NOTE 8 – COMMITMENTS AND CONTINGENCIES

Employment Agreements

The employment agreements as amended for the Company’s Executive Chairman and CEO each contain termination provisions whereby if they are terminated without cause or following a material change, as defined therein, they will receive salary through the date of termination plus an additional 24 months, bonus that would be earned during the full year when the termination became effective (or a lump sum of 50% of the full target bonus), all stock options shall vest and healthcare benefits will continue for 24 months. The Company’s General Counsel’s employment agreement, as amended, contains an 18-month severance payment in the instance of a termination without cause or following a material change, as defined therein.

Pursuant to amendments dated November 14, 2022 to the three employment agreements of the Company’s Executive Chairman, CEO and General Counsel, as well as an amendment to the employment agreement for the Company’s VP Operations (the “2022 Amendments”), each of these four employees have agreed to accept reduced salaries until the Company is successful in raising additional funds. Specifically, when the Company raises at least $7.5 million in a single offering, each employee’s salary will be increased to the full contracted rate; and prior to that time, the reduced salaries will be gradually increased as the Company raises $2 million and then $5 million. During this time, the difference between the reduced salaries and the full contracted salaries will not accrue as liabilities for the Company. As of March 31, 2023 and December 31, 2022, the accrued salary for the management team was $79,166.

Pursuant to the 2022 Amendments, $758,748 of accrued salaries were settled with shares of common stock with an estimated fair value of $606,998 and cash payments of $151,750, of which $79,166 remains unpaid and has been accrued as of March 31, 2023. The Company issued 168,611 shares of common stock on December 31, 2022 in connection with conversion of management salaries. The salary was converted at a price of $3.55 per share.

The shares of common stock issued pursuant to the 2022 Amendments are restricted and shall be subject to forfeiture as follows: until such time that the Company successfully closes $5 million in a single fundraising (the “Trigger Event”), which may be completed in one or more closings over a period of 90 days, the shares of common stock may not be sold, transferred or otherwise disposed of by the holder. Upon the occurrence of the Trigger Event, the shares shall be fully vested. If the Trigger Event does not occur within 36 months of November 2022, the shares of common stock shall be forfeited and returned to the Company. The shares issued with the 2022 Amendments have been presented as issued and outstanding on the statement of stockholders’ deficit as of March 31, 2023.

The employment agreements, as amended, for the Company’s Executive Chairman and CEO each contain a transaction bonus in the instance any of the Company’s assets are sold or sublicensed or if the Company or its subsidiary is acquired, equal to 1.75% of the consideration received by the Company. The employment agreement, as amended, for the Company’s General Counsel and for its VP Operations each contain a similar transaction bonus equal to 0.5% of consideration received by the Company.

Board of Director Agreements

In January 2022, Adriann Sax was appointed as a Director to the Board and awarded an annual retainer of $30,000 per year with an additional $7,500 for serving as an Audit Committee member and an additional $10,000 for serving as the Nominating & Governance Committee Chair. Ms. Sax has agreed to defer compensation for serving as a Director until the completion of the next fundraising round. As such, the Company has accrued the director compensation for Ms. Sax monthly with a total accrued balance of $59,573 and $43,542 as of March 31, 2023 and December 31, 2022, respectively.

In February 2022, Charles J. Link, Jr. was appointed as a Director to the Board and awarded an annual retainer of $30,000 per year with an additional $7,500 for serving as an Audit Committee member and an additional $15,000 for serving as the Compensation Committee Chair, and $3,500 for serving as a member of the Nominating Committee. Dr. Link has agreed to defer compensation for serving as a Director until the completion of the next fundraising round. As such, the Company has accrued the director compensation for Dr. Link monthly with a total accrued balance of $70,233 and $51,333 as of March 31, 2023 and December 31, 2022, respectively.

License Agreement

The License Agreement for the Technology, as amended, between the Company’s wholly-owned subsidiary QSAM Therapeutics and IGL is for 20 years or until the expiration of the multiple patents covered under the license and requires multiple milestone-based payments including: up to $410,000 as CycloSam^® advances through Phase 3 of clinical trials, and $2 million upon commercialization. IGL has also received 12,500 shares of the Company’s common stock as additional compensation. Upon commercialization, IGL will receive an on-going royalty equal to 4.5% of Net Sales, as defined in the License Agreement, and 5% of any consideration we receive pursuant to a sublicense, sale of the asset, or sale of the QSAM subsidiary. The Company will also pay for ongoing patent filing and maintenance fees, and has certain requirements to defend the patents against infringement claims.

In connection with the License Agreement, QSAM signed a two-year Consulting and Confidentiality Agreement (the “Consulting Agreement”) with IGL, which provided IGL with payments of $8,500 per month starting 60 days after signing through April 2022. The Consulting Agreement provided QSAM with additional consulting and advisory services from the Technology’s founders to assist in the clinical development of CycloSam. During the period ending March 31, 2023, the Company paid $13,961 in expense reimbursements required under the agreement. The drug development costs to IGL which has been reflected as research and development expense on the consolidated statements of operations was $0 and $25,500 for the period ending March 31, 2023 and March 31, 2022, respectively.

As of March 31, 2023, $7,876 of these costs remained outstanding and included in accounts payable and accrued expenses on the consolidated balance sheets.

On July 1, 2022, QSAM signed a new work order under the Master Services Agreement dated August 31, 2020 with IsoTherapeutics Group, Inc. (“ISO”), a company that has common ownership control with IGL. The new work order with ISO is a $8,500 per month consulting contract to utilize the knowledge and expertise of Drs. Keith Frank and Jim Simon, primary scientists and owners in ISO and IGL, and to provide scientific and manufacturing consulting support with the clinical trials as they progress through each phase. The work order is a 2 year term with a 15 day cancellation notice and the Company is only obligated for fees incurred for services performed to date.