ITEM
1. FINANCIAL STATEMENTS
The
Financial Statements of the Company are prepared as of June 30, 2018.
FRÉLII,
INC. (FORMERLY VICAN RESOURCES, INC.)
BALANCE
SHEETS
(Expressed
in US dollars)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,483
|
|
|
$
|
-
|
|
Account receivable
|
|
|
3,291
|
|
|
|
-
|
|
Note receivable
|
|
|
24,124
|
|
|
|
340,640
|
|
Interest receivable
|
|
|
578
|
|
|
|
14,466
|
|
Total current assets
|
|
|
78,476
|
|
|
|
355,106
|
|
Software, less accumulated amortization of $20,966 at June 30, 2018
|
|
|
213,409
|
|
|
|
-
|
|
Total assets
|
|
$
|
291,885
|
|
|
$
|
355,106
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
9,550
|
|
|
$
|
3,339
|
|
Accrued salaries and related expense
|
|
|
23,326
|
|
|
|
-
|
|
Settlement amount due former related party
|
|
|
126,654
|
|
|
|
-
|
|
Advances from former related parties
|
|
|
91,220
|
|
|
|
37,064
|
|
Total current liabilities
|
|
|
250,750
|
|
|
|
40,403
|
|
Total liabilities
|
|
|
250,750
|
|
|
|
40,403
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value; 20,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Series A Preferred Stock, $0.001 par value; 0 (December 31, 2017 - 100) shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common Stock, $0.001 par value; 2,000,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
Class B Common Stock, $0.001 par value; 36,911,107 (December 31, 2017 – 10,441,107) shares issued and outstanding
|
|
|
36,911
|
|
|
|
10,441
|
|
Additional paid in capital
|
|
|
6,177,206
|
|
|
|
3,430,239
|
|
Accumulated deficit
|
|
|
(6,172,982
|
)
|
|
|
(3,125,977
|
)
|
Total shareholders’ equity (deficit)
|
|
|
41,135
|
|
|
|
314,703
|
|
Total liabilities and shareholders’ equity (deficit)
|
|
$
|
291,885
|
|
|
$
|
355,106
|
|
See accompanying notes to the financial statements
FRÉLII, INC. (FORMERLY VICAN RESOURCES,
INC.)
STATEMENTS OF OPERATIONS
(Expressed in US dollars)
|
|
Three months
ended
June 30, 2018
|
|
|
Three months
ended
June 30, 2017
|
|
|
Six months
ended
June 30, 2018
|
|
|
Six months
ended
June 30, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenues
|
|
$
|
3,291
|
|
|
$
|
-
|
|
|
$
|
3,741
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation (including stock-based compensation of $1,750,000, $0, $2,351,562, and $0, respectively)
|
|
|
1,903,709
|
|
|
|
-
|
|
|
|
2,631,269
|
|
|
|
-
|
|
Settlement with former related party
|
|
|
133,320
|
|
|
|
-
|
|
|
|
133,320
|
|
|
|
-
|
|
Marketing and advertising
|
|
|
118,496
|
|
|
|
-
|
|
|
|
143,096
|
|
|
|
-
|
|
Professional fees
|
|
|
14,625
|
|
|
|
26,500
|
|
|
|
51,481
|
|
|
|
51,500
|
|
Amortization of software
|
|
|
11,719
|
|
|
|
-
|
|
|
|
20,966
|
|
|
|
-
|
|
Other
|
|
|
45,305
|
|
|
|
4,632
|
|
|
|
73,875
|
|
|
|
5,761
|
|
Total operating expenses
|
|
|
2,227,174
|
|
|
|
31,132
|
|
|
|
3,054,007
|
|
|
|
57,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,223,883
|
)
|
|
|
(31,132
|
)
|
|
|
(3,050,266
|
)
|
|
|
(57,261
|
)
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on cancellation of liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
671,585
|
|
Interest income on note receivable
|
|
|
578
|
|
|
|
4,384
|
|
|
|
3,261
|
|
|
|
4,384
|
|
Interest expense on notes payable
|
|
|
-
|
|
|
|
(25,933
|
)
|
|
|
-
|
|
|
|
(47,482
|
)
|
Accretion expense
|
|
|
-
|
|
|
|
(63,830
|
)
|
|
|
-
|
|
|
|
(63,830
|
)
|
Change in fair value of embedded derivative
|
|
|
-
|
|
|
|
80,802
|
|
|
|
-
|
|
|
|
80,802
|
|
Total other income (expenses) net
|
|
|
578
|
|
|
|
(4,577
|
)
|
|
|
3,261
|
|
|
|
645,459
|
|
Income (loss) before taxes
|
|
|
(2,223,305
|
)
|
|
|
(35,709
|
)
|
|
|
(3,047,005
|
)
|
|
|
588,198
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) and comprehensive income (loss)
|
|
$
|
(2,223,305
|
)
|
|
$
|
(35,709
|
)
|
|
$
|
(3,047,005
|
)
|
|
$
|
588,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding – basic and diluted:
|
|
|
36,264,954
|
|
|
|
1,943,634
|
|
|
|
32,373,538
|
|
|
|
1,943,634
|
|
See accompanying notes to financial statements
FRÉLII,
INC. (FORMERLY VICAN RESOURCES, INC.)
STATEMENTS
OF CASH FLOWS
(Expressed
in US dollars)
|
|
Six months
ended
June 30, 2018
|
|
|
Six months
ended
June 30, 2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,047,005
|
)
|
|
$
|
588,198
|
|
Adjustments to reconcile net income (loss) to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
2,351,562
|
|
|
|
-
|
|
Gain on cancellation of liabilities
|
|
|
-
|
|
|
|
(671,585
|
)
|
Amortization of software
|
|
|
20,966
|
|
|
|
-
|
|
Change in fair value of embedded derivative
|
|
|
-
|
|
|
|
(80,802
|
)
|
Accretion expense – debt discount on note payable
|
|
|
-
|
|
|
|
63,830
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Change in other account receivable
|
|
|
(3,291
|
)
|
|
|
-
|
|
Interest receivable
|
|
|
13,888
|
|
|
|
(4,384
|
)
|
Accounts payable and accrued liabilities
|
|
|
29,537
|
|
|
|
74,518
|
|
Settlement amount due former related party
|
|
|
126,654
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(507,689
|
)
|
|
|
(30,225
|
)
|
Cash flow from investing activities
|
|
|
|
|
|
|
|
|
Secured promissory note receivable
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
Collections of note receivable
|
|
|
316,516
|
|
|
|
-
|
|
Net cash provided by investing activities
|
|
|
316,516
|
|
|
|
(500,000
|
)
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
Sale of Class B Common Stock
|
|
|
187,500
|
|
|
|
-
|
|
Advances from former related parties
|
|
|
54,156
|
|
|
|
30,225
|
|
Proceeds from convertible note
|
|
|
-
|
|
|
|
500,000
|
|
Net cash provided by financing activities
|
|
|
241,656
|
|
|
|
530,225
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
50,483
|
|
|
|
-
|
|
Cash and cash equivalents, beginning of period
|
|
|
-
|
|
|
|
-
|
|
Cash and cash equivalents, end of period
|
|
$
|
50,483
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
13,888
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Issuance of shares of Class B Common Stock to various employees and consultants for services rendered
|
|
$
|
2,351,562
|
|
|
$
|
-
|
|
See
accompanying notes to the financial statements
FRéLII
,
INC. (FORMERLY VICAN RESOURCES, INC.)
NOTES
TO THE FINANCIAL STATEMENTS
THREE
AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(Expressed
in US dollars)
(Unaudited)
NOTE
1 — NATURE OF OPERATIONS
The
Company incorporated in the State of Nevada on September 5, 2002, under the name “Bayview Corporation.” On April 7,
2005, the Company changed its name to Xpention Genetics, Inc. concurrent with a change in its business to researching and developing
cancer treatment drugs. On September 17, 2008, the Company changed its name to Cancer Detection Corporation. On August 13, 2009,
the Company again changed its name to Tremont Fair, Inc. From July 2009 until May 2011, the Company operated as a real estate
services firm, seeking to capitalize on the real estate opportunities resulting from the dislocation in the credit markets, and
by extension, the multifamily housing market, by acquiring, rehabilitating, stabilizing and selling distressed multifamily properties
in the southern United States, predominantly in Texas. On May 26, 2011, the Company changed its name to Vican Resources, Inc.,
and changed its business model when it sold the real estate services division and acquired all of the outstanding shares of Vican
Trading, Inc., a Montreal-based purchaser and seller of metals, ores, and other commodities (hereafter, “Vican Trading”).
Upon the acquisition of Vican Trading, there was an implied option for either party to rescind the original acquisition. During
2011, that rescission option was exercised and on December 20, 2011, the Company again changed its business when it unwound the
acquisition of Vican Trading and acquired all of the assets of Med Ex Direct, Inc., a Florida-based provider of management services
in respect of the distribution of diabetic supplies, principally to Hispanic patients (hereafter, “Med Ex Florida”).
On March 22, 2012, the Company again changed its business to become an oil & gas exploration, development, and distribution
company, unwound the purchase of the assets of Med Ex Florida, and acquired an interest in two oil & gas wells located in
Jefferson County, Mississippi.
In
April 2017, the Company underwent a change of control whereby our current Chief Executive Officer Ian Jenkins acquired a controlling
interest in the Company’s capital stock and was appointed our sole officer and director. On April 11, 2017, the Company
executed a Share Exchange Agreement with Unprescribed, LLC, later amended to include Cornerstone Medical Center LLC, whereby the
Company, among other terms, agreed to exchange shares with the ownership units of those two entities for 25,000,000 shares of
the Company’s Class B Common Stock (no shares of Class A Common Stock are issued or outstanding, so the Class B Common Stock
is hereinafter referred to as the “Class B Common Stock” or the “Common Stock”). The Share Exchange Agreement,
as amended, terminated by its own terms on December 31, 2017. Following the termination of the Share Exchange Agreement, the Company
modified its business plan to acquire certain intellectual property assets and to engage a new management team to effectuate the
new business plan.
Effective
March 9, 2018, the Company changed its name to Frélii, Inc. The new business plan is to launch a web-based subscription
service providing personalized nutrition and wellness plans. The Company launched its website,
www.frelii.com
, in March
2018 beta testing a limited number of free users.
NOTE
2 — BASIS OF PRESENTATION OF UNAUDITED CONDENSED FINANCIAL INFORMATION
The
unaudited condensed financial statements of the Company for the three and six month periods ended June 30, 2018 and 2017 have
been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all
the information and footnotes required by accounting principles generally accepted in the United States of America for complete
financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments),
which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations.
Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance
sheet information as of December 31, 2017 was derived from the audited financial statements included in the Company’s financial
statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with
the Securities and Exchange Commission (the “SEC”). These financial statements should be read in conjunction with
that report.
Recently
Issued Accounting Pronouncements
Between
May 2014 and December 2016, the FASB issued several ASU’s on Revenue from Contracts with Customers (Topic 606). These updates
supersede nearly all existing revenue recognition guidance under current U.S. generally accepted accounting principles (GAAP)
and became effective for annual periods beginning after December 15, 2017 and interim periods therein. The core principle is to
recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to
which an entity expects to be entitled for those goods or services.
Adoption
of these updates in 2018 has not had any impact on our financial statements.
NOTE
3 - GOING CONCERN UNCERTAINTY
The
accompanying financial statements have been prepared as if the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained net losses which
have resulted in an accumulated deficit at June 30, 2018, and negative cash flows from operations, all of which raise substantial
doubt regarding the Company’s ability to continue as a going concern.
The
Company believes these conditions have resulted from the inherent risks associated with small companies. Such risks include, but
are not limited to, the ability to (i) generate revenues and sales of its products and services at levels sufficient to cover
its costs and provide a return for investors, (ii) attract additional capital in order to finance growth, (iii) further develop
and successfully market commercial products and services, and (iv) successfully compete with other comparable companies having
financial, production and marketing resources significantly greater than those of the Company.
On
April 5, 2017 (see Note 1), there was a change in control of the Company. We expect to be dependent on additional debt and equity
financing to develop our new business but we cannot assure you that any such financings will be available or will otherwise be
made on terms acceptable to us, or that our present shareholders might suffer substantial dilution as a result.
The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These
financial statements have been prepared on the basis that the Company will continue as a going concern, which presumes that it
will be able to realize its assets and discharge its liabilities in the normal course of business as they come due. These financial
statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance
sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a
going concern in the normal course of operations. Such adjustments could be material.
NOTE
4 – PROMISSORY NOTE RECEIVABLE FROM RELATED PARTY
On
April 11, 2017, pursuant to a Security Agreement dated April 11, 2017, the Company paid $495,000 to Cornerstone Medical Center
LLC (“Cornerstone”). In exchange, the Company received a $500,000 Secured Promissory Note from Cornerstone (the “Promissory
Note”), dated April 11, 2017. The Promissory Note bears interest at 4% per annum, or 18% in the event of a default under
the Promissory Note. The principal and interest was due on December 31, 2017. The Promissory Note is secured by all the assets
of Cornerstone.
The
principal balance of the promissory note changed in the six months ended June 30, 2018 as follows:
Balance of Cornerstone Note at December 31, 2017
|
|
$
|
340,640
|
|
Cornerstone payments to service providers relating to Frélii, Inc. business plan
|
|
|
(56,910
|
)
|
Cash payments received by Frélii, Inc.
|
|
|
(259,606
|
)
|
Balance at June 30, 2018
|
|
$
|
24,124
|
|
Cornerstone
is owned by Gregory Mongeon, who served as a former officer and director of the Company from January 17, 2018 to May 15, 2018.
NOTE
5 – SOFTWARE
At
June 30, 2018, software, net, consisted of:
Software and intellectual property acquired from Christopher Dean pursuant to Tech Assignment Agreement on January 18, 2018 in exchange for 7,500,000 shares of Class B Common Stock (see Note 7).
|
|
$
|
234,375
|
|
Accumulated amortization
|
|
|
(20,966
|
)
|
Net
|
|
$
|
213,409
|
|
On
January 23, 2018, the Company engaged Fish & Richardson LLP to handle intellectual property work such as patent and trademark
applications relating to the software.
The
acquired software is being amortized using the straight-line method over its estimated economic life of 5 years. Expected future
amortization expense for the acquired software as of June 30, 2018 follows:
Year ending
December 31,
|
|
|
Amount
|
|
2018
|
|
|
|
23,437
|
|
2019
|
|
|
|
46,875
|
|
2020
|
|
|
|
46,875
|
|
2021
|
|
|
|
46,875
|
|
2022
|
|
|
|
46,875
|
|
2023
|
|
|
|
2,472
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
213,409
|
|
NOTE
6 – SETTLEMENT AMOUNT DUE FORMER RELATED PARTY
On
June 1, 2017, the Company and Gregory Mongeon (see Note 4 above) executed a Separation and Release Agreement. The agreement provides
for the Company to make 20 monthly cash payments of $6,666 each to Mr. Mongeon from June 5, 2018 to January 5, 2020 (total of
$132,660). The agreement also provides for limits on future sales of 7,500,000 shares of Class B Common Stock owned by Mr. Mongeon.
At June 30, 2018, the remaining amount due Mr. Mongeon pursuant to the Separation and Release Agreement was $126,654.
NOTE
7 - ADVANCES FROM RELATED PARTIES
Advances
from related parties, which are all non-interest bearing and due on demand, consist of the following:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Kline Law Group P.C. and spouse of controlling person of Kline Law Group P.C.
|
|
$
|
91,220
|
|
|
$
|
37,064
|
|
Total
|
|
$
|
91,220
|
|
|
$
|
37,064
|
|
Kline
Law Group P.C. (“KLG”) is counsel to the Company and is controlled by Scott Kline. Julia Kline, wife of Scott Kline,
served as the Company’s Chief Operating Officer from January 19, 2018 to July 13, 2018. (See Note 8)
On
July 6, 2018 (see Note 9), the liability to KLG and the spouse of the controlling person of KLG was satisfied.
NOTE
8 - COMMON STOCK AND PREFERRED STOCK TRANSACTIONS
On
January 18, 2018, the Company entered into a technology assignment agreement (the “Tech Assignment Agreement”) whereby
the Company acquired certain intellectual property consisting of advanced computer programming software, source code, proprietary
designs, plans, processes, test procedures, and other technical data and information (the “Technology”) from Christopher
Dean in exchange for 7,500,000 shares of Class B Common Stock of the Company. Christopher Dean was the Chief Technology Officer
and a director of the Company from January 17, 2018 to March 27, 2018.
The
$234,375 estimated fair value of the 7,500,000 shares of Class B Common Stock was capitalized as software. As the trading market
of the Company’s Class B Common Stock was inactive, the fair value of the Class B Common Stock was based on the $0.03125
per share price derived from the $250,000 purchase price of the Exchange Note, which was converted to 8,000,000 shares of Class
B Common Stock on December 14, 2017.
On
January 19, 2018, the Company entered into employment agreements with Ian Jenkins (Chief Executive Officer and Chief Financial
Officer), Christopher Dean (former Chief Technology Officer), Dr. Gregory Mongeon (former Chief Medical Officer), Seth Jones (Chief
Marketing Officer), and Julia Kline (former Chief Operating Officer). The agreements all have a term of five years and provide
for annual base salaries totalling, in the aggregate, $400,000. All of the agreements may be terminated by the Company at any
time without cause by giving written notice to the
respective
employee for which termination is effective 30 days therefrom. On January 31, 2018, pursuant to the employment agreements, the
Company issued a total of 17,450,000 shares of Class B Common Stock of the Company to these five officers.
The
$545,312 estimated fair value of the 17,450,000 shares of Class B Common Stock using the 0.03125 per share price described in
the second preceding paragraph was expensed as compensation in the three months ended March 31, 2018.
On
January 21, 2018 and January 26, 2018, the Company’s Chief Executive Officer returned 100 shares of Series A Preferred Stock
and 1,830,000 shares of Class B Common Stock to the Company’s treasury that were cancelled by the Company.
On
January 31, 2018, the Company issued a total of 1,800,000 shares of Class B Common Stock of the Company to 6 service providers
(including 800,000 shares issued to two relatives of the Company’s Chief Executive Officer and 600,000 shares issued to
two independent directors of the Company) for services rendered.
The
$56,250 estimated fair value of the 1,800,000 shares of Class B Common Stock (using the $0.03125 per share as described in the
fifth preceding paragraph) was expensed as compensation in the three months ended March 31, 2018.
On
March 23, 2018, the Company sold 150,000 shares of Class B Common Stock to an investor at a price of $1.25 per share for $187,500
cash proceeds.
On
May 8, 2018, the Company issued 600,000 shares of Class B Common Stock of the Company to Dr. Hans Jenkins in connection with an
employment agreement signed between Dr. Jenkins and the Company on the same date. The $750,000 estimated fair value of the 600,000
shares of Class B Common Stock (based on the $1.25 per share price of the March 23, 2018 sale of 150,000 shares of Class B Common
Stock) was expensed as compensation in the three months ended June 30, 2018.
On
May 15, 2018, the Company issued a total of 800,000 shares of Class B Common Stock of the Company to 6 employees and consultants
for services rendered pursuant to the Company’s 2018 Incentive Stock Option Plan. The $1,000,000 estimated fair value of
the 800,000 shares of Class B Common Stock (based on the $1.25 per share price of the March 23, 2018 sale of 150,000 of Class
B Common Stock) was expensed as compensation in the three months ended June 30, 2018.
NOTE
9 - SUBSEQUENT EVENTS
On
July 6, 2018, the Company issued a total of 600,000 shares of Class B Common Stock to its two outside directors (300,000 shares
each) for services rendered.
On
July 6, 2018, the Company settled an outstanding debt of $91,220 for professional fees incurred and operating expenses paid on
behalf of the Company owed to Kline Law Group, P.C. and its principal Scott Kline. Mr. Kline and Kline Law Group agreed to waive
all outstanding amounts due as of July 6, 2018, in exchange for 1,000,000 Class B Common Stock shares.
On
July 13, 2018, Julia Kline resigned all her positions with the Company. Ms. Kline was appointed as the Company’s Chief Operating
Officer on January 17, 2018, and as Secretary on March 27, 2018.
On
July 20, 2018, the Company sold 100,000 shares of Class B Common Stock and a three-year warrant to purchase up to 100,000 shares
of Class B Common Stock at $1.50 per share to an investor for $125,000 cash proceeds, as previously disclosed in a Form 8-K filed
on August 2, 2018.
On
July 31, 2018, the Company entered into an Asset Purchase Agreement with Kingdom Life Sciences, LLC, a Utah limited liability
company (“KLS”), and its equity holders whereby the Company agreed to purchase certain assets of KLS in exchange for
payment of a liability of KLS in the amount of approximately $19,244 and 20,000 Class B Common Stock shares of the Company. The
transaction was previously approved by the Company’s Board of Directors (the “Board”) in a meeting held on May
15, 2018. As equity holders of KLS, Ian Jenkins, the Company’s Chief Executive Officer and a director, and Gregory Mongeon,
a former director and officer of the Company, both abstained from the Board vote approving the transaction. The foregoing transaction
was previously disclosed in a Form 8-K filed on August 3, 2018.
ITEM
2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special
Note Regarding Forward Looking Statements
This
Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”, contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, among others,
those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations,
predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees
of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially
from those anticipated, expressed or implied in the forward-looking statements. The words “believe”, “expect”,
“anticipate”, “project”, “targets”, “optimistic”, “intend”, “aim”,
“will” or similar expressions are intended to identify forward-looking statements. All statements other than statements
of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual
results to differ materially from those anticipated include risks related to our potential inability to raise additional capital;
changes in domestic and foreign laws, regulations and taxes; uncertainties related to China’s legal system and economic,
political and social events in China; Securities and Exchange Commission regulations which affect trading in the securities of
“penny stocks”; changes in economic conditions, including a general economic downturn or a downturn in the securities
markets; and any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K
for fiscal year ended December 31, 2016 and subsequent SEC filings. The Company assumes no obligation and does not intend to update
any forward-looking statements, except as required by law.
Overview
The
Company incorporated in Nevada September 5, 2002 as “Bayview Corporation.” Since 2002, the Company changed control
and its name and business plan numerous times. In April 2017, our current Chief Executive Officer acquired a controlling interest
in the Company, and in January 2018, the Company commenced its current operations, which consist of providing personalized health
and nutrition plans based on genetics and our artificial intelligence-driven computer algorithm. On March 9, 2018, the Company
changed its name to Frélii, Inc. and its ticker symbol to “FRLI” to coincide with its new business plan. Frélii’s
strategy is to provide direct to consumer affordable access to personalized health assessments and nutrition plans. The Company’s
web platform informs users about their health risks and identifies certain beauty and fitness-related genetic markers then generates
health, fitness and beauty protocols. Users who have previously purchased genetic health reports from 23andMe or Ancestry.com
can provide their login information or upload their raw genetic data and the Company’s technology will interpret that genetic
data and automatically adjust the protocol. The web platform’s tools include nutrition and fitness plans, nutritional supplement
recommendations, downloadable menus, recipes, and shopping lists, and virtual personal training. Users can also order nutritional
and vitamin supplements from the site’s premium health supplement marketplace. The Company plans to generate revenues through
user subscriptions, health genetic diagnostic kit purchases, and sales of nutritional supplements.
Overview
of Our Plan of Operations
The
Company’s core business strategy is to provide direct to consumer diet, beauty, and fitness assessments and nutrition plans
based on genetic data, physiology, environmental and lifestyle factors all on one web platform.
The
Company’s Web Platform
The
Company has developed a web-based platform at
www.frelii.com
that provides users personalized, DNA-based diet and nutrition
plans and identifies certain potential health risks. Users can input their raw genetic data by logging into their 23andMe profile
or uploading their Ancestry.com raw genetic data and the Company’s web platform analyzes that data using its artificial
intelligence-based algorithm. The Company’s mobile application, currently in development, is anticipated to launch to a
limited number of users during the third quarter 2018.
Technology
The
Company believes its advanced computer learning-based algorithm generates accurate and valuable insight about individual genetic
health risks, diet, fitness and beauty genetic markers and generates highly-personalized protocols based on that information.
Users
who have previously purchased their genetic reports from 23andMe or Ancestry.com can provide their login information or upload
their raw genetic data and the Company’s web platform can upload that data, allowing the algorithm to adjust the user’s
diet, fitness, beauty and nutritional supplement recommendations. Other features of the Company’s website are nutrition
and fitness plans, supplement recommendations, downloadable menus, recipes, and shopping lists, and virtual personal training.
During
third quarter 2018, the Company plans to offer for sale its own brand of genetic health testing kits, but currently has no written
agreements with any manufacturers of such tests.
Users
can currently order nutritional and vitamin supplements from the Company’s website. In the future, the Company plans to
generate revenues through user subscriptions, genetic health testing kit purchases, and nutritional supplements.
Management
Team
The
Company’s Board of Directors is comprised of various professionals in multiple areas of importance to the Company’s
business strategy:
|
●
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Alternative
Health Care – Chief Executive Officer and Chairman Ian Jenkins has over 10 years of experience as a senior executive
in the health and supplement industry, and an extensive background in physiology, technology startups, and supplement product
research and development; Director James Spallino has over 35 years of experience in the integrative medical and dental industry
as both an entrepreneur and consultant;
|
|
●
|
Medical
– Director and Chief Medical Officer Dr. Hans Jenkins is a board-certified physician specializing in preventive health
education, medical screenings, and recommending lifestyle modifications to acheive optimal health;
|
|
●
|
Digital
Technology – Director and primary technology consultant, Jayson Uffens, is a senior technology architect with over two
decades of executive experience at high-growth technology firms like GrubHub, Northrop Grumman, and GoDaddy;
|
|
●
|
Digital
Marketing – Chief Marketing Officer Seth Jones is a marketing strategist and digital media expert who has produced and
distributed digital content that has generated more than 4.5 million subscribers and over 915 million views on YouTube and
over 3.2 million subscribers and over a billion views on Facebook for an extreme sports and adventure video production company;
|
|
●
|
International
Trade – Director Tarek Mango has been involved in international trade and business development for over 20 years, and
has successfully consulted for, built, and introduced U.S. health care-related brands into Middle Eastern, Asian, and European
markets.
|
Marketing
Plans/Launch Schedule
In
March 2018, the Company launched beta testing on its website
www.frelii.com
, which offers web based subscriptions for DNA-based
personalized nutrition plans and health supplement recommendations. Following a beta test of less than 1000 users, management
decided to implement additional technology to improve functionality and user experience. The Company anticipates the completion
of its mobile application during third quarter 2018, and plans to launch its mobile application product to a limited number of
users to test functionality.
The
Company has planned a comprehensive digital marketing campaign that includes Facebook and Twitter ads, a social media affiliate
program, and other social media digital advertising conducted both directly, and through marketing consultants including Social5,
a Salt Lake City-based social media marketing firm.
Offices
The
Company’s executive offices are located at 2600 W. Executive Pkwy., Ste. 500, Lehi, UT 84043. Customers and investors can
also contact the Company by telephone at (833) 4FRELII.
Liquidity
and Capital Resources
As
of June 30, 2018, the Company’s primary source of liquidity consisted of $50,483 in cash and cash equivalents. Since inception,
the Company has financed its operations through a combination of short and long-term loans, and through the private placement
of its common stock.
The
Company has sustained significant net losses which have resulted in an accumulated deficit at June 30, 2018 of $6,172,982, and
is currently experiencing a shortfall in operating capital which raises doubt about the Company’s ability to continue as
a going concern.
The
Company is currently seeking to secure additional debt or equity capital to finance substantial business development initiatives,
including the next phase of our website product. However, there is presently no agreement in place that guarantees continued financing
for the Company and there can be no assurance that the Company can raise any additional funds, or that such funds will be available
on acceptable terms. Funds raised through future equity financing will likely dilute the Company’s current shareholders.
Lack of additional funds will materially affect the Company and its business, and may cause the Company to cease operations. Consequently,
shareholders could lose their entire investment in the Company.
Operations
for the six months ended June 30, 2018, were primarily funded through private placements of the Company’s common stock and
collections of a note receivable issued in April 2017.
Results
of Operations
For
the Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017.
Revenues
.
For the six months ended June 30, 2018 and 2017, revenues were $3,741 and $nil respectively.
Operating
expenses.
Our operating expenses primarily consisted of general and administrative expenses, such as audit and review fees,
transfer agent services, Edgar filing costs, employee salaries, consulting fees, and other professional services. Operating expenses
for the six months ended June 30, 2018 was $3,054,007 compared to $57,261 for the six months ended June 30, 2017. The increase
of $2,996,746 in operating expenses of was mainly due to a significant increase in compensation expenses, which includes salaries
paid to employees and consultants and stock-based compensation. Compensation for the three months ended June 30, 2018 includes
stock-based compensation issued to various employees and consultants of $1,750,000.
Other
Income (Expenses).
Other income for the six months ended June 30, 2018, was $3,261 compared with other income of $645,459
for the six months ended June 30, 2017. The decrease in other income was mainly due to a large gain on cancellation of liabilities
of $671,585 during the six months ended June 30, 2017. In 2018, the Company recognized interest income of $3,261. For the six
months ended June 30, 2017, the Company recognized interest expense of $47,482.
Net
loss.
Net loss for the six months ended June 30, 2018 was $3,047,005 compared to net income of $ 588,198 for the six months
ended June 30, 2017. The increase in net loss was a result of salaries, stock-based compensation, and expenses required to develop
the Company’s web platform and mobile application.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital
resources that is material to investors.
Personnel
The
Company has eight full-time employees, but utilizes other contract personnel to carry out its business. The Company utilizes contract
personnel on a continuous basis, primarily in connection with developing its website and mobile application and marketing its
products on social media.
Net
Cash Used in Operating Activities
During
the six months ended June 30, 2018, the Company had net cash used in operations of $507,689 compared with $30,225 for the six
months ended June 30, 2017. Net cash used in operations increased due to the Company commencing operations, incurring compensation
expenses related to developing its website, mobile application, and intellectual property assets, and marketing and advertising.
Net
Cash Provided by Financing Activities
During
the six months ended June 30, 2018, the Company had net cash provided by financing activities of $241,656 compared with $530,225
for the six months ended June 30, 2017. The decrease in net cash provided by financing activities is due to the Company raising
fewer proceeds through private placements of its common stock during 2018, than it raised through debt instruments during 2017.
Financial
instruments and risk factors
The
Company has exposure to liquidity risk and credit risk. The Company’s risk management objective is to preserve and redeploy
the existing resources as appropriate, ultimately to protect shareholder value. Risk management strategies, as discussed below,
are designed and implemented to ensure the Company’s risks and the related exposure are consistent with the business objectives
and risk tolerance.
Liquidity
Risk: Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company
manages its liquidity by ensuring that there is sufficient capital to meet short and long-term business requirements, after taking
into account cash requirements from operations and the Company’s holdings of cash and cash equivalents. The Company also
strives to maintain sufficient financial liquidity at all times in order to participate in investment opportunities as they arise,
as well as to withstand sudden adverse changes in economic circumstances.
Management
forecasts cash flows for its current and subsequent fiscal years to predict future financing requirements. Future requirements
may be met through a combination of credit and access to capital markets.
The
following are the maturities, excluding interest payments, reflecting undiscounted future cash disbursements of the Company’s
financial liabilities as of June 30, 2018:
|
|
2018
|
|
|
2019 and later
|
|
Accounts payable and accrued liabilities
|
|
$
|
32,876
|
|
|
$
|
-
|
|
Advances from related parties
|
|
|
91,220
|
|
|
|
-
|
|
Settlement amount due former related party
|
|
|
39,996
|
|
|
|
86,658
|
|
|
|
$
|
164,092
|
|
|
|
86,658
|
|
Credit
risk: Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations.
As
of June 30, 2018, the Company’s credit risk is primarily attributable to its promissory note receivable and interest receivable.
Credit risk is mitigated as the Company has security over the assets of the promissory note issuer.
Interest
rate risk: Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest
rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk.
The Company does not have significant interest rate risk.
Related
Party Transactions
In
January 2018, the Company entered into an employment agreement with an officer who is related to the controlling party of Kline
Law Group P.C. During the year ended December 31, 2017, and the six months ended June 30, 2018, the Kline Law Group incurred a
debt of $ 91,220 for professional services and corporate and administrative expenses paid on behalf of the Company. On July 6,
2018, Kline Law Group P.C. and its principal Scott Kline agreed to waive the foregoing debt in exchange for 1,000,000 Class B
Common Stock shares of the Company.
During
the year ended December 31, 2017, Cornerstone Medical Group LLC, an entity owned by Gregory Mongeon, a former director and officer
of the Company, incurred certain professional services and corporate and administrative expenses on behalf of the Company.
Advances
from related parties, which are all non-interest bearing and due on demand, consist of the following:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Kline Law Group P.C.
|
|
$
|
91,220
|
|
|
$
|
37,064
|
|
Total
|
|
$
|
91,220
|
|
|
$
|
37,064
|
|
Critical
Accounting Policies
Cash
and Cash Equivalents
Cash
Equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.
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 and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Derivative
financial instruments
The
Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
The
Company reviews the terms of equity instruments and other financing arrangements, if any, to determine whether there are embedded
derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately
as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding
options or warrants to employees and non-employees in connection with consulting or other services. These options or warrants
may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Basic
and Diluted Net Income (Loss) Per Share
The
Company follows ASC Topic 260 to account for the earnings per share. Basic earnings (loss) per common share (“EPS”)
calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted
average number of common shares and dilutive common share equivalents (if dilutive) outstanding.
Income
Taxes
The
Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities
are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect, when the differences are expected to be reversed. An allowance against
deferred tax assets is recorded, when it is more likely than not that such tax benefits will not be realized.