NOTES
TO THE FINANCIAL STATEMENTS
THREE
AND NINE MONTHS ENDED SEPTEMBER 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 nine month periods ended September 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 September 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 nine months ended September 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 September 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
September 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
|
|
|
(32,685
|
)
|
Net
|
|
$
|
201,690
|
|
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 September 30, 2018 follows:
Year ending
December 31,
|
|
Amount
|
|
2018
|
|
|
11,719
|
|
2019
|
|
|
46,875
|
|
2020
|
|
|
46,875
|
|
2021
|
|
|
46,875
|
|
2022
|
|
|
46,875
|
|
2023
|
|
|
2,471
|
|
|
|
|
|
|
Total
|
|
$
|
201,690
|
|
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
$133,320). The agreement also provides for limits on future sales of 7,500,000 shares of Class B Common Stock owned by Mr. Mongeon.
At September 30, 2018, the remaining amount due Mr. Mongeon pursuant to the Separation and Release Agreement was $126,654. The
Company failed to make the required monthly payments due from July 2018 to September 2018.
NOTE
7 - ADVANCES FROM RELATED PARTIES
Advances
from related parties, which are all non-interest bearing and due on demand, consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Kline Law Group P.C. and spouse of controlling person of Kline Law Group P.C.
|
|
$
|
-
|
|
|
$
|
37,064
|
|
Total
|
|
$
|
-
|
|
|
$
|
37,064
|
|
Kline
Law Group P.C. (“KLG”) was counsel to the Company at September 30, 2018, 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 8), 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.
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. 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 September 30, 2018.
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, and warrants to purchase
2,000,000 shares of common stock at $1.25 per share. The $1,158,780 excess of the $1,250,000 estimated fair value of the 1,000,000
shares of Class B Common Stock (using the $1.25 per share priced described in the preceding paragraph) over the $91,220 debt settled
was expensed as loss on settlement of debt in the three months ended September 30, 2018.
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.
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 inventory and related intellectual
property of KLS in exchange for assumption of a liability of KLS in the amount of $19,244 and 20,000 Class B Common Stock shares
of the Company. KLS is controlled by Ian Jenkins, Company Chief Executive Officer, and Gregory Mongeon and Christopher Dean, former
officers and directors of the Company. Pursuant to ASC 805-50 relating to transactions between entities under common control,
the inventory was recorded at KLS’s historical carrying amount of $32,055 and the increase in stockholders’ equity
was recorded at $12,811 (the $32,055 inventory acquired less the $19,244 liability assumed).
From
August 17, 2018 to August 31, 2018, the Company sold a total of 130,000 shares of Class B Common Stock (and three year
warrants to purchase up to a total of 200,000 shares of Class B Common Stock at $1.50 per share) at prices of $1.00 and $1.25
per share to four investors for total cash proceeds of $140,000.
On
August 31, 2018, the Company issued a total of 110,000 shares of Class B Common Stock to two consultants for services rendered.
The $137,500 estimated fair value of the 110,000 shares of Class B Common Stock (using the $1.25 per share price described in
the preceding paragraph) was expensed as compensation in the three months ended September 30, 2018.
NOTE
9 – SUBSEQUENT EVENTS
On
October 9, 2018 the Company sold 116,000 shares of Class B Common Stock (and three year warrents to purchase up to a total of
116,000 shares of Class B Common Stock at $1.50 per share) at a price of $1.25 per share to an entity investor for $145,000 cash
proceeds.