Free Flow, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(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, 2019 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2019 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, 2018 filed with the SEC on April 29, 2019.
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 has obtained capital from commercial lines of credits 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 as, in most of the businesses, market circumstances could change.
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 reaching is targeted sales level.
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 Accurate Auto Parts, Inc.’s facility, and has 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 10-Qs for the earlier quarters, as well as in 10-K for the Annual reports, on February 4, 2016 the company incorporated another subsidiary in the State of Virginia under the name of 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.
NOTE 4 – RELATED PARTY
As of December 31, 2018, the Company had a note payable in the amount of $380 to Redfield Holdings, Ltd. a related party. During the nine months ended the Company borrowed an additional $9,738 thus owing a total
sum of $10,118 as of September 30, 2019. The note is unsecured and does not bear any interest and has a maturity date of December 30, 2020
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/trustees. 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 Accurate Auto Parts, Inc. and use the 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:
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a)
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Each share to carry one vote.
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b)
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Each share will be redeemable with a 365 days written notice to the company.
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c)
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Each share will be junior to any debt incurred by the Company.
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d)
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The redemption value will be the par value at which such “preferred shares – series B” are bought by the subscriber.
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e)
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Each share will carry a dividend right at par with the common shares.
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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”.
On April 2, 2019, in a private transaction the Company accepted a sum of $14,490.00 against issuance of 21,000 restricted Common shares of the Company. Thus the total common shares issued and outstanding as on
September 30, 2019 stood at 26,221,000
NOTE 6 – SUBSEQUENT EVENTS
On October 23, 2019 the Company, received zoning verification form the King George, Department of Community Development verifying the fact that it is permissible to continue use the location (facility) as scrap
metal processor. Thus, the Company has made application through its subsidiary, namely Motors & Metals, Inc., to the DMV for the license to operate as such. As soon as the license is received, the Company will begin its preparation to
further organize and increase its scrap metal processing for exports. A letter of intent has been received from a bonafide customer to purchase 3,000 metric tons of scrap metal from Motors & Metals,
Inc.
During the nine months ended September 30, 2019 Accurate Auto Parts, Inc. also purchased additional inventory in the approximate amount of $134,000 and continues to build its inventory to increase its sales.
ITEM 2. MANAGEMENT’S DISCUSSION AND ALALYIS OR PLAN OF OPERATION
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 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 $255,310 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 $255,310 during the nine months ended September 30, 2019 and $117,648 of revenues during the Nine month ended September 30, 2018. The net revenues for the period
ended September 30, 2019 were more by $137,661 than for the same period during 2018 and the Cost of Goods Sold was also less by $3,181 during the period ended September 30, 2019 as compared to the same period during 2018. The Gross Profit had
an increase, i.e. by $ 140,842 during the period ended September 30, 2019 as compared to the same period during 2018.
During the Nine months ended September 30, 2019, the Company incurred operational expenses of $255,936. This compares to $93,085 for the nine months ended September 30, 2018. This increase in operational expenses
reflects the increase in operation staff and financial expenses that are attributed to mortgage payments for the facility.
During the nine months ended September 30, 2019 the company recognized a net loss of $60,041 as compared to $8,611 for the corresponding period in the year 2018, thus recognizing an increase of approximately 7
times as compared to the nine months ended September 30, 2018. The optimal utilization of staff and infrastructure that has been build up will take time to show the desired results. Staff is being trained to achieve the productivity that will
result in better revenues in near future. The company made a profit of $32,584 during the third quarter of 2019 as compared to a loss of $72,630 for the same period during 2018. Thus the operating loss as reported on June 30, 3019 was reduced
from $105,522 to $60,041 as of September 30, 2019.
While the books show an operating net loss of $60,041 the Company has increased its inventory at by $111,101 thus showing a total inventory at cost of $775,724 as on September 30, 2019 as compared to an inventory
at cost for a sum of $571,260 as on December 31, 2018 and $682,361 as on June 30, 2019. While the Company cannot predict if this inventory will be sold at the list price which approximately is three (3) times its book value cost price (it has
been calculated at less than 30% of the selling price) but the management is confident that the marked list price of the inventory is realistic with the current market conditions. The cost of sales is approximately 53% of the sales, thereby
leaving an approximately 23% of the list selling price as a hidden value which equates to a minimum of approximately over $500,000.*
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 is 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 tax returns for the previous years have been filed and there are no tax liabilities due to the fact that the books reflect a net loss.
The company’s administrative office has been relocated at 6269 Caledon Road, King George, VA 22485.
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 September 30, 2019 the Company had total current assets of $1,642,270 consisting of $11,733 in cash and $43,072 in trade receivables, and $775,724 in inventory at book value. The suggested sale price is over
$1,700,000.
NEED FOR ADDITONAL CAPITAL
The Company was successful in securing the loan to purchase the property. The fair market value of the property reported by the Seller (i.e., the lending institution who were in possession of the property upon
foreclosure) was over $1,500,000 while it cost the company around $770,000 to purchase the same. The Company desires to increase its dismantling capability and storage area. Thus, the management is considering to add another 10,000 to 20,000
sq. ft. steel barn under a lease financing program to facility its growth. Upon this being achieved a greater number of automobiles could be procured for dismantling. An informal analysis has revealed the fact that from the total inventory in
hand, approximately 30% is sold annually. Thus to achieve a $1,000,000 sale the inventory level should be increased to $3,000,000. On the other hand, the analysis has also revealed that cost the inventory is around 30%.
The final conclusion, thus, is to secure $1,000,000 of additional capital to build inventory to achieve a $1,000,000 in sales.
Strategic planning has begun to secure this additional funding.
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.
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, 2018, that have materially or are reasonably likely to materially affect, our
internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
On April 2, 2019, in a private transaction the Company accepted a sum of $14,490.00 against issuance of 21,000 restricted Common shares of the Company. Thus the total common shares issued and outstanding as on
June 30, 2019 stood at 26,221,000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
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:
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Exhibit No.
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Description
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3.1
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Articles of Incorporation*
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3.2
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Bylaws*
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31.1
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Sec. 302 Certification of Principal Executive Officer
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31.2
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Sec. 302 Certification of Principal Financial Officer
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32.1
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Sec. 906 Certification of Principal Executive Officer
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32.2
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Sec. 906 Certification of Principal Financial Officer
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101
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Interactive data files pursuant to Rule 405 of Regulation S-T
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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.
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Free Flow Inc.
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Registrant
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Dated November 14, 2019
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By: /s/ Sabir Saleem
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Sabir Saleem, Chief Executive Officer,
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Chief Financial and Accounting Officer
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