Related Party Matters |
9 Months Ended |
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Sep. 30, 2022 | |
| Related Party Transactions [Abstract] | |
| Related Party Matters | Related Party Matters Emerald Health Sciences
In January 2018, the Company entered into a securities purchase agreement with Sciences pursuant to which Sciences purchased a majority of the equity interest in the Company, resulting in a change in control (the "Emerald Financing"). While Sciences no longer maintains a controlling interest in the Company, it holds a significant equity interest as of September 30, 2022 and has provided the Company with financing under the Amended Credit Agreement (Note 5).
On December 19, 2019, the Company entered into an Independent Contractor Services Agreement with Dr. Avtar Dhillon, at the time a member of Sciences Board of Directors and its CEO, pursuant to which Dr. Dhillon provided ongoing corporate finance and strategic business advisory services to the Company. In exchange for his services, Dr. Dhillon received a fee of $10,000 per month for his services.
On September 14, 2021, Dr. Dhillon provided his notice to terminate the Independent Contractor Services Agreement, with an effective termination date of October 14, 2021. As of October 14, 2021, the Company no longer has any obligations or business relationship with Dr. Dhillon. No expenses were incurred under this agreement during the three months and nine months ended September 30, 2022. Under this agreement, for the three and nine months ended September 30, 2021, the Company incurred fees of $30,000 and $90,000, respectively.
On May 18, 2022, Jim Heppell resigned from the Company's board of directors and concurrently entered into a consulting agreement with the Company pursuant to which Mr. Heppell will provide services mutually agreed upon by the Company. The consulting agreement has an initial minimum term of one-year and will be automatically renewed for a one-year period on the anniversary of the contract unless terminated with 60 days' notice. Under the consulting agreement, Mr. Heppell is entitled to a monthly fee of $6,300, which will be increased to $16,600 per month upon the closing of the Acquisition. The consulting agreement provides Mr. Heppell with a termination payment in an amount equal to the monthly fees through the then-remaining term of the agreement if Mr. Heppell’s engagement is terminated by the Company without cause. In addition, Mr. Heppell was awarded 4,000,000 stock options which are subject to certain performance and other conditions (Note 7). The Company has accounted for the consulting contract as an in-substance severance arrangement and recognized $0 and $75,600 in severance expense during the three and nine months ended September 30, 2022. The accrual for Mr. Heppell's severance will be adjusted to include the increased fee payments when the Company determines that the closing of the Acquisition is probable. As of September 30, 2022, the Company recognized $6,300, in accounts payable - related party and $47,555 in other current liabilities - related party under this consulting agreement.
As of September 30, 2022, Mr. Heppell is a board member of Emerald Health Pharmaceuticals, Inc. and EHT (Note 3). As of September 30, 2022, Sciences owns 23% and 48% of the Company and Emerald Health Pharmaceuticals, Inc., respectively. As of September 30, 2022, Mr. Heppell is also a board member and the CEO of Sciences. Mr. Heppell also served on VivaCell's board until he tendered his resignation on January 10, 2022.
VivaCell Biotechnology España, S.L.U (formerly known as Emerald Health Biotechnology España, S.L.U.)
In January 2021 and April 2021, the Company entered into two separate Collaborative Research Agreements pursuant to a Master Services Agreement with VivaCell Biotechnology España, S.L.U ("VivaCell"), a research and development entity with substantial expertise in cannabinoid science and a subsidiary of Emerald Health Research, Inc., which is 100% owned by Sciences. Under the Collaborative Research Agreements, VivaCell will provide research and development services pursuant to agreed-upon project plans for the research and development of SBI-200 and the preclinical development services for novel derivatives. The term of each agreement is initially for a one-year period. The agreements will terminate upon delivery and acceptance of the final deliverables under the project plans or if either party is in breach of the terms of the contract and such breach remains uncured for 45 days. Payment for services are based on the negotiated amounts for the completion of agreed upon objectives as provided in the Collaborative Research Agreements. For the three months ended September 30, 2022 and 2021, the Company incurred $0 and $73,678, respectively, in expenses under the Collaborative Research Agreements. For the nine months ended September 30, 2022 and 2021, the Company incurred $87,926 and $143,278, respectively, in expenses under the Collaborative Research Agreements. As of December 31, 2021, the Company recognized prepaid asset in the amount of $8,056.
On October 11, 2021, the Company entered into an Exclusive Sponsored Research Agreement (the “ESRA”) with VivaCell to fund certain research and development programs which are of mutual interest to both the Company and VivaCell. The Company will have the right to use all data, products, and information, including intellectual property which are generated in the performance of the research under each and all projects funded by the Company pursuant to the ESRA, and VivaCell assigns and agrees to assign, to the Company all rights to any intellectual property created or reduced-to-practice under, or as a part of, a project funded by the Company pursuant to the ESRA.
The Company has agreed to pay to VivaCell a royalty based on any and all licensing revenue or other consideration paid to the Company by a third-party licensee, assignee or purchaser of intellectual property rights created under the ESRA. In addition, upon a change of control transaction, the Company has agreed to pay an amount equal to the royalty percentage multiplied by the fair value of the intellectual property created under the ESRA. Pursuant to the ESRA, VivaCell will provide a budget to be approved by the Company for each project, and the Company will make payments in accordance with the approved budget and pay an annual retainer to VivaCell of $200,000 per year. For the three and nine months ended September 30, 2022, the Company incurred $50,000 and $150,000, respectively, in research and development expenses related to the retainer under the ESRA. As of September 30, 2022 and December 31, 2021, the Company has recognized $50,000 and $5,376 in accounts payable - related parties and prepaid expense - related party, respectively, related to the retainer under the ESRA.
The initial term of the agreement is one-year, with automatic renewal for successive one-year terms unless either party terminates upon 60 days' prior written notice to the other party pursuant to the ESRA.
On March 1, 2022, the Company entered into a research project with VivaCell under the ESRA Agreement for the development of a screening platform for anteroposterior ocular diseases. The project budget is $190,500. For the three and nine months ended September 30, 2022, the Company incurred $47,000 and $167,000, respectively of research and development expenses under the ESRA. As of September 30, 2022, the Company recognized $54,835, in other current liabilities - related parties related to the first research project. As of September 30, 2022, the Company recognized $63,916, in accounts payable - related parties under this agreement.
Management Conflicts
As of September 30, 2022, the Company's CEO Punit Dhillon, is a board member of the Company and EHT (Note 3 & 11). Mr. Dhillon also served as a board member of Sciences, VivaCell and , Emerald Health Pharmaceuticals, Inc. ("EHP") until he tendered his resignation from such boards on August 10, 2020, September 22, 2021 and August 19, 2022, respectively. On July 8, 2022, Punit Dhillon was appointed to serve as the interim principal executive officer of EHP under a consulting arrangement (Note 11). On October 28, 2022, Mr. Dhillon resigned as the interim principal executive officer of EHP and the consulting arrangement was terminated.
On February 28, 2022, the Company entered into a standard consulting agreement with the CEO's brother. Compensation under the agreement is for a rate of approximately $73 per hour. The consulting agreement may be terminated by either party upon providing 15 days of advance notice. For the nine months ended September 30, 2022, the Company incurred $8,595, in consulting expenses in general and administrative expenses under this agreement. No expense was incurred under this agreement during the three months ended September 30, 2022. As of September 30, 2022, the Company recorded $10,779 to deferred asset acquisition cost related to this consulting agreement.
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