Free Flow, Inc. - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

   FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

Commission file number 000-54868

 

Free Flow Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

2301 Woodland Crossing Dr.

Suite 155, Herndon, VA 20171

(Address of Principal Executive Offices)

(703) 789-3344

(Registrant’s Telephone Number)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 such filing requirements for the last 90 days. YES [X] 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 (§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). 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," "non-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). YES [  ] NO [X]

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  26,200,000 shares as of November 20, 2017

 

 

		As of				As of
		September 30,				December 31,
		2017				2016
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS
Cash in hand and bank		$	15,161			$	3,718
Advances for Inventory Purchases			-				14,224
Prepaid Rent			-				48,600
Accounts Receivable - Trade			5,868				7,755
Inventory			212,673				200,060
TOTAL CURRENT ASSETS			233,703				274,357
OTHER ASSETS
Automobiles - Delivery Trusks			3500				3,500
JK Sales, Corp.			200				-
TOTAL OTHER ASSETS			3,700				3,500
TOTAL ASSETS		$	237,403			$	277,857
LIABILITES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable		$	30,609			$	73,157
Customer Deposits against Sales
Customer Deposit from related party			17,100				-
Notes payable - related parties			143,062				130,773
TOTAL CURRENT LIABILITES			190,771				203,930
Total Liabilities			190,771				203,930
Redeemable Preferred Stock
Series B; 500,000 shares authorized, 330,000 ad 0 issued and outstanding
as of September 30, 2017 (Classified as Mezzanine equity)			330,000				330,000
Stockholders' (Deficit)
Preferred stock ($0.0001) par value, 20,000,000 shares authorized
10,000 shares part value $0.001 Class A issued on September 30, 2017 and December 31, 2016			1				1
Common Stock, ($0.0001 par value 100,000,000 shares authorized
26,200,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016			2,620				2,620
Additional paid-in capital			114,545				114,545
Current Period - Profit			(12,140	)			-
Accumulated Deficit			(388,394	)			(373,239	)
TOTAL  STOCKHOLDERS' EQUITY (DEFICIT)			(283,368	)			(256,073	)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT		$	237,403			$	277,857

 

 

Free Flow, Inc.

 

 

		Nine months ended September 30,								Three months ended September 30,
		2017				2016				2017				2016
REVENUES
Sales		$	317,651			$	408,068			$	80,937			$	135,737
COS OF GOODS SOLD			179,609				202,347				112,837				22,612
GROSS PROFIT			138,042				205,721				(31,900	)			113,125
General & Administrative Expenses			150,183				187,939				(3,899	)			119,449
Total Expenses			150,183				187,939				(3,899	)			119,449
Profit (Loss) before provision of income taxes			(12,140	)			17,782				(3,899	)			(6,324	)
Income tax provision			-				-				-				-
NET PROFIT (LOSS)		$	(12,140	)		$	17,782			$	(3,899	)		$	(6,324	)
BASIS INCOME (LOSS) PER SHARE		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
WEIGHTED AVERAGEL NUMBER OF COMMON SHARES OUTSTANDING			26,200,000				26,200,000				26,200,000				26,200,000

 

 

Free Flow, Inc.

 

 

		Nine months ended September 30,
		2017				2016
CASH FLOW FROM OPERATING ACTIVITIES
Net Profit (Loss)		$	(12,140	)		$	162,134
Adjustments to reconcile net loss to net cash used in operting activities:							-
Changes in operating assets and liabilities							-
(Increase) decrease in inventory			14,224				(163,969	)
(Increase) decrease  Prepaid expenses			48,600				(57,365	)
Increase (decrease) Accounts payable			(42,548	)			6,402
Increase in Fixed Assets - Delivery Trucks							(3,500	)
(Increase) in sales of impaired inventory			(15,155	)			(14,815	)
Accounts Receivable Trade			(10,927	)			-
Advance against Sales related parties			17,100				-
NET CASH USED IN OPERATING ACTIVITIES			(846	)			(71,113	)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from relaed party notes			12,289				78,560
NET CASH PROVIDED BY FINANCING ACIVITIES			12,289				78,560
NET INCREASE IN CASH			11,443				7,447
CASH AT BEGINNING OF PERIOD			3,718				674
CASH AT END OF PERIOD		$	15,161			$	8,121

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

Free Flow, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2017

(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, 2017 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2017 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, 2016 filed with the SEC on April 3, 2017.

 

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 contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has  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. However, the ability of the Company to continue as a going concern is also dependent on the Company obtaining adequate Sales so that the Company can liquidate its inventories and continue as a going business.

 

In order to continue as a going concern, the Company will need, among other things, Sales of its product lines. Management has obtained such sales through Internet sales and marketing companies who specialize in promotion of such businesses. Management is 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 fulfill the secured  purchase orders 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.

 

NOTE 3 – INCORPORATION OF SUBSIDIARY

 

In February 2015, the company incorporated a subsidiary, Promedaff, Inc. and purchased a skin care product line and formulations for $2,000,000 against a promissory note. An e commerce platform was set up for sales and marketing. The efforts did not bear any success and the entire inventory was sold through the Seller and the Promissory Note was cancelled and marked “VOID”. The name of this entity has been changed to Motors & Metals, Inc. and has remained inactive but is in good standing. Motors & Metals, Inc. operates as a separate entity to conduct business in refurbishing automotive engines and selling metals recovered from MMM Auto Parts facility, and have an independent profit center.

 

As reported in 10Qs for the earlier quarters, on February 4, 2016 the company incorporated another subsidiary in the State of Virginia under the name JK Sales, Corp. and entered in to an agreement with Al-Mustafa Enterprise, Inc. in King George, Virginia to act as Managing and Sales Agent. On August 24, 2016 JK Sales, Corp. Bought the book of business and trade name namely MMM Auto Parts and took over the facility under a long term lease arrangement

 

NOTE 4 – RELATED PARTY

 

As of December 31, 2016, the Company had a note payable in the amount of $130,773 to Redfield Holdings, Ltd. a related party. During the nine months ended the Company  borrowed an additional $12,089 thus owing a total sum of $143,062 as of September 30, 2017. The note is unsecured and does not bear any interest and has a maturity date of December 30, 2017. During the nine months ended the Company borrowed a sum of $10,600 from St. Gabriel Foundation, Inc. a related party, the note does not bear any interest. St. Gabriel Foundation anticipates to purchase automobiles against this sum of $10,600.00. During the nine months ended the Company also received an advance payment against sales amounting to $ 6,500 from related party, thus the total liability as advance against sales amounts to $17,100.00.

 

Redfield Holdings Ltd. is 100% owned by the CEO, Mr. Sabir Saleem. St. Gabriel Foundation has also been incorporated by Mr. Sabir Saleem as a not for profit entity which has not yet constituted its functional board of directors. It is expected that St. Gabriel Foundation will soon define its mission and may become an arm to mobilize end of life automobiles to sell them to JK Sales and use proceeds for charitable purposes.

 

NOTE 5 – 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.

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, 2017 total preferred shares issued and outstanding are 10,000 Series “A” and 330,000 Series “B”.

 

NOTE 6 – SUBSEQUENT EVENTS

 

None. 

 

 

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED FINANCIAL STATEMENT SAND 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 FLOWING DISCUSSION AND ELSEWHERE IN THE THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR AN BEHALF, WHETHER OR NOT IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, FORWARD-LOOKING STATEMENTS ARE STATEMENT 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, 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 FORM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY, OR ON OUR BEHALF, WE DIS TO UPDATE FORWARD-LOOKING STATEMENTS.

 

PLAN OF OPERATION

 

JK Sales, Corp. the Company’s used auto parts subsidiary has made a sale of $37,651 of Automobile Parts and Services. The Company continues seeking additional sales both in the domestic and international markets.

 

RESULTS OF OPERATIONS

 

The Company did recognize revenue for a sum of $317,651 during the nine months ended September 30, 2017 and $408,068 of revenues during the Nine month ended September 30,  2016. While the net revenues for the period ended September 30, 2017 were less by $ $90,417 than for the same period during 2016 but the Cost of Goods Sold was also less by $22,738 during the period ended September 30, 2017 as compared to the same period during 2016. The Gross Profit had a decrease, i.e. by $ 67,697 during the period ended September 30, 2017 as compared to the same period during 2016.

 

During the Nine months ended September 30, 2017, the Company incurred operational expenses of $150,182 of which  $15,833 were spend as selling expenses. This compares to $ 0 for the six months ended June 30, 2016.

 

During the six months ended September 30, 2017 the company recognized a net loss of $12,140 as compared to $17,782 for the corresponding period in the year 2016, thus recognizing a decrease of approximately 168 % as compared to the six months ended September 30, 2016.

 

The prime reason for decline in business was due to the fact that the company failed to build inventory for lack of working capital. Several efforts were made to obtain funding but the terms were not acceptable to the management. The used auto parts business is such that the customers have direct access to company’s inventory. If the inventory is not adequate and complete, the customer prefers to place the order with competitor who has ALL what the customer needs. Thus JK Sales lost orders that could have been otherwise secured.

 

The inventory valuation is based on the industry standards, the management reviewed financial statements of other companies that are listed on NASDAQ and are audited by PCAOB firms like BDO. The management found that their approach was exactly same thus the inventory valuation in managements’ view is substantially accurate. Selling price of parts do not have too much fluctuations, in spite of this fact, the management does review their inventory price and the internal monthly reports do reflect any downward change which is subsequently reported in the quarterly reports. The Company has limited history, but the management has access to records to the previous owners’ activities which go back to over 10 years.

 

The filing of the tax returns for the previous years is in progress and are expected to be filed before the year end. However, there are no tax liabilities due to the fact that the books reflect a net loss.

 

 

 

The company’s administrative office is in Herndon, VA which has been leased to the CEO in his personal name at a monthly rent of approximately $1,600.00. The office is located in a 200 apartment/suites complex owned by Monroe Place and is not a related person.  The lease is annually renewed every May/June.

 

LIQUIDITY

 

THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT ON THE COMPANY’S FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016, 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, 2017 the Company had total current assets of $233,703 consisting of $15,161 in cash and $5,868 in trade receivables, and $212,673 in inventory.

 

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. The management is working to deploy a $1,000,000 offering to meet its cash needs.

 

REVENUE RECOGNITION

 

The Company recognizes revenues on arrangements in accordance with Securitas and Exchange Commission Staff Accounting Bulletin Topic 13, REVENUE RECOGNITION and FASB ASC 605-15-25, REVENUE RECONGNITION. In all cases, 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 gross revenues of $551,182 for the year ending December 31, 2016.

 

 

Not Applicable.

 

 

Management's Report on Disclosure Controls and Procedures

 

Management is responsible for establishing and maintaining adequate internal control so as to

 

(1)  maintain the records  in reasonable detail, which will accurately and fairly reflect the transactions and dispositions of the Company's assets;

 

(2) to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are  made  within the delegated authority ; and

 

(3) to provide reasonable assurance for the  prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on company’s financial statements.

 

However, the management asserts that the company does not have any accounting staff due to limited financial resources though has plans to recruit gradually.  Also, this company does not have a well written document on accounting policies and procedures, though has plans to have them shortly.  Consequently, this can result in possible errors in the presentation and disclosure of financial information in our annual, quarterly, and other filings.

 

The SIC Code of 1700 as showing in Edgar for this company is no longer valid, since this company is now dealing with the auto parts, as OEM Recycled Auto Parts. Segregation of duties is an important factor in Internal Control.  Though it is achieved to a certain extent, the management is committed to strengthen the internal controls effectively in the coming months.

 

 

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, 2017, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II – OTHER INFORMATION

None.

Not Applicable to Smaller Reporting Companies.

During the period of January 1, 2015 and March 31, 2015, the Company issued 9,700 shares of Preferred Shares – Series “A” for a sum of $58,000 and 330,000 shares of Preferred Shares – Series “B” for a sum of $330,000 which were the result of conversion of certain debts of the company.

None.

Not Applicable

None.

ITEM 6. EXHIBITS.

The following exhibits are included with this quarterly filing.  Those marked with an asterisk and required to be filed hereunder, are incorporated by reference and can be found in their entirety in our original Registration Statement on Form S-1, filed under SEC File Number 000-54868, at the SEC website at www.sec.gov:

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