Annual Report (10-k)

Date : 04/16/2019 @ 11:06AM
Source : Edgar (US Regulatory)
Stock : Frelii, Inc. (PN) (FRLI)
Quote : 0.094  -0.006 (-6.00%) @ 9:57PM

Annual Report (10-k)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____ to ____

 

Commission File No. 333-107179 & 000-51210

 

FRéLII, INC .

(Exact name of registrant as specified in its charter)

 

Nevada   980380519

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

     

2701 North Thanksgiving Way, Suite 100

Lehi, UT 84043

(Address of principal executive offices, including Zip Code)
 

(833) 437-3544

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes [X] No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class     Outstanding as of April 12, 2019  
  Common stock, $0.001 par value       39,297,440  

 

 

 

 
     

 

FRéLLI , INC.

 

TABLE OF CONTENTS

 

PART I    
     
Item 1. Business 4
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 13
Item 2. Properties 13
Item 3. Legal Proceedings 13
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14
Item 6. Selected Financial Data 16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk’ 23
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 23
Item 9A. Controls and Procedures 23
Item 9B. Other Information 24
     
PART III    
     
Item 10. Directors, Executive Officers and Corporate Governance 25
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 29
Item 13. Certain Relationships and Related Transactions, and Director Independence 30
Item 14. Principal Accounting Fees and Services 31
     
PART IV    
     
Item 15. Exhibits, Financial Statement Schedules 32
     
SIGNATURES 33

 

  - 2 -  

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Statements contained in this annual report include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Forward-looking statements made in this annual report generally are based on our best estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as “may”, “will”, “could”, “should”, “project”, “expect”, “believe”, “estimate”, “anticipate”, “intend”, “continue”, “potential”, “opportunity” or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions. Potential risks and uncertainties include, among other things, such factors as:

 

concentration of our customer base
our ability to maintain pricing;
deterioration of the credit markets;
competition within our industry;
asset impairment and other charges;
our identifying, making and integrating acquisitions;
loss of key executives;
the ability to employ skilled and qualified workers;
inadequacy of insurance coverage for certain losses or liabilities;
federal legislation and state legislative and regulatory initiatives relating to our industry;
future legislative and regulatory developments;
our beliefs regarding the future of our competitors;
our expectation that the demand for our products services will eventually increase; and
our expectation that we will be able to raise capital when we need it.

 

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in this Annual Report on Form 10-K for the period ended December 31, 2018, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks may cause the Frélii, Inc. or its industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

 

As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms “we,” “us,” “our,” or the “Company” refer to Frélii, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

  - 3 -  

 

 

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

 

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 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.

 

  - 4 -  

 

 

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.

 

  - 5 -  

 

 

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:

 

  requirements for the reformulation of certain or all products to meet new standards,
     
  the recall or discontinuance of certain or all products,
     
  additional record keeping,
     
  expanded documentation of the properties of certain or all products,
     
  expanded or different labeling,
     
  adverse event tracking and reporting, and
     
  additional scientific substantiation.

 

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.

 

  - 6 -  

 

 

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:

 

  Increase awareness of the Company’s brand, products, and services;
  Strengthen customer loyalty;
  Maintain current strategic relationships and develop new strategic relationships;
  Respond effectively to competitive pressures;
  Continue to develop and upgrade technology;
  Attract, retain, and motivate qualified personnel.

 

  - 7 -  

 

 

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:

 

  our ability to arrange financing for projects;
  our ability to complete technology upgrades;
  changes in federal, state and local government policies;
  changes in the medical insurance industry;
  the addition of new customers or the loss of existing customers;
  our ability to control costs, including operating expenses;
  changes in the mix of our products and services;
  the effectiveness of our marketing partnerships;
changes in the pricing of our competitors;

 

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.

 

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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.

 

  - 9 -  

 

 

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.

 

  - 10 -  

 

 

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:

 

  variations in our quarterly results
  announcements that our revenues or income/losses are below analysts’ expectations;
  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.

 

  - 11 -  

 

 

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.

 

  - 12 -  

 

 

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.

 

  - 13 -  

 

 

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” .

 

  - 14 -  

 

 

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.

 

  - 15 -  

 

 

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.

 

  - 16 -  

 

 

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.

 

  - 17 -  

 

 

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.

 

  - 18 -  

 

 

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.

 

  - 19 -  

 

 

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.

 

  - 20 -  

 

 

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.

 

  - 21 -  

 

 

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.

 

  - 22 -  

 

 

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.

 

  - 23 -  

 

 

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.

 

  - 24 -  

 

 

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.

 

  - 25 -  

 

 

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

 

  - 26 -  

 

 

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.

 

  - 27 -  

 

 


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

 

  - 28 -  

 

 

● 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 %

 

  - 29 -  

 

 

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.

 

  - 30 -  

 

 

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.

 

  - 31 -  

 

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

The following exhibits are filed as part of this Form 10-K:

 

Exhibit No.   Description
     
31.1   Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

  - 32 -  

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 15, 2019.

 

 

FRÉLII, INC.

   
April 15, 2019 By: /s/ Ian Jenkins
    Ian Jenkins
Chief Executive Officer, Chief Financial Officer and Director

 

  - 33 -  

 

 

FINANCIAL STATEMENTS

 

C O N T E N T S

 

 

Report of Independent Registered Public Accounting Firms F-1
   
Balance Sheets F-2
   
Statements of Operations F-3
   
Statements of Stockholders’ Equity F-4
   
Statements of Cash Flows F-5
   
Notes to the Financial Statements F-6

 

  - 34 -  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Frelii, Inc.:

 

Opinion on the Financial Statements

 

I have audited the accompanying balance sheets of Frelii, Inc. (the “Company”) as of December 31, 2018 and 2017 and the related statements of operations and comprehensive income (loss), shareholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In my opinion, the financial statements present fairly, in all material respects, the financial position of Frelii, Inc. as of December 31, 2018 and 2017 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

 

Going Concern Uncertainty

 

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s present financial situation raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on the Company’s financial statements based on my audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

I conducted my audit in accordance with the standards of the PCAOB. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. As part of my audit I am required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, I express no such opinion.

 

My audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. My audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that my audit provides a reasonable basis for my opinion.

 

  /s/ Michael T. Studer CPA P.C.
  Michael T. Studer CPA P.C.

 

Freeport, New York  
April 15, 2019  

 

I have served as the Company’s auditor since 2015.

 

  F- 1  

 

 

FRÉLII, INC.

BALANCE SHEETS

(Expressed in US dollars)

 

    December 31, 2018     December 31, 2017  
             
ASSETS                
                 
Current Assets                
                 
Cash and cash equivalents   $ 58,558     $ -  
Common stock subscription receivable (collected January 9, 2019)     130,500       -  
Inventory     22,524       -  
Prepaid expenses     8,426       -  
Note receivable     23,630       340,640  
Interest receivable     1,060       14,466  
Total current assets     244,698       355,106  
                 
Software, less accumulated amortization of $44,404 and $0 respectively     189,971       -  
                 
TOTAL ASSETS   $ 434,669     $ 355,106  
                 
LIABILITIES AND SHAREHOLDER’S EQUITY                
                 
Current Liabilities                
                 
Accounts payable and accrued liabilities     55,057       3,339  
Accrued salaries and related expense     23,573       -  
Settlement amount due former related party     126,654       -  
Advances from former related parties     -       37,064  
                 
TOTAL LIABILITIES     205,284       40,403  
                 
SHAREHOLDERS’ EQUITY                
Preferred stock, $.001 par value; 20,000,000 shares authorized Series A Preferred Stock; $.001 par value, 0 (December 31, 2017 – 100) shares issued and outstanding     -       -  
Common Stock, par value $.001 per share; 2,000,000,000 shares authorized: Class B Common Stock, $.001 par value; 39,074,107 (December 31, 2017 - 10,441,107) shares issued and outstanding     39,074       10,441  
                 
Additional paid in capital     8,865,966       3,430,239  
                 
Accumulated deficit     (8,675,655 )     (3,125,977 )
                 
TOTAL SHAREHOLDERS’ EQUITY     229,385       314,703  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 434,669     $ 355,106  

 

The accompanying notes are an integral part of these financial statements

 

  F- 2  

 

 

FRÉLII, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Expressed in US dollars)

 

    For the year ended December 31,  
    2018     2017  
             
Revenue   $ 35,945     $ -  
Cost of goods sold     27,841       -  
                 
Gross profit     8,104       -  
                 
Operating expenses                
                 
Compensation (including stock-based compensation of $3,239,063 and $0, respectively     3,784,786       -  
Settlement with former related party     133,320       -  
                 
Marketing and advertising     204,302       133,739  
Professional fees     77,939       -  
Amortization of software     44,404       -  
Other     155,401       92,153  
                 
Total Operating Expenses     4,400,152       225,892  
                 
(Loss) from operations     (4,392,048 )     (225,892 )
                 
Other Income (expense)                
Gain (loss) on settlement of debt     (1,158,780 )     886,063  
Interest income on note receivable     3,743       14,466  
Change in fair value of embedded derivative     -       187,793  
Accretion expense – debt discount     -       (210,638 )
Gain on conversion of convertible note payable     -       22,845  
Interest expense     (2,593 )     (79,145 )
                 
Total other income (expense)     (1,157,630 )     821,384  
                 
Income (loss) before income taxes     (5,549,678 )     595,492  
Income tax expense     -       -  
Net income (loss) and comprehensive income (loss)   $ (5,549,678 )   $ 595,492  
Net income (loss) per common share:                
Basic   $ (0.16 )   $ 0.25  
Diluted   $ (0.16 )   $ 0.07  
Weighted average number of Common Shares Outstanding -                
Basic     35,431,874       2,360,285  
Diluted     35,431,874       9,295,902  

 

The accompanying notes are an integral part of these financial statements

 

  F- 3  

 

 

FRÉLII, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended December 31, 2018 and 2017

(Expressed in US dollars)

 

    Series A Preferred Stock     Class B Common Stock                    
    Number of Shares Issued     Amount     Number of Shares Issued     Amount     Additional
Paid in Capital
    Accumulated Deficit     Total  
Balance at January 1, 2017     100       -       1,941,107     $ 1,941       1,915,917       (3,721,469 )     (1,803,611 )
                                                         
Issuance of common stock in settlement of Convertible Promissory Note and accrued interest                     500,000       500       513,035               513,535  
Issuance of common stock in settlement of Exchange Note                     8,000,000       8,000       1,001,287               1,009,287  
Net income     -       -       -       -       -       595,492       595,492  
                                                         
Balance at December 31, 2017     100       -       10,441,107       10,441       3,430,239       (3,125,977 )     314,703  
                                                         
Cancellation of shares     (100 )             (1,830,000 )     (1,830 )     1,830               -  
Issuance of common stock in connection with acquisition of software                     7,500,000       7,500       226,875               234,375  
Issuance of common stock for services                     21,360,000       21,360       3,217,703               3,239,063  
Sale of common stock and warrants                     583,000       583       727,417               728,000  
Asset acquisition                     20,000       20       12,902               12,922  
                                                         
Issuance of common stock in settlement of debt                     1,000,000       1,000       1,249,000               1,250,000  
Net (Loss)     -       -       -       -       -       (5,549,678 )     (5,549,678 )
                                                         
Balance at December 31, 2018     -       -       39,074,107     $ 39,074     $ 8,865,966     $ (8,675,655 )   $ 229,385  

 

The accompanying notes are an integral part of these financial statements

 

  F- 4  

 

 

FRÉLII, INC

STATEMENTS OF CASH FLOWS

(Expressed in US dollars)

 

    Year Ended     Year Ended  
    December 31, 2018     December 31, 2017  
             
Net (loss)   $ (5,549,678 )   $ 595,492  
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Marketing expenses paid by                
Cornerstone Medical Center LLC     -       136,489  
Stock based compensation     3,239,063          
Loss (gain)on settlement of debt     1,158,780       (886,063 )
Gain on conversion of convertible note payable     -       (22,845 )
Amortization of software     44,404          
Change in fair value of embedded derivative     -       (187,793 )
Accretion expense - debt discount on note payable     -       210,638  
Changes in operating assets and liabilities:                
Inventory     9,531       -  
Prepaid expenses     (8,426 )     -  
Interest receivable     13,406       (14,466 )
Interest payable on notes payable to former related parties     -       65,610  
Interest payable on convertible promissory note     -       13,535  
Accounts payable and accrued liabilities     56,158       52,339  
Settlement amount due former related party     126,654       -  
                 
Net cash used in operating activities     (910,108 )     (37,064 )
                 
Cash Flows From Investing Activities:                
Secured promissory note receivable     -       (500,000 )
Collections of secured promissory note receivable     317.010       -  
Net cash provided by (used in) investing activities     317.010       (500,000 )
                 
Cash flows from financing activities:                
Sale of Class B common stock     597,500       -  
Advances from former related parties     54,156       37,064  
Proceeds from convertible note     -       500,000  
                 
Net cash provided by financing activities     651,656       537,064  
                 
Increase in cash and and cash equivalents     58,558       -  
                 
Cash and cash equivalents, beginning of period     -       -  
                 
Cash and cash equivalents, end of period   $ 58,558     $ -  
      -          
Supplemental disclosures of cash flow information:                
Cash payments for:                
Interest paid   $ 13,888     $ -  
Income taxes paid   $ -     $ -  
Non-cash investing and financing activities:                
                 
Stock issued for settlement of debt   $ 1,250,000     $ 1,522,822  
Stock issued for software   $ 234,375     $ -  
Stock issued for inventory ($32,055) less debt assumed (19,133)   $ 12,922     $ -  
                 
Stock issued for common stock subscription receivable (collected January 9, 2019)   $ 130,500     $ -  

 

The accompanying notes are an integral part of these financial statements

 

  F- 5  

 

 

FRÉLII , INC.

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.

 

  F- 6  

 

 

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.

 

  F- 7  

 

 

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.

 

  F- 8  

 

 

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

 

  F- 9  

 

 

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.

 

  F- 10  

 

 

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  

 

  F- 11  

 

 

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.

 

  F- 12  

 

 

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.

 

  F- 13  

 

 

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,