Free Flow, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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FORM 10Q

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(Mark One)

[X]           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

[  ]           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ___________

Commission file number: 000-54868

FREE FLOW, INC.

(Exact name of registrant as specified in its charter)

2301 Woodland Crossing Drive, Suite 155, Herndon, VA  20171

(Address of principal executive offices)

(703) 789-3344

(Registrant's Telephone number)

 (Former Address and phone of principal executive offices)

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  past 12 months (or for such  shorter  period that the  registrant  was required  to file  such  reports),  and  (2)  has  been  subject  to the  filing requirements for the past 90 days.

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 for Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated file, 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

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

As of November 14, 2015, there were 26,200,000 shares of the registrant's common stock issued and outstanding.

TABLE OF CONTENTS 

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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

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FREE FLOW, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission ("SEC"). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30,  2015 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on April 15, 2015.

NOTE 2  - GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established itself as a stable ongoing business entity with established revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on among other things the Company executing the Sales Contract in hand and also liquidating its inventories and continue as a going business.

The above referred Sales Contract is discussed in detail in the subsequent paragraphs under the caption "Subsequent Events".

In order to continue as a going concern, the Company will need, among other things, Sales of its skin care product lines. Management's plan is to obtain such sales through Internet sales and marketing companies who specialize in promotion of such businesses. Management anticipates obtaining capital from management and significant shareholders sufficient to meet its minimal operating expense and is expecting that cash flow from sales will soon be available to augment the operating capital needs. However, management cannot provide an assurance that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure sources for sales to attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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FREE FLOW, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(UNAUDITED)

NOTE 3 - ACQUISITION

On February 22, 2015 the Company acquired certain assets from Promedaff Skin Care, Inc. The purchased assets included certain inventory defined in the agreement and the trade name "Promedaff Skin Care".  Consideration for the acquisition is a note payable in the amount of $2,000,000 (see note 4).  The acquisition is being accounted for as a business combination in accordance with ASC 805 "Business Combinations". The total purchase price for the acquisition was allocated to the net tangible and intangible assets based upon their preliminary estimated fair values as of March 31, 2015 as set forth below. The excess of the preliminary purchase price over the net assets was recorded as goodwill. The following table summarizes the estimated fair values of the assets acquired at the acquisition date. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to intangible assets and certain accrued liabilities, which are subject to change, pending the finalization of valuations. The Company anticipates recognized intangible assets to include, trade names and trademarks.

NOTE 4 - NOTE PAYABLE

In connection with the acquisition referred to in Note 3, the Company issued a promissory note in the amount of $2,000,000. The note is non-interest bearing and is repayable in an amount equal to 10% of the annual net operating profits of the Company, as defined, not to exceed $250,000 per annum.

NOTE 5 - RELATED PARTY

As of December 31, 2014 the Company had a note payable in the amount of $5,000 to Redfield Holdings, Ltd. a related party. During the nine months ended the Company borrowed an additional $93,882.  On March 31, 2015 the Company converted $58,000 of the note to 9,700 shares of Series A Preferred Stock, leaving a balance of $40,882 at September 30, 2015. The note is non-interest bearing with no set maturity date.

NOTE 6 - CAPITAL STOCK

The Company has authorized 100,000,000 shares of common shares with a par value of $0.0001 per shares and 20,000,000 shares of preferred stock, with a par value of $0.0001 per shares.

Pursuant to the resolution of the shareholders meeting held on March 30, 2015 the Company designated 500,000 shares of the preferred authorized shares as preferred shares - Series "B" shares. The preferred shares - Series "B" were assigned the following preferences:

a)      Each share to carry one vote.

b)      Each share will be redeemable with a 365 days written notice to the company.

c)      Each share will be junior to any debt incurred by the Company.

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FREE FLOW, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(UNAUDITED)

d)      The redemption value will be the par value at which such "preferred shares - series B" are bought by the subscriber.

e)      Each share will carry a dividend right at par with the common shares.

On December 31, 2014 the Company had a Note outstanding in the principal amount of $330,000 plus interest payable to GS Pharmaceuticals, Inc. By mutual consent this note and accrued interest was converted to 330,000 preferred shares - Series "B".

On March 31, 2015 an amount of $58,000 was subscribed by Redfield Holdings, Ltd. by cancellation of a Note against the issuance of 9,700 shares of preferred shares - Series "A". These shares were issued to Redfield Holding, Ltd. thus making a total of entire designated preferred shares - Series "A" shares to Redfield Holdings, Ltd. Each share of preferred shares - Series "A" carries voting right equal to 10,000 common shares.

On September 30, 2015 total preferred shares issued and outstanding are 10,000 Series "A" and 330,000 Series "B".

NOTE 7 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date which the financial statements were available to be issued. Based on the evaluation material events have occurred that require recognition in or disclosure to the financial statements. The Company entered in to a Sales Contract pursuant to which the Company has contracted to sell to Salim's Paper Private Limited 30,000 metric tons (MT) of Tissue Paper to be shipped in 5 years at the rate of 6,000 MT per annum. Shipment to commence within 12 months from the date of the signing of the contract at a price to be determined on quarterly basis on the current index price for wood pulp as quoted on the Chicago Index by FOEX Indexes, Ltd.  As of the date of the contract the price to be paid is $1,050 per metric ton for a total contract price of U.S.$ 34.5 million). As per terms of the contract the Purchaser has caused a pre-advise from their commercial bankers for a revolving commercial letter of credit in favor of Free Flow, Inc.

In connection with augmentation of the capital required to execute the transaction, the Company has prepared an Offering under rule 506 of Reg. D of the SEC to raise up to $2,000,000 and Group Capital, LLC, of Clarks Summit, PA, has signed an LOI to act as the lead underwriter.

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

The following discussion should be read in conjunction with our unaudited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission.  Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking  statements are necessarily based upon estimates and assumptions that are inherently  subject to significant  business,  economic and competitive uncertainties and  contingencies,  many of which are beyond our control and many of which,  with  respect to future  business  decisions,  are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf.  We disclaim any obligation to update forward-looking statements.

The independent registered public accounting firm's report on the Company's financial statements as of December 31, 2014, and for each of the years in the two-year period then ended, includes a "going concern" explanatory paragraph, that describes substantial doubt about the Company's ability to continue as a going concern. 

PLAN OF OPERATIONS

The Solar farm project in India is pending on hold due to issues not having yet been resolved i.e., the viability has not been determined to its full extent.  The Company, on February 22, 2015, acquired a line of skin care products and began with developing and improving the web site to market and sell the products over the Internet. The web site structure has been completed and a beta testing phase was deployed. The response was virtually zero. This process was necessary to identify the improvements needed so as to complete the first phase of marketing and sales development.

The issues in the website were identified and redesign is now complete. In the meanwhile SEO firms have been retained and work is being performed to bring the Promedaff name higher in Google search. One such company has indicated their desire to work on partnership basis the merits of which were evaluated by the Management. Formal contractual agreement is pending.

Concurrent to the above efforts, the Company is working on a Private Placement Memorandum for an offering to raise $2,000,000 to augment its expansion plan and achieve sales, the traditional, non-internet way. As soon as funds are available the Company intends to hire a Marketing and Sales executive who will be expected to form a team of salespersons who could participate in "Trade Show", "Road Shows" and introduce the product line.

On October 15, 2015, the Company entered in to a Sales Contract pursuant to which the Company has contracted to sell to Salim's Paper Private Limited of Jaipur, India; Tissue Paper comprising 30,000 Metric Tons (MT) to be shipped in five (5) years at the rate of 6,000 MT per annum. Shipments to commence within 12 months from October 15, 2015 at a price to be determined on quarterly basis on the current index price for wood pulp as quoted on the Chicago Index by

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FOEX Indexes, Ltd.  As of October 15, 2015, the price to be paid is $1,150 per metric ton (for a total contract price of U.S. $34.5 million). As per terms of the contract Salim's Paper Private Limited has caused a pre-advise from their commercial bankers for a revolving commercial letter of credit in favor of Free Flow, Inc.

The Company is presently actively focused in building a revenue stream.

RESULTS OF OPERATIONS

For the Nine Months Ended September 30, 2015 compared to same period in 2014.

The Company recognized revenue of $1,378 and cost of sales of $390 during the nine months ended September 30, 2015.  During the nine months ended September 30, 2014, the Company recognized revenue of $4,560 and cost of sales of $3,240.

During the nine months ended September 30, 2015, the Company incurred operational expenses of $69,257 compared to $22,488 for the corresponding nine months during 2014. Out of this total sum of $69,257 a total sum of $41,031 was incurred as Selling and Website development costs during the nine months of 2015, while during the corresponding six months of 2014 the Selling and Website development expenses were zero.

For the three months ending September 30, 2015 compared to the same period in 2014.

During the Three Month Ended September 30, 2015, the Company had $1,064 in revenues and Cost of Sales of $350 compared to $4,560 revenues and $3,240 Cost of Sales in the three months ended September 30, 2014.

For the three months ending September 30, 2015 the Operational expenses incurred were $12,372 of which $2,122 were incurred for Selling and Website development expenses, while the Operational expenses for three months ending September 2014 were $6,491.

We expect the increased expenses to continue as we strive to market our products, in future quarters.

LIQUIDITY

The Independent Registered Public Accounting Firm's report on the Company's Financial Statements as of December 31, 2014, and for each of the preceding years then ended, includes a "Going Concern" explanatory paragraph that describes substantially doubt about the Company's ability to continue as a going concern.

On September 30, 2015 the Company had total current assets of $520,018 consisting of $3,878 in cash and $515,100 in inventory and $1,040 in prepaid expenses.  The total current liabilities are $301,326 including a current liability of $250,000 payable against a note. While having current assets in excess of current liabilities is a healthy sign but without the current assets being converted in to cash the situation is not very healthy.

NEED FOR LINE OF CREDIT

The Company does not have cash sufficient to meets its cash needs. The Company will have to seek loans or equity placements to cover such cash needs. As aforementioned the Company is planning a $2,000,000 private offering to meet its cash needs.  A Letter of Intent ("LOI") has been received from Group Capital, LLC to act as lead underwriters to raise up to $2,000,000 under rule 506 of Reg. D of the SEC. Copy of the said LOI was filed as an exhibit to the 8K filed on October 16, 2015.

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REVENUE RECOGNITION

The Company recognizes revenues on arrangements in accordance with Securities and Exchange Commission Staff Accounting Bulletin Topic 13, REVENUE RECOGNITION and FASB ASC 605-15-25, REVENUE RECOGNITION. In all cased, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability is reasonable assured. The Company reported minimal  revenues during the quarter ended September 30, 2015.

ITEM 3.  QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4.  CONTROLS AND PROCEDURES

Management's Report on Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (our principal executive officer, principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.

As of the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (our principal executive officer, principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (our principal executive officer, principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, (2) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; and (4) management dominated by a single individual without adequate compensating controls. The aforementioned material weaknesses were identified by our Chief Executive and Financial Officer in connection with the review of our financial statements as of September 30, 2015.

Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and

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monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the period ended September 30, 2015, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A.  RISK FACTORS

Not Applicable to Smaller Reporting Companies. 

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURE

Not Applicable.

ITEM 5.  OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS

Exhibits.  The following is a complete list of exhibits filed as part of this Form 10-Q.  Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

Exhibit 31.1           Certification of Chief Executive and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

Exhibit 32.1           Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

Exhibit 101.INS     XBRL Instance Document

Exhibit 101.SCH    XBRL Taxonomy Extension Schema Document (1)

Exhibit 101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document (1)

Exhibit 101.DEF    XBRL Taxonomy Extension Definition Linkbase Document (1)

Exhibit 101.LAB    XBRL Taxonomy Extension Label Linkbase Document (1)

Exhibit 101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document (1)

(1)   Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FREE FLOW, INC.

(Registrant)

Dated:  November 20, 2015                                By: /s/ Sabir Saleem

                                                                            Sabir Saleem

                                                                            (Chief Executive Officer, Principal Executive

                                                                            Officer, Chief Financial Officer

                                                                            and Principal Accounting  Officer)

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