Free Flow, Inc. - Quarter Report: 2018 March (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 MARCH 31, 2018

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)

 

(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 May 14, 2018

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TABLE OF CONTENTS

 

 

	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Condensed Balance Sheets - March 31, 2018 (Unaudited)
and December 31, 2017 (Audited)	3
Condensed Statements of Operations -
Three months ended March 31, 2018 and 2017 (Unaudited)
and December 31, 2017 (Audited)	4
Condensed Statements of Cash Flows -
Three months ended March 31, 2018 and 2017 (Unaudited)	5
Notes to Financial Statements	6
Item 2. Management's Discussion and Analysis or Plan Of Operations	8
Item 3. Quantitative and Qualitative  Disclosures About Market Risks
Not  Applicable	9
Item 4. Controls and Procedures	9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None	10
Item 1A. Risk Factor
Not Applicable to Smaller Reporting Companies	10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3. Defaults Upon Senior Securities
None	10
Item 4. Mine Safety Disclosures
Note Applicable	10
Item 5. Other Information
None	10
Item 6. Exhibits	10

 

 

 

 

 

		As of				As of
		March 31,				December 31,
		2018				2017
		(Unaudited)				(Audited)
ASSETS
CURRENT ASSETS
Cash in hand and bank		$	5,322			$	5,354
Accounts receivable - Trade			3,331				1,906
Inventory			220,427				177,871
TOTAL CURRENT ASSETS			229,080				185,131
OTHER ASSETS
Automobiles - Delivery Trucks			3,500				3,500
TOTAL OTHER ASSETS			3,500				3,500
TOTAL ASSETS		$	232,580			$	188,631
LIABILITES & STOCKHOLDERS' EQUITY (DIFICIT)
Current Liabilities
Accounts payable		$	7,448			$	21,140
Notes payable - Related Parties			220,171				176,417
TOTAL CURRENT LIABILLITIES			227,619				197,557
Total Liabilities			227,620				197,557
Redeemable Preferred Stock
Series B; 500,000 shares authorized, 330,000 ad 0 issued and outstanding			330,000				330,000
as of March 31, 2017 (Classified as Mezzanine equity)
Stockholders' (Deficit)
Preferred stock ($0.0001) par value, 20,000,000 shares authorized
10,000 shares part value $0.001 Class A issued on March 31, 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 March 31, 2017 and December 31, 2016			2,620				2,620
Additional paid-in capital			114,545				114,545
Current period - Profit			13,886				-
Accumulated Deficit			(456,092	)			(456,092	)
TOTAL  STOCKHOLDERS' EQUITY (DIFICIT)			(325,040	)			(338,926	)
TOTAL LIABILITIES & STOCKHOLDERS' (DEFICIT)		$	232,580			$	188,631

 

 

 

 

 

 

		Three months				Three months				Year Ended
		Ended				Ended				December 31,
		March 31,				March 31,				2017
		2018				2017				(Audited)
		(Unaudited)
REVENUES
Sales		$	39,805			$	134,338			$	340,148
TOTAL REVENUES			39,805				134,338				340,148
COST OF GOODS SOLD			12,756				33,423				217,041
GROSS PROFIT			27,049				100,915				123,107
GENERAL AND ADMINISTRATIVE EXPENSES
General & Administrative Expenses			13,164				67,616				205,960
Total Expenses			13,164				67,616				205,960
NET  PROFIT (LOSS)		$	13,886			$	33,299			$	(82,853	)
BASIS INCOME (LOSS)  PER SHARE			0.0053				0.0013				(0.005	)

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

 

Free Flow, Inc.

Statements of Cash Flows

 

 

		Three Months Ended March 31,
		2018				2017
CASH FLOW FROM OPERATING ACTIVITIES
Net Profit  (loss)		$	13,886			$	33,300
Adjustments to reconcile net loss to net cash used in operting activities:
Changes in operating assets and liabilities
(Increase) in Trade receivables			(1,425	)			203
(Increase ) Decrease in inventory			(42,556	)			(50,912	)
(Increase) Decrease in prepaid expensess			-				16,200
NET CASH USED IN OPERATING ACTIVITIES			(30,095	)			(1,209	)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable - realated party			43,754				28,909
Proceeds from Accounts Payable - trade (Decrease in Accounts Payable)			(13,692	)			-
NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES			30,062				28,909
NET INCREASE (DECREASE) IN CASH			(32	)			(1,786	)
CASH AT BEGINNING OF PERIOD			5,354				3,718
CASH AT END OF PERIOD		$	5,322			$	1,932

 

 

 

 

The accompanying notes are an integral part of these financial statements

 

Free Flow, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(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 March 31, 2018 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2018 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, 2017 filed with the SEC on April 2, 2018.

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. The company has continued its research on the related subjects and expects to activate this line of business once it is adequately funded.

As reported in 10Qs for the earlier quarters as well as in 10Ks for the Annual reports, on February 4, 2016 the company incorporated another subsidiary in the State of Virginia under the name JK Sales, Corp. (on December 7, 2017 the name was changed to Accurate Auto Parts, Inc.)  and has since remained in the business of buying end of life and salvage vehicles and selling auto parts.

 

 

On April 17, 2018 the company incorporated in Virginia, another subsidiary named Accurate Investments, Inc. with the objectives of acquiring real estate property, discussed under subsequent events in note 6 below.

NOTE 4 – RELATED PARTY

As of December 31, 2017, the Company had notes payable in the amount of $176,417 to Redfield Holdings, Ltd. a related party. During the three months ended the Company borrowed an additional $43,754 thus owing a total sum of $220,171 as of March 31, 2018. The note is unsecured and does not bear any interest and has a maturity date of December 30, 2017. During the three months ended March 31, 2017 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.

 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 March 31, 2017 total preferred shares issued and outstanding are 10,000 Series “A” and 330,000 Series “B”.

NOTE 6 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date which the financial statements were available to be issued. Based on the evaluation there occurred a material event that require recognition in or disclosure to the financial statements. Accurate Auto Parts, Inc. has negotiated a contract with the existing owners of the 19+ acre facility to purchase the facility for a sum of Seven Hundred Thousand Dollars ($700,000) and has made a deposit for a sum of $25,000 towards the purchase. This property was originally leased by Accurate Auto Parts, Inc., and is the location from where it operates the auto parts business. The closing date has been set as on or before July 30, 2018.

Accurate has also received a LOI form a bank in the USA,  indicating financing for purchase of the above referred property and an additional $300,000 plus closing costs as operating capital, total sum of $1,046,000. The loan has been offered for a 25 years terms at WSJP +2.25% per annum. Deposit for a sum of $10,000 was made to the bank to cover legal documentation etc. costs.

 

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

Accurate Auto Parts, Inc. the Company’s used auto parts subsidiary has made a sale of $39,805 of Automobile Parts. 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 $39,805 during the three months ended March 31, 2018 and $134,338 of revenues during the three month ended March 31, 2017. While the net revenues for the period ended March 31, 2018 were less by $ $94,533 than for the same period during 2017 but the Cost of Goods Sold was also less by $20,667 during the period ended March 31, 2018 as compared to the same period during 2017. The general and administrative expenses for the period ended March 31, 2018 were $13,164 as compared to $67,616 for the same period during 2017.

During the three months ended March 31, 2018 the company recognized a net income of $13,164 as compared to $133,300 for the corresponding period in the year 2017, thus recognizing a decrease of approximately 71 % as compared to the three months ended March 31, 2017.

For confidentiality reasons and in the best interest of the company, the management was waiting for the right time to disclose the fact that the landlord had defaulted in servicing her loan to the lending bank, and subsequently filed protection under chapter 11 of the bankruptcy code which was converted to a chapter 7. While the company had met its obligations under the lease and had made an advance payment for the lease of the premises, but the laws in the Commonwealth of Virginia are in favor of the mortgage-holder to get a vacant possession of the premises in the event of foreclosure. The company was constantly under fear that if the property was to foreclose, (which it did)  and if the  lenders (now the new owners) would not accept our offer or if any our business competitor were to make a higher offer than ours, then the company would be facing multiple challenges which would include removing several hundred vehicles and auto parts at a short notice to another properly zoned location – which is hard to find due to environmental permits.

Keeping this sensitive subject in mind, the management began liquidating its inventory of “automobile shells” as metal scrap, which was a three to four months process. The company virtually discontinued purchasing new inventory which obviously effected the sales for the last quarter of 2017.

In mid-January 2018, preliminary negotiations began with the bank that had foreclosed on the landlord whom they had made a loan of over $1.3 million for the same assets that the company has now been able to negotiate for $700,000.00.

 

 

LIQUIDITY

THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT ON THE COMPANY’S FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017, 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 March 31, 2018 the Company had total current assets of $232,580 consisting of $5,322 in cash and $3,331 in trade receivables, and $220,427 in inventory.

NEED FOR LINE OF CREDIT

The Company does not have cash sufficient to meets its cash needs. However, on May 3, 2018 the Company received an LOI from a bank in the USA for a $1,046,000 loan to meet its working capital needs and to finance purchase of property. The closing date has been indicated on or before June 30, 2018.

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 $340,148 for the year ending December 31, 2017.

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.

 

The company promoted two of its senior managers to become executive directors thus taking on greater responsibilities and deserving greater rewards. Both of these individuals have over 25 years’ experience in auto parts industry.

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 March 31, 2018, 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.

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.