PART
I
ITEM
1. BUSINESS
Overview
of Our Business
Recent
Developments
The
Company’s core business strategy is to utilize its proprietary DNA profiling artificial intelligence (AI) to meet the growing
demands of targeted market segments. Specifically, to provide precision medicine recommendations including medical cannabis use
analysis, consumer wellness, nutraceutical analysis, and in due course pharmaceuticals. This will be delivered through telehealth,
managed care facilities and hospital systems.
Frelii
continues to develop and grow its patented AI technology named “NAVII”, leveraging base code and large data sets gathered
from public and private partnerships. Frelii’s predictive capacity with its precision medicine and health and wellness AI
has increased from 84% to 98.5%. The flagship high-efficiency Genetic Sequencing and analysis using Frelii’s proprietary
technology has increased to greater than 99% and 99.999% accuracy on whole genome and exome sequencing, respectively. Current
competitive solutions analyze approximately 400 thousand data points, generating approximately 384 outcomes, such as diet suggestions
or identification of potential health risks. The Frelii AI technology has dramatically increased the data points analyzed to over
3.2 billion, yielding more than 60 million outcomes.
Due
to this continued expansion of its AI and market segment specific UI, Frelii has been able to create negotiations with institutions
and organizations in each target market segment that will allow the Company to maximize its business development, strategic growth
and revenue for the foreseeable future. The Company’s unique technology is particularly attractive to these select segments
because of the fundamentally different approach Frelii takes using AI to interpret DNA testing results. This will allow each roadmap
market segment to have much greater insight and decision-making perspective than what is currently available, creating greater
competitive advantage for each partner and alliance within their own respective markets.
Attention
will still be given to the company’s consumer offerings; however, the consistently expanding and growing capabilities make
Frelii’s offerings significant to expanded markets in the following ways:
Precision
Medicine and Health Prediction
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Because
Frelii conducts whole-genosequencing, its technology can be leveraged to advance precision
medicine when used for disease treatment and prevention by taking into consideration
an individual patient’s complete genome with more than 60 million outcomes. Medical
professionals and researchers will be able to more accurately predict and provide treatment
strategies. This includes:
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Precision
Medicine for Medical Cannabis Use. In states where medical cannabis is legal and in Canada,
the application of NAVII can be used to help medical professionals determine the best
or most appropriate plant genetics and dose to use with patients based on the patient’s
genetic information. The Frelii technology has the potential to greatly impact how medical
cannabis is used for medicinal purposes making treatment safer, kinder and faster.
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Precision
Medicine for Consumer Wellness. Our web platform provides subscribers an individualized
health analysis that identifies their most significant health risks and generates preventative
action plans based on their individual blood markers, genetics and lifestyle. Subscribers
who have previously received genetic health information from 23andMe will be able to
provide their login information, and our site will upload that data to the algorithm,
which will automatically adjust patient protocols. Our personalized wellness programs
feature nutrition and fitness plans, supplement recommendations, downloadable menus,
recipes, and shopping lists, and virtual personal training. In the near future, we plan
to offer our subscribers the opportunity to enhance their personalized wellness plans
by uploading their 23andMe or Ancestry.com raw genetic data, or by ordering lab diagnostic
kits for more comprehensive health testing and analysis. Customers can also order premium
nutritional and vitamin supplements from our online health marketplace. We plan to generate
revenues through user subscriptions, lab diagnostic kit purchases, sales of compounding
pharmacy products, and nutritional supplements. Frelii plans to offer corporate wellness
organizations the opportunity to enhance their personalized wellness plans by ordering
lab diagnostic kits for more comprehensive blood testing and analysis.
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Distribution
will be focused on various Medical Systems. The Company’s technology and its application
to diagnostic, health risk identification and precision medicine could improve health
care and lower costs of health providers. Health providers will use the Company’s
technology to identify risks before symptoms or complaints arise, when such health issues
could be addressed more efficiently and potentially more cost-effectively. This will
include Managed Care Facilities and Hospital Networks delivered face to face or within
telemedicine.
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In
connection with the foregoing:
(1)
We launched our website, www.frelii.com, in March 2018, and in March 2019, we launched a new website, which can be visited at
www.frelii.com. The objective with this new interactive website is to provide potential clients, partners and investors an engaging
and thoughtful platform to learn about Frelii products, services and solutions while empowering visitors to access information
based on their specific interests and industries.
The
site provides information and insight into how Frelii’s advanced artificial intelligence (AI) platform and DNA analysis
is impacting several industry segments including: Precision Medicine for Medical Cannabis, Wellness, Neutraceuticals, and in due
course Pharmaceuticals.
(2)
We signed a Memorandum of Understanding (MOU) in March 2019 with, Mercator Biologic, Inc. of Centerville, Utah; True DNA Story,
LLC of Centerville, Utah, Orn Health of Nevada and Verdant Inc of Toronto, Ontario, Canada. The purpose of the MOUs are to build
a cooperative ventures capable of leveraging the strengths of each company to enhance and further the science of genetics, markets
and potential clients’ quality of life. It also includes mutual cooperation in expanding and improving on the established
product portfolios and future plans. The parties in the MOU also have agreed that there is an opportunity to participate in a
pilot research initiative which is of mutual interest and may present an opportunity for each entity to validate its technology
and provide a means to significantly advance each other’s commercial capabilities. If enacted, this initiative will be finalized
in a statement of work that will define the phases of the initiative and the roles of each participant.
We
are currently doing business under the name “Frélii.” Effective March 9, 2018, the Company changed its name
to “Frélii, Inc.” and its trading symbol to “FRLI.” Frelii (OTCQB: FRLI) trades on the #OTCQB Venture
Market for early stage and developing U.S. and international companies.
Our
executive offices are located at 2701 North Thanksgiving Way, Suite 100, Lehi, UT 84043. You can also contact us by telephone
at (833) 437-3544.
We
are subject to the disclosure requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, file
reports, information statements and other information, including annual and quarterly reports on Form 10-K and 10-Q, respectively,
with the Securities and Exchange Commission (the “
SEC
”). Reports and other information filed by the Company
can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington,
DC 20549. Copies of such material can also be obtained upon written request addressed to the SEC, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the SEC maintains a web site on the Internet (http://www.sec.gov)
that contains reports, information statements and other information regarding issuers that file electronically with the SEC through
the Electronic Data Gathering, Analysis and Retrieval System.
Corporate
History
The
Company incorporated in the State of Nevada on September 5, 2002, under the name “Bayview Corporation.” From 2005
until 2009, the Company’s business involved researching and developing cancer treatment drugs. 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 the year that 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 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
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, management modified its business plan to acquire certain intellectual property assets and engage
a new executive team to launch its new business as a medical technology company that uses gene sequencing and artificial intelligence
to determine risk and lifestyle modifications. The Company’s technology analyzes the most comprehensive markers (3,200,000,000+)
on the market to date with over 60 million outcomes. Our technology generates accurate and profoundly valuable insight into DNA.
It opens opportunities never before realized in health care, precision medicine, pharmaceutical research, corporate wellness as
well as personal health and risk identification.
Our
board of directors consists of experienced medical, business and internet-based business professionals. We also have a Medical/Scientific
Advisory Committee that provides advice to our board consisting of several seasoned medical and genetics experts.
ITEM
1A. RISK FACTORS
In
evaluating us and our business you should carefully consider the risks and uncertainties described below, the other information
included in this Report. If any of the events described below or in the documents incorporated herein by reference occur, our
business and financial results could be adversely affected in a material way. This could cause the trading price of our common
stock to decline, perhaps significantly.
Our
products are subject to government regulation, both in the United States and abroad, that could increase our costs significantly
and limit or prevent the sale of our products.
The
manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by
numerous national and local governmental agencies in the United States and other countries. The primary regulatory bodies in the
United States are the FDA and the FTC, and we are also subject to similar regulators in other countries. Failure to comply with
these regulatory requirements may result in various types of penalties or fines. These include injunctions, product withdrawals,
recalls, product seizures, fines and criminal prosecutions. Individual states also regulate nutritional supplements. A state may
interpret claims or products presumptively valid under federal law as illegal under that state’s regulations. In foreign
markets, we are usually required to obtain approvals, licenses, or certifications from a country’s ministry of health or
comparable agency, and comply with local labeling and packaging regulations, all of which vary from country to country. Approvals
or licensing may be conditioned on reformulation of products or may be unavailable with respect to certain products or product
ingredients. Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones,
or could take aggressive measures, causing or contributing to a variety of negative consequences, including:
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requirements
for the reformulation of certain or all products to meet new standards,
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the
recall or discontinuance of certain or all products,
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additional
record keeping,
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expanded
documentation of the properties of certain or all products,
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expanded
or different labeling,
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adverse
event tracking and reporting, and
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additional
scientific substantiation.
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Any
or all of these requirements could have a material adverse effect on us. There can be no assurance that the regulatory environment
in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result
in a material adverse effect on us.
If
we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.
We
may be exposed to product recalls and adverse public relations if our products are alleged to cause injury or illness, or if we
are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures,
which would reduce operating profit and cash flow. In addition, a product recall may require significant management attention.
Product recalls may hurt the value of our brands and lead to decreased demand for our products. Product recalls also may lead
to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could
have a material adverse effect on our business, results of operations, financial condition and cash flows.
We
may experience product liability claims and litigation to prosecute such claims, and we may not have adequate insurance coverage
to cover the cost of such claims.
Even
though we do not manufacture the nutritional supplements we sell, as a distributor of products for human consumption, we may experience
product liability claims and litigation to prosecute such claims. Additionally, the sale of these products involves the risk of
injury to consumers as a result of tampering by unauthorized third parties or product contamination. We may not have adequate
insurance coverage in the types and amounts that are reasonably adequate to cover the risks we face. If insurance coverage is
inadequate or unavailable or premium costs continue to rise, we may face additional claims not covered by insurance, and claims
that exceed coverage limits or that are not covered could have a material adverse effect on us.
We
may become party to litigation arising from the ordinary course of business in the future.
We
are not currently party to any litigation; however, we may become party to lawsuits that arise in the ordinary course of business
in the future. The possibility of such litigation, and its timing, is in large part outside our control. Some of these lawsuits
may involve class action claims, which by virtue of involving a large number of potential class members, may require increased
costs of defense and risk. If such litigation were to occur, it could have material adverse effects on our financial performance.
RISKS
RELATED TO OUR MARKET
Our
success is linked to the size and growth rate of the health and wellness products and supplement markets and an adverse change
in the size or growth rate of these markets could have a material adverse effect on us.
An
adverse change in size or growth rate of the health and wellness, or vitamin, mineral and supplement market could have a material
adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences and
other factors that are beyond our control, including media attention and scientific research, which may be positive or negative.
Adverse
economic conditions may harm our business.
Inflation
or other changes in economic conditions that affect demand for nutritional supplements could adversely affect our revenue. Uncertainty
about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter
credit markets, negative financial news and/or declines in income or asset values, each of which could have a material negative
effect on the demand for our products. Other factors that could influence demand include conditions in the residential real estate
and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting
consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and
on our financial condition and operating results.
We
have a limited operated history and operating in a volatile market.
The
Company has a limited operating history and faces many of the risks and difficulties frequently encountered in new and rapidly
evolving markets. These risks include the ability to:
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Increase
awareness of the Company’s brand, products, and services;
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Strengthen
customer loyalty;
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Maintain
current strategic relationships and develop new strategic relationships;
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Respond
effectively to competitive pressures;
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Continue
to develop and upgrade technology;
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Attract,
retain, and motivate qualified personnel.
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We
operate in a highly competitive industry.
The
market for health, diet, fitness, and wellness technology in general is extremely competitive. While we believe that currently
there is no direct competitor using comparable technology, there is no guarantee that similar technology is in development. The
Company anticipates that competition will intensify as genetic testing becomes more commonly prevalent in developing medical treatment
and wellness plans. There can be no assurance that the Company will be able to compete successfully against current or future
competitors, or that competitive pressures faced by the Company will not harm its business, operating results or financial condition.
There
may be significant fluctuations in our quarterly results.
The
Company believes that quarter-to-quarter comparisons of its revenues and operating results are not necessarily meaningful, and
that such comparisons may not be accurate indicators of future performance. The operating results of businesses in the Company’s
industry have in the past experienced significant quarter-to-quarter fluctuations. If revenues for a quarter fall below the Company’s
expectations and it is not able to quickly reduce spending in response, the Company’s operating results for that quarter
would be harmed. It is likely that in some future quarter operating results may be below the expectations of public market analysts
and investors and, as a result, the price of the Company’s common stock may fall. As with other companies in the Industry,
the Company’s operating expenses, which include sales and marketing, product development and general and administrative
expenses, are based on expectations of future revenues and are relatively fixed in the short term.
Factors
that may cause our operating results to fluctuate include:
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our
ability to arrange financing for projects;
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our
ability to complete technology upgrades;
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changes
in federal, state and local government policies;
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changes
in the medical insurance industry;
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the
addition of new customers or the loss of existing customers;
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our
ability to control costs, including operating expenses;
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changes
in the mix of our products and services;
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the
effectiveness of our marketing partnerships;
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changes
in the pricing of our competitors;
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There
are no assurances that our operations will result in revenues.
There
can be no assurance that our proposed operations will result in sufficient revenues to enable us to operate at profitable levels
or to generate positive cash flow. As a result of the Company’s limited operating history and the nature of the markets
in which it competes, the Company may not be able to accurately predict its revenues. Any failure by the Company to accurately
make such predictions would have a material adverse effect on the Company’s business, results of operations and financial
condition. Further, the Company’s current and future expense levels are based largely on its investment plans and estimates
of future revenues. The Company expects operating results to fluctuate significantly in the future as a result of a variety of
factors, many of which are outside of the Company’s control. Factors that may adversely affect the Company’s operating
results include, among others, demand for the products of the Company, the budgeting cycles of potential customers, lack of enforcement
of or changes in governmental regulations or laws, the amount and timing of capital expenditures and other costs relating to the
expansion of the Company’s operations, the introduction of new or enhanced products and services by the Company or its competitors,
the timing and number of new hires, changes in the Company’s pricing policy or those of its competitors, the mix of products,
increases in the cost of raw materials, technical difficulties with the products, incurrence of costs relating to future acquisitions,
general economic conditions, and market acceptance of the company’s products. As a strategic response to changes in the
competitive environment, the Company may from time to time make certain pricing, service or marketing decisions or business combinations
that could have a material adverse effect on the Company’s business, results of operations and financial condition. Any
seasonality is likely to cause quarterly fluctuations in the Company’s operating results, and there can be no assurance
that such patterns will not have a material adverse effect on the Company’s business, results of operations and financial
condition. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
Negative
Operating Cash Flow
The
Company has negative operating cash flow and may continue to have negative operating cash flow in future periods. To the extent
that the Company has negative operating cash flow, the Company will need to continue to deploy a portion of its cash reserves
to fund such negative operating cash flow.
We
are dependent on key personnel.
The
Company’s future success depends to a significant extent on the continued services of senior management, which includes
the founders and developers of our website technology, and other key personnel. The Company does not currently maintain “key
person” life insurance for any of its executives, though it may opt to do so in the future. The loss of key personnel would
likely have a significantly detrimental effect on the business.
We
rely on outside consultants, contractors, manufacturers and suppliers.
We
will rely on the experience of outside consultants, contractors, manufacturers and suppliers. Should one or more of these persons
or entities terminate their business relationship with the Company, or becomes unavailable, we may have difficulty finding timely
or suitable replacements and our business and financial performance could be negatively impacted.
We
rely on strategic relationships to promote our products.
We
will rely, in part, on strategic partnerships with outside companies and individuals to promote and market our products and services,
thus making the future success of our business particularly contingent on the efforts of others. An important part of our strategy
is to promote acceptance of our products through technology and product alliances with affiliates who assist us with our promotion
strategies. Our dependence on outside affiliates and distributors, however, raises potential risks with respect to the future
success of our business. Our success is dependent on the successful completion and commercial deployment of our products and services
and on the future commitment of our distributors to our products and technology.
We
rely on our suppliers.
We
will rely on key vendors and suppliers to provide our health supplement products and other health and wellness products we may
offer in the future. The Company also plans to use third party distribution facilities and contract distributors and shippers
to manage customer orders of diagnostic kits, supplements, and other products. We also plan to use a third party lab processor
to process our subscribers’ diagnostic kits and provide us the results. These distributors and third party vendors are critical
partners in our business, and failure of any of these partners to fulfill the terms of our vendor contracts or perform as expected,
would be detrimental to our business, our brand, and our financial results. Further, we may have difficulty in locating or using
alternative resources should supply problems arise with any of these vendors or partners. An interruption or reduction in the
source of supply of any of these vendors, or an unanticipated increase in vendor prices, could negatively and materially impact
our operating results and damage customer relationships, our brand, and our business.
Our
success depends on responding to rapid technological changes.
Our
industry features rapidly changing technologies, frequent new product and service introductions and evolving industry standards.
The Company’s future success will depend on its ability to adapt to rapidly changing technologies by continually improving
the performance features and reliability of its products, and the efficiency and capabilities of its services. The Company may
experience difficulties that could delay or prevent the successful development, introduction or marketing of new products and
services. In addition, new enhancements must meet the requirements of current and prospective users and must achieve significant
market acceptance. The Company could also incur substantial costs should we need to modify our products or services to stay competitive.
If
we fail to protect our intellectual property, our business could be adversely affected.
Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and
use information that we regard as proprietary or protected by intellectual property laws. Unauthorized use of our proprietary
or protected technology could harm our business. Litigation to protect our intellectual property rights can be costly and time-consuming
to prosecute, and there can be no assurance that we will have the financial or other resources necessary to enforce or defend
a patent infringement, copyright or trademark violation, or proprietary rights violation action. From time to time, we may be
forced to defend ourselves against other claims and legal actions alleging infringement of the intellectual property rights of
others. Adverse determinations in any such litigation could subject us to significant liabilities to third parties, could require
us to seek licenses from third parties and could, if such licenses are not available, prevent us from providing our wind turbines
or the generators, which could have a material adverse effect on us. Third parties could also obtain patents that may require
us to either redesign products or obtain a license. If we are unable to redesign products or are unable to obtain a license, our
business and financial condition would be adversely affected. Although we perform investigations of the intellectual property
of third parties, we cannot be certain that we have not infringed the intellectual property rights of such third parties. Any
such infringement or misappropriation claim could result in significant costs, substantial damages, and our inability to provide
or use our turbines and generators. We also could be forced to obtain licenses from third parties or to develop a non-infringing
alternative, which could be costly and time-consuming. A court could also order us to pay compensatory damages for such infringement,
plus prejudgment interest, and could, in addition, treble the compensatory damages and award attorney fees. These damages could
be substantial and could harm our reputation, business, financial condition, and operating results. A court also could enter orders
that temporarily, preliminarily, or permanently enjoin us and/or our suppliers from making or supplying us with the turbines and/or
generators. Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third
parties. Because intellectual property litigation can be costly and time consuming, our intellectual property litigation expenses
could be significant, even if we are successful in defending our intellectual property rights. Even invalid claims alone could
materially adversely affect our financial condition.
Our
executive compensation may not reflect the true market value of services.
The
Company is currently paying its management and key employees in a combination of Common Stock, stock options, stock units, and/or
cash consideration. We have not determined all our executive compensation by arms- length negotiation. Furthermore, the Company
may grant additional stock options and other equity incentives to its executive officers and directors that are consistent with
companies in the early revenue stages with high growth potential. While management believes that such consideration is fair for
the work being performed, there is no assurance that the consideration to management reflects the true market value of their services.
Our
management may have a conflict of interest with our minority shareholders.
The
relationship of management and its affiliates to the Company could create conflicts of interest. While management has a fiduciary
duty to the Company, it also determines its compensation from the Company. While management believes that any consideration paid
to affiliates is fair, there is no assurance that such consideration reflects the true market value of the services being performed.
Management believes that it will have the resources necessary to fulfill its management obligations to all entities for which
it is responsible. Management’s compensation from the Company has not been determined pursuant to arm’s-length negotiation.
Our
bylaws indemnify our management to the maximum extent permitted by law.
The
Company’s Bylaws provide that the Company will indemnify and hold harmless its officers and directors against claims arising
from Company activities, to the maximum extent permitted by law. If the Company were called upon to perform under its indemnification
agreement, then the portion of its assets expended for such purpose would reduce the amount otherwise available for the Company’s
business.
There
is a potential risk of dilution of ownership in our Company.
The
Company has the right to raise additional capital or incur borrowings from third parties to finance its business. The Company
may also implement public or private mergers, business combinations, business acquisitions and similar transactions pursuant to
which it would issue substantial additional capital stock to outside parties, causing substantial dilution in the ownership of
the Company by its existing shareholders. The Board of Directors has the authority, without the consent of any of the shareholders,
to cause the Company to issue more shares of common and preferred stock at such price and on such terms and conditions as are
determined by the Board in its sole discretion. The Company may also issue net profits interests in the Company. The issuance
of additional shares of capital stock or net profits interests by the Company would dilute the shareholders’ ownership in
the Company.
There
are no assurances that dividends will be paid.
The
Company has not in the past nor has any immediate plan to pay dividends to any of its shareholders in the near future. The Company
cannot predict when or assure that it will ever have sufficient earnings to declare and pay dividends to any of its shareholders.
We
may experience challenges managing rapid growth of our business.
If
the Company is successful in achieving wide market acceptance of its products and services, it may be required to expand its operations
quickly, requiring the establishment of technical operations, system administration, sales and marketing. This could result in
new and increased responsibilities for management, and place significant strain on the Company’s management, operating and
financial systems and other resources. To accommodate such growth and compete effectively, the Company will be required to implement
and improve information systems, procedures and controls, and to train, motivate and manage its work force. The Company’s
future success will depend to a significant extent on the ability of its future management personnel to operate effectively. There
can be no assurance the Company’s personnel; systems, procedures and controls will be adequate to support the Company’s
future operations. The Company is dependent on its ability to continue to attract and retain qualified technical, managerial and
marketing personnel. There is widespread competition for qualified personnel in the Company’s industry, and there can be
no assurance the Company will be able to attract and retain the qualified personnel necessary for the development of its business.
The failure to recruit qualified technical, managerial or marketing personnel could have a material adverse effect on the Company’s
business, financial condition and results of operations.
We
may not be able to meet our capital requirements.
The
continued development of the Company’s business plan will require additional capital. Although the Company believes that
we have sufficient cash reserves to fund operations until we begin to generate revenues from our operations, we cannot be certain
that our cash reserves will be sufficient to fund the operations of the Company for the next year. To the extent that our cash
reserves and cash flow from operations are insufficient to fund the Company’s activities, the Company will be required to
raise additional capital through equity or debt financing. The Company’s actual capital requirements will depend on many
factors, including but not limited to; the costs and timing of the Company’s development and launch activities, the success
of the Company’s development efforts, and the costs and timing of the expansion of the Company’s sales and marketing
activities. The extent to which the Company’s existing and new products and services will gain market acceptance will be
based upon the Company’s ability to maintain existing collaborative relationships and enter into new collaborative relationships,
competing product developments, progress of the Company’s commercialization efforts and the commercialization efforts of
the Company’s competitors, costs involved in acquiring, prosecuting, maintaining, enforcing and defending intellectual property
claims, developments related to regulatory issues, and other factors. Furthermore, to satisfy future growth requirements, the
Company may seek to raise additional funds through public or private financing, collaborative relationships or other arrangements.
Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve significant restrictive
covenants. Collaborative arrangements, if necessary to raise additional funds, may require the Company to relinquish its rights
to certain of its technologies, products or marketing territories. The Company’s failure or inability to raise capital when
needed could have a material adverse effect on the Company’s business, financial condition and results of operations. There
can be no assurance that such financing will be available on terms satisfactory to the Company, if at all.
Our
stock has historically had a limited market. If an active trading market for our Common Stock does develop, trading prices may
be volatile.
Should
an active trading market develop, the market price of the shares of Common Stock may be based on factors that may not be indicative
of future market performance. Consequently, the market price of the Common Stock may vary greatly. If an active market for the
Common Stock develops, there is a significant risk that the stock price may fluctuate dramatically in the future in response to
any of the following factors, some of which are beyond our control:
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variations
in our quarterly results
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announcements
that our revenues or income/losses are below analysts’ expectations;
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general
economic slowdown;
|
|
●
|
changes
in market valuations of similar companies;
|
|
●
|
announcements
by us or our competitors of significant contracts; or
|
|
●
|
acquisitions,
strategic partnerships, joint ventures or capital commitment.
|
We
are subject to the reporting requirements of Federal Securities Laws that can be expensive.
We
are subject to the information and reporting requirements under the Securities Exchange Act of 1934 and other federal securities
laws, and the compliance obligations of the Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and quarterly
reports and other information with the SEC has and will continue to cause our expenses to be higher than they would be if we were
a privately-held company.
Our
common stock is illiquid and the price of our common stock may be negatively impacted by factors that are unrelated to our operations.
Although
our common stock is currently listed for quotation on the OTC Pink Market, there is a very limited market for our common stock.
Even after trading volume increases, trading through the OTC Pink or OTCQB is frequently thin and highly volatile. There is no
assurance that a sufficient market will develop in our stock, in which case it could be difficult for stockholders to sell their
stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception
of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock,
changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us.
In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect
on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have
the same effect on our common stock.
Sales
by our shareholders of a substantial number of shares of our Common Stock in the public market could adversely affect the market
price of our Common Stock.
The
majority of outstanding shares in the Class B common stock are owned by the Directors and Officers. If any of these principal
shareholders were to decide to sell large amounts of stock over a short period of time such sales could cause the market price
of the Common Stock to decline.
Our
officers and directors may have a conflict of interest with the minority shareholders in the future because the majority of the
shares of our Common Stock are owned by our officers and directors. Thus, the minority shareholders may not be able to control
or influence our management’s decision making.
The
Company’s officers and directors currently own 59.12% of the outstanding shares of the Company’s Class B common stock.
The interests of a specific director or officer, individually or as a group may at times differ from other shareholders. Where
those conflicts exist, our shareholders will be dependent upon the directors and officers, in a manner fair to all our shareholders,
their fiduciary duties as an officer and/or director.
RISKS
RELATED TO THE MARKET FOR OUR STOCK GENERALLY
Our
common stock is currently quoted on the Over-the-Counter market that may have an unfavorable impact on our stock price and liquidity.
Our
common stock is quoted Over-the-Counter on the OTC: Pink market. The OTC Pink Market is a significantly more limited market than
established trading markets such as the New York Stock Exchange or NASDAQ. The quotation of our shares on the OTC Pink Market
may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could
depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the
future. We plan to list our common stock on the Over-the-Counter Bulletin Board, or on a senior exchange such as NASDAQ as soon
as practicable. However, we cannot assure you that we could meet the initial listing standards of any stock exchange, or that
we could maintain any such listing.
We
may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market
price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock
is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes
additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers
and “accredited investors” (generally, individuals with a net worth of more than $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock,
of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about
sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock. There can be no assurance that our common stock will qualify for exemption
from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject
to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution
of penny stock, if the SEC finds that such a restriction would be in the public interest.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
We
lease our corporate office headquarters, which consists of shared space. The terms of our commercial lease are month to month
with monthly rent of approximately $1,920.
ITEM
3. LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time
to time that may harm our business.
PART
II
ITEM
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market
for Our Common Stock
On
March 9, 2018, the trading symbol for our Common Stock changed from “VCAN” to “FRLI” concurrent with the
change of our name to “Frélii, Inc.” The following table provides historical trading information. Prices do
not reflect retail mark-downs and commissions and may not reflect actual transactions. The last sale price of the common stock
was $2.01 on April 12, 2019.
Calendar
Quarter Ended
|
|
High
Sales Price*
|
|
|
Low
Sales Price*
|
|
|
|
|
|
|
|
|
December
31, 2018
|
|
$
|
2.25
|
|
|
$
|
1.05
|
|
September
30, 2018
|
|
$
|
2.05
|
|
|
$
|
2.05
|
|
June 30, 2018
|
|
|
No
transactions in quarter
|
|
March 31,
2018
|
|
|
No
transactions in quarter
|
|
December 31,
2017
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
September
30, 2017
|
|
|
No
transactions in quarter
|
|
June 30, 2017
|
|
$
|
1.00
|
|
|
$
|
0.85
|
|
March 31,
2017
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Holders
As
of April 12, 2019, there were 156 stockholders of record of our Common Stock. This number does not include shares held by brokerage
clearing houses, depositories or others in unregistered form.
Dividends
We
have never declared or paid a cash dividend. Any decisions regarding dividends will be made by our board of directors. We currently
intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay dividends, subject
to the approval of our stockholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will
depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions
and other factors that the board of directors may deem relevant.
Securities
Authorized for Issuance under Equity Compensation Plans
On
January 18, 2018, our Board of Directors approved the adoption of our 2018 Incentive Stock Option Plan (“ISO Plan”).
The ISO Plan has been approved by our stockholders.
Securities
Authorized for Issuance Under Equity Compensation Plans
See
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,
“Securities
Authorized for Issuance Under Equity Compensation Plans”
.
Recent
Sales of Unregistered Securities
Recent
Sales of Unregistered Securities
On
December 14, 2017, the Company agreed to issue 500,000 shares of Class B Common Stock (issued February 22, 2018) in settlement
of a $500,000 Convertible Promissory Note which was issued on April 11, 2017 for $500,000 cash.
On
December 14, 2017, the Company agreed to issue 8,000,000 shares of Class B Common Stock (issued February 22, 2018) in settlement
of a $946,823 Exchange Note dated February 16, 2017 and accrued interest of $62,464.
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 totaling, in the aggregate, $400,000. All of the agreements may be terminated by the Company at any time
without cause by fiving 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 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 of 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 expressed 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 shares price of the March 23, 2018 sale of 150,000 of Class
B Common Stock) was expenses 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 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
the 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 the $1,250,000 estimated fair value of the 1,000,000
shares of Class B Common Stock (using the $1.25 per share prices 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 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.
On
October 9, 2018, the Company sold 116,000 shares of Class B Common Stock (and a three-year warrant to purchase up to a total of
116,000 shares of Class B Common Stock at $1.50 per share) at $1.25 per share to an investor for $145,000 cash proceeds.
On
December 29, 2018, the Company sold 87,000 shares of Class B Common Stock to an investor of a price of $1.50 per share for $130,500
cash proceeds (which was collected January 9, 2019)
At
December 31, 2018, there are warrants outstanding to purchase a total of 2,416,000 shares of class B Common Stock at prices ranging
from $1.25 to $1.50.
Exemption
from Registration Claimed
All
of the sales by the Company of its unregistered securities were made by the Company in reliance upon Section 4(2) of the Securities
Act of 1933, as amended (the “1933 Act”). All of the individuals and/or entities listed above that purchased the unregistered
securities were all known to the Company and its management, through pre-existing business relationships. All purchasers were
provided access to all material information, which they requested, and all information necessary to verify such information and
were afforded access to management of the Company in connection with their purchases. All purchasers of the unregistered securities
acquired such securities for investment and not with a view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer
of the certificates or agreements representing such securities, without such securities either being first registered or otherwise
exempt from registration in any further resale or disposition.
Penny
Stock Rules
Due
to the price of our common stock, as well as the fact that we are not listed on a national securities exchange, our stock is characterized
as “penny stocks” under applicable securities regulations. Our stock will therefore be subject to rules adopted by
the SEC regulating broker-dealer practices in connection with transactions in penny stocks. The broker or dealer proposing to
effect a transaction in a penny stock must furnish his customer a document containing information prescribed by the SEC and obtain
from the customer an executed acknowledgment of receipt of that document. The broker or dealer must also provide the customer
with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction.
The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with
such transaction prior to consummating the transaction and with the written confirmation of the trade. The broker or dealer must
also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such
security is held for the customer’s account. The existence of these rules may have an effect on the price of our stock,
and the willingness of certain brokers to effect transactions in our stock.
Purchases
of Our Equity Securities
No
repurchases of our common stock were made during our fiscal year ended December 31, 2018.
ITEM
6. Selected financial data
Smaller
reporting companies are not required to provide the information required by this item.
ITEM
7. Management’s Discussion and Analysis of financial Condition and Results of Operations
The
following management’s discussion and analysis should be read in conjunction with our consolidated financial statements
and the notes thereto and the other financial information appearing elsewhere in this annual report. In addition to historical
information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward-Looking
Statements” above for certain information concerning those forward looking statements. Our financial statements are prepared
in U.S. dollars and in accordance with U.S. GAAP. References in this Report to a particular “fiscal” year are to our
fiscal year ended on December 31.
Nature
of Operations
Our
History
The
Company incorporated in the State of Nevada on September 5, 2002, under the name “Bayview Corporation.” From 2005
until 2009, the Company’s business involved research and development of cancer treatment drugs. 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 the year that 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 LLC, whereby the Company,
among other terms, agreed to exchange shares with the ownership units of those two entities in exchange for 25,000,000 shares
of the Company’s 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, management modified its business plan to acquire certain intellectual
property assets and engaged a new management team to carry out its new business, which is providing personalized subscription
nutrition and wellness programs through the Company’s new website
www.frelii.com
.
Overview
of Our Business and Strategy
The
Company’s original core business strategy was to provide direct to consumer affordable access to personalized health assessments
and nutrition plans based on genetic data, physiology, environmental and lifestyle factors, and lab diagnostics all on one convenient
web platform. The Company has expanded that model as a result of dramatic improvements in its technology. As a result, the Company’s’
licensing business model was born, and management expects that business to be the primary driver of revenues during the foreseeable
future. While the Company will maintain and expand its consumer web-based platform business line, the Company’s lead business
model will now be Precision Medicine and Health Assessment. This will be applied to Medical Cannabis, neutraceuticals, wellness,
and in due course pharmaceuticals.
Our
Technology
The
principals of Frelii began developing a computer learning-based algorithm in 2014. That algorithm, and the resulting AI (artificial
intelligence) based software called “NAVII”, was developed with the primary goal of analyzing DNA information to generate
highly-personalized protocols based on such DNA information. In 2017, the Company created a web-based platform and subscription-based
model at www.frelii.com that provides users personalized, DNA-based diet and nutrition plans and identification of certain potential
health risks. We believe our technology can assist our health providers to identify and treat many different health concerns and
help people live their best life. Our easy-to-use web platform provides subscribers an individualized health analysis that identifies
a user’s most significant health risks and generates health programs based on their individual blood markers, genetics and
lifestyle. Subscribers who have previously received genetic health information from 23andMe can provide their login information,
and our site will upload that data to the algorithm, which will automatically adjust patient protocols. Our comprehensive wellness
plans feature nutrition and fitness plans, supplement recommendations, downloadable menus, recipes, and shopping lists, and virtual
personal training. Subscribers can enhance their customized plan by ordering additional lab diagnostic kits for more comprehensive
testing and analysis or by requesting a personal consultation with one of the licensed health providers in our affiliate network.
Subscribers can also order nutritional and vitamin supplements from our premium health marketplace. In fourth quarter 2018 the
company is releasing a custom DNA kit that offers full genome analysis at a comparable price to 23&me’s less extensive
genotyping kit. The Company’s personalized plans now feature meal plans, virtual personal training, supplement recommendations,
downloadable menus, recipes, and shopping lists.
The
Company has continued to develop its AI technology. Aided in part by the gift of base code and large data sets from an unnamed
global tech and information ally. Frelii’s predictive capacity of the precision medicine and health and wellness AI has
increased from 84% to 98.5% imputation Efficiency on incomplete data has increased to 95% efficiency. And our flagship high-efficiency
Genetic Sequencing and analysis using our proprietary technology has increased to greater than 99% and 99.999% accuracy on whole
genome and exome sequencing, respectively. For example, competitors can analyze approximately 400 thousand data points and can
generate approximately 384 outcomes, such as diet suggestions or identification of potential health risks. The Company’s
improved technology has dramatically increased the date points subject to analysis to over 3.2 billion data points, which can
generate over 60 million outcomes. The Company has also created a proprietary computational efficiency algorithm which has improved
our A.I. analysis of whole genome DNA data by a factor of 8x. This profoundly more robust technological capability opens the doors
to far more specific and accurate DNA analysis and far broader applications.
Out
Expanded Business Model
With
that expanded capability in mind, the Company began negotiations with a number of health care providers, consumer-facing lifestyle
companies, professional grade supplement providers and other product providers for such companies to use its technology in their
business operations. As a result, the Company’ licensing business model was born, and management expects that business to
be the primary driver of revenues during the foreseeable future. While the Company will maintain its consumer web-based platform
business line, however, the Company’s expanded business model now includes the following technology licensing channels &
opportunities:
Precision
Medicine and Health Prediction
|
●
|
Because
Frelii conducts whole-genosequencing, its technology can be leveraged to advance precision
medicine when used for disease treatment and prevention by taking into consideration
an individual patient’s complete genome with more than 60 million outcomes. Medical
professionals and researchers will be able to more accurately predict and provide treatment
strategies. This includes:
|
|
o
|
Precision
Medicine for Medical Cannabis Use. In states where medical cannabis is legal and in Canada,
the application of NAVII can be used to help medical professionals determine the best
or most appropriate plant genetics and dose to use with patients based on the patient’s
genetic information. The Frelii technology has the potential to greatly impact how medical
cannabis is used for medicinal purposes making treatment safer, kinder and faster.
|
|
o
|
Precision
Medicine for Consumer Wellness. Our web platform provides subscribers an individualized
health analysis that identifies their most significant health risks and generates preventative
action plans based on their individual blood markers, genetics and lifestyle. Subscribers
who have previously received genetic health information from 23andMe will be able to
provide their login information, and our site will upload that data to the algorithm,
which will automatically adjust patient protocols. Our personalized wellness programs
feature nutrition and fitness plans, supplement recommendations, downloadable menus,
recipes, and shopping lists, and virtual personal training. In the near future, we plan
to offer our subscribers the opportunity to enhance their personalized wellness plans
by uploading their 23andMe or Ancestry.com raw genetic data, or by ordering lab diagnostic
kits for more comprehensive health testing and analysis. Customers can also order premium
nutritional and vitamin supplements from our online health marketplace. We plan to generate
revenues through user subscriptions, lab diagnostic kit purchases, sales of compounding
pharmacy products, and nutritional supplements. Frelii plans to offer corporate wellness
organizations the opportunity to enhance their personalized wellness plans by ordering
lab diagnostic kits for more comprehensive blood testing and analysis.
|
|
●
|
Distribution
will be focused on Medical Systems. The Company’s technology and its application
to diagnostic, health risk identification and precision medicine could improve health
care and lower costs of health providers. Health providers will use the Company’s
technology to identify risks before symptoms or complaints arise, when such health issues
could be addressed more efficiently and potentially more cost-effectively. This will
include Managed Care Facilities and Hospital Networks delivered face to face or within
telemedicine.
|
The
Company believes that these licensing and joint venture opportunities will provide the Company with access to the consumer and
user data necessary to unlock the full capabilities of its technology.
Our
Management Team
The
Company’s Board of Directors is comprised of experienced professionals in multiple areas of importance to the Company’s
business strategy:
|
●
|
Alternative
Health Care – Our 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; Our director James Spallino has over 35 years of experience in the integrative medical and dental
industry as both an entrepreneur and consultant;
|
|
|
|
|
●
|
Medical
– Our director and Chief Medical Officer Dr. Hans Jenkins is a board-certified physician specializing in preventive
health education, medical screenings, and lifestyle modifications to obtain optimal health;
|
|
|
|
|
●
|
Digital
Marketing – Our Chief Marketing Officer Seth Jones is a marketing strategist and digital media expert, produced and
distributed digital content that 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 – Our 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;
|
|
|
|
|
●
|
Digital
Technology – Our director and Chief Technology Officer 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.
|
The
Company’s Scientific Advisory Committee is comprised of experienced medical professionals:
|
●
|
Dr.
Anthony R. Torres, is an independent researcher studying immune genes in autism and helping companies solve their biochemical
problems in industry. Dr Torres holds several patents for novel inventions in the genetics field. Dr Torres attended University
of Utah Medical School and Yale for his Residency. He is a senior scientist at the center for persons with disabilities. Dr
Torres has extensive publications in genetic research.
|
|
|
|
|
●
|
Dr.
Susan Morelli, is a board Certified Geneticist and Neonatologist in Provo, Utah. Dr Morelli
received her BA from Harvard, her medical degree from University of Connecticut School
of Medicine and has been in practice for more than 20 years. She is a member of the American
Academy of Pediatrics, American Board of Pediatrics, and the American Society of Human
Genetics, American Board of Medical Genetics and Genomics . She is Board Certified as
AM BD MEDICAL GENETICS CLINICAL GENETICS (MD/DO). Dr Morelli is a published lead author
in several medical studies.
|
|
|
|
|
●
|
Shannon
Jenkins, D.O. is a practicing medical doctor with over two decades of research experience
and teaching. He has published innovative research articles in respected journals from
Universities such as UCLA, the University of Arizona and the University of Utah. He specializes
in developmental biology and translational research. He has won many research awards
such as the UCLA STAR Outstanding Achievement Research Scholar Award, the Human and Molecular
Development Research Award and the Human Research Development Award. He is also an outstanding
teacher and humanitarian having received awards such as the Frist Humanitarian Award
and the Pediatric Resident Teaching Award. He graduated Summa Cum Laude from Medical
School and is a member of the Sigma Sigma Phi Medical Honor Society. Additionally, he
is board certified in Perinatal and Neonatal Medicine and completed a fellowship at UCLA
Medical Center in Developmental Biology and Neonatology.
|
|
|
|
|
●
|
Shayne
Morris, is a PhD biochemist and genetic researcher. His early work laid the foundation
for many novel cancer interventions using genetic testing such as the flagship research
he conducted for Huntsman Cancer Institute. As chairman and founder of the genetics and
cell biology research center, Nutri-Biome Research, he has advanced the body of research
is in human epigenetic response to preventive and precision intervention. Dr. Morris’
research is chronicled in a series of Research Reports, Patents and published works available
to health professionals.
|
Our
Marketing Plans
We
have launched and will continue to implement a comprehensive digital marketing campaign that includes Facebook and Twitter ads,
a media affiliate program, and other social media digital advertising.
Our
Future Development Plans
In
addition to the new licensing model described above, the Company is currently developing, either alone or in cooperation with
development partners, and will distribute a series of innovative and proprietary functional food and alternative healthcare/supplement/health
and beauty products. We believe that several of these products have the potential of being highly disruptive to existing product
offering currently in the market, or wholly revolutionary. We believe that these products are the natural and organic extension
of our plan to provide a full suite of personalized health assessments and action plans to our customers.
We
signed a Memorandum of Understanding (MOU) in March 2019 with; Mercator Biologic, Inc. of Centerville, Utah; True DNA Story, LLC
of Centerville, Utah, Orn Health of Neveda, and Verdant Inc of Toronto, Ontario, Canada. The purpose of these MOUs are to build
a cooperative venture capable of leveraging the strengths of each company to enhance and further the science of genetics, markets
and potential clients’ quality of life. It also includes mutual cooperation in expanding and improving on the established
product portfolios and future plans. The parties in the MOU also have agreed that there is an opportunity to participate in a
pilot research initiative which is of mutual interest and may present an opportunity for each entity to validate its technology
and provide a means to significantly advance each other’s commercial capabilities. If enacted, this initiative will be finalized
in a statement of work that will define the phases of the initiative and the roles of each participant.
Results
of operations for the years ended December 31, 2018 and 2017
Revenues.
For the years ended December 31, 2018 and 2017, net revenues were $35,945 and $nil, respectively.
Operating
Expenses. Operating expenses for the year ended December 31, 2018 was $4,400,152 compared with $225,892, for the year ended December
31, 2017. Operating expenses consists primarily of compensation (including stock-based compensation) and marketing and advertising.
The increase in operating expenses year to year was primarily related to $3,239,063 in stock based compensation in 2018, compared
to $nil in 2017.
Other
Income (Expenses).
Other income for the year ended December 31, 2017, was $821,382 compared with other expenses of $1,157,630
for the year ended December 31, 2018. Included in this category in 2017 is interest expense related to promissory notes issued
by the Company and gain related to cancellation of liabilities. During the year ended December 31, 2018, the Company recorded
loss on settlement of liabilities of $1,158,780 compared to a gain on the settlement of debt in the amount of $886,063 for the
year ended December 2017. For the year ended December 31, 2017, the Company recognized income of $187,793 as a result of a change
in the fair value of an embedded derivative and an expense of $210,638 as a result of accretion expense of a debt discount on
the convertible promissory note, compared to $nil for each of these items in 2018.
Net
loss for the year ended December 31, 2018, was $5,549,678 compared to a net income of $595,492for the year ended December 31,
2017
Off-Balance
Sheet Arrangements
We
do not have any off balance sheet arrangements other than a rental agreement for the rental of the corporate premises, 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.
Liquidity
and Capital Resources
Operations
for the year ended December 31, 2018 was primarily funded through sales of Class B common stock.
Subject
to the launch of the pipeline of revenue streams, there is no certainty that we will be successful in generating sufficient cash
flow from operations or achieving and maintaining profitable operations in the future to enable us to meet our obligations as
they come due and consequently continue as a going concern. The Company may require additional funds to further develop our expanded
business plan. The Company may require additional financing this year to fund our operations and is examining possible sources
of funding beyond the existing cash generated from operations. Sales of additional equity securities would result in the dilution
of the interests of existing stockholders. There can be no assurance that financing will be available when required. In the event
that the necessary additional financing is not obtained, the Company would reduce its discretionary overhead costs substantially,
or otherwise curtail operations.
The
Company expects the forgoing, or a combination thereof, to meet our anticipated cash requirements for the next 12 months; however,
these conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements
do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the
amounts and classification of liabilities that may result from the outcome of this uncertainty.
Net
Cash Used in Operating Activities
During
the years period ended December 31, 2018, the Company had net cash used in operations of $910,108 compared with $37,064 used in
operations for the year ended December 31, 2017.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities was primarily the result of the sale of Class B common stock in 2018 and the issuance of
a promissory note in 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 Company’s requirements are dependent on the
level of operating activity, a large portion of which is discretionary. Should management decide to increase its operating activity,
more funds than what is currently in place would be required. It is not possible to predict whether financing efforts will be
successful or sufficient in the future.
The
following are the maturities, excluding interest payments, reflecting undiscounted future cash disbursements of the Company’s
financial liabilities at December 31, 2018.
|
|
2019
|
|
Accounts
payable and accrued liabilities
|
|
$
|
55,057
|
|
Accrued
salaries and related expense
|
|
|
23,573
|
|
Settlement
account due former related party
|
|
|
126,654
|
|
Total
liabilities
|
|
|
205,284
|
|
Credit
risk: Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. As
at December 31, 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’s does not have significant interest rate risk.
Related
Party Transactions
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. At December 31, 2018, the balance due on the Promissory Note was $23,630.
Cornerstone
is owned by Gregory Mongeon, former Chief Executive Officer and director of the company.
Off-Balance
Sheet Arrangements
Other
than the rent commitments, the Company does 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 are material to our investors.
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.
Advertising
The
Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense is included in operating
expenses in the statements of operations. Advertising and marketing expense for the years ended December 31, 2018 and 2017 was
$204,302 and $133,739, respectively
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.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
Left
blank intentionally
ITEM
8. Financial Statements and Supplementary Data
Consolidated
Financial Statements
The
financial statements required by this item begin on page F-1 hereof.
ITEM
9. Changes in and Disagreements with Accountants and Accounting and Financial Disclosure
There
have been no changes nor have there been any disagreements with the Company’s auditors.
ITEM
9A. Controls and Procedures
Our
management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that
information required to be disclosed by us in the reports it files or submitted under the Securities Exchange Act of 1934, as
amended (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms
of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports it files or submitted under the Exchange Act is accumulated and communicated
to management, including the principal executive officer and principal financial officer, or persons performing similar functions,
as appropriate, to allow timely decisions regarding required disclosure. Because of inherent limitations, disclosure controls
and procedures, as well as internal control over financial reporting, may not prevent or detect all inaccurate statements or omissions.
Our
management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as of December 31, 2018, were effective such that the information
required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our
management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that
the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.
Inherent
Limitations Over Internal Controls
Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles
(“GAAP”). Our internal control over financial reporting includes those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets;
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of the our management
and directors; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our
assets that could have a material effect on the financial statements.
Management,
including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or
detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods
are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control
over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (1992 framework). Based on the Company’s assessment, management has
concluded that its internal control over financial reporting was effective as of December 31, 2018, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
Management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2018, and determined that our controls
and procedures were effective at the reasonable assurance level. This annual report does not include an attestation report of
our independent registered public accounting firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange
Commission that permits us to provide only management’s report in this annual report.
We
have assessed the effectiveness of our internal control over financial reporting as of December 31, 2018, the period covered by
this Annual Report on Form 10-K, as discussed above. In making this assessment, we used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.
Based
upon this evaluation, our chief executive officer and chief financial officer concluded
Management assessed the effectiveness
of our internal control over financial reporting based on criteria for effective internal control over financial reporting described
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
as determined to apply to a company our size.
Based
on its assessment, management concluded that we maintained effective internal control over financial reporting as of December
31, 2018.
Changes
in Internal Control Over Financial Reporting
During
the year ended December 31, 2018, there were no changes in our internal controls over financial reporting that materially affected,
or is reasonably likely to have a materially affect, on our internal control over financial reporting.
Item
9B. Other Information
None.
Where
You Can Find More Information
We
file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission
(the “Commission”). Our Commission filings are available to the public over the Internet at the Commission’s
website at
http://www.sec.gov
. The public may also read and copy any document we file with the Commission at its Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm.
The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. We
maintain a website at http://www. yappn.com (which website is expressly not incorporated by reference into this filing). Information
contained on our website is not part of this report on Form 10-K.
PART
III
ITEM
10. Directors, Executive Officers and Corporate Governance
Directors
and Executive Officers
The
following table sets forth the names, ages and positions held with respect to each director and executive officer of the Company
as of the date of this Annual Report.
Name
|
|
Age
|
|
Principal
Position
|
Ian
Jenkins
|
|
35
|
|
President,
Chief Executive Officer, Chief Financial Officer, and Director
|
Hans
Jenkins
|
|
42
|
|
Director
|
Tarek
Mango
|
|
48
|
|
Director
|
James
Spallino
|
|
60
|
|
Director
|
Seth
Jones
|
|
30
|
|
Chief
Marketing Officer
|
Jayson
Uffens
|
|
44
|
|
Chief
Technology Officer and Director
|
Leslie
Norris
|
|
60
|
|
Director
|
Ian
Jenkins, President, Chief Executive Officer, Chief Financial Officer and Director
Ian
Jenkins was appointed to our Board of Directors in April 2017. Mr. Jenkins has over 10 years of experience as a senior executive.
Before developing the business plan recently undertaken by the Company, Mr. Jenkins served as CEO of CodeTech, a Phoenix-based
Med tech company whose technology was acquired by Hospital Corporation of America. Mr. Jenkins also served in key marketing and
product development roles at Systemic Formulas, Inc. and Orn Industries. A background in physiology, technology startups, and
supplement product research and development gives Mr. Jenkins deep knowledge of engineering, producing, and marketing health technology
and nutritional supplements. Mr. Jenkins earned an M.B.A. from Thunderbird School of Global Management, and a B.S. in Physiology
from Utah State University.
Dr.
Hans Jenkins
Dr.
Hans Jenkins was appointed to our Board of Directors in March 2018. Dr. Jenkins is highly experienced in developing lifestyle
and nutrition plans for patients seeking to optimize their long-term health through preventative care. His practice prioritizes
preventive health education, medical screenings, and lifestyle modifications to obtain optimal health. Dr. Jenkins graduated from
Weber State University, then earned his Doctor of Osteopathy (D.O.) degree from Arizona College of Osteopathic Medicine. Following
medical school, Dr. Jenkins completed a family medicine internship at John C. Lincoln Hospital in Phoenix, Arizona. An honored
veteran of the United States Air Force, Dr. Jenkins served more than four years as a flight surgeon during Operation Iraqi Freedom
with two deployments to combat zones. Dr. Jenkins completed his family medicine residency program at St. Joseph’s Hospital
in 2011. Dr. Jenkins is the Medical Director and a primary care physician at Orn Total Health in Farmington, Utah.
Tarek
Mango, Director
Tarek
Mango was appointed to our Board of Directors in January 2018. Mr. Mango is a partner and Managing Director of Mango Enterprises.
After completing his secondary education in the United Kingdom, Mr. Mango earned a bachelor’s degree in Middle East Studies
at the University of Utah, and another bachelor’s degree in International Business at Westminster College. He also holds
an M.B.A. in International Business from Thunderbird, The American Graduate School of Global Management. Mr. Mango has been involved
in international trade and business development for over 20 years. He has successfully consulted for, built, and introduced U.S.
health care-related brands into Middle Eastern, Asian, and European markets. Tarek has been on a number of business advisory boards
pertaining to the Middle East, and a mentor to students in the International Leadership Academy at the University of Utah. He
continues to support and consult on Utah’s business roundtables pertaining to Middle East endeavors, and works with GOED
(Utah Governor’s Office for Economic Development) on matters relating to the Middle East. He has served as Chapter President
of the Thunderbird Alumni Association, Utah Chapter since 2005, and also serves on a number of startup boards in the health care
sector.
James
Spallino, Director
James
(Jim) Spallino was appointed to our Board of Directors in January 2018. Mr. Spallino has over 35 years of experience in the integrative
medical and dental industry as both an entrepreneur and consultant. He was a former principal of Great White Dental Lab, a national
manufacturer of custom lab-created dental products. In addition, Mr. Spallino has served as an investor and advisor to numerous
other early stage companies in the health industry. He currently serves as both Chief Executive Officer and a board member of
Revitin Life Sciences, and as a board advisor to Linek2Pay, a payments processing company.
Seth
Jones, Chief Marketing Officer
Seth
Jones was appointed Chief Marketing Officer in January 2018. Mr. Jones is a marketing strategist and digital media expert. From
2011 to 2017, Mr. Jones served in various senior positions at Devinsupertramp, an extreme sports and adventure video production
company, where he produced and distributed digital content that 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. Mr. Jones is particularly skilled in developing
marketing strategies, producing online marketing content, leveraging social media, and coordinating multi-level marketing campaigns.
While at Devinsupertramp, Mr. Jones and his team were nominated for three Streamy Awards for online videos, and also served as
a judge for the Streamy Awards for the last three years. Seth attended Utah Valley University.
Jayson
Uffens, Chief Technology Officer and Director
Jayson
Uffens is the Chief Technology Officer and Director at Frelii. He is a senior technology architect with more than two decades
of executive experience at high-growth technology and global firms. Prior to Frelii, Uffens was VP of engineering at GrubHub,
Head of Engineering at Seamless, Engineering Manager and Architect (Consultant) at Northrop Grumman Information Systems, Solutions
Director at Acquity Group, Sr. Engineering Manager, Application Infrastructure at GoDaddy.com, Lead Application Architect (Consultant)
at American Express and the Chief Technology Officer at UbiqGroup.
Leslie
Norris, Director
Leslie
Norris is a business strategist and currently the Founder and CEO of Springboard5 Marketing, a global strategic PR & Marketing
firm that focuses on life science, Biotech and technology companies. She is also Founder and CEO of ARCexperts, a global audit,
risk and regulatory compliance firm that serves life science and biotech companies through all of their regulatory compliance
and risk mitigation requirements. In addition, she serves as an independent consultant and advisor to companies to provide insight
for business planning, executive leadership training and mentoring, operational efficiency, strategic planning, global emergence,
brand development and channel development. Ms. Norris has been an angel investor for 25 years and has worked with investment groups
such as Park City Angels and BioPacific. Ms. Norris has assisted dozens of companies through investment phases, M&A and innovative
acquisition strategies.
Appointment
of Executive Officers
Our
executive officers are elected by, and serve at the discretion of, our board of directors.
Board
of Directors
Under
our Bylaws, our board of directors can set the authorized number of directors, provided the number of directors may not be less
than one. We currently have five directors. We believe two of our directors, Tarek Mango and James Spallino, qualify as independent
directors.
Term
of the Board of Directors
Our
board members serve until the next annual meeting of stockholders, or until that member’s successor has been elected. An
election of directors by our shareholders will be determined by a plurality of the votes cast.
Committees
of the Board of Directors
Currently,
our Board of Directors does not have a standing audit, compensation, or nominating/corporate governance committees.
Family
Relationships
One
of our directors, Dr. Hans Jenkins, is the brother of our CEO and Chief Financial Officer Ian Jenkins
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, none of our directors or executive officers has, during the past ten years:
1.
|
had
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
|
|
|
2.
|
been
convicted in a criminal proceeding or is a named subject to a pending criminal (excluding traffic violations and other minor
offenses);
|
|
|
3.
|
been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities,
futures, commodities or banking activities; or
|
|
|
4.
|
been
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.
|
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and beneficial owner of more
than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission statements of ownership
and changes in ownership. The same persons are required to furnish us with copies of all Section 16(a) forms they file. We believe
that, during fiscal 2017, all of our executive officers, directors and beneficial owner of more than 10% of a registered class
of our equity securities complied with the applicable filing requirements.
In
making these statements, we have relied upon examination of the copies of all Section 16(a) forms provided to us and the written
representations of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity
securities.
Code
of Business Conduct and Ethics
A
Code of Business Conduct and Ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct,
(b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with
applicable laws, rules and regulations, (d) prompt reporting of violations of the code to an appropriate person and (e) accountability
for adherence to the Code. We are not currently subject to any law, rule or regulation requiring that we adopt a Code of Business
Conduct and Ethics. However, the Company is in the process of preparing a code of business conduct and ethics policy.
Committees
of Board of Directors
There
are currently no committees of the Board of Directors. Our board of directors is of the view that it is appropriate for us not
to have a standing nominating, audit or compensation committee because the current size of our board of directors does not facilitate
the establishment of a separate committee. Our board of directors has performed, and will perform adequately, the functions of
any specific committee.
Board
Oversight of Risk
Our
Board of Directors recognizes that, although risk management is a primary responsibility of the Company’s management, the
Board plays a critical role in oversight of risk. The Board, in order to more specifically carry out this responsibility, has
assigned certain task focusing on reviewing different areas including strategic, operational, financial and reporting, compensation,
compliance, corporate governance and other risks to the relevant Board Committees as summarized above. Each Committee then reports
to the full Board ensuring the Board’s full involvement in carrying out its responsibility for risk management.
ITEM
11. EXECUTIVE COMPENSATION
Persons
Covered
The
following table sets forth the compensation arrangements of our executive officers. The amounts in this table do not include normal
and customary fringe benefits such as company car or similar expenses.
SUMMARY
COMPENSATION TABLE
Name
and
Principal
Position
|
|
Year
|
|
|
Salary
(S)
|
|
|
Bonus
(S)
|
|
|
Stock
Awards
(S)
|
|
|
Option
Awards
(S)
|
|
|
Non-Equity
Incentive Plan Compensation
(S)
|
|
|
Nonqualified
Deferred
Compensation
Earnings (S)
|
|
|
All
Other
Compensation (S)
|
|
|
Total
(S)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ian
Jenkins, CEO, CFO
|
|
2018
|
|
|
|
52,000
|
|
|
|
0
|
|
|
|
234,375
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
286,375
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chene
C. Gardner former CEO and CFO (1)
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory
Mongeon, Chief Sales Officer (2)
|
|
2018
|
|
|
|
23,333
|
|
|
|
0
|
|
|
|
234,375
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
257,708
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seth
Jones, Chief Marketing Officer
|
|
2018
|
|
|
|
52,500
|
|
|
|
0
|
|
|
|
45,313
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
97,813
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julia
Kline, former Chief Operating Officer, Secretary (3)
|
|
2018
|
|
|
|
36,666
|
|
|
|
0
|
|
|
|
6,250
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
42,916
|
|
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Dean, former Chief Technology Officer (4)
|
|
2018
|
|
|
|
57,333
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
57,333
|
|
|
|
2017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayson
Uffens, Chief Technology Officer (5)
|
|
2018
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
2017
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
(1)
Mr. Gardner resigned his positions on April 5, 2017, and was replaced by Ian Jenkins.
(2)
Dr. Mongeon resigned his positions on May 15, 2018, Dr. Mongeon was appointed to the Company’s Board of Directors and as
Chief Sales Officer on January 17, 2018.
(3)
Ms. Kline resigned her positions on July 13, 2018. Ms. Kline was appointed Chief Operating Officer on January 17, 2018, and Secretary
on March 27, 2018.
(4)
Mr. Dean resigned his positions on March 27, 2018. Mr. Dean was appointed Chief Technology Officer and a director of the Company
on January 17, 2018.
(5)
Mr. Uffens was appointed to the Company’s Board of Directors and as Chief Technology Officer of the Company on May 15, 2018
●
Chief Executive Officer and Chief Financial Officer Ian Jenkins was issued 7,500,000 shares in connection with his employment
agreement. In connection with this issuance, Mr. Jenkins cancelled 1,830,000 shares of common stock he previously held and 100
shares of Series A Preferred Stock he acquired in connection with the prior change of control of the Company.
●
Chief Sales Officer Gregory Mongeon was issued 7,500,000 shares of common stock in connection with his employment agreement.
●
Chief Marketing Officer Seth Jones was issued 1,450,000 shares of common stock in connection with his employment agreement.
●
Chief Operating Officer Julia Kline was issued 1,000,000 shares of common stock in connection with her employment agreement; and
●
Directors Tarek Mango and James Spallino were each issued 300,000 shares of common stock in connection with their agreement to
serve as directors of the Company.
On
May 15, 2018, our Board of Directors approved the issuance of 600,000 Class B Common Stock shares to of Dr. Hans Jenkins, Chief
Medical Officer and a director in connection with their written agreements to serve as officers and directors of the Company.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities
Authorized for Issuance Under Equity Compensation Plans
On
January 18, 2018, our Board of Directors approved the adoption of our 2018 Incentive Stock Option Plan (“ISO Plan”).
The ISO Plan has not yet been approved by our stockholders.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information relating to the beneficial ownership of Company common stock as of the date of this registration
statement by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of common
stock, and (ii) each of the Company’s directors and executive officers. Unless otherwise noted below, the Company believes
that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially
owned by them. For purposes hereof, a person is deemed to be the beneficial owner of securities that can be acquired by such person
within 60 days from the date hereof upon the exercise of warrants or options or the conversion of convertible securities. Each
beneficial owner’s percentage ownership is determined by assuming that any warrants, options or convertible securities that
are held by such person (but not those held by any other person) and which are exercisable within 60 days from the date hereof,
have been exercised.
Name
|
|
Position
|
|
Common
Stock
Held
|
|
|
Percentage
of
Class
|
|
Ian
Jenkins
|
|
Chief
Executive Officer,
Chief Financial Officer and Director
|
|
|
7,500,000
|
(1)
|
|
|
21.1
|
%
|
Tarek
Mango
|
|
Director
|
|
|
300,000
|
(1)
|
|
|
0.8
|
%
|
Hans
Jenkins
|
|
Director
|
|
|
1,000,000
|
(1)
|
|
|
2.3
|
%
|
James
Spallino
|
|
Director
|
|
|
300,000
|
(1)
|
|
|
0.8
|
%
|
Seth
Jones
|
|
Chief
Marketing Officer
|
|
|
1,450,000
|
(1)
|
|
|
4.1
|
%
|
Leslie
Norris
|
|
Director
|
|
|
-
|
|
|
|
-
|
|
All
officers and
directors
as a group
(7
persons)
|
|
|
|
|
12,150,000
|
(1)
|
|
|
30.4
|
%
|
Christopher
Dean
|
|
Beneficial
Owner
|
|
|
7,500,000
|
|
|
|
21.1
|
%
|
Gregory
Mongeon
|
|
Beneficial
Owner
|
|
|
7,500,000
|
(1)
|
|
|
21.1
|
%
|
Changes
in Control
There
are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent
date result in a change in control of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Other
than as noted in Section 11, there are no related party transactions.
Promoters
and Certain Control Persons
We
did not have any promoters at any time during the past five fiscal years.
Our
executive officers and directors from time to time may serve on the board of directors executive officers of other companies.
However, none of our executive officer or directors serve as executive officers or directors or on the compensation committee
of another company that has any executive officer serving on our Board of Directors (or Board of Directors acting as the Compensation
Committee).
One
of our directors, Dr. Hans Jenkins, is the brother of our Chief Executive Officer and Chief Financial Officer Ian Jenkins. There
are no other relationships on our Board of Directors (or Board of Directors acting as the Compensation Committee) requiring disclosure
under Item 404 of Regulation S-K.
Director
Independence
We
believe the Company has three independent directors, Mr. Tarek Mango,Mr. James Spallino and Ms. Leslie Norris. Since the Company’s
Common Stock is not currently listed on a national securities exchange, we have used the definition of “independence”
of The NASDAQ Stock Market to make this determination.
Under
NASDAQ Listing Rule 5605(a)(2), an “independent director” is a “person other than an officer or employee of
the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director.”
We
do not currently have a separately designated audit, nominating or compensation committee and cannot forecast when we will have
such committees.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following table sets forth fees billed by our independent registered accounting firm Michael T. Studer, CPA, P.C. for the last
two fiscal years:
Fee
Category
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Audit
Fees and quarterly review
|
|
$
|
24,000
|
|
|
$
|
25,000
|
|
Audit-Related
Fees
|
|
$
|
—
|
|
|
$
|
—
|
|
Tax
Fees
|
|
$
|
—
|
|
|
$
|
—
|
|
All
Other Fees
|
|
$
|
—
|
|
|
$
|
—
|
|
Audit
Fees
This
category consists of fees for professional services rendered by our principal independent registered public accountant for the
audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are
normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or
engagements for those fiscal years.
Audit-Related
Fees
This
category consists of fees for assurance and related services by our principal independent registered public accountant that are
reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit
Fees”. The services for the fees disclosed under this category include consultations concerning financial accounting and
reporting standards.
Tax
Fees
This
category consists of fees for professional services rendered by our principal independent registered public accountant for tax
compliance, tax advice, and tax planning.
All
Other Fees
This
category consists of fees for services provided by our principal independent registered public accountant other than the services
described above.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
NOTE
1 – Description of Business
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 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. From March 2018 to December 2018, the Company operated a web-based
subscription service providing personalized nutrition and wellness plans. The new business plan is to use Artificial Intelligence
& whole genome analysis to increase patient outcomes and lower direct costs. The Company launched its website,
www.frelii.com
,
in March 2018.
The
Company’s core business strategy is to utilize its proprietary DNA profiling artificial intelligence (AI) to meet the growing
demands of targeted market segments. Specifically, to provide precision medicine recommendations including medical cannabis use
analysis, consumer wellness, nutraceutical analysis, and in due course pharmaceuticals. This will be delivered through telehealth,
managed care facilities and hospital systems.
NOTE
2 – Summary of Significant Accounting Policies
This
summary of significant accounting policies is presented to assist the reader in understanding the Company’s financial statements.
The consolidated financial statements and notes are representations of the Company’s management, which is responsible for
their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
USE
OF ESTIMATES
The
preparation of financial statements in conformity with U.S. 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. The more
significant estimates and assumptions made by management are valuation of equity instruments, and deferred tax asset valuation.
Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent
in these estimates and assumptions.
CASH
AND CASH EQUIVALENTS
For
the Balance Sheets and Statements of Cash Flows, all highly liquid investments with maturity of 90 days or less are considered
to be cash equivalents. The Company had a cash balance of $58,558 and $NIL as of December 31, 2018 and December 31, 2017, respectively.
INVENTORIES
Inventories
consist of finished goods and are valued at the lower of cost or net realizable value. Cost is determined on a first-in, first
out basis.
At
each balance sheet date, the Company evaluates its ending inventories for excess quantities and obsolescence.
The
Company considers historical demand and forecast in relation to the inventory on hand, market conditions and product life cycles
when determining obsolescence and net realizable value. Provisions are made to reduce excess or obsolete inventories to their
estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the excess
or obsolete inventories.
INTANGIBLE
ASSETS – SOFTWARE
The
cost of software acquired has been capitalized and is being amortized over 60 months.
The
Company evaluates recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that intangible
assets carrying amount may not be recoverable. Such circumstances include, but are not limited to: (1) a significant decrease
in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an
accumulation of cost significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures
the carrying amount of assets against the estimated undiscounted future cash flows associated with them. If the carrying cost
is not recoverable, an impairment loss is recognized based on the difference between the asset’s carrying amount and its
estimated fair value.
EARNINGS
PER SHARE
The
Company has adopted the Financial Accounting Standards Board (FASB) ASC Topic 260 regarding earnings / loss per share, which provides
for calculation of “basic” and “diluted” earnings / loss per share. Basic earnings / loss per share includes
no dilution and is computed by dividing net income / loss available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings / loss per share reflect the potential dilution of securities that could share in
the earnings of an entity similar to fully diluted earnings / loss per share.
Except
for the outstanding warrants (see Note 1), there were no potentially dilutive instruments outstanding at December 31, 2018. The
warrants outstanding in 2018 were excluded from the diluted loss per share calculation for 2018 as their inclusion would be antidilutive.
INCOME
TAXES
In
accordance with ASC 740 – Income Taxes, the provision for income taxes is computed using the asset and liability method.
The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to
the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting
deferred tax assets or liabilities are adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided
when it is more likely than not that a deferred tax asset will not be realized.
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
The
Company expects to recognize the financial statement benefit of an uncertain tax position only after considering the probability
that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not”
threshold, the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement
with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of December
31, 2018, the Company had no uncertain tax positions. The Company recognizes interest and penalties, if any, related to uncertain
tax positions as general and administrative expenses. The Company currently has no federal or state tax examinations nor has it
had any federal or state examinations since its inception. To date, the Company has not incurred any interest or tax penalties.
CONCENTRATION
OF CREDIT RISKS
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, notes
receivable, and trade receivables. The Company places its cash equivalents with high credit quality financial institutions. As
of December 31, 2018 and 2017 there were no trade receivables.
FINANCIAL
INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company applies the provisions of accounting guidance, FASB Topic ASC 825,
Financial Instruments
. ASC 825 requires all
entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the
balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 2018 and 2017,
the fair value of cash, note receivable, accounts payable, accrued expenses, and other payables approximated carrying value due
to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.
The
Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which
prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the
lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements).
Level
1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting
entity has the ability to access at the measurement date.
Level
2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable
for substantially the full term of the asset or liability.
Level
3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity
for the asset or liability at the measurement date.
The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when or a significant event
occurs. The Company had no financial assets or liabilities carried and measured on a recurring or nonrecurring basis during the
reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each
time a financial statement is prepared.
EQUITY
INSTRUMENTS ISSUED TO NON-EMPLOYEES FOR AQUIRING GOODS OR SERVICES
Issuances
of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the
fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a
commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include
a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which
performance is complete. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting
periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured
at the then-current fair values at each of those interim financial reporting dates.
NONCASH
EQUITY TRANSACTIONS
Shares
of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted
based on the estimated market value of the equity instrument, or at the estimated value of the goods or services received whichever
is more readily determinable.
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
RELATED
PARTIES
A
party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its
management, members of the immediate families of principal owners of the Company and its management and other parties with which
the Company may deal if one party controls or can significantly influence the management or operating policies of the other to
an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which
can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest
in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests is also a related party.
REVENUE
RECOGNITION
Revenue
from product sales, which are substantially all credit card sales, is recognized when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured,
and (4) delivery has occurred. Delivery criteria are satisfied when the products are shipped to a customer and title and risk
of loss passes to the customer in accordance with the terms of sale. The Company has no obligation to accept the return of the
products sold other than for replacement of damaged products.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
Between
May 2014 and December 2016, the FASB issued several ASU’s on Revenue from Contracts with Customers (Topic 606). 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. A five-step process has been defined to achieve
this core principle, and, in doing so, more judgment and estimates may be required within the revenue recognition process than
are required under existing U.S. GAAP. The standards are effective for annual periods beginning after December 15, 2017, and interim
periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application
of the standards in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective
approach with the cumulative effect of initially adopting the standards recognized at the date of adoption (which includes additional
footnote disclosures). The adoption of these new standards has not had a material impact on the Company’s financial statements.
Certain
other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective
and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from
adoption of these standards is not expected to be material
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
NOTE
3 - GOING CONCERN UNCERTAINTY
The
accompanying financial statements have been prepared assuming that 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 December 31, 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.
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 FORMER 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 is 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 2017 and 2018 as follows:
Loan
to Cornerstone on April 11, 2017
|
|
$
|
500,000
|
|
Cornerstone
payments to Unprescribed LLC service providers relating to Frelii, Inc. business plan
|
|
|
(136,489
|
)
|
Cornerstone
payments to Frélii, Inc. service providers
|
|
|
(22,871
|
)
|
|
|
|
|
|
Balance at
December 31, 2017
|
|
$
|
340,640
|
|
Cornerstone
payments to service providers relating to Frelii, Inc. business plan
|
|
|
(56,910
|
)
|
Cash
payments received by Frélii, Inc.
|
|
|
(260,100
|
)
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
$
|
23,630
|
|
Cornerstone
is owned by Gregory Mongeon, a former officer and director of the Company from January 17, 2018 to May15, 2018.
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
NOTE
5 – SOFTWARE
At
December 31, 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
|
|
|
(44,404
|
)
|
Net
|
|
$
|
189,971
|
|
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 December 31, 2018 follows:
Year
ending
December
31,
|
|
|
|
|
|
|
|
2019
|
|
$
|
46,875
|
|
2020
|
|
|
46,875
|
|
2021
|
|
|
46,875
|
|
2022
|
|
|
46,875
|
|
2023
|
|
|
2,471
|
|
|
|
$
|
189,971
|
|
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
NOTE
6 – SETTLEMENT AMOUNT DUE FORMER RELATED PARTY
On
June 1, 2018, 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 $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 December
31, 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 from July 2018 to December 2018.
NOTE
7 - COMMON STOCK AND PREFERRED STOCK TRANSACTIONS
On
December 14, 2017, the Company agreed to issue 500,000 shares of Class B Common Stock (issued February 22, 2018) in settlement
of a $500,000 Convertible Promissory Note which was issued on April 11, 2017 for $500,000 cash.
On
December 14, 2017, the Company agreed to issue 8,000,000 shares of Class B Common Stock (issued February 22, 2018) in settlement
of a $946,823 Exchange Note dated February 16, 2017 and accrued interest of $62,464.
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 totaling, in the aggregate, $400,000. All of the agreements may be terminated by the Company at any time
without cause by fiving 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 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 of 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.
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
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 expressed 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 shares 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 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
the 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 the $1,250,000 estimated fair value of the 1,000,000
shares of Class B Common Stock (using the $1.25 per share prices 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 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 at a price of $1.25 per share 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 $19,133 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 $12,922 (the $32,055 inventory acquired less the $19,133 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.
On
October 9, 2018, the Company sold 116,000 shares of Class B Common Stock (and a three-year warrant to purchase up to a total of
116,000 shares of Class B Common Stock at $1.50 per share) at $1.25 per share to an investor for $145,000 cash proceeds.
On
December 29, 2018, the Company sold 87,000 shares of Class B Common Stock to an investor of a price of $1.50 per share for $130,500
cash proceeds (which was collected January 9, 2019)
At
December 31, 2018, there are warrants outstanding to purchase a total of 2,416,000 shares of Class B Common Stock at prices ranging
from $1.25 to $1.50 per share.
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
NOTE
8 - INCOME TAXES
At
December 31, 2018, the Company had net operating loss carryforwards of approximately $4,233,000 that may be offset against future
taxable income. Approximately $3,126,000 of the $4,233,000 net operating losses expire in varying amounts from 2022 to 2037. No
tax benefits have been reported in the financial statements because the potential tax benefits of the net operating loss carry
forwards are offset by a valuation allowance of the same amount.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting
purposes are subject to annual limitations. Therefore, net operating loss carryforwards may be limited as to use in the future.
Net
deferred tax assets consist of the following components as of December 31, 2018 and December 31, 2017:
|
|
As
at December 31,
|
|
|
As
at December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
889,015
|
|
|
$
|
656,455
|
|
|
|
|
889,015
|
|
|
|
656,455
|
|
Valuation
allowance
|
|
|
(889,015
|
)
|
|
|
(656,455
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
FRÉLII
,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2018 AND 2017
(Expressed
in US dollars)
The
income tax provision (benefit) differs from the amount of income tax determined by applying the U.S. federal income tax rate of
21% and 34% to pretax income (loss) for the years ended December 31, 2018 and 2017, respectively, due to the following:
|
|
For
the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Expected
income tax (benefit) at statutory rates
|
|
$
|
(1,165,432
|
)
|
|
$
|
208,467
|
|
Non-deductible
stock based compensation
|
|
|
680,203
|
|
|
|
|
|
Non-deductible
amortization of software
|
|
|
9,325
|
|
|
|
|
|
Non-deductible
loss on settlement of debt
|
|
|
243,344
|
|
|
|
|
|
Non-taxable
change in fair value of embedded derivative
|
|
|
-
|
|
|
|
(63,850
|
)
|
Non-deductible
accretion of debt discount expense
|
|
|
-
|
|
|
|
71,617
|
|
Non-taxable
gain on conversion of note payable
|
|
|
-
|
|
|
|
(7,767
|
)
|
Re-measurement
of deferred income tax asset from 34% to 21% (a)
|
|
|
-
|
|
|
|
406,377
|
|
Change
in valuation allowance
|
|
|
232,560
|
|
|
|
(614,844
|
)
|
Provision
for (benefit from) income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
As a result of the Tax Cuts and Jobs Act enacted on December 22, 2017, the United States corporate income tax rate is 21% effective
January 1, 2018. Accordingly, we reduced our deferred income tax asset relating to our net operating loss carry forward (and the
valuation allowance thereon) by $406,377 from $1,062,832 to $656,455 as of December 31, 2017.
All
tax years remain subject to examination by major taxing jurisdictions.
NOTE
9 - SUBSEQUENT EVENTS
In
February and March 2019, the Company sold a total of 223,333 shares of Class B Common Stock to 8 investors at a price of $1.50
per share for total cash proceeds of $335,000.