FRLI Frlii Inc (CE)

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:

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:

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:

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:

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.