the sale of equity securities. The expiration dates of the new agreements remain the same as the terminated agreements. In addition, the Chief Business Officer assumed the title of Chief Operating Officer and the Chief Operating Officer assumed the title of Chief Financial Officer and Chief Administrative Officer and the Vice President of Marketing assumed the title of Vice President of Strategy. Upon receipt of $500,000 or more in new capital, the employees will receive a lump sum payment in the amount of $50,000 each for the Chief Operating Officer and Chief Financial Officer and $30,000 for the Vice President of Strategy. Further, base salaries for all three employees will be increased with a retroactive adjustment upon the completion of an underwritten offering, as defined, or certain other events. All other terms remain the same.  In October 2011, the position of Vice President of Strategy was eliminated and the employment agreement was terminated. In conjunction with this event, the Company paid $37,500 in December 2011 in exchange for the release from future obligations. In February 2012, the Company terminated its employment agreement with its Chief Financial Officer and in accordance with the agreement paid such officer approximately $88,000.

In July 2011, the Company entered into agreements with the executive employees to defer payment of the lump sum amounts referred to above until the closing of a private placement of securities, as defined.  In addition, salaries of the Chief Financial Officer and Chief Operating Officer were adjusted to $175,000 per annum effective August 2011. The salary of the Chief Operating Officer shall increase to $250,000 per annum on the first anniversary of the Share Exchange provided that the Company has raised at least $500,000 in additional equity securities.