Exhibit 6.20
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
SEMIANNUAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period ended:
June 30, 2022
Emerald Health Pharmaceuticals Inc.
(Exact name of issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
82-0669961
(I.R.S. Employer Identification Number)
5910 Pacific Center Blvd, Suite 320, San Diego, CA 92121
(Full mailing address of principal executive offices)
(858) 352-0622
(Issuer’s telephone number, including area code)
Item 1. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Semiannual Report on Form 1-SA (this Semiannual Report) contains forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Such forward-looking statements include statements regarding, among others, (a) our growth strategies, (b) our future financing plans, and (c) our anticipated needs for working capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “approximate,” “estimate,” “believe,” “intend,” “plan,” “budget,” “could,” “forecast,” “might,” “predict,” “shall” or “project,” or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found in this Semiannual Report.
These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2021 contained in our Annual Report on Form 1-K filed with the Securities and Exchange Commission (the SEC) on April 29, 2022.
Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements as a result of various factors, including, without limitation, changes in local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions.
We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. All forward-looking statements speak only as of the date of this Semiannual Report. We undertake no obligation to update any forward-looking statements or other information contained herein.
Overview
We are a clinical-stage pharmaceutical company focused on developing drug product candidates currently containing novel, patented small molecules, rationally designed to treat various diseases with unmet medical needs, including neurodegenerative, autoimmune and other diseases. We are currently developing two initial therapeutic product candidates, EHP-101 and EHP-102, that target four initial indications, multiple sclerosis (MS) and systemic sclerosis (SSc, a severe form of scleroderma) with EHP-101, and Parkinson’s disease (PD) and Huntington’s disease (HD) with EHP-102. We believe treatments for these indications represent markets with underserved patient populations.
Our platform technology currently consists of 25 novel, patented molecules which are all new chemical entities (NCE)s with mechanisms of action (MOA) which make them capable of affecting specific receptors and pathways in the body that are relevant to the disease we are targeting. The novel molecules are currently covered by 28 issued international patents. In addition, we have 21 pending international patent applications.
Our current product development pipeline includes our two initial product candidates, EHP-101 and EHP-102, containing NCEs from our library of molecules. EHP-101, our lead product candidate, is being developed as an oral formulation of one of the molecules in our portfolio, known as VCE-004.8, and is currently in Phase 2 clinical (human) trials. EHP-102 is being developed as an oral formulation of another one of the molecules in our portfolio, known as VCE-003.2, and is currently in IND-enabling nonclinical (non-human) development. In addition to the four initial indications being targeted with EHP-101 and EHP-102, other applications and different formulations are also being investigated with these NCEs. Research is ongoing with other molecules within our NCE portfolio, as well as continued discovery of additional unique molecules to add to our portfolio.
1
In September 2019, we successfully completed a Phase 1 clinical trial of EHP-101 in Australia to establish safety, tolerability and pharmacokinetics in healthy volunteers. During 2020, we initiated a Phase 2a safety and efficacy clinical trial with EHP-101 in SSc patients. While we have regulatory approval to proceed with our planned Phase 2 trial of EHP-101 in MS patients in different countries, we have temporarily decided to pause patient enrollment to examine our financial position and potentially improve the study design. If such clinical trials are successful, contingent upon securing additional capital resources, we plan to advance the product candidates into additional clinical trials.
We have completed a number of preclinical proof of concept studies for EHP-102 in PD and HD models. We are now in the manufacturing and formulation development stage and are conducting the preclinical studies required for advancement to clinical trials.
We have been granted Orphan Drug Designation from the Food and Drug Administration (FDA) in the United States and from the European Medicines Agency in Europe for EHP-101 for the SSc indication and for EHP-102 for the HD indication. We have also received Fast Track designation from the FDA for EHP-101 for the SSc indication.
Our molecules are synthetically manufactured NCEs, two of which are used as the active pharmaceutical ingredients (API) in our current two product candidates. The 25 patented molecules currently in our portfolio were designed to affect specific biological receptors and pathways in the body related to various diseases, including the four initial indications we are targeting with EHP-101 and EHP-102. Based on extensive research and discovery work over the past decade, it was determined that our molecules would be best designed based on the molecular structure of cannabidiol (CBD) and cannabigerol (CBG), two non-psychoactive cannabinoids which are believed to have fundamental health and therapeutic benefits and a good safety profile. While CBD and CBG may be classified by the United States Drug Enforcement Administration (DEA) as controlled substances in the United States, depending on their origin and purity, since our molecules are NCEs unlike CBD and CBG, in March 2019 we received a decision from the DEA that the API (VCE-004.8) in our lead product candidate, EHP-101, is not a controlled substance. We have also received the same decision from the United Kingdom (UK) Home Office and Canada’s Controlled Substances Directorate. We plan to seek the same determination for the API (VCE-003.2) in our second product candidate, EHP-102, once it gets closer to clinical development.
As of June 30, 2022, our significant stockholder, Emerald Health Sciences Inc. (EHS), owned approximately 48% of the outstanding shares of our common stock, par value $0.0001 per share. Accordingly, EHS has significant influence over us and any action requiring the approval of the holders of our common stock, including the election of directors and amendments to our organizational documents, such as increases in our authorized shares of common stock and approval of significant corporate transactions.
Results of Operations for the Six Months Ended June 30, 2022 and June 30, 2021
Revenues
We are a pre-revenue clinical stage pharmaceutical company focused on the development of our product candidates. We have no products approved for commercial sale and have not generated any revenues from product sales since our inception in March 2017.
Research and Development Expenses
Research and development (R&D) expenses consist primarily of expenses associated with preclinical development and clinical trials, payments to third-party contract research organizations, or CROs, contract manufacturing organizations, or CMOs, contractor laboratories and independent contractors, and R&D personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation. To date, our R&D expenses have related primarily to the development of, and clinical trials for, our lead product candidate, EHP-101, as well as the preclinical development of EHP-102 and related IND-enabling studies.
2
Our R&D expenses were approximately $5.0 million for the six months ended June 30, 2022, compared to approximately $5.2 million for the six months ended June 30, 2021. This decrease was primarily driven by a decrease of approximately $0.8 million in stock-based compensation and salaries and benefits related to R&D personnel, offset by an increase in clinical expenses and related contract manufacturing and development costs of approximately $0.2 million, driven by the advancement of our Phase 2 clinical trials and manufacturing activities for our product candidate EHP-101, compared to the prior period. During the six months ended June 30, 2022, R&D expenses related to the advancement of our Phase 2 clinical trials for EHP-101 were approximately $1.8 million, net of approximately $0.5 million recorded as a receivable related to eligible spending incurred under the Australian research and development tax incentive program. In addition, preclinical and related manufacturing and development costs related to the development of EHP-102 increased by approximately $0.4 million compared to the prior period. We expect overall research and development expenses to remain consistent in 2022 as we advance our Phase 2 clinical trial in SSc for EHP-101 and continue our preclinical development work for EHP-102.
Our R&D expenditures are subject to numerous uncertainties regarding timing and cost to completion. Completion of our clinical trials and preclinical development may take several years or more and the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate.
General and Administrative Expenses
General and administrative (G&A) expenses consist primarily of legal and patent fees, professional service fees, facility and office expenses, and general and administrative personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation.
Our G&A expenses were approximately $2.3 million for the six months ended June 30, 2022, compared to approximately $2.8 million for six months ended June 30, 2021. This decrease was primarily driven by a decrease in G&A related stock-based compensation expense and G&A personnel related expenses of approximately $0.8 million, and a decrease in general corporate expenses of approximately $0.1 million, offset by an increase in consulting and professional services fees of approximately $0.4 million, compared to the prior period.
Other (Income)/Expense
Other (income)/expense consists primarily of interest expense, interest income, sublease income, and foreign currency gains and losses. During the six months ended June 30, 2021, we recognized a gain on extinguishment of debt of approximately $0.3 million, related to the forgiveness of our PPP Loan (as defined below) and associated accrued interest payable, which is included in other income. There were no such transactions recorded during the six months ended June 30, 2022.
From inception through March 2019, we received advances from EHS, our significant (former majority) stockholder, to fund our operations under a revolving loan agreement (Related Party Loan). In 2021, the Related Party Loan was settled in full and the revolving loan agreement was terminated effective June 1, 2021 pursuant to a Loan Termination Agreement between us and EHS. There was no interest expense recognized on the Related Party Loan during the six months ended June 30, 2022, and $0.1 million in interest expense recognized on the Related Party Loan during the six months ended June 30, 2021.
We recognized approximately $0.1 million in sublease income related to subleases of our existing non-cancelable building lease during each of the six months ended June 30, 2022 and June 30, 2021.
During the six months ended June 30, 2022 and June 30, 2021, we recognized foreign currency gains of $75,386 and $12,480, respectively. Foreign currency gains and losses are due primarily to the timing of fluctuations in the exchange rates between the U.S. Dollar and other foreign currencies, related to contracts and other transactions which are denominated in currencies other than the U.S. Dollar.
Net Loss
Our net loss was approximately $7.2 million for the six months ended June 30, 2022, compared to approximately $7.6 million for the six months ended June 30, 2021.
3
Liquidity and Capital Resources
Since our inception in 2017, we have devoted most of our cash resources to research and development and general and administrative activities. We have financed our operations to date primarily with the use of the proceeds from the Related Party Loan and with capital raised from a Tier 2 offering (the Regulation A Offering) pursuant to Regulation A (Regulation A+) under the Securities Act of 1933, as amended (the Securities Act). The Regulation A Offering was initially qualified by the SEC in March 2018 and sales commenced in 2019. We closed and terminated the Regulation A Offering effective March 28, 2021. In total, from the commencement of the sale of shares pursuant to the Regulation A Offering in March 2019 through the closing and termination on March 28, 2021, we sold an aggregate of 10,422,776 shares of common stock for gross proceeds of approximately $60 million. In June 2021, we sold 37,500 shares of common stock at $8.00 per share for gross proceeds of $300,000, in a private placement offering under Regulation D under the Securities Act.
To date, we have not generated any revenue from the sale of products, and we do not anticipate generating any revenue from the sale of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. During the period from March 2, 2017 (inception) through June 30, 2022, we have incurred cumulative net losses of approximately $63.7 million. Our future expenditures and capital requirements will depend on numerous factors, including, among others, the progress of our research and development efforts.
We believe that we have sufficient capital to finance our operations at least into the second quarter of 2023, however, if our operating and development costs are higher than expected, we will need to obtain additional financing prior to that time. In order to continue operating beyond this period, we will need to raise additional funds by September 2023 Management expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions. There is no assurance that such financing will be available when needed or that we will ultimately achieve profitable operations and positive cash flow.
Credit Facilities
In September 2017, we entered into the Related Party Loan with EHS, which was amended in January 2018 and November 2019. Borrowings under the Related Party Loan were drawn down from time to time and repaid by us in cash, or at the option of EHS, converted into shares of our common stock at a conversion price of $2.00 per share. In November 2019, the Related Party Loan was amended to reduce the interest rate from 12% to 10%, compounded semiannually. The Related Party Loan was payable upon demand and had no expiration date.
During 2021, the outstanding balance under the Related Party Loan was settled in full, and the Related Party Loan was terminated effective June 1, 2021, pursuant to a Loan Termination Agreement between us and EHS. In total, EHS advanced approximately $11.3 million to us under the Related Party Loan. Approximately $3.1 million of the total amount advanced by EHS was repaid by us in cash, approximately $5.2 million was offset through cashless discharges (described below) and $3.0 million was converted into 1.5 million shares of our common stock at a conversion price of $2.00 per share. A total of approximately $2.2 million of interest expense was incurred (excluding a non-cash charge of approximately $1.4 million recorded during the year ended December 31, 2019 related to accretion of a beneficial conversion feature) under the Related Party Loan, of which approximately $2.0 million was paid to EHS in cash and approximately $0.2 million was offset through a cashless discharge. We do not have any remaining obligations to EHS under the Related Party Loan as of June 30, 2022.
In May 2019, our Board of Directors authorized a funding arrangement with EHS (the Related Party Note Receivable), which was amended in August 2019 and September 2019 to extend the repayment dates, pursuant to which we advanced funds to EHS in the form of interest bearing (12%) short term notes under a Promissory Note between EHS and us (the Promissory Note). Advances under the Promissory Note were originally due for repayment with accrued and unpaid interest three months from the date of the advance. A total of $5.0 million was advanced and approximately $0.2 million accrued as interest receivable under the Related Party Note Receivable. During 2019, the Related Party Note Receivable was fully settled through cashless discharges against the unpaid principal and accrued interest payable balances, respectively, under the then existing Related Party Loan with EHS.
4
On April 22, 2020, we received loan proceeds of $292,152 (PPP Loan) from Silicon Valley Bank pursuant to the Paycheck Protection Program (PPP) established as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The PPP Loan, which is evidenced by a Note dated April 21, 2020, bore interest at a rate of 1% per annum, and was expected to mature on April 21, 2022. On February 18, 2021, the entire principal balance and accrued interest payable under the PPP Loan were forgiven by the lender.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time.
Contractual Obligations, Commitments and Contingencies
We are required to make future payments to VivaCell Biotechnology España S.L. (VivaCell), a wholly owned subsidiary of Emerald Health Research Inc. (EHR) (which is a wholly owned subsidiary of EHS, our significant stockholder), based on the achievement of milestones set forth in the Intellectual Property Transfer Agreement (IPTA) between us and VivaCell, which was executed in June 2017 and amended in July 2022. These payments are based on the achievement of development or regulatory milestones, including commencement of various phases of clinical trials, filing of product license applications and approval of product licenses from the FDA or a foreign regulatory agency. The aggregate amount of future milestone payments that we could be required to pay under our agreement with VivaCell is up to 2.7 million Euros per product and application (approximately $2.8 million, per product and application, based upon the exchange rate at June 30, 2022). These amounts assume that all remaining milestones associated with the milestone payments are met. In the event that product license approval for any of the related products is obtained, we are required to make royalty payments to VivaCell of 2.5% of net revenues from commercial sales of the related products.
In 2020, we paid approximately $0.5 million in milestone payments due to VivaCell in accordance with the IPTA, related to the completion of our first Phase 1 clinical study in 2019.
In July 2022, we paid approximately $0.3 million in milestone payment due to VivaCell in accordance with the IPTA, related to the commencement of enrollment of a Phase 2 clinical study for SSc.
Because future milestones are contingent, we are not in a position to reasonably estimate how much, if any, additional milestone payments will ultimately be paid, or when. Many of the remaining milestone events are related to progress in clinical trials which will take several years to achieve.
On May 1, 2018, we entered into a two-year non-cancelable building lease for our corporate headquarters in San Diego, California, which was amended in August 2019, to include additional space at the existing premises and to extend the term of the original lease through August 31, 2022. Under the lease, we currently pay a base rent of $21,852 per month. Our remaining obligation under this operating lease from July 1, 2022 through August 31, 2022 was $43,704. On September 1, 2022, the Company entered into a new lease at a rate of $2,067.00 per month.
In July 2020, we entered into an agreement to sublease a portion of our existing non-cancelable building lease to a third-party tenant, effective August 1, 2020, and continuing through August 31, 2022. We paid commissions of $7,000 related to the execution of the sublease and were expected to incur future losses of approximately $55,000 in conjunction with the sublease. EHS agreed to reimburse us for the commission fee and future expected losses, which were offset against the Related Party Loan as of December 31, 2020.
5
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Trend Information
Because we are currently in the research, product development and clinical trial stage, no products are in commercial production or use and we do not currently generate revenue. Accordingly, we are unable to identify any significant recent trends in production, sales and inventory, costs, and selling prices, and, except as set forth below, we are unable to identify any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our future net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
Our financial success will be dependent upon our ability to continue development of our product candidates through preclinical and clinical stages to commercialization, which ability is, in turn, dependent on our liquidity and capital resources that will be available to fund such development and continuous research. Our liquidity and capital resources may vary substantially from period to period depending on a number of factors, including, without limitation, the number of research and development programs being undertaken at any one time, the stage of the development programs, the timing of significant expenditures for clinical trials, manufacturing, toxicology and pharmacology studies and the availability of funding from investors, affiliates, and lenders.
Unpredictable events, such as the COVID-19 pandemic, and associated business disruptions, including delayed clinical trials and laboratory resources, could harm our financial condition, affect our operations, increase our costs and expenses, and impact our ability to raise capital. Our operations could be subject to unpredictable events, such as earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics or pandemics such as the COVID-19 pandemic, and other natural or manmade disasters or business interruptions, for which we may not be insured. We do not carry insurance for all categories of risk that our business may encounter. The occurrence of any of these business disruptions could seriously harm our operations and financial condition, delay our product development and regulatory approvals of clinical trials, and increase our costs and expenses. Additionally, COVID-19 has caused significant disruptions to the global financial markets, which could impact our ability to raise additional capital. The ultimate impact on us and any delays in our research and development is unknown, but our operations and financial condition could suffer in the event of any of these types of unpredictable events. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition and cash flows.
Recent Events
On June 10, 2022, we received a “Wells Notice” from the staff (Staff) of the Securities and Exchange Commission (Commission). The Wells Notice stated that the Staff had made a preliminary determination to recommend that the Commission file an enforcement action against us alleging violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Our former Chief Executive Officer and Director, Dr. James DeMesa, and our former Chief Financial Officer, Lisa Sanford, also received Wells Notices for the same potential violations as the Company.
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On July 1, 2022, we submitted a settlement proposal to the Staff. We have reached a settlement in principle with the Staff, which remains subject to negotiation of customary settlement documentation and approval by the Commission. We cannot predict with confidence or certainty the ultimate outcome of the Commission’s process, including whether the Commission will accept a settlement with respect to the issues raised in the Wells Notices. If the Commission accepts our settlement proposal, we may be disqualified from relying on certain exemptions from registration under Rule 262 of Regulation A and Rule 506(d) of Regulation D. If we are disqualified from relying on certain exemptions from registration, we intend to request a waiver of the disqualification provisions from the Commission. We cannot predict with confidence or certainty the outcome of the waiver process, and as a result, we may be ineligible to rely on certain exemptions from registration, which could have a material adverse impact on our business, results of operations and liquidity.
Following its receipt of the Wells Notices, our Board of Directors requested that Dr. DeMesa and Ms. Sanford resign from their positions. Effective July 8, 2022, Dr. DeMesa and Ms. Sanford resigned as, respectively, Chief Executive Officer and director, and Chief Financial Officer.
On July 23, 2022, we entered into a consulting agreement with Catapult Life Science Advisors, LLC (Catapault), which was effective as of July 8, 2022, pursuant to which Mr. Punit Dhillon was appointed our principal executive officer. Mr. Dhillon is an officer, director and sole shareholder of Catapult. Mr. Dhillon will be compensated at an hourly rate of $250 per hour.
On August 19, 2022, Mr. Punit Dhillon resigned from the Board of Directors. Mr. Dhillon will continue to support the company as Secretary and interim principal executive officer, as a consultant, until the Board of Directors names a permanent successor. The Board of Directors appointed Mr. Robert E. Hawk, on August 19, 2022 to fill the vacancy left by Mr. Dhillon’s resignation.
On September 1, 2022, we entered into a consulting agreement with Kranz & Associates Holdings, LLC pursuant to which Robert Murphy has been appointed as our Chief Financial Officer and Treasurer. Mr. Murphy will be compensated based on an agreed upon hourly rate.
Item 2. Other Information
None.
Item 3. Financial Statements
7
INDEX TO FINANCIAL STATEMENTS
F-1
Emerald Health Pharmaceuticals Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, 2022 | December 31, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 8,701,163 | $ | 14,912,594 | ||||
| Incentive and other tax receivables | 1,828,315 | 1,457,674 | ||||||
| Other current assets | 640,739 | 489,817 | ||||||
| Total current assets | 11,170,217 | 16,860,085 | ||||||
| Property and equipment, net | 24,137 | 31,502 | ||||||
| Other noncurrent assets | 283,464 | 283,464 | ||||||
| Total assets | $ | 11,477,818 | $ | 17,175,051 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 922,840 | $ | 1,373,163 | ||||
| Accrued expenses | 4,270,018 | 2,479,115 | ||||||
| Total current liabilities | 5,192,858 | 3,852,278 | ||||||
| Total liabilities | 5,192,858 | 3,852,278 | ||||||
| Commitments and contingencies (Note 6) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.0001 par value, 100,000,000 shares authorized, 22,148,976 shares issued, and 22,073,976 shares outstanding at June 30, 2022 and December 31, 2021 | 2,215 | 2,215 | ||||||
| Additional paid-in-capital | 70,916,344 | 70,213,689 | ||||||
| Accumulated other comprehensive loss | (390,827 | ) | (315,683 | ) | ||||
| Accumulated deficit | (64,242,764 | ) | (56,577,440 | ) | ||||
| Treasury stock, at cost (common stock: 75,000 at June 30, 2022 and December 31, 2021) | (8 | ) | (8 | ) | ||||
| Total stockholders’ equity | 6,284,960 | 13,322,773 | ||||||
| Total liabilities and stockholders’ equity | $ | 11,477,818 | $ | 17,175,051 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
F-2
Emerald Health Pharmaceuticals Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | - | $ | - | ||||
| Operating expenses: | ||||||||
| Research and development | 5,024,309 | 5,163,267 | ||||||
| General and administrative | 2,774,316 | 2,789,701 | ||||||
| Total operating expenses | 7,798,625 | 7,952,968 | ||||||
| Operating loss | (7,798,625 | ) | (7,952,968 | ) | ||||
| Other (income)/expenses: | ||||||||
| Other income | (57,915 | ) | (362,003 | ) | ||||
| Interest expense | - | 66,334 | ||||||
| Foreign exchange gain | (75,386 | ) | (12,480 | ) | ||||
| Net loss | (7,665,324 | ) | (7,644,819 | ) | ||||
| Other comprehensive loss: | ||||||||
| Foreign currency translation adjustments | (75,144 | ) | (72,434 | ) | ||||
| Comprehensive loss | $ | (7,740,468 | ) | $ | (7,717,253 | ) | ||
| Net loss per share, basic and diluted | $ | (0.35 | ) | $ | (0.36 | ) | ||
| Weighted-average common shares outstanding, basic and diluted | 22,073,976 | 21,053,937 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
F-3
Emerald Health Pharmaceuticals Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2022
(Unaudited)
| Common Stock Outstanding | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Treasury Stock | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Shares | Amount | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2021 | 22,073,976 | $ | 2,215 | $ | 70,213,689 | $ | (315,683 | ) | $ | (56,577,440 | ) | 75,000 | $ | (8 | ) | $ | 13,322,773 | |||||||||||||||
| Stock-based compensation expense | 702,655 | 702,655 | ||||||||||||||||||||||||||||||
| Net loss and comprehensive loss | (75,144 | ) | (7,665,324 | ) | (7,740,468 | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2022 | 22,073,976 | $ | 2,215 | $ | 70,916,344 | $ | (390,827 | ) | $ | (64,242,764 | ) | 75,000 | $ | (8 | ) | $ | 6,284,960 | |||||||||||||||
F-4
Emerald Health Pharmaceuticals Inc.
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2021
(Unaudited)
| Common Stock Outstanding | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Treasury Stock | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Shares | Amount | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2020 | 19,510,029 | $ | 1,959 | $ | 52,648,471 | $ | (183,169 | ) | $ | (40,108,708 | ) | 75,000 | $ | (8 | ) | $ | 12,358,545 | |||||||||||||||
| Issuance of common stock under Regulation A offering, net of issuance costs | 2,258,752 | 225 | 12,834,834 | 12,835,059 | ||||||||||||||||||||||||||||
| Issuance of common stock under Regulation D offering | 37,500 | 4 | 299,996 | 300,000 | ||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of related party loan | 250,000 | 25 | 499,975 | 500,000 | ||||||||||||||||||||||||||||
| Issuance of restricted common stock under equity incentive plan | 3,000 | - | - | - | ||||||||||||||||||||||||||||
| Stock-based compensation expense | 1,860,517 | 1,860,517 | ||||||||||||||||||||||||||||||
| Net loss and comprehensive loss | (72,434 | ) | (7,644,819 | ) | (7,717,253 | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | 22,059,281 | $ | 2,213 | $ | 68,143,793 | $ | (255,603 | ) | $ | (47,753,527 | ) | 75,000 | $ | (8 | ) | $ | 20,136,868 | |||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)
F-5
Emerald Health Pharmaceuticals Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (7,665,324 | ) | $ | (7,644,819 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 7,365 | 9,503 | ||||||
| Stock-based compensation | 702,655 | 1,860,517 | ||||||
| Gain on forgiveness of PPP Loan and accrued interest payable | - | (294,603 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Incentive and other tax receivables | (370,641 | ) | (177,624 | ) | ||||
| Other current assets | (150,922 | ) | (447,656 | ) | ||||
| Other noncurrent assets | - | 1,545 | ||||||
| Accounts payable | (450,323 | ) | 256,500 | |||||
| Accrued expenses | 1,790,903 | (190,333 | ) | |||||
| Accrued interest payable | - | (95,080 | ) | |||||
| Net cash used in operating activities | (6,136,287 | ) | (6,722,050 | ) | ||||
| Investing activities | ||||||||
| Net cash used in investing activities | - | - | ||||||
| Financing activities | ||||||||
| Issuance of common stock | - | 13,852,511 | ||||||
| Deposits held in escrow | - | (2,654,175 | ) | |||||
| Funds received under loans payable | - | - | ||||||
| Funds repaid under loans payable | - | - | ||||||
| Funds repaid under related party loan | - | (2,319,771 | ) | |||||
| Stock issuance costs | - | (813,471 | ) | |||||
| Net cash provided by financing activities | - | 8,065,094 | ||||||
| Effect of exchange rate changes on cash | (75,144 | ) | (72,434 | ) | ||||
| Net increase/(decrease) in cash, cash equivalents, and restricted cash | (6,211,431 | ) | 1,270,610 | |||||
| Cash, cash equivalents, and restricted cash at beginning of period | 14,912,594 | 19,789,730 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 8,701,163 | $ | 21,060,340 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid to related party | $ | - | $ | 161,415 | ||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of related party loan to common stock | $ | - | $ | 500,000 | ||||
| Gain on forgiveness of PPP loan and accrued interest payable | $ | - | $ | 294,603 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
F-6
Emerald Health Pharmaceuticals Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business
Emerald Health Pharmaceuticals Inc. (EHP, or the Company) was incorporated in the state of Delaware in March 2017. EHP is a clinical-stage pharmaceutical company focused on developing drug product candidates currently containing patented new chemical entities (NCEs), rationally designed to treat various diseases with unmet medical needs, including neurodegenerative, autoimmune and other diseases. The Company is currently developing two initial therapeutic product candidates that target four initial indications, multiple sclerosis (MS) and systemic sclerosis (SSc, a severe form of scleroderma), Parkinson’s disease (PD) and Huntington’s disease (HD).
The Company acquired certain intellectual property from VivaCell Biotechnology España, S.L. (VivaCell), which became a wholly owned subsidiary of Emerald Health Research Inc. (EHR) in 2018. EHR is a wholly owned subsidiary of Emerald Health Sciences Inc. (EHS), a significant (former majority) stockholder of EHP. EHP has no ownership or voting rights related to VivaCell. See Note 7.
The Company is subject to risks common to other life science companies in the development stage including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with FDA and other government regulations. If the Company does not successfully commercialize any product candidates, it will be unable to generate recurring product revenue or achieve profitability.
The global COVID-19 pandemic has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. The ultimate effects of COVID-19 on the Company’s business, operations and financial condition are unknown at this time. To date, the enrollment rate in the Company’s Phase 2a clinical trial has been affected. However, the extent to which COVID-19 impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain it or treat its impact, among others.
The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced losses and recurring cash outflows from operations since inception and has an accumulated deficit of $64,242,764 as of June 30, 2022. As of June 30, 2022, the Company had cash in the amount of $8,701,163, and has incurred a loss from operations of $7,798,625 through the six months ended June 30, 2022. The Company expects to continue to incur significant losses and negative cash flows from operations through the remainder of 2022 and into the foreseeable future.
The Company has funded operations with capital raised from a Tier 2 offering (the Regulation A Offering) pursuant to Regulation A (Regulation A+) under the Securities Act of 1933, as amended (the Securities Act), as well as an exempt offshore offering under Regulation S under the Securities Act. The Regulation A Offering commenced in 2019 and terminated in March of 2021. In addition, the Company has received loan proceeds from separate loan arrangements, including a revolving loan (which terminated in June of 2021) with its significant (former majority) stockholder, EHS. See Note 3 and Note 6.
The future viability of the Company is largely dependent upon its ability to raise additional capital to finance its operations. Management expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient financing on terms acceptable to the Company to fund continuing operations, if at all. These circumstances raise substantial doubt on the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
F-7
2. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) and in accordance with the instructions to Form 1-SA and Regulation S-X. As permitted under these rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted. The Company has made estimates and judgments affecting the amounts reported in the condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from our estimates. The financial information is unaudited but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim period presented. The results for the six months ended June 30, 2022 are not necessarily indicative of the results expected for the year ended December 31, 2022 or any future periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 1-K filed with the Securities and Exchange Commission (the SEC) on April 29, 2022.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Emerald Health Pharmaceuticals Australia Pty Ltd. (EHP Australia) and Emerald Health Pharmaceuticals, España Sociedad Limitada (EHP España). EHP Australia’s functional currency, the Australian dollar, is also its reporting currency, and its financial statements are translated to U.S. dollars prior to consolidation. EHP España’s functional currency, the Euro, is also its reporting currency, and its financial statements are translated to U.S. dollars prior to consolidation. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.
Restricted cash consists of cash held in an escrow account, received as deposits from potential investors towards purchases of common stock under the Offering which had not yet been fully consummated as of the balance sheet date, as described in Note 4.
The following table provides a reconciliation of cash, cash equivalents and restricted cash, reported within the condensed consolidated statements of cash flows:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents | $ | 8,701,163 | $ | 20,961,625 | ||||
| Restricted cash | - | 98,715 | ||||||
| Total cash, cash equivalents and restricted cash presented in the consolidated statements of cash flows | $ | 8,701,163 | $ | 21,060,340 | ||||
F-8
Incentive and Tax Receivables
The Company’s subsidiary, EHP Australia, is incorporated in Australia and is eligible to participate in an Australian research and development tax incentive program. As part of this program, EHP Australia is eligible to receive a cash refund from the Australian Taxation Office (ATO) for a percentage (currently 43.5%) of the research and development costs incurred by EHP Australia. The cash refund is available to eligible companies with an annual aggregate revenue of less than $AU20.0 million (Australian Dollars) during the reimbursable period. As of June 30, 2022 and December 31, 2021, the Company’s estimate of the amount of cash refunds expected to be received for eligible spending as part of this incentive program was $1.8 million and $1.5 million, respectively, which amounts are included in incentive and other tax receivables.
In addition, EHP Australia incurs Goods and Services Tax (GST) on services provided by Australian vendors. As an Australian entity, EHP Australia is entitled to a quarterly refund of the GST incurred during the previous quarter. The Company’s estimate of the amount of cash refund expected to be received related to GST incurred as of June 30, 2022 and December 31, 2021, was $15,096 and $86,608, respectively, which amounts are included in incentive and other tax receivables.
Research and Development
Research and development costs are charged to expense as incurred and consist primarily of contract research fees, contract manufacturing costs, consultant fees, preclinical studies, clinical trials and related costs, compensation and related benefits, and non-cash stock-based compensation. At the end of each reporting period, the Company compares the payments made to its vendors, clinical research organizations and consultants to the estimated progress towards completion of the related project. Factors that the Company considers in preparing these estimates include the number of patients enrolled in clinical studies, milestones achieved, and other criteria related to the efforts of its vendors. These estimates will be subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, the Company will record net prepaid or accrued expenses related to these costs. Research and development expenses are recorded net of expected refunds of eligible research and development costs paid pursuant to the Australian research and development tax incentive program and GST incurred on services provided by Australian vendors.
Business Segments
The Company operates within the United States, Europe, and Australia, in one business segment, which is dedicated to research and development of drug candidates based on patented NCEs with a unique mechanism of action, to treat diseases with unmet medical needs.
Stock-Based Compensation
The Company accounts for stock option awards issued to employees and non-employees in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic No. 718, Compensation-Stock Compensation. Under FASB ASC Topic No. 718, compensation expense related to stock-based payments is recorded over the requisite service period based on the grant date fair value of the awards. Forfeitures are accounted for as they occur. The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option’s expected term and the price volatility of the underlying stock. See Note 5.
F-9
Net Loss per Share
The Company computes basic net loss per common share by dividing the applicable net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding during the period, plus additional shares to account for the dilutive effect of potential future issuances of common stock relating to stock options and other potentially dilutive securities using the treasury stock method. For the six months ended June 30, 2022 and 2021, there were 3,452,500 and 3,531,000 options, respectively, excluded from the computation of diluted earnings per share, as the effect would be anti-dilutive.
Comprehensive Loss
Comprehensive loss includes foreign currency translation adjustments related to the Company’s subsidiaries in Australia and Spain.
Significant Accounting Policies
There have been no changes to the significant accounting policies that were described in Note 2 to the 2021 Audited Financial Statements during the first six months of fiscal year 2022.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU No. 2016-02), which changes the presentation of assets and liabilities relating to leases. The core principle of ASU No. 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. In June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) (ASU No. 2020-05), which further deferred the effective date of ASU No. 2016-02 for the Company from January 1, 2021 to January 1, 2022. The Company adopted the new standard effective January 1, 2022, using the modified retrospective transition approach, and will not recast prior periods. In addition, the Company did not record a cumulative effect adjustment to the opening balance of retained earnings upon adoption. As permitted by the standard, the Company has elected all practical expedients and the transition practical expedient package, which among other things, allows the carryforward of historical lease classifications. Accordingly, the Company will continue to apply FASB ASC Topic 840, Leases (Topic 840), prior to January 1, 2022, including Topic 840 disclosure requirements, in the comparative periods presented. Due to the short-term nature of the Company’s existing leases, implementation of the standard did not have a material impact on its consolidated financial statements.
In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (ASU No. 2019-10), which deferred the effective date of ASU No. 2016-02 for the Company from January 1, 2020 to January 1, 2021, and deferred the effective date of Topic 326 for the Company from January 1, 2022 to January 1, 2023. The Company is evaluating the adoption of Topic 326 as of the date of the financial statements.
3. Related Party Transactions
Since inception, the Company has received advances from EHS to fund its operations. In September 2017, the Company and EHS entered a revolving loan agreement (Related Party Loan), which was amended in January 2018 and November 2019. Borrowings under the Related Party Loan were drawn down from time to time, and repaid by the Company in cash, or at the option of EHS, converted into shares of the Company at $2.00 per share, or at a price to be equally agreed to between EHS and the Company (Conversion Feature). In November 2019, the Related Party Loan was amended to reduce the interest rate from 12% to 10%, compounded semiannually. The Related Party Loan was payable upon demand and had no expiration date.
During the six months ended June 30, 2021, the outstanding balance under the Related Party Loan was settled in full, and the Related Party Loan was terminated effective June 1, 2021, pursuant to a Loan Termination Agreement between the Company and EHS. In total, EHS advanced approximately $11.3 million to the Company under the Related Party Loan. The Company repaid approximately $3.1 million of the total advanced by EHS in cash, of which approximately $2.3 million was repaid during the six months ended June 30, 2021, and approximately $5.2 million was offset through cashless discharges (described below). The remaining $3.0 million was converted into 1.5 million shares of the Company’s common stock at a conversion price of $2.00 per share, of which $0.5 million was converted into 250,000 shares of the Company’s common stock during the six months ended June 30, 2021. A total of approximately $2.2 million of interest expense was incurred (excluding a non-cash charge of approximately $1.4 million recorded during the year ended December 31, 2019 related to accretion of the beneficial Conversion Feature) under the Related Party Loan, of which approximately $0.1 million was incurred during the six months ended June 30, 2021. Approximately $2.0 million of the total interest expense was paid to EHS in cash, of which approximately $0.2 million was paid during the six months ended June 30, 2021, and approximately $0.2 million was offset through a cashless discharge during the year ended December 31, 2019. The Company does not have any remaining obligations to EHS under the Related Party Loan.
F-10
The Conversion Feature of the loan agreement was not considered an embedded derivative under FASB Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging, since there are no provisions for net settlement nor is there a means for EHS to receive an asset that puts EHS in a position not substantially different from net settlement.
In May 2019, the Company’s Board of Directors authorized a funding arrangement with EHS (Related Party Note Receivable), which was amended in August 2019 and September 2019 to extend the repayment dates, pursuant to which the Company advanced funds to EHS in the form of interest bearing (12%) short term notes under a Promissory Note between EHS and EHP (the Promissory Note). Advances under the Promissory Note were originally due for repayment with accrued and unpaid interest three months from the date of the advance. A total of $5,000,000 was advanced and $178,933 accrued as interest receivable under the Related Party Note Receivable. During 2019, the Related Party Note Receivable was settled through cashless discharges against the unpaid principal and accrued interest payable balances, respectively, under the existing Related Party Loan with EHS.
On November 15, 2019, Dr. Avtar Dhillon, a co-founder of the Company, resigned as Chairman of the Board of Directors. The Company and EHS concurrently entered into a Board Observer Agreement, whereby the Company granted to EHS the right to designate any director or officer to be an observer on the Board of Directors for so long as EHS maintains ownership of any securities of the Company. Dr. Dhillon, who was at that time CEO and a director of EHS, initially served as the EHS Board observer.
In December 2019, the Board of Directors approved an Independent Contractor Services Agreement between the Company and Dr. Dhillon, to provide corporate advisory services to the Company in exchange for a monthly fee of $10,000 (the “Agreement”). The Agreement had an initial term of one year and renewed automatically thereafter unless terminated earlier by either party. On September 23, 2021, the Company was provided 30-day written notice from Dr. Dhillon, terminating the Agreement without cause, effective October 23, 2021. There are no remaining obligations, nor amounts due and payable, under the Agreement.
In August 2020, the Company’s Board of Directors granted Dr. Dhillon the option to purchase 25,000 shares of common stock at $6.00 per share under the Plan (as defined in Note 5) with vesting occurring 25% on the date of the grant and an additional 25% vesting annually thereafter. Concurrent with the termination of the Agreement, the remaining 12,500 unvested shares were forfeited.
In September 2021, the Company’s Board of Directors approved a modification to the exercise terms of the non-qualified stock option awards previously issued to Dr. Dhillon. See Note 5.
In April 2021, the Company entered into an agreement with SKYE Bioscience, Inc. (SKYE) to sublease a portion of its existing non-cancelable building lease to SKYE, beginning May 16, 2021 and continuing on a month-to-month basis. EHS is a significant stockholder of both EHP and SKYE. In August 2021, SKYE provided notice of termination of the month-to-month lease agreement, effective August 31, 2021. Under the sublease agreement, SKYE paid monthly base rent of $4,000 per month, in addition to a portion of common area expenses and utilities. During the six months ended June 30, 2021, the Company received a total of $6,000 from SKYE under the sublease.
4. Common Stock
The Company has 100,000,000 shares of common stock authorized with a par value of $0.0001 per share. The Company has issued 9,000,000 shares of common stock at $0.0001 per share to EHS for proceeds of $900, and 1,000,000 shares to the founders of the Company for total proceeds of $100. The shares issued to founders vested 25% on the date of issuance and vested 25% annually thereafter until fully vested. In total, 925,000 of these shares have fully vested as of June 30, 2022. The Company repurchased 75,000 unvested shares at par value from a founding member, which are currently held by the Company as treasury stock.
F-11
The Company has issued a total of 1,250,000 additional shares of common stock to EHS upon the conversion of $2,500,000 of the unpaid principal balance under the Related Party Loan at a conversion price of $2.00 per share. See Note 3.
The Company sold 65,700 shares of common stock at $5.00 per share for gross proceeds of $328,500, less issuance costs of $51,776 in an exempt offshore offering under Regulation S under the Securities Act.
From March 2019 through March 2021, the Company sold shares of common stock under a Tier 2 offering (the Regulation A Offering) pursuant to Regulation A (Regulation A+) under the Securities Act. The Regulation A Offering was qualified by the SEC in March 2018 with subsequent post-qualification offering circular amendments qualified by the SEC in June 2019, and November 2020. The Company closed and terminated the Regulation A Offering effective March 28, 2021. During the six months ended June 30, 2021, the Company sold 2,258,752 shares of common stock under the Offering, for gross proceeds of $13.6 million, less issuance costs incurred of $0.7 million. There were no such sales during the six months ended June 30, 2022.
In total, from the commencement of the sale of shares pursuant to the Regulation A Offering in March 2019 through the closing and termination of the Regulation A Offering on March 28, 2021, the Company sold an aggregate of 10,422,776 shares of common stock pursuant to the Regulation A Offering for gross proceeds of approximately $60 million.
The Company had a Broker-Dealer Agreement with Dalmore Group, LLC (Dalmore), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority (FINRA), to perform administrative, compliance and placement agent related functions in connection with the Offering. Pursuant to this agreement, the Company paid Dalmore $28,000 in one-time set up fees, consisting of a $20,000 agreement fee and $8,000 for fees paid to FINRA, plus 1.0% commission on the sale of common stock under the Offering, commencing with sales following regulatory approval by FINRA, which occurred on July 25, 2019. In total, the Company paid approximately $0.5 million to Dalmore related to commission on the sale of common stock under the Offering.
The Company had an Escrow Services Agreement with Prime Trust, LLC in connection with the Regulation A Offering. Under this agreement, the proceeds received from the Offering were deposited into an escrow account prior to distribution to the Company, which was recorded as restricted cash, and offset by deposits held in escrow liability. The Company terminated the Escrow Services Agreement in September 2021, and there are no remaining deposits held in the escrow account as of June 30, 2022.
In June 2020, the Company issued 100,000 shares of common stock to a consultant as payment for services.
From June 2020 through January 2021, the Company issued a total of 23,000 shares of restricted common stock under the Plan (as defined below), to consultants as payment for services, 3,000 shares of which were issued during the six months ended June 30, 2021.
In July 2020, the Company entered into a consulting agreement with a third party to provide business advisory services in connection with strategic development and private financing matters. Pursuant to this agreement, during the six months ended June 30, 2021, the Company incurred and paid consulting fees of approximately $0.4 million. The Company paid approximately $1.6 million in total under this agreement, which expired on March 31, 2021. All fees incurred under this agreement were recorded as stock issuance costs within equity as the services performed were directly related to the Regulation A Offering.
In April 2021, the Company issued 250,000 shares of common stock to EHS in accordance with a written notice received from EHS, for the conversion of $500,000 of the unpaid principal balance under the Related Party Loan at a conversion price of $2.00 per share. See Note 3.
In June 2021, the Company sold 37,500 shares of common stock at $8.00 per share for gross proceeds of $300,000, in a private placement offering under Regulation D under the Securities Act.
F-12
5. Equity Incentive Plan
In January 2018, the Company adopted the 2018 Equity Incentive Plan, which was amended on December 13, 2018 and August 12, 2020 (the Plan). On August 12, 2020, the Company adopted an amendment to the Plan which increased the number of shares of Common Stock authorized to be issued under the Plan to equal 18% of the number of issued and outstanding shares of common stock of the Company as of the applicable date of issuance. As of June 30, 2022, there were 3,973,315 shares of Common Stock reserved for issuance pursuant to awards under the Plan. As of June 30, 2022, there were 497,815 shares available to grant under the Plan.
The Plan provides incentives to eligible employees, consultants, officers, and directors in the form of incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other rights or benefits. Recipients of stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the Plan is ten years. Vesting schedules are determined by the Board of Directors.
The following table summarizes stock-based compensation expense related to stock options granted to employees and nonemployees included in the condensed consolidated statements of operations as follows:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Research and development | $ | 315,188 | $ | 843,243 | ||||
| General and administrative | 387,467 | 1,017,274 | ||||||
| Total | $ | 702,655 | $ | 1,860,517 | ||||
Stock Options
During the six months ended June 30, 2022, there were no stock options granted to employees or non-employees, and there were 668,500 stock options granted during the six months ended June 30, 2021.
As of June 30, 2022, unrecognized stock-based compensation expense for employee and non-employee stock options was approximately $2.1 million, which the Company expects to recognize over a weighted-average remaining period of 1.5 years, assuming all unvested options become fully vested.
The Company uses a Black-Scholes option-pricing model to value the Company’s option awards. Using this option-pricing model, the fair value of each employee and non-employee award is estimated on the grant date. The fair value is expensed on a straight-line basis over the vesting period. In general, the option awards vest partially upfront and then pro-rata annually thereafter. The expected volatility assumption is based on the volatility of the share price of comparable public companies. The expected life is determined using the “simplified method”. The risk-free interest rate is based on the implied yield on a U.S. Treasury security at a constant maturity with a remaining term equal to the expected term of the option granted. The dividend yield is zero, as the Company has never declared a cash dividend.
In September 2021, the Company’s Board of Directors approved a modification to the exercise terms of certain stock options previously issued under the Plan. This modification removed the post-termination exercise period from the award agreements, granting the award holders the ability to exercise the vested portion of the options until the original expiration dates of the awards, if continuous service is terminated for any reason other than for cause, including by death or disability. The modification applied to all non-qualified stock option awards previously issued to the Company’s three non-employee Directors, the Company’s former President, Chief Executive Officer and Director, and the Company’s co-founder and former Executive Chairperson and President, Dr. Dhillon. During the six months ended June 30, 2022, stock-based compensation expense includes an additional $0.1 million related to the vested portion of each option, with an additional $0.2 million of stock-based compensation expense to be recognized over the remaining vesting periods of the impacted options.
Restricted Stock
During the six months ended June 30, 2021 there were 3,000 shares of restricted common stock issued under the Plan to non-employees, with a vesting period of two months. The Company recognized $18,000 of stock-based compensation expense for restricted stock during the six months ended June 30, 2021. There were no shares of restricted common stock issued during the six months ended June 30, 2022.
F-13
6. Commitments and Contingencies
On May 1, 2018, the Company entered into a two-year non-cancelable building lease for its corporate headquarters in San Diego, California. Effective August 15, 2019, the lease was amended to include additional space at the existing premises and to extend the term of the original lease through August 31, 2022. Under the lease, the Company pays a base rent of $21,852 per month. The Company paid a $41,503 security deposit related to the lease, which is recorded within other current assets. On September 1, 2022, the Company entered into a new lease at a rate of $2,067.00 per month.
Future minimum payments under the non-cancelable operating lease as of June 30, 2022 were as follows:
| 2022 | 43,704 | |||
| Total | $ | 43,704 |
In July 2020, the company entered into an agreement to sublease a portion of its existing non-cancelable building lease to a tenant, effective August 1, 2020, and continuing through August 31, 2022. The Company paid commissions of $7,000 related to the execution of the sublease and was expected to incur future losses of approximately $55,000 in conjunction with the sublease. EHS agreed to reimburse the Company for the commission fee and future expected losses, which were offset against the Related Party Loan as of December 31, 2020.
Loans payable
On April 22, 2020, the Company received loan proceeds of $292,152 from Silicon Valley Bank pursuant to the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act (PPP Loan). The PPP Loan, which is evidenced by a note dated April 21, 2020, bore interest at a rate of 1% per annum, and was expected to mature on April 21, 2022. On February 18, 2021, the PPP Loan, including accrued interest of $2,451, was forgiven in full by the lender. During the six months ended June 30, 2021, the income from the forgiveness of the amount borrowed and the accrued interest was recognized in the statement of operations in other income as a gain on the extinguishment of debt, in accordance with ASC 405-20, Extinguishment of Liabilities.
SEC Investigation
The Company received a “Wells Notice” from the staff (Staff) of the Securities and Exchange Commission (Commission). The Wells Notice stated that the Staff had made a preliminary determination to recommend that the Commission file an enforcement action against the Company alleging violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
In July 2022, the Company reached a settlement in principle with the Staff to resolve the issues raised in the Wells Notice, subject to negotiation of customary settlement documentation and approval by the Commission. Pursuant thereto, on September 15, 2022, the Company executed a Consent to Entry of Final Judgment. The Final Judgment will permanently restrain and enjoin the Company from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The Final Judgment will further order the Company to pay a civil penalty in the amount of $517,955, which may be paid in four quarterly installments. As of June 30, 2022 the total penalty is included in accrued expenses. If it is approved by the Commission, the Final Judgment will then be subject to approval by the United States District Court for the Central District of California.
The Company cannot predict with confidence or certainty the ultimate outcome of the Commission’s process, including whether the Commission will accept a settlement with respect to the issues raised in the Wells Notices.
F-14
7. Intellectual Property Transfer and Research Agreements
In June 2017, the Company and VivaCell executed the Intellectual Property Transfer Agreement (IPTA), which was amended in July 2022. Section 2.2 (c) of the IP Agreement was updated so that milestone payments of €250,000 would be paid within ten Business Days of the commencement of enrollment of each Phase 2 trial and the sum of €200,000 paid within ten Business Days of the initial release of data from a Phase 2 trial for each product and application. EHP paid VivaCell approximately $112,000 upon execution of the IPTA, for the purchase of three United States patents, two Japanese patents, one European patent and fourteen pending patent applications covering two series of molecules which are based on the molecular structure of CBD and CBG. Future payments of up to 2.7 million Euro (approximately $2.8 million, based upon the exchange rate at June 30, 2022) per product and application are due upon completion of certain development milestones. As further consideration, the Company will pay VivaCell a 2.5% royalty on all net revenues of any drug developed from the transferred compounds. In 2020, the Company paid approximately $0.5 million related to the first milestone payments due to VivaCell for the Company’s completion of a Phase 1 clinical study for MS and SSc, and in July 2022 the Company paid approximately $0.3 million related to the second milestone payment due to VivaCell for the Company’s commencement of enrollment of a Phase 2 clinical study for SSc.
Concurrent with the execution of the IPTA, the Company signed a Research Agreement with VivaCell for an initial term of 5 years. Under the terms of the Research Agreement, VivaCell is providing research services under the Company’s direction for consideration of cost plus a standard mark-up. Thereafter, the agreement will renew for successive one-year terms and may be terminated by either party on the expiration of the original term or any renewal term by delivering written notice at least 90 days prior to expiration. During the six months ended June 30, 2022 and 2021, the Company recorded $75,746 and $74,196, respectively in research and development expense for services performed by VivaCell under the Research Agreement. As of June 30, 2022 and December 31, 2021, $7,664 and $9,375, respectively, are included in accrued expenses, for amounts due to VivaCell under the Research Agreement.
The Company performed a qualitative analysis to determine whether a variable interest in another entity represents a controlling financial interest in a variable interest entity. A controlling financial interest in a variable interest entity is characterized by having both the power to direct the most significant activities of the entity and the obligation to absorb losses or the right to receive benefits of the entity. Since EHP does not have voting control or other forms of control over the operations and decision making at VivaCell, the Company determined that it does not have a variable interest in VivaCell. This guidance requires on-going reassessments of variable interests based on changes in facts and circumstances. The Company continues to assess its variable interests and has determined that no significant changes have occurred as of September 29, 2022.
8. Balance Sheet Details
Other current assets consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Prepaid contracts, expenses and deferred costs | $ | 597,405 | $ | 423,200 | ||||
| Other | 43,334 | 66,617 | ||||||
| Total | $ | 640,739 | $ | 489,817 | ||||
Property and equipment consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Furniture and fixtures | $ | 61,177 | $ | 61,177 | ||||
| Manufacturing equipment | 12,470 | 12,470 | ||||||
| Office equipment | 19,480 | 19,480 | ||||||
| Leasehold improvements | 20,638 | 20,638 | ||||||
| Property and equipment, gross | 113,765 | 113,765 | ||||||
| Accumulated depreciation | (89,628 | ) | (82,263 | ) | ||||
| Property and equipment, net | $ | 24,137 | $ | 31,502 | ||||
Depreciation expense for the six months ended June 30, 2022 was $7,365.
Other noncurrent assets include upfront deposits paid to clinical research organizations or other contract research providers, which are expected to be retained by the service provider until at least 12 months beyond the balance sheet date or until the expected completion of services.
F-15
Accrued expenses are comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Research and development liabilities | $ | 288,054 | $ | 225,019 | ||||
| Clinical trial related liabilities | 2,408,405 | 1,331,233 | ||||||
| Accrued payroll liabilities | 829,520 | 764,941 | ||||||
| Related party liabilities | 7,664 | 12,593 | ||||||
| Other liabilities | 736,375 | 145,329 | ||||||
| Total | $ | 4,270,018 | $ | 2,479,115 | ||||
9. Defined Contribution Plan
Effective January 1, 2018, the Company adopted a defined contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code. The plan is for the benefit of all qualifying employees and permits voluntary contributions by employees up to 100% of eligible compensation, subject to the Internal Revenue Service imposed maximum limits. The terms of the plan allow for discretionary employer contributions.
On January 1, 2020, the Company commenced a safe harbor contribution of 3% of each eligible employee’s gross earnings, subject to Internal Revenue Service limitations. Employer safe harbor contributions vest immediately.
10. Subsequent Events
As disclosed above, on June 10, 2022, we received a Wells Notice from the Staff of the Commission. On July 1, 2022, the Company submitted a settlement proposal to the Staff. The Company has reached a settlement in principle with the Staff, which remains subject to negotiation of customary settlement documentation and approval by the Commission. The Company cannot predict with confidence or certainty the ultimate outcome of the Commission’s process, including whether the Commission will accept a settlement with respect to the issues raised in the Wells Notices.
Following its receipt of the Wells Notices, our Board of Directors requested that Dr. DeMesa and Ms. Sanford resign from their positions. Effective July 8, 2022, Dr. DeMesa and Ms. Sanford resigned as, respectively, Chief Executive Officer and director, and Chief Financial Officer.
On July 23, 2022, we entered into a consulting agreement with Catapult Life Science Advisors, LLC (Catapault), which was effective as of July 8, 2022, pursuant to which Mr. Punit Dhillon was appointed our principal executive officer. Mr. Dhillon is an officer, director and sole shareholder of Catapult. Mr. Dhillon will be compensated at an hourly rate of $250 per hour.
On August 19, 2022, Mr. Punit Dhillon resigned from the Board of Directors. Mr. Dhillon will continue to support the company as Secretary and interim principal executive officer, as a consultant, until the Board of Directors names a permanent successor. The Board of Directors appointed Mr. Robert E. Hawk, on August 19, 2022 to fill the vacancy left by Mr. Dhillon’s resignation.
On September 1, 2022, the Company entered into a consulting agreement with Kranz & Associates Holdings, LLC pursuant to which Robert Murphy has been appointed as Chief Financial Officer and Treasurer of the Company. Mr. Murphy will be compensated based on an agreed upon hourly rate.
On September 1, 2022, the Company entered into a new lease with Regus Management Group, LLC at a rate of $2,067.00 per month.
F-16
Item 4. Exhibits
8
| * | Portions of this exhibit containing confidential information have been omitted pursuant to a request for confidential treatment filed with the SEC pursuant to Rule 406 under the Securities Act. Confidential information has been omitted from the exhibit in places marked “[*****]” and has been filed separately with the SEC. |
| + | Certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) is the type that the company treats as private or confidential. Such portions are marked as indicated with [***]. |
| ** | Filed herewith. |
9
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Emerald Health Pharmaceuticals Inc. | |||
| By: | /s/ Punit Dhillon | ||
| Name: | Punit Dhillon | ||
| Title: | Principal Executive Officer | ||
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| /s/ Punit Dhillon | Date: September 29, 2022 | ||
|
Name: Punit Dhillon Title: Principal Executive Officer, Secretary |
|||
| /s/ Robert Murphy | Date: September 29, 2022 | ||
|
Name: Robert Murphy Title: Chief Financial Officer, Treasurer |
10
Exhibit 6.18
CONSULTING AGREEMENT
THIS AGREEMENT is entered into as of July 23, 2022 (the “Agreement Date”), and will be effective as of July 8, 2022 (the “Effective Date”),
BETWEEN:
EMERALD HEALTH PHARMACEUTICALS INC., a company having its registered office at 5910 Pacific Center Blvd, Suite 320, San Diego, CA, 92121;
(“Emerald” or the “Company”)
AND:
CATAPULT LIFE SCIENCE ADVISORS, LLC, a California corporation with an office at *** a, San Diego, CA, 92130:
(“Catapult” or the “Consultant”)
WITNESSES THAT WHEREAS on July 8, 2022, the CEO and CFO of Emerald voluntarily resigned as they were in the process of negotiating a settlement with the Securities and Exchange Commission;
AND WHEREAS in the current circumstances, the Board of the Company believes it would be in the best interests of the shareholders of the Company not to replace the CEO and CFO for the time being;
AND WHEREAS Catapult has the personnel that have the experience and ability to assist the Company in fulfilling its leadership, clinical development, operational and management needs so as to ensure business continuity for the Company;
AND WHEREAS the Consultant commenced work on this project on July 8, 2022, and the parties desire this agreement be effective as of that date so as to cover the work performed by Catapult from that time;
AND WHEREAS the Company would like to engage the Consultant to provide its personnel to fulfill the role of Principal Executive Officer (‘PEO’) of the Company, and the Consultant would like to be engaged by Emerald to provide the services of a PEO and other services as requested by the Company as a consultant, on the terms and conditions contained herein;
IN CONSIDERATION of $1.00 and the mutual agreements in this Agreement and subject to the terms and conditions specified in this Agreement, the parties agree as follows:
1. Scope of Engagement
1.1 Position. The Company hereby engages the Consultant to provide the services provided hereunder and Punit Dhillon as PEO on behalf of Consultant and the Consultant hereby agrees to such engagement.
1.2 Reporting and Oversight Responsibility. The Consultant and its designated representatives will focus its and their efforts on providing administrative assistance, clinical development expertise, and management expertise to help the Company in satisfying its financial reporting and regulatory obligations (the “Services”) and in doing so will report to and take instructions from the Chair of the Board of Directors of the Company (the “Chair”) and work alongside the Chief Operating Officer (the “COO”).
1.3 Commitment of the Consultant. The Consultant will carry out its services honestly, in good faith and in the best interests of Emerald.
1.4 Not Employment. The parties acknowledge and agree that the relationship created by operation of this Agreement is not an employment relationship.
2. Fees
2.1 Hourly Rate. The Company agrees to pay (the “Fees”) the Consultant US$250 for each hour the Consultant or its representatives work for the Company, at the written request of the Chair or the COO.
2.2 Invoices. The Consultant will provide the Company with an invoice setting out the hours worked by the Consultant or its representatives on behalf of the Company, if any, within ten days following the end of each month that the Consultant or its representatives worked for the Company under this Agreement.
2.3 Payment. The Company will pay the Consultant, or an assignee of the Consultant, the Fees set out in the invoice within 15 days of the Company receiving the invoice, so long as the invoice is in a form satisfactory to the COO of the Company, acting reasonably.
2.4 Deductions and Remittances. The Company shall not be obliged to deduct or retain from the Fees due to the Consultant, nor shall it be obliged to remit same to the required governmental authority, any amounts that may be required by law or regulation to be deducted, retained and remitted including, without limitation, Federal, Provincial or State Income Tax, Workers’ Compensation and Pension Plan deductions and remittances. All such remittances and other payments are entirely the responsibility of the Consultant and the Consultant hereby indemnifies and saves the Company and its Board members and officers harmless from any liability of any kind whatsoever that they may incur as a result of the Consultant’s failure to make such remittances or payments.
3. Expenses
3.1 Reimbursement of Expenses. Emerald will reimburse the Consultant for all reasonable expenses incurred in the performance of its Services, provided that they are pre-approved by the Chair of the Company and the Consultant provides a written expense account in a form satisfactory to the Chair of the Company.
4. Indemnification; Liability
4.1 Except as otherwise provided herein, the Company agrees to indemnify and save harmless the Consultant to the fullest extent authorized by the Delaware General Corporation Law (the “Act”) against all judgments, penalties and fines awarded or imposed in, all amounts paid in settlement (“settlement amounts”) and all losses, claims or damages relating to any proceeding in which the Consultant:
| (a) | is or may be joined as a party, or |
| (b) | is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to, such proceeding, |
by reason of the Consultant being or having been a consultant to the Company or its affiliate, and all expenses actually and reasonably incurred by the Consultant in respect of a proceeding identified in this Section 4.1, provided that Consultant’s actions were not fraudulent or grossly negligent.
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4.2 To the extent permitted by the Act, at the request of the Consultant, the Company will pay all expenses actually and reasonably incurred by the Consultant in respect of a proceeding identified in Section 4.1 as they are incurred in advance of the final disposition of that proceeding, on receipt of the following:
| (a) | a written undertaking by or on behalf of the Consultant to repay such amount(s) if it is ultimately determined by the Court or another tribunal of competent jurisdiction that the Company is prohibited under the Act from paying such expenses; and |
| (b) | satisfactory evidence as to the amount of such expenses. |
4.3 The written certification of any of the Consultant, together with a copy of a detailed receipt, or a detailed statement indicating the amount paid or to be paid by the Consultant, will constitute satisfactory evidence of any expenses for the purposes of above.
4.4 The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption, and uncertainty. If any proceeding to which the Consultant is or becomes a party is resolved in any manner other than by adverse judgment against the Consultant (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it will be presumed that the Consultant has been successful on the merits or otherwise in such proceeding. Anyone seeking to overcome this presumption will have the burden of proof and the burden of persuasion by clear and convincing evidence. However, the Company will not be liable to indemnify the Consultant under this Agreement for any amounts paid in settlement of any proceeding effected without the Company’s written consent, and the Company will not settle any proceeding in any manner that would impose any penalty or limitation on, or require any payment from, the Consultant without the Consultant’s written consent. Neither the Company nor the Consultant will unreasonably withhold or delay its consent to any proposed settlement.
4.5 Notwithstanding any other provision herein to the contrary, the Company will not be obligated under this Agreement to indemnify the Consultant:
| (a) | in respect of matters with respect to which the Consultant must not be indemnified under the Act, or in respect of liability that the Consultant may not be relieved from under the Act or otherwise at law, unless in any of those cases the Court has made an order authorizing the indemnification; or |
| (b) | with respect to any proceeding initiated or brought voluntarily by the Consultant or in which it is joined as a plaintiff without the written agreement of the Company, except for any proceeding brought to establish or enforce a right to indemnification under this Agreement. |
4.6 Neither Consultant nor its designated representatives in providing the Services hereunder shall be liable to Emerald for any action taken or failed to be taken by the Consultant or such representative unless and only to the extent that such action taken or failed to be taken is fraudulent or grossly negligent.
5. Confidential Information
5.1 Prior Confidential Information. The Consultant represents and warrants to Emerald that it has not used or brought, and it will not use or bring, to Emerald any confidential information of any kind whatsoever of any prior party (the “Prior Business”) with whom the Consultant was previously involved, whether such involvement was as an consultant, director or officer of that Prior Business, an investor in that Prior Business, or any other relationship to that Prior Business (the “Prior Involvement”). The parties acknowledge and agree that Emerald is not engaging the Consultant to obtain such confidential information, and the Consultant acknowledges that Emerald has advised the Consultant to comply with any legal obligations of any kind whatsoever the Consultant may have to such Prior Business. The Consultant will hold Emerald and its directors and officers harmless from any and all claims and damages of any kind whatsoever that Emerald may suffer as a result of the Consultant breaching any of his or her obligations to such Prior Business in any regard.
5.2 Confidentiality. “Confidential Information” means information disclosed to the Consultant as a consequence of or through her engagement with Emerald, which information is not generally known in the industry in which Emerald operates. All Confidential Information will, during the Term of this Agreement and for a period of five years thereafter, be held by the Consultant in a fiduciary capacity for Emerald, in the strictest confidence, and will be used by the Consultant solely for the benefit of Emerald, and will not be used by the Consultant, directly or indirectly, for any purpose other than for the benefit of Emerald, nor will the Consultant divulge or communicate, directly or indirectly, such Confidential Information verbally, in writing or otherwise to any party.
3
5.3 Copying and Delivery of Records. The Consultant will not, either during the Term of this Agreement or for a period of five years thereafter, directly or indirectly, cause or permit any Confidential Information to be copied or reproduced unless expressly authorized to do so by the Company. The Consultant will promptly return to Emerald all written and electronic information, disks, tapes, memory devices and all copies of any of Confidential Information forthwith upon Emerald’s request, at any time, to do so.
6. Term and Termination
6.1 Term. The Consultant’s engagement is for a period (the “Term”) from the Effective Date until terminated.
6.2 Consultant’s Right to Terminate Agreement for any Reason. The Consultant may terminate this Agreement and its engagement for any reason at any time upon providing 30 days advance notice in writing to Emerald. Termination will be effective, at Emerald’ election, on a date which is no earlier than the date such notice is received and no later than the date which is 30 days following that date.
6.3 Emerald’s Right to Terminate Agreement for any Reason. The Company may terminate this Agreement and the Consultant’s engagement for any reason at any time upon providing 30 days advance notice in writing to the Consultant. Termination will be effective, at Emerald’ election, on a date which is no earlier than the date such notice is received and no later than the date which is 30 days following that date.
6.4 Consequences of Termination of Agreement. All obligations of the Company to the Consultant hereunder shall immediately terminate and cease as of the date of the termination of this Agreement, other than the Company will pay the Consultant any Fees agreed to but not yet paid as of the date of termination, with such payment to be made within 30 days of the date of termination.
7. Independent Legal Advice
Each party to the Agreement acknowledges and agrees that the other party has given it or her the opportunity to seek and obtain independent legal advice and has recommended that it seek and obtain independent legal advice, with respect to the subject matter of this Agreement and for the purpose of ensuring its or her rights and interests are protected. Each party to the Agreement represents to the other that it has sought independent legal advice or consciously chosen not to do so with full knowledge of the risks associated with not obtaining such independent legal advice.
8. General
8.1 Time. Time shall be of the essence in this Agreement.
8.2 Assignment. This Agreement is not assignable by any party to the Agreement without the prior written consent of the other parties. This Agreement will enure to the benefit of and be binding on the parties and their respective heirs, executors, administrators, successors and permitted assigns.
8.3 Governing Law and Attornment. This Agreement will be governed by and construed in accordance with the laws of British Columbia and the federal laws of Canada applicable in British Columbia, and the parties irrevocably submit to and accept generally and unconditionally the exclusive jurisdiction of the courts and appellate courts of British Columbia in that regard.
8.4 Entire Agreement. This Agreement represents the entire agreement between the parties in respect to the subject matter of this Agreement and supersedes all prior or contemporaneous representations, warranties or agreements concerning such subject matter, written or oral.
8.5 Notice. Any notice, direction, request or other communication required or contemplated by any provision of this Agreement will be given in writing and will be given by delivering or emailing same to the parties to the contact points they provide to each other from time to time.
4
IN WITNESS WHEREOF the parties have hereunto set their hands effective as of the Effective Date.
| EMERALD HEALTH PHARMACEUTICALS INC. | |
| Jim Heppell, Chairman | |
| CATAPULT LIFE SCIENCE ADVISORS, LLC | |
| Punit Dhillon, Managing Member | |
5
Exhibit 6.19
Emerald Health Pharmaceuticals Inc.
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as of September 1, 2022, by and between Emerald Health Pharmaceuticals Inc. ("Company"), and Kranz & Associates Holdings, LLC, a Delaware limited liability company ("Consultant"). Company desires to retain Consultant as an independent contractor to perform consulting services for Company, and Consultant is willing to perform such services, on terms set forth more fully below. In consideration of the mutual promises contained herein, the parties agree as follows:
| 1. | SERVICES AND COMPENSATION |
(a) Consultant agrees to perform for Company the services ("Services") described in Exhibit A, attached hereto.
(b) Company agrees to pay Consultant the compensation set forth in Exhibit A for the performance of the Services. If any rates or prices are not set forth in Exhibit A for any applicable Services that are performed, the prices for such services will be based on Consultant’s then current rates.
(c) Consultant will provide personnel to perform the Services (the “Consultant Personnel”), and Consultant’s fees are based on the amount of time Consultant’s Personnel spend on the Services. Each Consultant Personnel and any other timekeeper assigned to the Services will have an hourly billing rate. The initial rates are set forth in Exhibit A, attached hereto. These billing rates, which are set based upon seniority and expertise, are subject to adjustment by Consultant. Consultant determines hourly rates based on a number of relevant factors, which may include, education, experience, expertise within a particular industry, or anticipated role to be provided for Company. Because these factors evolve over time, Consultant may modify rates from time to time. In addition, as Consultant Personnel receive annual performance and compensation reviews, it may be that an increase in the engaged Consultant Personnel’s compensation will necessitate an increase in his/her hourly billing rate under this Agreement. Consultant may modify rates from time to time, but not more than once every 6 months. In the event any billing rate increase is to take effect during the course of a Consultant Personnel’s engagement for Company under this Agreement, Consultant will send a notification to Company of such increase at least 30 days in advance, in writing (which may include via email), for the purpose of serving as an update to rates set forth as attached to this Agreement and for updates to, and Company will update, all applicable purchase orders, requisitions, or other documentation on Company’s side. Fees are billed on an hourly basis at rates prevailing when the work is performed.
(d) To the extent Services are to be performed at Company’s location(s), Company will provide access and sufficient space (including any access needed for equipment operation, electrical power, telephone service, and other utilities necessary for the performance of the Services and for the operation of any equipment reasonably required to be used to provide the Services).
(e) Consultant is not a professional accounting firm, and it is agreed and understood that Consultant Personnel are not authorized to render an opinion, on behalf of the Company or Consultant, on financial statements, nor is any Consultant Personnel authorized to sign Consultant’s name or his/her own name on financial statements or tax returns while working for Company through the Consultant under this Agreement.
(f) Consultant Personnel are deployed based on the specific requirements of the Company engagement relative to the Consultant Personnel’s expertise and capabilities. Evolution of the scope of a project or its intended duration may necessitate the allocation of different Consultant Personnel to ensure optimal results. In such a circumstance, the project scope and Consultant Personnel may be recalibrated by Consultant, subject to confirmation by Company.
| 2. | PAYMENT TERMS |
(a) Invoices - Invoices are sent twice a month to Company on the 15th of each month and the last day of each month. All invoices for Services rendered are due upon receipt and payable net 5 business days from the date of the invoice. All invoices will include a service fee for reasonable administrative expenses not to exceed 5% of the invoiced amount.
(b) Retainers –Consultant does not require a retainer for Services unless otherwise determined by Consultant, including without limitation in the event Consultant believes the financial stability and solvency of Company is subject to deterioration or potential deterioration, further including, without limitation, if Company’s cash position drops to a point of three (3) or less months cash remaining. Consultant may require that Company pay a retainer equal to, at least one month’s current billings, and suspend all Services until each such applicable retainer is paid. All future billings, after payment of any retainer, will be due and payable as noted above. The retainer will be refundable at the end of the engagement, if not applied to payment for Services.
(c) Past Due Invoices – Consultant reserves the right to suspend or cancel performance of all or part of the Services if actual payment has not been received within thirty (30) days of the invoice date. In addition, Company agrees to pay a monthly finance charge of 1.5% (or the highest rate permitted by applicable law, whichever is less) of the outstanding balance if payment is not received by Consultant within the applicable payment period required, as set forth above.
(d) Taxes – If Consultant is required to charge and/or collect or withhold any taxes, fees or related charges in connection with the Services being provided, Company is responsible for payment (or reimbursement to Consultant for its payment) of all such taxes and charges related to the Services, except for taxes based on the income of Consultant.
(e) Invoice Disputes - Notwithstanding anything to the contrary in this Agreement, if Company disputes a particular item on an invoice, Company shall give written notice of such dispute to Consultant, and the parties shall negotiate in good faith to resolve the dispute. If Company has given notice of such dispute, it shall be entitled to a waiver of the finance charge of the disputed item until thirty (30) days after such dispute is resolved. Company shall not withhold payment on any invoice or invoice item except amounts subject to a dispute of which Consultant has been properly notified under this Section.
| 3. | USE OF NAME AND LOGO |
Company hereby consents to Consultant’s use of Company’s name and logo for the limited purpose of identifying Company as Consultant’s customer on locations such as Consultant’s Web site, on a general list of customers and as referenced in Consultant’s corporate and promotional literature. Additionally, Company agrees that Consultant may issue a press release identifying Company as a customer of Consultant and describing Company’s intended use of Consultant and the benefits that Company expects to derive from the use of Consultant’s Services. The content of any press release identifying Company will be subject to Company’s prior approval, and Company’s approval will not be unreasonably delayed, conditioned or withheld.
| 4. | CONFIDENTIALITY |
(a) The parties acknowledge that in each party’s performance under this Agreement, each such party may become aware of private, trade secret, confidential, or proprietary information (collectively, “Confidential Information”) of the other party and its affiliates. Each party agrees that, during the term of this Agreement and thereafter, it will use such Confidential Information of the other party only to perform its obligations under this Agreement, and each party will use its reasonable efforts, consistent with practices in its industry, to keep such Confidential Information in confidence and prevent the use, disclosure or publication of any such Confidential Information of the other party without the prior written approval of such other party. This duty does not apply to information: (1) lawfully within possession of a party prior to this Agreement; (2) that is voluntarily disclosed to the public by a third-party which does not have any obligation to protect such information; (3) is voluntarily disclosed to the public by the party who owns such Confidential Information; or (4) is generally known to the public. Each party will inform its employees, agents and independent contractors who may have access to such confidential information of the confidentiality obligations set forth above and will use its reasonable efforts to cause them to abide by such obligations. Without the other party’s prior written approval, neither party will, directly or indirectly, disclose to anyone the contents or terms of this Agreement.
(b) It is understood that each party’s Confidential Information shall remain the sole property of such party.
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(c) Consultant recognizes that Company may have received and, in the future, may receive from third parties, such third parties’ confidential or proprietary information, subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees that Consultant will, during the term of this Agreement and thereafter, hold all such confidential or proprietary information in confidence and not disclose it to any person, firm or corporation, or use it except as necessary in carrying out the Services, all in a manner similar to Consultant’s obligations with respect to the Confidential Information of Company under this Section 4.
(d) Upon the termination of this Agreement, or upon a party's earlier request, each party will deliver to the other party all Confidential Information of such other party, that it may have in its possession or control; except that each party shall be permitted to retain copies of the other party’s Confidential Information solely for archival, audit, disaster recovery, legal and/or regulatory purposes, provided further, that any Confidential Information so retained will remain subject to the obligations and restrictions contained in this Agreement.
(e) Use of third-party services: Notwithstanding anything to the contrary in this Agreement, Consultant may use third party providers in serving you. In such circumstances, if we need to share confidential information with these service providers, we will require that they maintain the confidentiality of your information.
| 5. | OWNERSHIP |
(a) Consultant agrees that Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, sui generis database rights and all other intellectual and industrial property rights throughout the world (collectively “IP Rights”)) relating to all materials, works, drawings, designs, inventions, improvements, developments, and trade secrets (collectively, "Inventions") conceived, made or discovered by Consultant, solely or in collaboration with others, during the period of this Agreement and with respect to providing the Services hereunder or with the use of materials or facilities of Company. In addition, any Inventions which constitute copyrightable subject matter shall be considered "works made for hire" as that term is defined in the United States Copyright Act.
(b) Consultant agrees to assign (or cause to be assigned), and does hereby assign fully to Company, all Inventions and any IP Rights relating thereto. Consultant further agrees to assist Company, or its designee, at the Company's expense, in every reasonable way to secure the Company's IP Rights in the Inventions, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which are reasonably requested by Company in order to apply for and obtain such rights and in order to assign and convey to Company, its successors, assigns and nominees the sole and exclusive right, title and interest in and to such Inventions and the IP Rights relating thereto. Consultant further agrees that Consultant's obligations under this Section 5(b) shall continue after the termination or expiration of this Agreement.
(c) Notwithstanding anything herein to the contrary, the parties agree that Consultant retains all IP Rights in and to all know-how, trade secrets, research, information, files, programs, writings, methods, models, processes, documents and other matters and materials owned or possessed by Consultant prior to the later of the date of this Agreement or disclosure by Consultant to company (the “Consultant Technology”), and all general additions, accretions, improvements and enhancements to and in such Consultant Technology which are developed or acquired by Consultant during the term of this Agreement and are not specific to, or developed expressly for, Company. Consultant agrees that if in the course of performing the Services, Consultant incorporates into any Invention developed hereunder any Consultant Technology, Company is hereby granted and shall have a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to exercise and use such Consultant Technology, but solely as part of or in connection with such Invention and not for any other purpose.
(d) In addition, and notwithstanding the above, the forms & templates provided from time to time to the Company by Consultant are proprietary and are for the sole use of Company. Company agrees not to copy or provide other companies or individuals with such proprietary forms and templates, without Consultant’s written permission.
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| 6. | REPORTS |
Consultant agrees that it will from time to time during the term of this Agreement or any extension thereof keep the Company advised as to Consultant's progress in performing the Services hereunder and that Consultant will, as reasonably requested by the Company, prepare written reports with respect thereto. It is understood that the time required in the preparation of such written reports shall be considered time devoted to the performance of Consultant's Services.
| 7. | CONFLICTING OBLIGATIONS |
Each party certifies that it has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, or that would preclude such party from complying with its obligations hereof, and that such party will not enter into any such conflicting agreement during the term of this Agreement.
| 8. | TERM AND TERMINATION |
(a) This Agreement will commence on the date first written above and will continue until final completion of the Services or termination as provided below.
(b) Subject to the other terms, conditions and obligations set forth below, Consultant may terminate this Agreement, for any reason or no reason, upon giving thirty (30) days’ written notice thereof to the Company, and Company may terminate this Agreement, for any reason or no reason, upon giving thirty (30) days’ written notice thereof to Consultant.
(c) Notwithstanding the above, if Consultant has provided more than one individual as part of the Consultant Personnel to provide the Services, Consultant or Company may give a written thirty (30) day notice to terminate the Services of an individual Consultant Personnel providing the Services, which will not affect any other Consultant Personnel remaining performing the Services. In such a case, Consultant will also substitute a member of the Consultant Personnel, in a reasonable manner, at Company’s reasonable request.
(d) If such termination is by Company under Section 8(b) or (c), above, absent the required notice of termination from Company, as set forth above, Consultant shall bill the Company for the portion of the required thirty (30) day notice period with which Company did not comply, with such charges not to exceed 80 hours x the hourly billing rate of the Consultant Personnel subject to such termination.
(e) In the event that any Consultant Personnel have been scheduled for an engagement under this Agreement more than two (2) weeks prior to the commencement of such engagement, and such engagement is then cancelled by the Company for any reason or no reason, prior to such commencement, Consultant shall invoice the Company for two (2) 40-hour weeks of billings at the hourly billing rate of the applicable Consultant Personnel subject to such cancellation, in order to compensate the Consultant for re-marketing liability.
(f) Either Party may terminate this Agreement if the other party is in default in the performance of a material obligation under this Agreement, and the non-defaulting party provides written notice to the other party specifying the default, which default is not corrected within ten (10) days from the date of the notice (the “Cure Period”). In such case that the default is not corrected within such Cure Period, the non-defaulting party may terminate this Agreement immediately following the expiration of the Cure Period.
(g) Notwithstanding anything to the contrary in this Agreement, either party may terminate this Agreement without advance notice if the other party files a petition in bankruptcy, or is adjudicated a bankrupt, or a petition in bankruptcy is filed against the other party and not discharged within thirty (30) days, or the other party becomes insolvent or makes an assignment for the benefit of its creditors or an arrangement pursuant to any bankruptcy law, or a receiver is appointed for it or its business.
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(h) Upon termination all rights and duties of the parties toward each other shall cease except:
(i) that Company shall be obliged to pay, within fifteen (15) days of the effective date of termination, all amounts owing to Consultant for Services completed prior to the termination date and all fees and related expenses, if any, due in accordance with the provisions of this Agreement; and
(ii) any provision of this Agreement which by its terms survives termination or expiration of this Agreement shall so survive, including without limitation that Sections 2(c), (d) and (e) (Past Due Invoices, Taxes, Invoice Disputes), 3 (Use of Name and Logo), 4 (Confidentiality), 5 (Ownership), 8(d), (e) and (h) (Rights Upon Termination; Effect of Termination), 10 (Independent Contractors), 12 (Indemnity), 13 (Limit of Liability), 14 (Arbitration and Equitable Relief), 15 (Governing Law), 16 (Entire Agreement; Waiver, Amendment), 17 (Notice) and 18 (Severability) and Exhibit A, Section 3(f) shall survive termination or expiration of this Agreement.
| 9. | ASSIGNMENT |
Neither this Agreement nor any right hereunder or interest herein may be assigned or transferred by either party without the express written consent of the other party.
| 10. | INDEPENDENT CONTRACTOR |
Nothing in this Agreement shall in any way be construed to constitute Consultant as an agent, employee or representative of the Company, and Consultant shall perform the Services hereunder as an independent contractor. Consultant agrees to furnish all materials necessary to accomplish the Services under this contract, and shall incur all expenses associated with performance, except as otherwise expressly provided in this Agreement, including without limitation as provided on Exhibit A of this Agreement. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received by Consultant pursuant to this Agreement, and Consultant agrees to and acknowledges the obligation to pay all applicable taxes thereon.
| 11. | WARRANTY |
Consultant warrants that: (i) the Services will be performed in a professional and workmanlike manner and in accordance with the specifications established pursuant to this Agreement; (ii) all work under this Agreement shall be Consultant’s original work and none of the Services or Inventions will infringe, misappropriate or violate any intellectual property or other right of any person or entity, unless the same is performed by or at the express direction of the Company and following such direction causes any such infringement or violation (in which case Consultant is not liable); and (iii) Consultant has the full right to allow it to provide the Services to Company.
| 12. | INDEMNITY |
(a) Consultant will indemnify and hold harmless Company and its agents and employees from and against any and all third party suits, actions and claims caused by (i) a breach of this Agreement by Consultant, or (ii) the negligence or willful misconduct of Consultant, or its agents or employees.
(b) Company will indemnify and hold harmless Consultant and its agents and employees from and against any and all third party suits, actions and claims caused by (i) a breach of this Agreement by Company, or (ii) the negligence or willful misconduct of Company, or its agents or employees.
(c) Nothing in this Agreement will be interpreted as requiring Consultant to indemnify Company for any claims resulting solely from the negligent acts of Company, or any of its agents, representatives or employees.
| 13. | LIMIT OF LIABILITY |
Consultant will not be liable for non-performance or other breach of this Agreement caused by acts or any impediment beyond Consultant’s control, including without limitation work stoppages, employee shortages, acts of war or terrorism, plague, epidemic, pandemic, or any other public health crisis, act of authority by, and/or compliance with, any law or governmental order, rule, regulation or direction or restriction, any natural disaster, fire, flood or other acts of God, or delays or failures in equipment, access, utilities, communications systems and related matters. NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY OR ITS AGENTS, REPRESENTATIVES OR EMPLOYEES, IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, FOR ANY SPECIAL, PUNITIVE, CONSEQUENTIAL OR INDIRECT DAMAGES. IN ADDITION, CONSULTANT’S TOTAL AGGREGATE LIABILITY FOR ANY AND ALL CLAIMS WHATSOEVER IN NATURE IS LIMITED TO THE AMOUNT PAID AS THE FEES FOR THE SERVICES UNDER THIS AGREEMENT IN THE SIX (6) MONTHS PRIOR TO ANY SUCH LIABILITY BEING INCURRED.
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| 14. | ARBITRATION AND EQUITABLE RELIEF |
(a) Except as provided in Section 14(b) below, Company and Consultant agree that any dispute or controversy arising out of or relating to any interpretation, construction, performance or breach of this Agreement shall be settled by arbitration to be held in Santa Clara County, California, in accordance with the rules then in effect of the American Arbitration Association (“AAA”). The arbitration shall be conducted by a single arbitrator. AAA shall provide the parties with a list of at least three (3) neutral arbitrators from which the parties shall select the arbitrator. Should the parties fail to agree upon and select an arbitrator therefrom, AAA shall make the selection from said list. Each party shall, however, be given the right of one (1) peremptory challenge. The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court of competent jurisdiction. The Company and Consultant shall each pay one-half of the costs and expenses of such arbitration, and each shall separately pay its respective counsel fees and expenses. In no event shall the demand for arbitration be made after the date that institution of legal or equitable proceedings based upon such claim, dispute or other matter would be barred by the applicable statute of limitations.
(b) Consultant agrees that it would be impossible or inadequate to measure and calculate the Company's damages from any breach of the covenants set forth in Section 4 (Confidentiality) or 5 (Ownership) herein. Accordingly, Consultant agrees that if Consultant breaches Sections 4 or 5, the Company will have available, in addition to any other right or remedy available, the right to obtain from any court of competent jurisdiction an injunction restraining such breach or threatened breach and specific performance of any such provision. Consultant further agrees that no bond or other security shall be required in obtaining such equitable relief and Consultant hereby consents to the issuances of such injunction and to the ordering of such specific performance.
| 15. | GOVERNING LAW |
This Agreement shall be governed by the laws of the State of California, without regard to its choice of laws principles.
| 16. | ENTIRE AGREEMENT; WAIVER; AMENDMENT |
This Agreement is the entire agreement of the parties and supersedes any prior agreements between them with respect to the subject matter hereof. A waiver by either Party of a breach of any provision of this Agreement will not operate or be construed as a waiver or estoppel of any subsequent breach. No waiver will be valid unless in writing and signed by an authorized officer of such party providing the waiver. No amendment to this Agreement will be valid unless in writing and signed by an authorized officer of both parties.
| 17. | NOTICE |
Any such notice required or to be given hereunder shall be addressed to the other party at the address shown below or such other address as either party may notify the other of and shall be deemed given upon delivery if personally delivered, or forty-eight (48) hours after deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested. Email delivery is also acceptable for purposes of notice.
| 18. | SEVERABILITY |
If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability will not invalidate this Agreement as a whole, but this Agreement will be construed as though it did not contain the particular provision or provisions held to be invalid or unenforceable, and the rights and obligations of the Parties will be construed and enforced only to such extent as permitted by law.
| 19. | COUNTERPARTS |
This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above.
Signature page to follow
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Signature page to Contract
| COMPANY: Emerald Health Pharmaceuticals Inc. | ||
| By: | ||
| Punit Dhillon, Secretary | ||
| 5910 Pacific Center Blvd., #320 | ||
| San Diego, CA 92121 | ||
| Phone: 858-361-6259 | ||
| Email: pdhillon@emeraldpharma.com | ||
| CONSULTANT: Kranz & Associates Holdings, LLC | |
| Daryl Dobrenz, CEO | |
| 655 Montgomery Street Suite 1200 | |
| San Francisco, CA 94111 | |
| Phone: 650-854-4400 |
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EXHIBIT A
SERVICES AND COMPENSATION
| 1. | Contact. | Consultant's principal Company contact: | |
| Name: | Punit Dhillon | ||
| Title: | Acting Principal Executive Officer | ||
| 2. | Services. | Consultant will render or have rendered to Company the following Services: |
Perform financial and administrative affairs as requested by Company. All Services will include billable hours from a Consultant Controller, Vice President of Finance or CFO to review staff work for completeness and compliance. The reviews will be performed as necessary, depending on the scope of the client engagement. This review time will be billed at the Staff Rate performing the monthly or quarterly review.
| 3. | Compensation. |
| (a) | Company shall reimburse Consultant for all reasonable expenses incurred by Consultant in performing Services pursuant to this Agreement with prior approval of Company. If free onsite parking is not available, Company will reimburse the Consultant for all reasonable parking expense. |
| (b) | Consultant’s Personnel will bill at the following hourly Staff Rates: |
| Practice Leader | $ | 450 | ||
| Premium Services (IPO, M&A, other special Projects) | $ | 400-$450 | ||
| Signing CFO | $ | 550 | ||
| CFO * | $ | 375 | ||
| VP of Finance | $ | 275 | ||
| VP of Accounting | $ | 275 | ||
| Controller | $ | 240 | ||
| Assistant Controller | $ | 220 | ||
| Sr. Accounting Manager | $ | 185 | ||
| Accounting Manager | $ | 170 | ||
| Jr. Accounting Manager | $ | 150 | ||
| Sr. Accountant | $ | 135 | ||
| Accountant | $ | 120 | ||
| Staff Accountant | $ | 96 | ||
| Director, Stock Administration | $ | 195 | ||
| Stock Administrator | $ | 180 | ||
| Practice Leader, Technical Accounting | $ | 450 | ||
| Managing Director of Technical Accounting | $ | 375 | ||
| Sr. Director of Technical Accounting | $ | 325 | ||
| Sr. Director of Technical Accounting, Level 2 | $ | 300 | ||
| Director of Technical Accounting | $ | 285 | ||
| Sr. Manager of Technical Accounting | $ | 220 | ||
| Manager of Technical Accounting | $ | 195 | ||
| NetSuite Solutions Architect | $ | 260 | ||
| Sr. NetSuite Consultant | $ | 225 |
| * | Consultant Personnel will not exceed 5 hours per week unless agreed to in writing by the Company. |
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| (c) | Kranz utilizes FloQast Financial Close Management software to streamline and manage the close process for its clients. FloQast will integrate (“Client’s") existing accounting system and cloud storage to FloQast, and all data is owned by (“Client"). |
By signing this agreement (“Client") agrees to use Kranz’s outsourced accounting services with FloQast, and as a Kranz client, (“Client") will be charged a Technology Fee of $195 per seat per month. A minimum of 2 seats is required (1 each for client and Kranz), with the number of additional seats determined once the Kranz Outsourced Accounting team is fully deployed.
In the event that the professional services described in this Agreement are no longer utilized by (“Client"), the continued use by (“Client") of FloQast and/or any other technologies covered by the monthly Technology fee will require a specific license by and between (“Client") and FloQast and/or any other application providers.
| (d) | Consultant Personnel can be either full time salary or flexible hourly employees. Hourly Consultant Personnel are non-exempt, and as such, are paid overtime when working over eight hours in a day, and/or forty hours per week, or double-time if working over 12 hours in a day, or over 8 hours on the seventh day of working in a row. This usually occurs if the hourly Consultant is requested by the client or due to an unusual workload to work overtime and needs to work more than the agreed upon weekly allotted time scheduled for the Company during a week. When the additional requested or needed time creates an overtime situation for the Consultant Personnel, the Company will be charged at 1.5 times the billing rate of that hourly Consultant Personnel for the extra hours over 8 hours in a day, and/or double time is charged at 2 times the normal rate. Hourly Consultant Personnel must get pre-approval from the Company before working any overtime hours. |
| (e) | The Company agrees not to compensate either Consultant or any Consultant Personnel with any other compensation or equity, other than outlined in this Agreement. |
| (f) | In accordance with section 2(b) of this contract, and to comply with Section 547(c) of the Bankruptcy Code, Consultant must require a deposit in advance of 90 days to avoid preferential payments subject to a 90 day clawback of any payments paid by the “Company” filing bankruptcy. As such, Consultant requires a deposit equivalent to one month’s billing to perform work when it is possible for a Company to run out of operating cash during the next 90 days. |
| (g) | Due to the investment Consultant makes to hire and retain its staff in terms of recruiting, benefits, training, and the fact that transitions disrupt other clients who share this staff, Consultant will charge a placement fee to Company that is higher than if Company engaged Consultant to hire a non-Consultant Personnel where Consultant simply sources, screens and presents candidates for Company to hire and train as needed. Should the Company, its employees, recruiters or affiliates, directly or indirectly, hire, engage or otherwise retain the services of any of the individual Consultant Personnel provided by Consultant to the Company under this Agreement, part time or full time, salaried or hourly, as an employee or contractor, or as a consultant provided by a different agency, or by subcontractors or agents of Contractor who provide outsource Services, at any time during the term such particular individual Consultant Personnel is providing any of the Services under this Agreement for the Company and for the 12 months following the cessation of such particular individual Consultant Personnel providing any of the Services for the Company under this Agreement, then the Company shall pay Consultant a one-time placement fee equal to 50% of the individual Consultant Personnel’s Full Time annualized fee, which is calculated as 2080 hours times the Consultant’s hourly billing rate specified in the Agreement. |
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| COMPANY: Emerald Health Pharmaceuticals Inc. | ||
| By: | ||
| Punit Dhillon, Secretary | ||
| 5910 Pacific Center Blvd., #320 | ||
| San Diego, CA 92121 | ||
| Phone: 858-361-6259 | ||
| Email: pdhillon@emeraldpharma.com | ||
| CONSULTANT: Kranz & Associates Holdings, LLC | |
| Daryl Dobrenz, CEO | |
| 655 Montgomery Street Suite 1200 | |
| San Francisco, CA 94111 | |
| Phone: 650-854-4400 |
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Exhibit 6.20