UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarter ended September 30, 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.)

 

2600 W. Executive Pkwy., Suite 500

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). [  ] Yes [X] 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 November 19, 2018
Class B Common stock, $0.001 par value		38,987,107
Class A Common stock, $0.001 par value		-0-

 

 

 

FRéLII, INC.

 

TABLE OF CONTENTS

 

PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Default upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
SIGNATURES		18

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

The Financial Statements of the Company are prepared as of September 30, 2018.

 

FRÉLII, INC.

BALANCE SHEETS

(Expressed in US dollars)

 

		September 30,				December 31,
		2018				2017
			(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	123,656			$	-
Inventory			14,070				-
Prepaid inventory			8,225				-
Note receivable			24,124				340,640
Interest receivable			821				14,466
Total current assets			170,896				355,106
Software, less accumulated amortization of $32,685 and $-0- respectively			201,690				-
Total assets		$	372,586			$	355,106
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities		$	28,757			$	3,339
Accrued salaries and related expenses			22,679				-
Settlement amount due from former related party			126,654				-
Advances from related parties			-				37,064
Total liabilities			178,090				40,403
Shareholders’ equity (deficit)
Preferred Stock, $0.001 par value; 20,000,000 shares authorized:
Series A Preferred Stock, $0.001 par value; 0 (December 31, 2016 - 100) shares issued and outstanding			-				-
Common Stock, $0.001 par value; 2,000,000,000 shares authorized:
Class B Common Stock, $0.001 par value; 38,871,107 (December 31, 2016 – 10,441,107) shares issued and outstanding			38,871				10,441
Additional paid in capital			8,590,669				3,430,239
Accumulated deficit			(8,435,044	)			(3,125,977	)
Total shareholders’ equity (deficit)			194,496				314,703
Total liabilities and shareholders’ equity (deficit)		$	372,586			$	355,106

 

See accompanying notes to the financial statements

 

 

FRÉLII, INC.

STATEMENTS OF OPERATIONS

(Expressed in US dollars)

 

		Three Months				Three Months				Nine Months				Nine Months
		Ended September 30,				Ended September 30,				Ended September 30,				Ended September 30,
		2018				2017				2018				2017
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue		$	13,375			$	-			$	17,116			$	-
Cost of goods sold			17,985				-				17,985				-
Gross profit (loss)			(4,610	)			-				(869	)			-
Operating expenses
Compensation (including stock-based compensation of $1,489,063, $0, $3,239,063, and $0 respectively			1,013,604				-				3,644,873				-
Settlement with former related party			-								133,320
Marketing and advertising			32,603				-				175,699				-
Professional fees			14,335				-				65,816				-
Amortization of software			11,719				-				32,685				-
Other			26,360				-				100,236				-
Total Operating Expenses			1,098,621				-				4,152,629				-
(Loss) from operations			(1,103,231	)			-				(4,153,498	)			-
Other Income (expense)
Gain (loss) on settlement of debt			(1,158,780	)			-				(1,158,780	)			671,585
Interest income			243				5,041				3,504				9,425
Interest expense			(293	)			(26,590	)			(293	)			(74,072	)
Accretion expense			-				(73,404	)			-				(137,234	)
Change in fair value of embedded derivative			-				45,219				-				126,021
Total other income (expense)			(1,158,830	)			(49,734	)			(1,155,569	)			595,725
Income (loss) before taxes			(2,262,061	)			(49,734	)			(5,309,067	)			595,725
Income tax expense			-				-				-				-
Net income (loss) and comprehensive income (loss)		$	(2,262,061	)		$	(49,734	)		$	(5,309,067	)		$	595,725
Basic and Diluted (Loss) Per Share		$	(0.06	)		$	(0.03	)		$	(0.15	)		$	0.31
Weighted average number of Common Shares Outstanding -
Basic and Diluted			38,009,585				1,943,634				34,272,865				1,943,634

 

See accompanying notes to financial statements

 

 

FRÉLII, INC.

STATEMENTS OF CASH FLOWS

(Expressed in US dollars)

 

		Nine Months				Nine Months
		Ended September 30,				Ended September 30,
		2018				2017
		(Unaudited)				(Unaudited)
Net (loss)		$	(5,309,067	)		$	595,725
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Stock based compensation			3,239,063
Loss (gain)on settlement of debt			1,158,780				(671,585	)
Amortization of software			32,685
Change in fair value of embedded derivative			-				(126,021	)
Accretion expense - debt discount on note payable			-				137,234
Changes in operating assets and liabilities:
Prepaid inventory			(8,225	)
Interest receivable			13,645				(9,425	)
Accounts payable and accrued liabilities			46,949
Settlement amount due former related party			126,654				102,722
Net cash used in operating activities			(699,516	)			28,650
Cash Flows From Investing Activities:
Secured promissory note receivable			-				(500,000	)
Collections of secured promissory note receivable			316,516				-
Net cash used in investing activities			316,516				(500,000	)
Cash flows from financing activities:
Sale of Class B common stock			452,500				-
Advances from former related parties			54,156				30,225
Proceeds from convertible note			-				500,000
Net cash provided by financing activities			506,656				530,225
Increase in cash and and cash equivalents			123,656				58,875
Cash and cash equivalents, beginning of period			-				-
Cash and cash equivalents, end of period		$	123,656			$	58,875
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			$	-
Stock issued for software		$	234,375			$	-
Stock issued for inventory ($32,055) less debt assumed ($19,244)		$	12,811			$	-

 

See accompanying notes to the financial statements

 

 

FRéLII, INC.

NOTES TO THE FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(Expressed in US dollars)

(Unaudited)

 

NOTE 1 — NATURE OF OPERATIONS

 

The Company incorporated in the State of Nevada on September 5, 2002, under the name “Bayview Corporation.” On April 7, 2005, the Company changed its name to Xpention Genetics, Inc. concurrent with a change in its business to researching and developing cancer treatment drugs. On September 17, 2008, the Company changed its name to Cancer Detection Corporation. On August 13, 2009, the Company again changed its name to Tremont Fair, Inc. From July 2009 until May 2011, the Company operated as a real estate services firm, seeking to capitalize on the real estate opportunities resulting from the dislocation in the credit markets, and by extension, the multifamily housing market, by acquiring, rehabilitating, stabilizing and selling distressed multifamily properties in the southern United States, predominantly in Texas. On May 26, 2011, the Company changed its name to Vican Resources, Inc., and changed its business model when it sold the real estate services division and acquired all of the outstanding shares of Vican Trading, Inc., a Montreal-based purchaser and seller of metals, ores, and other commodities (hereafter, “Vican Trading”). Upon the acquisition of Vican Trading, there was an implied option for either party to rescind the original acquisition. During 2011, that rescission option was exercised and on December 20, 2011, the Company again changed its business when it unwound the acquisition of Vican Trading and acquired all of the assets of Med Ex Direct, Inc., a Florida-based provider of management services in respect of the distribution of diabetic supplies, principally to Hispanic patients (hereafter, “Med Ex Florida”). On March 22, 2012, the Company again changed its business to become an oil & gas exploration, development, and distribution company, unwound the purchase of the assets of Med Ex Florida, and acquired an interest in two oil & gas wells located in Jefferson County, Mississippi.

 

In April 2017, the Company underwent a change of control whereby our current Chief Executive Officer Ian Jenkins acquired a controlling interest in the Company’s capital stock and was appointed our sole officer and director. On April 11, 2017, the Company executed a Share Exchange Agreement with Unprescribed, LLC, later amended to include Cornerstone Medical Center LLC, whereby the Company, among other terms, agreed to exchange shares with the ownership units of those two entities for 25,000,000 shares of the Company’s Class B Common Stock (no shares of Class A Common Stock are issued or outstanding, so the Class B Common Stock is hereinafter referred to as the “Class B Common Stock” or the “Common Stock”). The Share Exchange Agreement, as amended, terminated by its own terms on December 31, 2017. Following the termination of the Share Exchange Agreement, the Company modified its business plan to acquire certain intellectual property assets and to engage a new management team to effectuate the new business plan.

 

Effective March 9, 2018, the Company changed its name to Frélii, Inc. The new business plan is to launch a web-based subscription service providing personalized nutrition and wellness plans. The Company launched its website, www.frelii.com, in March 2018 beta testing a limited number of free users.

 

NOTE 2 — BASIS OF PRESENTATION OF UNAUDITED CONDENSED FINANCIAL INFORMATION

 

The unaudited condensed financial statements of the Company for the three and nine month periods ended September 30, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2017 was derived from the audited financial statements included in the Company’s financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). These financial statements should be read in conjunction with that report.

 

 

Recently Issued Accounting Pronouncements

 

Between May 2014 and December 2016, the FASB issued several ASU’s on Revenue from Contracts with Customers (Topic 606). These updates supersede nearly all existing revenue recognition guidance under current U.S. generally accepted accounting principles (GAAP) and became effective for annual periods beginning after December 15, 2017 and interim periods therein. The core principle is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.

 

Adoption of these updates in 2018 has not had any impact on our financial statements.

 

NOTE 3 - GOING CONCERN UNCERTAINTY

 

The accompanying financial statements have been prepared as if the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained net losses which have resulted in an accumulated deficit at September 30, 2018, and negative cash flows from operations, all of which raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

The Company believes these conditions have resulted from the inherent risks associated with small companies. Such risks include, but are not limited to, the ability to (i) generate revenues and sales of its products and services at levels sufficient to cover its costs and provide a return for investors, (ii) attract additional capital in order to finance growth, (iii) further develop and successfully market commercial products and services, and (iv) successfully compete with other comparable companies having financial, production and marketing resources significantly greater than those of the Company.

 

On April 5, 2017 (see Note 1), there was a change in control of the Company. We expect to be dependent on additional debt and equity financing to develop our new business but we cannot assure you that any such financings will be available or will otherwise be made on terms acceptable to us, or that our present shareholders might suffer substantial dilution as a result.

 

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

These financial statements have been prepared on the basis that the Company will continue as a going concern, which presumes that it will be able to realize its assets and discharge its liabilities in the normal course of business as they come due. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.

 

NOTE 4 – PROMISSORY NOTE RECEIVABLE FROM RELATED PARTY

 

On April 11, 2017, pursuant to a Security Agreement dated April 11, 2017, the Company paid $495,000 to Cornerstone Medical Center LLC (“Cornerstone”). In exchange, the Company received a $500,000 Secured Promissory Note from Cornerstone (the “Promissory Note”), dated April 11, 2017. The Promissory Note bears interest at 4% per annum, or 18% in the event of a default under the Promissory Note. The principal and interest was due on December 31, 2017. The Promissory Note is secured by all the assets of Cornerstone.

 

 

The principal balance of the promissory note changed in the nine months ended September 30, 2018 as follows:

 

Balance of Cornerstone Note at December 31, 2017		$	340,640
Cornerstone payments to service providers relating to Frélii, Inc. business plan			(56,910	)
Cash payments received by Frélii, Inc.			(259,606	)
Balance at September 30, 2018		$	24,124

 

Cornerstone is owned by Gregory Mongeon, who served as a former officer and director of the Company from January 17, 2018 to May 15, 2018.

 

NOTE 5 – SOFTWARE

 

At September 30, 2018, software, net, consisted of:

 

Software and intellectual property acquired from Christopher Dean pursuant to Tech Assignment Agreement on January 18, 2018 in exchange for 7,500,000 shares of Class B Common Stock (see Note 7).		$	234,375
Accumulated amortization			(32,685	)
Net		$	201,690

 

On January 23, 2018, the Company engaged Fish & Richardson LLP to handle intellectual property work such as patent and trademark applications relating to the software.

 

The acquired software is being amortized using the straight-line method over its estimated economic life of 5 years. Expected future amortization expense for the acquired software as of September 30, 2018 follows:

 

Year ending December 31,		Amount
2018			11,719
2019			46,875
2020			46,875
2021			46,875
2022			46,875
2023			2,471
Total		$	201,690

 

NOTE 6 – SETTLEMENT AMOUNT DUE FORMER RELATED PARTY

 

On June 1, 2017, the Company and Gregory Mongeon (see Note 4 above) executed a Separation and Release Agreement. The agreement provides for the Company to make 20 monthly cash payments of $6,666 each to Mr. Mongeon from June 5, 2018 to January 5, 2020 (total of $133,320). The agreement also provides for limits on future sales of 7,500,000 shares of Class B Common Stock owned by Mr. Mongeon. At September 30, 2018, the remaining amount due Mr. Mongeon pursuant to the Separation and Release Agreement was $126,654. The Company failed to make the required monthly payments due from July 2018 to September 2018.

 

NOTE 7 - ADVANCES FROM RELATED PARTIES

 

Advances from related parties, which are all non-interest bearing and due on demand, consist of the following:

 

		September 30, 2018				December 31, 2017
Kline Law Group P.C. and spouse of controlling person of Kline Law Group P.C.		$	-			$	37,064
Total		$	-			$	37,064

 

 

Kline Law Group P.C. (“KLG”) was counsel to the Company at September 30, 2018, and is controlled by Scott Kline. Julia Kline, wife of Scott Kline, served as the Company’s Chief Operating Officer from January 19, 2018 to July 13, 2018. (See Note 8)

 

On July 6, 2018 (see Note 8), the liability to KLG and the spouse of the controlling person of KLG was satisfied.

 

NOTE 8 - COMMON STOCK AND PREFERRED STOCK TRANSACTIONS

 

On January 18, 2018, the Company entered into a technology assignment agreement (the “Tech Assignment Agreement”) whereby the Company acquired certain intellectual property consisting of advanced computer programming software, source code, proprietary designs, plans, processes, test procedures, and other technical data and information (the “Technology”) from Christopher Dean in exchange for 7,500,000 shares of Class B Common Stock of the Company. Christopher Dean was the Chief Technology Officer and a director of the Company from January 17, 2018 to March 27, 2018.

 

The $234,375 estimated fair value of the 7,500,000 shares of Class B Common Stock was capitalized as software. As the trading market of the Company’s Class B Common Stock was inactive, the fair value of the Class B Common Stock was based on the $0.03125 per share price derived from the $250,000 purchase price of the Exchange Note, which was converted to 8,000,000 shares of Class B Common Stock on December 14, 2017.

 

On January 19, 2018, the Company entered into employment agreements with Ian Jenkins (Chief Executive Officer and Chief Financial Officer), Christopher Dean (former Chief Technology Officer), Dr. Gregory Mongeon (former Chief Medical Officer), Seth Jones (Chief Marketing Officer), and Julia Kline (former Chief Operating Officer). The agreements all have a term of five years and provide for annual base salaries totalling, in the aggregate, $400,000. All of the agreements may be terminated by the Company at any time without cause by giving written notice to the respective employee for which termination is effective 30 days therefrom. On January 31, 2018, pursuant to the employment agreements, the Company issued a total of 17,450,000 shares of Class B Common Stock of the Company to these five officers.

 

The $545,312 estimated fair value of the 17,450,000 shares of Class B Common Stock using the 0.03125 per share price described in the second preceding paragraph was expensed as compensation in the three months ended March 31, 2018.

 

On January 21, 2018 and January 26, 2018, the Company’s Chief Executive Officer returned 100 shares of Series A Preferred Stock and 1,830,000 shares of Class B Common Stock to the Company’s treasury that were cancelled by the Company.

 

On January 31, 2018, the Company issued a total of 1,800,000 shares of Class B Common Stock of the Company to 6 service providers (including 800,000 shares issued to two relatives of the Company’s Chief Executive Officer and 600,000 shares issued to two independent directors of the Company) for services rendered.

 

The $56,250 estimated fair value of the 1,800,000 shares of Class B Common Stock (using the $0.03125 per share as described in the fifth preceding paragraph) was expensed as compensation in the three months ended March 31, 2018.

 

On March 23, 2018, the Company sold 150,000 shares of Class B Common Stock to an investor at a price of $1.25 per share for $187,500 cash proceeds.

 

On May 8, 2018, the Company issued 600,000 shares of Class B Common Stock of the Company to Dr. Hans Jenkins in connection with an employment agreement signed between Dr. Jenkins and the Company on the same date. The $750,000 estimated fair value of the 600,000 shares of Class B Common Stock (based on the $1.25 per share price of the March 23, 2018 sale of 150,000 shares of Class B Common Stock) was expensed as compensation in the three months ended June 30, 2018.

 

On May 15, 2018, the Company issued a total of 800,000 shares of Class B Common Stock of the Company to 6 employees and consultants for services rendered pursuant to the Company’s 2018 Incentive Stock Option Plan. The $1,000,000 estimated fair value of the 800,000 shares of Class B Common Stock (based on the $1.25 per share price of the March 23, 2018 sale of 150,000 of Class B Common Stock) was expensed as compensation in the three months ended June 30, 2018.

 

 

On July 6, 2018, the Company issued a total of 600,000 shares of Class B Common Stock to its two outside directors (300,000 shares each) for services rendered. The $750,000 estimated fair value of the 600,000 shares of Class B Common Stock (based on the $1.25 per share price of the March 23, 2018 sale of 150,000 shares of Class B Common Stock) was expensed as compensation in the three months ended September 30, 2018.

 

On July 6, 2018, the Company settled an outstanding debt of $91,220 for professional fees incurred and operating expenses paid on behalf of the Company owed to Kline Law Group, P.C. and its principal Scott Kline. Mr. Kline and Kline Law Group agreed to waive all outstanding amounts due as of July 6, 2018, in exchange for 1,000,000 Class B Common Stock shares, and warrants to purchase 2,000,000 shares of common stock at $1.25 per share. The $1,158,780 excess of the $1,250,000 estimated fair value of the 1,000,000 shares of Class B Common Stock (using the $1.25 per share priced described in the preceding paragraph) over the $91,220 debt settled was expensed as loss on settlement of debt in the three months ended September 30, 2018.

 

On July 13, 2018, Julia Kline resigned all her positions with the Company. Ms. Kline was appointed as the Company’s Chief Operating Officer on January 17, 2018 and as Secretary on March 27, 2018.

 

On July 20, 2018, the Company sold 100,000 shares of Class B Common Stock and a three-year warrant to purchase up to 100,000 shares of Class B Common Stock at $1.50 per share to an investor for $125,000 cash proceeds.

 

On July 31, 2018, the Company entered into an Asset Purchase Agreement with Kingdom Life Sciences, LLC, a Utah limited liability company (“KLS”), and its equity holders whereby the Company agreed to purchase certain inventory and related intellectual property of KLS in exchange for assumption of a liability of KLS in the amount of $19,244 and 20,000 Class B Common Stock shares of the Company. KLS is controlled by Ian Jenkins, Company Chief Executive Officer, and Gregory Mongeon and Christopher Dean, former officers and directors of the Company. Pursuant to ASC 805-50 relating to transactions between entities under common control, the inventory was recorded at KLS’s historical carrying amount of $32,055 and the increase in stockholders’ equity was recorded at $12,811 (the $32,055 inventory acquired less the $19,244 liability assumed).

 

From August 17, 2018 to August 31, 2018, the Company sold a total of 130,000 shares of Class B Common Stock (and three year warrants to purchase up to a total of 200,000 shares of Class B Common Stock at $1.50 per share) at prices of $1.00 and $1.25 per share to four investors for total cash proceeds of $140,000.

 

On August 31, 2018, the Company issued a total of 110,000 shares of Class B Common Stock to two consultants for services rendered. The $137,500 estimated fair value of the 110,000 shares of Class B Common Stock (using the $1.25 per share price described in the preceding paragraph) was expensed as compensation in the three months ended September 30, 2018.

 

NOTE 9 – SUBSEQUENT EVENTS

 

On October 9, 2018 the Company sold 116,000 shares of Class B Common Stock (and three year warrents to purchase up to a total of 116,000 shares of Class B Common Stock at $1.50 per share) at a price of $1.25 per share to an entity investor for $145,000 cash proceeds.

 

 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Special Note Regarding Forward Looking Statements

 

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words “believe”, “expect”, “anticipate”, “project”, “targets”, “optimistic”, “intend”, “aim”, “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to our potential inability to raise additional capital; changes in domestic and foreign laws, regulations and taxes; uncertainties related to China’s legal system and economic, political and social events in China; Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks”; changes in economic conditions, including a general economic downturn or a downturn in the securities markets; and any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for fiscal year ended December 31, 2016 and subsequent SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

 

Our History

 

The Company incorporated in Nevada September 5, 2002 as “Bayview Corporation.” Since 2002, the Company changed control and its name and business plan numerous times. In April 2017, our current Chief Executive Officer acquired a controlling interest in the Company, and in January 2018, the Company commenced its current operations, which consist of providing personalized health and nutrition plans based on genetics and our artificial intelligence-driven computer algorithm. On March 9, 2018, the Company changed its name to Frélii, Inc. and its ticker symbol to “FRLI” to coincide with its new business plan as disclosed on Form 8-K filed the same date.

 

Overview of Our Business and Strategy

 

The Company’s original core business strategy is 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’ 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 expanded business model now includes the following technology licensing channels/opportunities: (i) Life and Health Insurance – underwriting data/genetic analysis and , (ii) Hospital Systems – diagnostic, health risk identification and precision medicine, (iii) Consumer Wellness – our personalized health and wellness DNA platform, both for personal and corporate wellness/rewards purposes, and (iv) Medical Cannabis Use Analysis – data/genetic analysis for cannabis selection purposes.

 

Our Technology

 

The principals of Frelii began developing a computer learning-based algorithm in 2014. That algorithm, and the resulting AI (artificial intelligence) based software called “Navii”, was developed with the primary goal of analyzing DNA information to generate highly-personalized protocols based on such DNA information. In 2017, the Company created a web-based platform and subscription-based model at www.frelii.com that provides users personalized, DNA-based diet and nutrition plans and identification of certain potential health risks. We believe our technology can assist our health providers to identify and treat many different health concerns and help people live their best life. Our easy-to-use web platform provides subscribers an individualized health analysis that identifies a user’s most significant health risks and generates health programs based on their individual blood markers, genetics and lifestyle. Subscribers who have previously received genetic health information from 23andMe can provide their login information, and our site will upload that data to the algorithm, which will automatically adjust patient protocols. Our comprehensive wellness plans feature nutrition and fitness plans, supplement recommendations, downloadable menus, recipes, and shopping lists, and virtual personal training. Subscribers can enhance their customized plan by ordering additional lab diagnostic kits for more comprehensive testing and analysis or by requesting a personal consultation with one of the licensed health providers in our affiliate network. Subscribers can also order nutritional and vitamin supplements from our premium health marketplace. In fourth quarter 2018 the company is releasing a custom DNA kit that offers full genome analysis at a comparable price to 23&me’s less extensive genotyping kit. The Company’s personalized plans now feature meal plans, virtual personal training, supplement recommendations, downloadable menus, recipes, and shopping lists.

 

 

The Company has continued to develop its AI technology. Aided in part by the gift of base code and large data sets from an unnamed global tech and information allie. 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, when the website and membership plan was originally offered to the public, our technology could analyze approximately 400 thousand data points (originally from DNA result generated by third party genotyping) and could 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 60 million 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, insurers, 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 and expand its consumer web-based platform business line, the Company’s expanded business model now includes the following technology licensing channels/opportunities:

 

	●	Life and Health Insurance. Management has begun negotiations with a large US-based multi-national financial services and insurance conglomerate for the use of its technology to potentially aid in life and other insurance underwriting using Frelii’s DNA-based health risk capabilities. The Company believes that this application of its technology may provide far more accurate underwriting than simple blood tests and physical exams, the current method of information gathering for life insurance providers.
	●	Hospital Systems. Management is also in negotiations with the management group of a majority of US-based hospitals. 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 seek to 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. The Company is also in negotiations with Canada-based health care organizations for the same purpose.
	●	Consumer Wellness. Frelii Inc. has signed a limited partnership with DOT Inc. a company owned in part by Steve Wozniak. DOT Inc. will be intimately involved in the launch and promotion of Frelii’s personalized health and wellness DNA platform. In the near future, we plan to offer our subscribers the opportunity to enhance their personalized wellness plans by ordering lab diagnostic kits for more comprehensive blood testing and analysis. In addition, we are negotiating with other wellness and lifestyle web-based platform providers, such as corporate wellness companies and large supplement providers to license Frelii’s AI technology to aid in their product offerings.
	●	Medical Cannabis Use Analysis. Where medical cannabis use is legal, such as in Canada, a newly created application of Company’s AI can be used to help cannabis users determine the best or most appropriate strain or type of cannabis to use based on an individual’s genetic information. The Company believes that this application could change the way that medical cannabis users buy, prepare and use cannabis for medicinal purposes.

 

 

The Company believes that these licensing and joint venture opportunities will provide the Company with access to the consumer and user data necessary to unlock the full capabilities of its technology.

 

Our Management Team

 

The Company’s Board of Directors is comprised of experienced professionals in multiple areas of importance to the Company’s business strategy:

 

	●	Alternative Health Care – Our Chief Executive Officer and Chairman Ian Jenkins has over 10 years of experience as a senior executive in the health and supplement industry, and an extensive background in physiology, technology startups, and supplement product research and development; Our director James Spallino has over 35 years of experience in the integrative medical and dental industry as both an entrepreneur and consultant;
	●	Medical – Our director and Chief Medical Officer Dr. Hans Jenkins is a board-certified physician specializing in preventive health education, medical screenings, and lifestyle modifications to obtain optimal health;
	●	Digital Marketing – Our Chief Marketing Officer Seth Jones is a marketing strategist and digital media expert, produced and distributed digital content that generated more than 4.5 million subscribers and over 915 million views on YouTube and over 3.2 million subscribers and over a billion views on Facebook for an extreme sports and adventure video production company;
	●	International Trade – Our director Tarek Mango has been involved in international trade and business development for over 20 years, and has successfully consulted for, built, and introduced U.S. health care-related brands into Middle Eastern, Asian, and European markets;

 

Our Marketing Plans/Launch Schedule

 

We have planned a comprehensive digital marketing campaign that includes Facebook and Twitter ads, a media affiliate program, and other social media digital advertising.

 

Our Future Development Plans

 

In addition to the new licensing model described above, the Company is currently developing, either alone or in cooperation with development partners, and will distribute a series of innovative and proprietary functional food and alternative healthcare/supplement/health and beauty products. We believe that several of these products have the potential of being highly disruptive to existing product offering currently in the market, or wholly revolutionary. We believe that these products are the natural and organic extension of our plan to provide a full suite of personalized health assessments and action plans to our customers.

 

Our Offices

 

Our executive offices are located at 2600 W. Executive Pkwy., Ste. 500, Lehi, UT 84043. You can also contact our customer service department by telephone at (833) 4FRELII.

 

Liquidity and Capital Resources

 

As of September 30, 2018, the Company’s primary source of liquidity consisted of $123,656 in cash and cash equivalents. Since inception, the Company has financed its operations through a combination of short and long-term loans, and through the private placement of its common stock.

 

The Company has sustained significant net losses which have resulted in an accumulated deficit at September 30, 2018 of $8,435,044, and is currently experiencing a shortfall in operating capital which raises doubt about the Company’s ability to continue as a going concern.

 

 

We are currently seeking to secure additional debt or equity capital to finance substantial business development initiatives, including the next phase of our website product. However, there is presently no agreement in place with any source of financing for the Company and there can be no assurance that the Company will be able to raise any additional funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will likely be substantially dilutive to current shareholders. Lack of additional funds will materially affect the Company and its business, and may cause the Company to cease operations. Consequently, shareholders could incur a loss of their entire investment in the Company.

 

Results of operations for the three months ended September 30, 2018 and 2017.

 

Revenues. For the three months ended September 30, 2018 and 2017, revenues were $13,375 and $0 respectively.

 

Operating expenses. Operating expenses for the three months ended September 30, 2018 was $1,103,231 compared to $0 for the three months ended September 30, 2017. The increase in operating expenses was mainly due to $1,013,604 in compensation expenses, which includes salaries paid to employees and consultants and stock based compensation.

 

Other Income (Expenses). Other expense for the three months ended September 30, 2018, was a loss of $1,158,830 compared with other income of $0 for the three months ended September 30, 2017, almost all of which loss was attributable to settlement of debts.

 

Net loss for the three months ended September 30, 2018 was $2,262,061 compared to a net loss of $49,734 for the three months ended September 30, 2017. The increase in net loss was a result of commencing actual business operations and the gain on settlement of debt that was recorded during the three months ended September 30, 2017.

 

Results of operations for the nine months ended September 30, 2018 and 2017.

 

Revenues. For the nine months ended September 30, 2018 and 2017, subscription revenues were $17,116 and $0 respectively.

 

Operating expenses. Operating expenses for the nine months ended September 30, 2018 was $4,152,629 compared to $0 for the nine months ended September 30, 2017. The increase in operating expenses was mainly due to $3,644,873 in compensation expenses, which includes salaries paid to employees and consultants and stock based compensation.

 

Other Income (Expenses). Other expense for the nine months ended September 30, 2018, was $1,155,569 compared with other income of $595,725 for the nine months ended September 30, 2017, the change was primarily attributable to the loss on settlement of debt.

 

Net loss for the nine months ended September 30, 2018 was $5,309,067 compared to a net income of $595,725 for the nine months ended September 30, 2017. The increase in net loss was a result of commencing actual business operations and the gain on settlement of debt that was recorded during the nine months ended September 30, 2017.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

 

Personnel

 

Frélii has nine full-time employees, but utilizes other contract personnel to carry out our business. We utilize contract personnel on a continuous basis, primarily in connection with building our technology platform.

 

Liquidity and Capital Resources

 

Operations for the quarter ended September 30, 2018, were primarily funded through the sale of equity securities.

 

 

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 nine months ended September 30, 2018, the Company had net cash used in operations of $699,516 compared with $28,650 for the nine months ended September 30, 2017. Net cash used in operations increased due to a settlement with a related party, loss on settlement of debt, and increase in operating expenses including legal and accounting expenses, marketing and advertising, and compensation.

 

Net Cash Provided by Financing Activities

 

During the nine months ended September 30, 2018, the Company had net cash provided by financing activities of $823,172 compared with $530,225 for the nine months ended September 30, 2017. Net cash provided by financing activities was primarily the result of advances from related parties and the sale of shares of the Company’s stock to private investors.

 

Off-Balance Sheet Arrangements

 

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.

 

Basic and Diluted Net Income (Loss) Per Share

 

The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings (loss) per common share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents (if dilutive) outstanding.

 

Income Taxes

 

The Company utilizes the liability method of accounting for income taxes. Under the liability method deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect, when the differences are expected to be reversed. An allowance against deferred tax assets is recorded, when it is more likely than not that such tax benefits will not be realized.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a Company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in the Company’s periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified. The Company’s Chief Executive officer and chief financial officer also concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.

 

 

Changes in Internal Control over Financial Reporting

 

There have been no significant changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2018 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II- OTHER INFORMATION

 

ITEM 1. 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.

 

ITEM 1A. RISK FACTORS

 

Not applicable to smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

On October 9, 2018 the Company sold 116,000 shares of Class B Common Stock (and three year warrants to purchase up to a total of 116,000 shares of Class B Common Stock at $1.50 per share) at a price of $1.25 per share to an entity investor for $145,000 cash proceeds.

 

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.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None

 

Item 6. Exhibits.

 

The following exhibits are filed with or incorporated by reference in this report:

 

Item No.		Description
31.1*		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Ian Jenkins.
32.1*		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Ian Jenkins.

 

* filed herewith

 

 

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 November 19, 2018.

 

	FRÉLII, INC.
Dated: November 19, 2018	By:	/s/ Ian G. Jenkins
		Ian G. Jenkins
		Chief Executive Officer, Chief Financial Officer and Director