Related Party Matters |
12 Months Ended |
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Dec. 31, 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 December 31, 2022 and has provided the Company with financing under the Amended Credit Agreement (Note 6).
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 monthly 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 year ended December 31, 2022. Under this agreement, for the year ended December 31, 2021, the Company incurred fees of $94,516.
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 was 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 8). The Company has accounted for the consulting contract as an in-substance severance arrangement and recognized $139,615 in severance expense during the year ended December 31, 2022. The accrual for Mr. Heppell's severance was adjusted to include the increased fee payments when the Company closed the Acquisition. As of December 31, 2022, the Company recognized $16,600, in accounts payable - related party and $75,503 in other current liabilities - related party under this consulting agreement.
As of December 31, 2022, Mr. Heppell is a board member of Emerald Health Pharmaceuticals, Inc. and was a board member of EHT until the closing of the Acquisition (Note 3). As of December 31, 2022, Sciences owns 12.4% and 48% of the Company and Emerald Health Pharmaceuticals, Inc., respectively. As of December 31, 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.
In addition, the Board Observer Agreement in place with Sciences was amended in September 2021 to allow any board member or officer of Sciences to act as a representative of Sciences on a non-voting observer basis in meetings of the Board. On December 14, 2021, the Board Observer Agreement was terminated.
Emerald Health Pharmaceuticals, Inc.
On April 30, 2021, the Company entered into a month-to-month lease agreement with Emerald Health Pharmaceuticals, Inc. ("EHP") an affiliate of the Company with a significant common shareholder, as the sublessor and the Company as the sublessee. The Company shared the same office location as Emerald Health Pharmaceuticals in San Diego, California until the termination of the sublease on August 31, 2021. Under the sublease agreement, the Company paid monthly base rent of $4,000 in addition to its share of common area expenses and utilities. For the years ended December 31, 2022 and 2021, the Company recognized $— and $15,453, respectively, in expense under the sublease.
As of December 31, 2022, the Company has $11,300 in accounts payable due to EHP related to the purchase of office furniture.
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 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 years ended December 31, 2022 and 2021, the Company incurred $87,927 and $220,418, respectively, in expenses under the Collaborative Research Agreements. As of December 31, 2021, the Company has recognized a prepaid asset in the amount of $8,056 to be offset against future research and development costs under the Collaborative Research Agreements. No amounts were due to or from VivaCell under these agreements for the year ended December 31, 2022.
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 years ended December 31, 2022 and 2021, the Company incurred $200,000 and $44,624 in expenses under the ESRA. As of December 31, 2022 and 2021, the Company has recognized accounts payable of $50,000 and a prepaid asset in the amount of $5,376 to be offset against future research and development costs 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 year ended December 31, 2022, the Company incurred $167,000 of research and development expenses under the ESRA. As of December 31, 2022, the Company recognized $7,835, in other current liabilities - related parties related to the first research project. As of December 31, 2022, the Company recognized $47,001, in accounts payable - related parties under this agreement.
Management Conflicts
The Company's CEO Punit Dhillon, was a board member of the Company and EHT (Note 3) through the closing date of the Acquisition. 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. 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 to assist with diligence on the EHT Acquisition due to his knowledge and expertise as a former executive of EHT. 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 year ended December 31, 2022, the Company incurred $46,684, in consulting expenses under this agreement of which $21,977 is included in wind down costs. As of December 31, 2022, the Company recorded $12,511 to other current liabilities - related parties related to this consulting agreement.
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