Item 1.
Business
General
EPHS Holdings, Inc. (EPHS or the Company) was incorporated under the laws of the State of Nevada on January 28, 1999 under the name Quantum Bit Induction Technology, Inc. On November 14, 2011, the Company filed Amended and Restated Articles of Incorporation changing its name to Quantumbit, Inc. On September 26, 2013, the Company filed a Certificate of Amendment changing its name to Sertant, Inc. On January 11, 2018, the Company filed a Certificate of Amendment with the Nevada Secretary of State changing its name to EPHS Holdings, Inc.
The Companys original plan was to build and use technology to mine gold, platinum, precious metals and rare earth metals in situ from seawater and from slurries created from land-based ores. The Companys property was located in Nevada. The Company also explored developing technology to selectively electroplate precious and rare earth metals from solution or seawater onto collector electrodes. These endeavors were not successful, and the Company has since elected to cease operations with respect to these endeavors.
With no operations, the Company was placed into receivership on February 15, 2017 (Case No. 2017-10544, as filed in the District Court of Harris County, Texas, 151
st
Judicial District) and remained in receivership until December 2017. In July 2017, the court appointed Angela Collette as exclusive receiver over the Company. Angela Collette was also appointed as the Companys president. In February 2017, one of the Companys shareholders sued the Company for breach of fiduciary duties of care, loyalty and good faith to the Companys shareholders. In September 2017, the Company entered into an agreement with the shareholder and the receiver to resolve the legal claim by issuing 4,750,000 shares of common stock to the shareholder.
On December 28, 2017, the Company issued to EPHS, Inc., a Florida corporation, 75,000,000 shares of the Companys common stock for $110,000 which represented approximately 62% of the Companys issued and outstanding shares of common stock.
The Company sought to effect a merger, exchange of capital stock, asset acquisition or other similar business combination (a Business Combination) with an operating or development stage business (the Target Business) which desired to utilize the Companys status as a reporting corporation under the Exchange Act. In furtherance thereof, the Company signed a Letter of Intent to acquire all of the issued and outstanding shares of common stock of Emerald Plants Health Source, Inc., a Quebec corporation (Emerald). Emerald was a Canada based company engaged in the cultivation of cannabis. On February 27, 2018, pursuant to the terms of a Share Exchange Agreement (the Emerald Agreement), we acquired all of the issued and outstanding shares of common stock of Emerald and Emerald became a wholly owned subsidiary of the Company.
Pursuant to the terms and conditions of the Emerald Agreement, executed between the Company and the shareholders of Emerald, we acquired all of the issued and outstanding shares of common stock of Emerald in exchange for the issuance of 20,000,000 restricted shares of the Companys common stock, which at the time,
represented approximately 14% of the then issued and outstanding common stock of EPHS Holdings. Paolo Gervasi and Calogero Caruso were the sole shareholders of Emerald and received a total of 14,000,000 shares of our common stock. The remaining 6,000,000 shares were issued to consultants, including 1,250,000 shares to our president, Gianfranco John Bentivoglio for services rendered as part of the negotiations of the Emerald Agreement. The transaction closed on February 27, 2018.
As a result of the transactions affected by the Emerald Agreement, Emerald became a wholly owned subsidiary of EPHS Holdings. Emerald is a development stage company with limited operations. Emeralds business plan is to cultivate and distribute cannabis entirely within Canada. With the acquisition of Emerald, the Company will be dependent on Mr. Gervasi and Mr. Caruso to continue managing the operations of Emerald. At this time, we have no employment agreements with either, and there can be no assurance that they will remain with the Company.
1
2018 Developments
On September 27, 2018, we entered into a binding Letter of Intent (the
“
LOI
”
) with Merritt Valley
Cannabis Corp. (
“
MVC
”
), a Canadian corporation engaged in providing low cost energy, project plans, intellectual
property and proprietary business plans for the cannabis industry. The LOI contemplated that the Company would
purchase all of the issued and outstanding shares of MVC in consideration for new issuance of 8,100,000 shares of
the Company
’
s common stock.
On November 6, 2018, the Company executed a Share Exchange Agreement (the
“
MVC Agreement
”
) with MVC and its shareholders (the
“
MVC Shareholders
”
) whereby MVC Shareholders agreed to exchange all of their respective shares in MVC in
consideration for 8,100,000 shares of EPHS common stock, with a par value of $0.001 per share (the
“
MVC
Transaction
”
).
On January 11, 2019, the Company and MVC completed the MVC Agreement.
On February 7, 2019, in connection with the MVC Transaction, the Company completed the purchase of lands located in Merritt, British Columbia, Canada, with the purpose of cultivating cannabis.
Business Operations and Segments
We currently have no operations and only nominal cash for ongoing business operations. We may experience illiquidity and may be dependent on our management and shareholders to provide funds to maintain our activities. However, there is no assurance that our management and shareholders will be continued to fund our operations. We have no commitment for either additional debt or equity funding from any source.
On October 12, 2018 the Company received approval for its commercial cultivation license, identified as a license
for Access to Cannabis for Medical Purposes Regulation (
“
ACMPR
”
), from Health Canada. Now, the Company
can produce products for medicinal use, such as, licensed products, dried or fresh cannabis, cannabis oil, starting
materials and plants.
Until the time that the Company can begin commercial operations, the Company will continue to rely on its existing cash reserves and additional funding from management and shareholders. The Company plans to seek additional debt and equity financing to fund its operations.
Presently, the Company has five full-time employees. Paolo Gervasi and Calogero Caruso became employees of the Company after the Companys acquisition of Emerald. On November 6, 2018, Stevan Perry became the President of the Company. On November 20, 2018, Stuart R. Ross became the Companys Chief Financial Officer. Gianfranco John Bentivoglio is the Companys Chief Executive. None of the Companys five employees collects a salary at this time. In the next twelve months, assuming the commencement of commercial operations, we expect to engage approximately 15 full-time employees and 10 temporary or part-time employees. The Company also anticipates entering into employment agreements with Messrs. Bentivoglio, Gervasi and Caruso in the near future.
Emerald
Emerald is the Companys sole operating subsidiary. Emerald is based in Quebec, Canada and conducts its operations entirely within Canada. On October 12, 2018, the Company received approval for its commercial cultivation licenses, identified as a license for ACMPR from Health Canada.
Having obtained its ACMPR, Emerald is now required to apply for an additional sales license. In applying for a sales license for cannabis, Emerald has submitted its first two cannabis crops to Health Canada for inspection. The inspection will examine the cannabis for contaminants and environmental control. Once the license is granted, Emerald be able to sell cannabis to licensed distributors throughout Canada. While Emerald has not yet entered into any definitive agreements or other arrangements with licensed distributors, Emerald plans to only sell to distributors who will distribute its cannabis solely within Canada.
On February 5, 2019 the Company entered into a Memorandum of Understanding with Pure Global Cannabis Inc. (Pure) which will be followed by a Wholesale Supply Agreement (Wholesale Agreement) to provide 1,000 kilograms of Cannabis Flower over a 14 month period, beginning July 2019.
2
Regulatory Matters
Commercial Cultivation of Cannabis
:
In order to become licensed in Canada and the province of Quebec to grow and sell cannabis, licensed commercial cannabis companies must:
·
Maintain their license in good standing;
·
Establish personnel security measures;
·
Comply with and implement good production practices;
·
Comply with packaging, shipping, labeling, import and export requirements, and record-keeping requirements; and
·
Comply with client registration and ordering requirements.
Labeling, testing and notice requirements for cannabis products include the following:
·
Cannabis oil must include the carrier oil used for cannabis oil in dosage form, it must include the number of capsules or units in the container, the net weight, and the volume of each capsule or unit;
·
Fresh and dried marijuana must include the percentage of THC and CBD that could be yielded, taking into account the potential to convert THC-Acid and CBD-Acid into THC and CBD;
·
The accuracy of weight and volume of products in packages must be between 95% and 105%;
·
All analytical testing required to be done using validated methods (e.g., contaminants, disintegration, and solvent residue testing) and requiring disintegration testing for cannabis oil in capsules or similar dosage forms; and
·
Notification to the Minister of Health required prior to commencing a recall.
Government Regulation of Cannabis
The use of marijuana for medical purposes in Canada is governed by the Marijuana for Medical Purposes Regulations (the MMPR). The MMPR deals exclusively with the medical use of marijuana and does not address the issue of legalizing marijuana for general use.
The Canadian government does not endorse the use of marijuana, but the courts have required reasonable access to a legal source of marijuana when authorized by a physician. In July 2018 the Canadian Government passed a bill in Parliament that legalized marijuana for personal use and revised the licensing requirements for producers that required them to obtain an ACMPR, the Company was granted that license on October 12, 2018. This allows the production of marijuana for medical and personal use.
MMPR also sets forth the requirements for licensed producers of medical marijuana. These regulations include:
·
Physical security measures;
·
Good production practices;
·
Packaging, labeling and shipping requirements;
·
Import and export permit, if applicable; and
·
Security clearance.
Physical Security Measures
Production sites need to be located indoors, and not in a private dwelling. The MMPR sets out physical security requirements that are necessary to secure sites where licensed producers may conduct activities with marijuana other than storage. Health Canada has established security requirements for the storage of all controlled substances including dried marijuana by licensed producers. All ACMPR license holders must demonstrate to Health Canada that they meet these security requirements. Licensed producer sites are subject to compliance and enforcement measures, including regular audits and inspections by Health Canada.
Good Production Practices
Licensed producers are subject to Good Production Practices that are meant, among other things, to ensure the cleanliness of the premises and equipment. The licensed producer is required to employ a quality assurance person with appropriate training, experience, and technical knowledge to approve the quality of dried marijuana prior to making it available for sale. The purpose of such tests, is to ensure that dried marijuana is of proper quality and free of any microbial and/or chemical contaminants.
3
Furthermore, licensed producers must meet, but are not limited to, the following MMPR requirements associated with Good Production Practices:
·
Sanitation program;
·
Standard operating procedures; and
·
Establishment of a recall system.
Packaging, Labeling and Shipping
–
Consumer Information
Dried marijuana must be packaged in a tamper-evident and child-resistant container and contain standard information about the product (including but not limited to, the weight in grams and the packaging date). In addition, all licensed producers are required to attach a client-specific label, similar to a patient-specific prescription drug label, to the package of dried marijuana.
As described above, labeling, testing and notice requirements for cannabis products will include the following:
·
Cannabis oil must include the carrier oil used for cannabis oil in dosage form, it must include the number of capsules or units in the container, the net weight, and the volume of each capsule or unit;
·
Fresh and dried marijuana must include the percentage of THC and CBD that could be yielded, taking into the account the potential to convert THC-Acid and CBD-Acid into THC and CBD;
·
The accuracy of weight and volume of products in packages must be between 95% and 105%;
·
All analytical testing required to be done using validated methods (e.g., contaminants, disintegration, and solvent residue testing) and requiring disintegration testing for cannabis oil in capsules or similar dosage forms; and
·
Notification to the Minister of Health required prior to commencing a recall.
Import and Export Permit
A licensed producer must obtain a permit from the Minister of Health prior to importing or exporting marijuana. At this time, the Company has no plans to export marijuana.
Security Clearance
The following individuals are required to have a valid security clearance under the
MMPR:
·
The applicant (if an individual);
·
All officers and directors of a corporate applicant;
·
The proposed Senior Person in Charge (as defined in the MMPR);
·
The proposed Responsible Person in Charge (as defined in the MMPR); and
·
The proposed Alternate Person(s) in Charge (as defined in the MMPR).
In addition to compliance with statutory guidelines prescribed at the federal level, controlled substances are also subject to regulation at the provincial level. Though provincial-controlled substances laws often mirror federal law, because the provinces are separate jurisdictions, they may separately schedule any product candidates as well. While some Canadian provinces automatically schedule a drug based on federal action, other provinces schedule drugs through rulemaking or a legislative action. Provincial scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product.
Competition
The Company competes for market share with other companies, including other producers licensed by Health Canada, which have longer operating histories and more financial resources, manufacturing and marketing experience than us. There are currently hundreds of applications for licensed producer status (Licensed Producer) being processed by Health Canada. The number of licenses granted and the number of Licensed Producers ultimately authorized by Health Canada could have an adverse impact on our ability to compete for market share in Canadas medical cannabis industry. The Company expects to face additional competition from new market entrants that are granted licenses under the ACMPR, New Cannabis Act, or existing license holders that are not yet active in the industry.
4
Seasonality
Not Applicable
Employees
Presently, the Company has five full-time equivalent employees. Employees are not represented by any collective bargaining group. See
Business Operations and Segments
in Item 1 for more details.
Federal, State and Provincial Taxation
The Company is charged between 12-15% sales tax on all taxable purchases. The rates are a blend of Canadian Federal and Provincial (Quebec and British Columbia) taxes. The Company is reimbursed for all Federal sales taxes paid to suppliers. The Company does not charge sales taxes on supplies or products as it has no revenues.
The Company and its subsidiaries are subject to Federal, State, and Provincial Income Taxes. The Company accounts for income taxes in accordance with ASC 740 Income Taxes, which requires that the Company recognized deferred tax liabilities and assets based on the difference between the financial statement carrying amount and the tax bases of assets and liability, using enacted tax rates in effect in the years the differences are expected to reverse.
The Company is charged Municipal taxes on the property it owns in British Columbia, through its subsidiary, MVC.
Available Information
We electronically file certain documents with the U.S. Securities and Exchange Commission (SEC). We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (as appropriate), along with any related amendments and supplements thereto.
We also make available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, simultaneously with or as soon as reasonably practicable after filing such materials with, or furnishing such materials to, the SEC, and on our website www.ephsholdings.com. The information on our website, or information about us on any other website, is not incorporated by reference into this report.
Item 1A.
Risk Factors
We have no assets and no operations.
We have nominal assets and early stage operations. There can be no assurance that the operations of Emerald will be profitable. We will need to raise additional working capital. We have no commitment for funding and there can be no assurance that we will be able to secure additional debt or equity financing and, if obtained, will be available on terms acceptable to us.
It is possible investors may lose their entire investment.
Prospective investors should be aware that if we are not successful in our contemplated business activities, your entire investment in the Company could become worthless. Even if we are successful, in securing financing, there can be no assurances that we will generate sufficient revenues to continue operations.
Emerald has no proven ability to generate revenues, and any investment in our company is risky.
Neither the Company nor Emerald has a meaningful operating history so it will be difficult for you to evaluate an investment in our stock. We cannot assure that we will generate revenues or be profitable. As a result, investors will bear the risk of complete loss of their investment in the event we are not successful.
5
Our auditors have raised substantial doubt about the Companys ability to continue as a going concern.
As of December 31, 2018, the Company had an accumulated deficit of $1,269,027. As a result, our independent public accounting firm has expressed substantial doubt about the Companys ability to continue as a going concern. The Company is dependent upon its ability to secure additional financing and generate sufficient cash flows to meet its obligations on a timely basis.
We need to raise additional capital to fund our operations.
We do not currently have sufficient capital to fund our current or anticipated operations. We may be unable to obtain additional capital when required. Future business development activities, as well as our administrative requirements (such as salaries, insurance expenses and general overhead expenses, as well as legal compliance costs and accounting expenses) will require a substantial amount of additional capital and cash flow.
We may pursue sources of additional capital through various financing transactions or arrangements, including joint venture projects, debt financing, equity financing or other means. We may not be successful in identifying suitable financing transactions in the time period required, or at all, and we may not be able to obtain the capital we require by other means. If we do not succeed in raising additional capital, we will not be able to implement our business plan.
Any additional capital raised through the sale of equity may dilute the ownership percentage of our stockholders. Raising any such capital could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to our new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect.
Our ability to obtain financing may be impaired by factors such as the capital markets (both generally and in our industry in particular), our limited operating history, national unemployment rates and the departure of key employees. Further, economic downturns will likely decrease our revenues and may increase our requirements for capital. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, if any, is not sufficient to satisfy our capital needs (even to the extent that we reduce our operations), we may be required to cease our operations, divest our assets at unattractive prices or obtain financing on unattractive terms.
Emerald and MVC are based outside of the United States which may have an adverse impact on U.S. investors.
Our principal operating subsidiaries, Emerald and MVC, are Canadian corporations. As a result, U.S. investors may be limited in their ability to enforce a judgement obtained in U.S. courts against Emerald or any of its officers and directors located outside of the United States.
We may not be able to operate our business successfully or generate sufficient cash flows to meet our operational requirements
The Companys success will depend on the ability of its Emerald subsidiary to generate sufficient cash flow to meet the Companys operational requirements. If the Company, through its Emerald subsidiary is unable to do so, we may not be able to implement our business strategy. There is no commitment for additional equity or debt financing. Even if we were to obtain funding, there can be no assurance that it will be available on terms acceptable to the Company.
Our business will be adversely affected if we are not able to establish and develop an effective work force.
A significant component to our growth strategy is attracting and retaining qualified, creative, innovative and experienced personnel. Our business will be adversely affected if we were unable to succeed in developing an effective workforce. We currently do not employ a workforce capable of generating revenue. Our future success will also depend on our ability to attract, retain and motivate other highly skilled employees. Competition for personnel in our industry is intense. We may not be able to assimilate or retain highly qualified employees now or in the future. If we do not succeed in attracting new personnel or retaining and motivating our current personnel, our business will be adversely affected.
6
We will be subject to significant governmental regulations.
We will be subject to significant government regulation. Regulations such as compliance with Good Manufacturing Practices, evolving government regulations to the use, growing and distribution of cannabis may adversely impact our operating results. While we intend to comply with all government restrictions, there is no assurance that we will be able to comply with the ever changing rules and regulations impacting the cannabis industry.
Canada Health imposes substantial requirements on the production and distribution of cannabis. Compliance with these requirements can be costly. More stringent regulations could result in significant compliance costs. Delays in obtaining certifications and regulatory approvals could result in substantial legal and administrative expenses and additionally, conditions imposed in connection with such approvals. The cannabis business also may be affected by legislation and regulations imposing new or greater obligations related to, for example, assisting law enforcement, minimizing environmental impacts, protecting customer privacy, or addressing other issues that affect our business.
There will be competition in the Cannabis industry in Canada.
The cannabis market in Canada faces intense competition. Many of our competitors may be larger and have greater financial, technical, marketing and other resources than we do.
Our ability to compete may depend upon factors outside of our control.
We will encounter factors outside of our control which may inhibit our ability to successfully grow, market and sell cannabis throughout Canada. These factors may include:
·
Increased government regulation at both the federal and provincial level;
·
Changes in consumer behavior to use cannabis for either recreational or medical purposes;
·
Price fluctuation in cannabis;
·
Natural disasters which may damage our facility; and
·
The strength of the economy.
In order to remain competitive, we must have the ability to respond promptly and efficiently to the ever-changing marketplace. We will have to adapt by revamping our own strategies and tactics to adequately respond in changing competitive business climates.
There is currently a limited market for our common stock.
There is currently a limited market for our common stock. We do not expect that a market will develop in the foreseeable future. The lack of a market may impair the ability to sell shares at the time investors wish to sell them or at a price considered to be reasonable. In the event that a market develops, we expect that it would be extremely volatile.
We do not anticipate paying dividends on our common stock.
A dividend has never been declared or paid in cash on our common stock. We do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares. We cannot assure stockholders of a positive return on their investment when they sell their shares nor can we assure that stockholders will not lose the entire amount of their investment.
Our management and shareholders may influence matters to be voted on and his interests may differ from, or be adverse to the interests of other stockholders.
The Companys management controls a majority of our outstanding common stock. Accordingly, the Companys management possesses significant influence over the Company on matters submitted to the stockholders for approval, including the election of directors, mergers, consolidations, the sale of all or substantially all our assets, and also the power to prevent or cause a change in control. This amount of control gives them substantial ability to determine the future of our Company, and as such, they may elect to close the business, change the business plan or make any number of other major business decisions without the approval of shareholders. The interest of the management may differ from the interests of our other stockholders and could therefore result in corporate decisions that are averse to other stockholders.
7
Legislation, including the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract officers and directors.
We may be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of rules and regulations which govern publicly-held companies. The Sarbanes-Oxley Act has resulted in a series of rules and regulations that increase responsibilities and liabilities of directors and executive officers. We are a small company with a limited operating history and no revenues. This may influence the decisions of potential candidates we may recruit as directors or officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles.
Item 1B.