10-Q 1 g8483a.htm
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.

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 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
 

TABLE OF CONTENTS
 
 
 
Page
PART I - FINANCIAL INFORMATION
 
   
Item 1. Financial Statements (Unaudited)
3
   
Condensed Balance Sheets - September 30, 2017 (Unaudited)
 
and December 31, 2016 (Audited)
3
   
Condensed Statements of Operations - 
Nine and three months ended September  30, 2017 and 2016 (Unaudited)
4
   
Condensed Statements of Cash Flows -
 
Nine months ended September  30, 2017 and 2016 (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
 
 
2

 
ITEM 1.  FINANCIAL STATEMENTS
 
Free Flow, Inc.
Condensed Balance Sheets
 
 
   
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
 
 
 
 
 
The accompanying notes are an integral part of these financial statements
 
3

 
Free Flow, Inc.
Condensed Consolidated Statements of Operation
(Unaudited)
 
 
    
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
 
 
 
 
 
The accompanying notes are an integral part of these financial statements
 
4

 
Free Flow, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
    
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
 
5

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.
 
6

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. 
 
7

ITEM 2. MANAGEMENT’S DISCUSSION AND ALALYIS OR PLAN OF OPERATION
 
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.
 
8

 
 
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.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABUT MARKET RISKS
 
Not Applicable.
 
ITEM 4. CONTROLS AND PROCEURES
 
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.
 
9

 
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

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTOR

Not Applicable to Smaller Reporting Companies.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable

ITEM 5. OTHER INFORMATION

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:
 
Exhibit No.
 
Description
     
3.1
 
Articles of Incorporation*
3.2
 
Bylaws*
31.1
 
Sec. 302 Certification of Principal Executive Officer
31.2
 
Sec. 302 Certification of Principal Financial Officer
32.1
 
Sec. 906 Certification of Principal Executive Officer
32.2
 
Sec. 906 Certification of Principal Financial Officer
101
 
Interactive data files pursuant to Rule 405 of Regulation S-T
 
 
10

 
SIGNATURES

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.

 
Free Flow Inc.
 
Registrant
   
   
Date November 20, 2017
By: /s/ Sabir Saleem
 
 
Sabir Saleem, Chief Executive Officer,
 
Chief Financial and Accounting Officer

 
11