UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
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Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction |
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(IRS Employer |
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of incorporation) |
Identification No.) |
(Address of Principal Executive Offices)
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(Registrant’s Telephone Number)
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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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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).
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.
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Large accelerated filer ¨ |
Accelerated filer ¨ |
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
ITEM 1. FINANCIAL STATEMENTS
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FREE FLOW, INC. & SUBSIDIARIES |
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Unaudited Condensed Consolidated Balance Sheets |
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September 30,2022 |
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December 31,2021 |
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(Unaudited) |
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(Audited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$
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$
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Trade Receivables - current |
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Rounding off the decimals - error |
(
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(
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Inventories |
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TOTAL CURRENT ASSETS |
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Fixed Assets |
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Land and Building, without depreciation |
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Less: Allowance for Depreciation |
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(
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TOTAL FIXED ASSETS |
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Other Assets |
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Delivery Trucks, before depreciation allowance |
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Allowance for Depreciation |
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(
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Improvements in progress |
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Equipment and Delivery Trucks, before depreciation allowance |
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Allowance for Depreciation |
(
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(
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TOTAL OTHER ASSETS |
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TOTAL ASSETS |
$
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$
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LIABILITES & STOCKHOLDERS' EQUITY (DIFICIT) |
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Current Liabilities |
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Accounts Payable |
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Notes Payable |
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Notes Payable - Related Parties |
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TOTAL CURRENT LIABILITIES |
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Long Term Liabilities |
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Incredible Bank - Revolving Line of Credit - $350,000 |
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PPP1 |
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EIDL |
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PayPal Advance |
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Incredible Bank |
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TOTAL LONG TERM LIABILITIES |
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Total Liabilities |
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Redeemable Preferred Stock |
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Series B;
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Series C;
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Stockholders' Equity (Deficit) |
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Preferred Stock
($
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Common stock,
($
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Additional Paid in capital |
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Subscription received - pending acceptance |
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Current year Profit (Loss) |
(
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(Accumulated Deficit) / Net worth, brought forward |
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(Accumulated Deficit) / Net worth |
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TOTAL STOCKHOLDERS' EQUITY / (DEFICIT) |
(
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) |
$
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$
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The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements |
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2
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FREE FLOW, INC. & SUBSIDIARIES |
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Unaudited Condensed Consolidated Statements of Operations |
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Nine Months Ended September 30, |
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Three Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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REVENUES |
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REVENUES |
$
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$
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$
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$
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TOTAL REVENUES |
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$
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COST OF GOODS SOLD |
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GROSS PROFIT |
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GENERAL AND ADMINISTRATIVE EXPENSES |
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Administrative expenses |
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Professional fees |
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Selling expenses |
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Financial expenses |
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TOTAL GENERAL & ADMINISTRATIVE EXPENSES |
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PROFIT (LOSS) FROM OPERATIONS |
(
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(
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(
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OTHER (EXPENSE) INCOME |
(
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Other Income - Additional Inventory Recovered |
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NET INCOME (LOSS) |
(
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(
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BASIC EARNING PER SHARE |
(
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(
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
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The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements |
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3
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FREE FLOW, INC. & SUBSIDIARIES |
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Unaudited Condensed Consolidated Statements of Cash Flows |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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CASH FLOW FROM OPERATING ACTIVITIES |
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Net (Loss) / Profit |
$
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$
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Loss on disposal of fixed assets |
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Loan written off PPP 1 |
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Adjustment of additional paid in capital |
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Increase (Decrease) due to inventory adjustment 2020 |
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(
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Assets of IAP |
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Inventory |
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Notes payable IAP |
(
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Changes in operating assets and liabilities : |
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(Decrease) in Trades Payable |
(
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(Increase) Decrease in Inventory |
(
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(
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(Increase) / Decrease in Trade Receivables |
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Advance related parties |
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NET CASH (USED IN) BY OPERATING ACTIVITIES |
(
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(
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CASH FLOW FROM INVESTING ACTIVITIES |
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Proceeds from disposal of fixed assets |
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NET CASH PROVIDED BY INVESTING ACTIVITIES |
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CASH FLOW FROM FINANCING ACTIVITIES |
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Proceeds from notes payable - related parties |
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Proceeds from Notes Payable |
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Repayment of Notes Payable |
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Repayment to Pay Pal Advance |
(
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(
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Proceeds from Loan from River Valley Bank |
(
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(
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Proceeds from Subscription Money |
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(
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Repayment to SBA |
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Proceeds / (Repayment) from EIDL Loan |
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Purchase of fixed assets |
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(
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NET CASH PROVIDED/(USED IN) BY FINANCING ACTIVITIES |
$
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$
(
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NET INCREASE /(DECREASE) IN CASH AND CASH EQUIVALENTS |
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(
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CASH AND CASH EQUIVALENTS IN THE BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS AT THE END OF PERIOD |
$
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$
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The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements |
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4
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FREE FLOW, INC. & SUBSIDIARIES |
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Unaudited Condensed Consolidated Statements of Stockholders' Equity |
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ADDITIONAL |
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TOTAL |
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COMMON STOCK |
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PREFERRED STOCK |
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PAID-IN |
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SUBSCRIPTION |
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RETAINED |
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STOCKHOLDERS' |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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CAPITAL |
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RECEIVED |
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EARNINGS |
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EQUITY |
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Series -A |
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Balance as of January 1, 2022 |
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$
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$
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$
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$
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$
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$
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Shares Cancelled |
(
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$
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Net loss for the period |
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(
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$
(
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Balance as of March 31, 2022 |
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$
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$
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$
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$
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$
(
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$
(
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Net loss for the period |
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$
(
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$
(
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Balance as of June 30, 2022 |
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$
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$
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$
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$
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$
(
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$
(
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Additional Paid in Capital |
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$
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$
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$
(
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$
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$
(
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Net Profit for the period |
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$
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$
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Balance as of September 30,2022 |
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$
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$
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$
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$
(
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$
(
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Balance as of January 1, 2021 |
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$
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$
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$
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$
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$
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$
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Subscription Received / (Returned) |
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(
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$
(
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Net Income for the period |
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$
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Balance as of March 31, 2021 |
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$
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$
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$
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$
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$
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$
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Net Income for the period |
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$
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$
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$
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$
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$
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$
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Balance as of June 30, 2021 |
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$
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$
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$
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$
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$
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$
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Net Loss for the period |
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$
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$
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$
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$
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$
(
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$
(
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Balance as of September 30,2021 |
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$
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$
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$
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$
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$
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$
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The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements |
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5
Free Flow, Inc.
Notes to Condensed Consolidated Financial Statement
September 30, 2022
(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, 2022 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended, September 30, 2022 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, 2021 filed with the SEC on April 15, 2022.
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 and / or sufficient reserves 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 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 brokers, distributors and marketing companies who specialize in promotion of such businesses. Management has obtained working capital line of credit from its commercial bank 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 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.
The Company has prepared a Private Placement Memorandum offering under rule 506 (c) of Regulation D to raise $19.5 million with a minimum of $2,600,000 to pay off all interest-bearing debts and have enough minimum working capital to grow its used auto parts business. The Company intends to become a Shariah Compliant publicly traded entity. The offering memorandum can be viewed on http://www.freeflowplc.com/offering/
6
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 $
Proposals form renowned manufacturers of auto shredding equipment have been received and are being evaluated to determine the most suitable and competitive supplier. The initial plan is laid out to have an output of 3,000 to 5,000 tons of shredded steel per month. The management hopes that upon the funds being raised through the offering made through the above-mentioned Private Placement Memorandum that it will begin the process to expand its scrap metal processing activities.
As was 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, and has remained dormant until any business is transacted.
On January 4, 2017 a subsidiary named City Autos, Corp. was incorporated in the Commonwealth of Virginia which remained dormant until July 21, 2020 whereby a business license has been obtained and City Auto is preparing to start business of auto “Lease – Rent To Own”. The premises were already zoned for use as an Auto Dealership, and there existed a used car deanship operated by the former owners. City Autos is preparing to obtain a dealership license from the State and expects to start with a 50 cars fleet to Lease – Rent to own.
NOTE 4 – RELATED PARTY
As of December 31, 2021, the Company had a note payable in the amount of $
NOTE 5 – CAPITAL STOCK
The Company has a authorized
Pursuant to the resolution of the shareholders meeting held on March 30, 2015 the Company designated
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.
7
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 $
On March 31, 2015 an amount of $
On June 30, 2017 total preferred shares issued and outstanding are
January 1, 2019, by consent of the related party note holder i.e., by Redfield Holdings, Ltd. the debt for a sum of $
On April 2, 2019, in a private transaction the Company accepted a sum of $
NOTE 6 – SUBSEQUENT EVENT S
On August 3, 2022 the Company entered into a Master Purchase Agreement with a company in Sharjah, United Arab Emirates who have agreed to purchase approximately 50 container of scrap metal for the next 12 months. Three shipments against this agreement have already been executed. Due to severe torrential floods in Pakistan and Indian the customer has requested to slow down the shipments, however, there is no change in the overall contact. The total value of the contract is approximately $1,000,000.
The Company concluded another Master Purchase Agreement dated August 12, 2022 whereby a bonafide international trading company based out of London, U.K. has agreed to purchase 45,000 MT of Heavy Melting Scrap ISRI 202 (80/20) ½ and ISRI 211 shredded steel. The transaction entails payment via sight letters of credit issued by first class international banks. The Company is trying to secure lines of credit for purchase of material. The value of the contract is approximately $14 million. Supply Order has been received and negotiations with prospective vendors is at an active stage.
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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
N.B. Market conditions may change, which my adversely affect the future results.
The Company liquidated most of its inventory as scrap metal due to the fact that cash resources available were not enough to purchase new inventory. Without fresh new inventory the sales of auxiliary parts, that were in hand, was negligible. This is due to the fact that the prices of end-of-life and wrecked automobiles has increased to more than double the previous prices. Accordingly, keeping in view the present market conditions the management felt that it would take a pause in building used auto parts’ inventory, according to a fresh review of the situation, the management is of the opinion that until and unless a sum of $1,000,000 to $2,000,000 has been mobilized for the used auto parts business.
Progress has been reported in Note 6 under “subsequent events” as above.
The Company through its subsidiaries, namely, Accurate Auto Parts, Inc. and Motor & Metals, Inc. has made a sale of $185,650 of Automobile Parts, Services and Processed Scrap. The Company continues seeking additional sales both in the domestic and international markets.
Regarding scrap metal processing: Motors & Metals, Inc., the subsidiary which is licensed to operate as scrap metal processor completed its scope of equipment and machinery and thereafter, on July 4, 2020 the company received a firm quotation from an equipment manufacturer. The cost of the project is estimated at $9,000,000 with a projected EBITDA of about 20% on an estimated annual revenue of $10,000,000. Financing arrangements are currently being worked upon and the Company is waiting to see success in its offering under the Private Placement Memorandum.
A firm contract with the machinery suppliers will be executed as soon as financing is arranged.
City Autos, Corp. – the subsidiary of the Company has received the business license to operate as used car dealership which encompasses the business of auto leasing and renting. Application to the DMV in the Commonwealth of Virginia will soon be filed to obtain the dealer license. City Autos plans to confine its business to auto “Lease – Rent To Own” only. The model City Autos has chosen is a weekly program to Lease – Rent To Own on affordable weekly payments. City Autos plans to stay with a 50 cars fleet until such time that adequate staff is hired and trained.
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RESULTS OF OPERATIONS
The existing cash resources were thus diverted to trading activities in Scrap Metal business. Eight containers have been exported since January 2022 with a target to export 4 to 5 containers per month. This requires less investment and once the targeted shipments are achieved, the company will be able to make enough profits and eliminate the deficit from operations.
The Company did recognize revenue for a sum of $185,650during the nine months ended September 30, 2022 and $616,806 of revenues during the nine month ended September 30, 2021. While the net revenues for the period ended September 30, 2022 were lower by $431,156 than for the same period during 2021 and the Cost of Goods Sold was less by $123,160 during the period ended September 30, 2022 as compared to the same period during 2021. This 42 % decrease in cost of goods sold was due to decrease in automobile activities and decline in other overheads. The general and administrative expenses for the period ended September 30, 2022 were $109,426 as compared to $158,113 for the same period during 2021. During the period of 2022 the Company purchased less vehicles as compared to the same period and in the business of scrap metals due to which operation of the Company reduced which leads into decrease in Administrative expenses.
During the nine months ended September 30, 2022 the company recognized a gross profit of $14,975 as compared to $322,971for the corresponding period in the year 2021, this decrease of $307,996 in Gross profit equates to approximately 95% as compared to the nine months ended September 30, 2021.
During the nine month ended September 30, 2022 the company recognized a net operating loss of $222,634 as compared to operating profit of $1,381 for the corresponding period in the year 2021, this operating loss of $224,015 is due to the fact that the sales was decreased by $431,156 and the fixed professional and financial expenses were significantly high thus yielding a low margin of profit.
Management has opted to provide for the depreciation of equipment, trucks and building at the end of the year instead of providing for it on quarterly basis.
LIQUIDITY
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT ON THE COMPANY’S FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021, 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.
BALANCE SHEET
On September 30, 2022 the Company had total current assets of $ 263,918 consisting of $41,868 in cash and cash equivalents and $215,484 in trade receivables, and $6,568 in inventory. As on September 30, 2021 the Company has a total current assets of $2,412,684 consisting of $32,790 in cash and cash equivalents and $199,784 in trade receivables, and $2,180,109 in inventory at cost.
EQUITY LINE OF CREDIT
The Company has obtained an equity line of credit from Incredible Bank, additionally personally guaranteed by the CEO, Mr. Sabir Saleem against which, a sum of $319,319 was drawn as on September 30, 2022. The line of credit is being used for operating expenses, primarily for purchase of inventory.
OTHER LOANS
As of September 30, 2022 the Company had an outstanding loan from PayPal in the amount of $37,539 and received a loan under Economic Injury Disaster Loan (EIDL) in the amount of $353,600.
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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 $185,650 for the nine months ended September 30, 2022.
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 June 30, 2021, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
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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.
In April 2019 the Company, as a private transaction, issued 21,000 restricted shares of Common Shares for a sum of $14,490.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable
ITEM 5. OTHER INFORMATION
PART II. OTHER INFORMATION
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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3.2 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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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, 2022 |
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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