Attached files
| file | filename |
|---|---|
| EX-32.2 - CERTIFICATIONS - Teardroppers, Inc. | tear_ex3202.htm |
| EX-32.1 - CERTIFICATIONS - Teardroppers, Inc. | tear_ex3201.htm |
| EX-31.2 - CERTIFICATIONS - Teardroppers, Inc. | tear_ex3102.htm |
| EX-31.1 - CERTIFICATIONS - Teardroppers, Inc. | tear_ex3101.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______________ to _____________
Commission file number 333-177792
THE TEARDROPPERS, INC.
(Exact name of small business issuer as specified in its charter)
| Nevada | 20-4168979 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
620 Newport Center Drive Suite 1100 PMB 488
Newport Beach, Ca. 92660
(Address of principal executive offices)
949-751-2173
(Issuer’s telephone number)
_______________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
Check whether the issues (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 past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☒ | |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒
There were 45,920,000 shares of the registrant’s common stock, $0.001 par value per share, outstanding on August 14, 2020.
THE TEARDROPPERS, INC.
| i |
PART I – FINANCIAL INFORMATION
ITEM 1. Condensed Unaudited Financial Statements
The Teardroppers, Inc.
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | 59,422 | $ | 50,035 | ||||
| Lease payments receivable – related parties | 740 | 1,000 | ||||||
| Lease receivable – related party (current portion) | 37,978 | – | ||||||
| Prepaid expenses | 1,000 | 3,754 | ||||||
| Total current assets | 99,140 | 54,789 | ||||||
| Property & Equipment: | ||||||||
| Equipment | 288,089 | 478,089 | ||||||
| Less accumulated depreciation | (156,843 | ) | (134,868 | ) | ||||
| Property & Equipment, net | 131,246 | 343,221 | ||||||
| Lease receivable – related party (net) | 128,272 | – | ||||||
| Total Assets | $ | 358,658 | $ | 398,010 | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 286,975 | $ | 244,762 | ||||
| Accounts payable - related parties | 328,735 | 327,234 | ||||||
| Customer deposits | 14,500 | 14,500 | ||||||
| Contract liability – related party | 16,000 | 16,000 | ||||||
| Related party lease payment received in advance | 10,006 | – | ||||||
| Current portion of notes payable– related party | 33,850 | 31,888 | ||||||
| Current portion of lease payable - related party | 3,538 | 3,422 | ||||||
| Line of credit from related party | 773,605 | 625,365 | ||||||
| Accrued interest payable -related parties | 232,365 | 197,695 | ||||||
| Total current liabilities | 1,699,574 | 1,460,866 | ||||||
| Long term liabilities – related parties | ||||||||
| Notes payable – less current portion | 66,249 | 83,679 | ||||||
| Lease payable – less current portion | 21,244 | 23,042 | ||||||
| 87,493 | 106,721 | |||||||
| Total Liabilities | 1,787,067 | 1,567,587 | ||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, par value $0.001, authorized 20,000,000 shares, issued shares 0, respectively | 0 | 0 | ||||||
| Common stock, par value $0.001, authorized 200,000,000 shares issued 45,920,000 | 45,920 | 45,920 | ||||||
| Additional paid in capital | 828,558 | 828,558 | ||||||
| Accumulated deficit | (2,302,887 | ) | (2,044,055 | ) | ||||
| Total Stockholders' Deficit | (1,428,409 | ) | (1,169,577 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 358,658 | $ | 398,010 | ||||
The accompanying notes are an integral part of the condensed unaudited financial statements.
| 1 |
The Teardroppers, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | ||||||||||||||||
| Lease revenue – unrelated parties | $ | 1,275 | $ | 1,275 | $ | 2,550 | $ | 2,550 | ||||||||
| Lease revenue – related parties | 12,000 | 12,000 | 24,000 | 24,000 | ||||||||||||
| Consulting fees – related party | 6,000 | – | 6,000 | – | ||||||||||||
| Total revenue | 19,275 | 13,275 | 32,550 | 26,550 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Consulting from related parties | 33,000 | 42,000 | 60,000 | 69,000 | ||||||||||||
| Consulting fees - unrelated parties | 9,970 | 26,471 | 30,940 | 52,957 | ||||||||||||
| General and administrative | 38,341 | 25,117 | 119,631 | 51,286 | ||||||||||||
| Professional fees | 11,225 | 27,400 | 49,913 | 29,525 | ||||||||||||
| 92,536 | 120,988 | 260,484 | 202,768 | |||||||||||||
| Operating loss | (73,261 | ) | (107,713 | ) | (227,934 | ) | (176,218 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense - related parties | (21,451 | ) | (10,996 | ) | (41,663 | ) | (21,296 | ) | ||||||||
| Interest income - related parties | 6,354 | – | 10,765 | – | ||||||||||||
| (15,097 | ) | (10,996 | ) | (30,898 | ) | (21,296 | ) | |||||||||
| Net Loss Before Taxes | (88,358 | ) | (118,709 | ) | (258,832 | ) | (197,514 | ) | ||||||||
| Income Tax Provision | – | – | – | – | ||||||||||||
| Net loss | $ | (88,358 | ) | $ | (118,709 | ) | $ | (258,832 | ) | $ | (197,514 | ) | ||||
| Net loss per share | ||||||||||||||||
| (Basic and fully diluted) | $ | (0.00 | )* | $ | (0.00 | )* | $ | (0.00 | )* | $ | (0.00 | )* | ||||
| Weighted average number of common shares outstanding | 45,920,000 | 45,920,000 | 45,920,000 | 45,920,000 | ||||||||||||
* denotes a loss of less than $(.01) per share.
The accompanying notes are an integral part of the condensed unaudited financial statements.
| 2 |
The Teardroppers, Inc.
CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
| Common Stock | Additional | |||||||||||||||||||
| Amount | Paid in | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | ($.001 Par) | Capital | Deficit | Deficit | ||||||||||||||||
| Balance December 31, 2018 | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (1,642,090 | ) | $ | (767,612 | ) | |||||||||
| Net loss for the period | – | – | – | (78,805 | ) | (78,805 | ) | |||||||||||||
| Balances March 31, 2019 | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (1,720,895 | ) | $ | (846,417 | ) | |||||||||
| Net loss for the period | – | – | – | (118,709 | ) | (118,709 | ) | |||||||||||||
| Balance June 30, 2019 | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (1,839,604 | ) | $ | (965,126 | ) | |||||||||
| Balance December 31, 2019 | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (2,044,055 | ) | $ | (1,169,577 | ) | |||||||||
| Net loss for the period | – | – | – | (170,474 | ) | (170,474 | ) | |||||||||||||
| Balances March 31, 2020 | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (2,214,529 | ) | $ | (1,340,051 | ) | |||||||||
| Net loss for the period | – | – | – | (88,358 | ) | (88,358 | ) | |||||||||||||
| Balance June 30, 2020 | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (2,302,887 | ) | $ | (1,428,409 | ) | |||||||||
The accompanying notes are an integral part of the condensed unaudited financial statements.
| 3 |
The Teardroppers, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||
| June 30, | June 30, | |||||||
| 2020 | 2019 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (258,832 | ) | $ | (197,514 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | 31,475 | 28,809 | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Increase (decrease) in lease receivable | 260 | (425 | ) | |||||
| Decrease in prepaid expenses | 2,754 | 2,483 | ||||||
| Decrease in lease receivable – related party | 14,250 | – | ||||||
| Increase in accounts payable - unrelated parties | 42,213 | 37,425 | ||||||
| Increase (Decrease) in accounts payable – related parties | 1,501 | (24,303 | ) | |||||
| Increase in accrued interest – related parties | 34,670 | 12,176 | ||||||
| Increase in advance lease payments | 10,006 | – | ||||||
| Net cash used in operating activities | (121,703 | ) | (141,349 | ) | ||||
| Cash Flows From Investing Activities: | – | – | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Principal payments on notes payable – related party | (15,468 | ) | (13,727 | ) | ||||
| Principal payments on lease payable - related party | (1,682 | ) | (1,575 | ) | ||||
| Proceeds from line of credit related party | 330,720 | 269,800 | ||||||
| Repayments on line of credit related party | (182,480 | ) | (124,650 | ) | ||||
| Net cash provided by financing activities | 131,090 | 129,848 | ||||||
| Net Increase (Decrease) In Cash | 9,387 | (11,501 | ) | |||||
| Cash At The Beginning Of The Period | 50,035 | 71,858 | ||||||
| Cash At The End Of The Period | $ | 59,422 | $ | 60,357 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Assets transferred in direct financing lease | $ | 180,500 | $ | – | ||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 6,993 | $ | 8,821 | ||||
| Franchise and income tax | $ | – | $ | – | ||||
The accompanying notes are an integral part of the condensed unaudited financial statements.
| 4 |
TEARDROPPERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended June 30, 2020 and 2019
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
On June 3, 2013, Teardroppers, Inc. (the “Company”), was incorporated under the laws of the state of Nevada.
We are in the business of mobile billboard advertising, providing billboard advertising space on custom designed "Teardrop Trailers" and various sizes of cargo type trailers. Teardrop Trailers, are usually designed for short-period accommodations for vacationers and travelers. Teardrop Trailers are designed to be towed behind new and vintage vehicles and pickup trucks.
In addition, we own cargo trailers with flat non rivet panel siding that can be used for hauling and transportation. These trailers range in size from 15 feet to 53 feet. We lease these trailers for transportation of goods and for advertising of their respective business or the businesses of lessee clients.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2020. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2019 filed with the SEC.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Such estimates include management’s assessments of the carrying value of certain assets, useful lives of assets, and related depreciation and amortization methods applied.
Cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
| 5 |
Fair value of financial instruments
The Company adopted the provisions of FASB Accounting Standards Codification (“ASC”) 820 (the “Fair Value Topic”) which defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements.
The Fair Value Topic defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. It also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.
The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses, and contract liability approximate their fair value because of the short-term maturity of those instruments. The Company’s note payable approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at June 30, 2020 and December 31, 2019.
The Company had no assets or liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019, respectively, using the market and income approaches.
Property and equipment
Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method over the assets estimated useful life of three (3) years for equipment, five (5) years for automobile, and seven (7) years for furniture and fixtures. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.
Revenue recognition
On January 1, 2018, the Company adopted the provisions of ASC 606 Revenue from Contracts with Customers, and related Accounting Standards Updates. This new revenue recognition standard has a five step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The impact of the Company’s initial application of ASC 606 did not have a material impact on its financial statements and disclosures.
The primary source of revenues are from the rental of advertising space on custom designed Teardrop Trailers, lease revenue and consulting fees. Revenue from advertising space and leases is recognized over time as the performance obligations are met and consulting fees is recognized at a point in time when the performance obligation is met. For the three and six months ended June 30, 2020 and 2019, the Company recognized no income from the rental of the trailers.
In March 2018, the Company entered into a four-year agreement to lease equipment to an unrelated shareholder. In September 2018, the son of the shareholder became the Chief Financial Officer. At that point the shareholder will be considered a related party. For the three and six months ended June 30, 2020 and 2019, related party lease income was $12,000 and $24,000, respectively.
In January 2019, the Company entered into a two-year agreement to lease a vehicle to an unrelated third party. For the three and six months ended June 30, 2020 and 2019, the Company recognized lease income was $1,275 and $2,550, respectively.
On February 1, 2020, the Company leased a truck and trailer purchased November 2019 for $190,000 to a related party. The lease is classified as a direct financing lease. The cost of the vehicle and related accumulated depreciation has been reclassified to a lease receivable and is reflected on the condensed balance sheet as lease receivable – related party. Interest revenue is reflected on the condensed statement of operations. For the six months ended June 30, 2020, the Company recognized interest revenue of $6,354. See Note 5 for details.
| 6 |
Net income (loss) per share
The Company computes basic and diluted earnings per share amounts pursuant to ASC 260-10-45. Basic earnings per share is computed by dividing net income (loss) available to common shareholders, by the weighted average number of shares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted earnings per share is computed by dividing net income (loss) available to common shareholders by the diluted weighted average number of shares of common stock during the period.
The diluted weighted average number of common shares outstanding is the basic weighted number of shares adjusted as of the first day of the year for any potentially diluted debt or equity. Potentially dilutive securities are excluded from the computation if their effect is in anti-dilutive.
There were no potentially dilutive shares outstanding for the three and six month periods ended June 30, 2020 and 2019, respectively.
Recently issued accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and applicable to the Company. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued and not implemented that might have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company has a minimum cash balance available for payment of ongoing operating expenses. As of June 30, 2020, the Company has an accumulated deficit of $2,302,887 and negative working capital of $1,600,434. For the six months ended June 30, 2020, the Company had a net loss of $258,832 and a net cash outflow from operating activities of $121,703. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this report. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available or will be available on terms acceptable to the Company.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||
| Property and equipment, purchased | $ | 258,000 | $ | 448,000 | ||||
| Property and equipment, leased | 30,089 | 30,089 | ||||||
| 288,089 | 478,089 | |||||||
| Less: accumulated depreciation | (156,843 | ) | (134,868 | ) | ||||
| Property and equipment, net | $ | 131,246 | $ | 343,221 | ||||
Depreciation expense for the three and six months ended June 30, 2020 and 2019 were $14,154 and $14,405, respectively and $31,475 and $28,809, respectively.
On February 1, 2020, the Company leased a truck and trailer purchased November 2019 for $190,000 to a related party. The lease is classified as a financing lease. The cost of the vehicle and related accumulated depreciation has been reclassified to a lease receivable and is reflected on the condensed balance sheet as lease receivable – related party. See Note 5 for details.
| 7 |
NOTE 5. LEASE RECEIVABLE – RELATED PARTY
On November 12, 2019, the company purchased a truck and trailer from a related party for $190,000. On February 1, 2020, the Company leased the asset back to the same related party. The term of the lease is for 48 months with payments of $5,003 per month. At the end of the lease, the related party the right to purchase the asset for $22,800. The lease is classified as a financing lease under ASC 842. The present value of the lease payments, excluding the end of lease provisions, discounted at an interest rate of 10%, is $197,442. The Company is using the net book value of $180,500 of the asset as the initial value of the lease in accordance with ASC 842-30-55-17A.
The undiscounted cash flow principal payments for the remaining term of the lease will be as follows:
| 2020 (remainder of year) | $ | 30,018 | ||
| 2021 | 60,036 | |||
| 2022 | 60,036 | |||
| 2023 | 60,036 | |||
| 2024 | 5,003 | |||
| Total | 215,129 | |||
| Less deferred interest | (48,879 | ) | ||
| Less current portion | (37,978 | ) | ||
| Long-term lease receivable | $ | 128,272 |
Income from the lease is reflected on the condensed statement of operations as interest income – related parties. For the three and six months ended June 30, 2020 interest income of $6,354 and $10,765 was reported.
NOTE 6 – LOAN PAYABLE – RELATED PARTY
During 2014, the Company entered into a loan agreement with Gemini Southern, LLC whereby the monies paid to the Company by Gemini Southern, LLC pursuant to the consulting agreement dated September 20, 2013. The balance will be paid back with interest commencing on January 1, 2015 at a rate of 10% per annum with a maturity date of December 12, 2018. On April 1, 2018, the balance of the debt, $525,000, was converted into 4,375,000 of common stock. The Company recorded accrued interest on this loan of $145,632 as of June 30, 2020 and December 31, 2019, respectively. The accrued interest was not part of the conversion agreement and continues to be reflected as a liability. Effective April 1, 2018, the line of credit is considered related party debt. See Note 7 for details of the transactions.
NOTE 7 – LINE OF CREDIT FROM RELATED PARTY
On February 25, 2014, the Company entered into a line of credit with DEVCAP Partners, LLC, a California limited liability company (“DEVCAP”), for an amount up to $450,000 with a maturity date of June 1, 2020, bearing interest of 10% per annum. Effective July 1, 2019, the loan was assumed by FinTekk AP, LLC, a California limited liability company (“Fintekk”). The terms of the line of credit are unchanged. Both DEVCAP and FinTekk are solely owned by the majority shareholder of the Company and are related parties. As of June 30, 2020, and December 31, 2019, the balance of the line of credit was $163,625 and $135,365, respectively. The Company recorded accrued interest of $17,682 and $13,044 on the line of credit at June 30, 2020 and December 31, 2019, respectively.
On August 13, 2015, the Company entered into a line of credit with General Pacific Partners, LLC, a California, limited liability company, for an amount up to $450,000. The line of credit is a demand loan bearing interest of 10% per annum and matures on August 13, 2020. General Pacific Partners, LLC is a related party to the Company as it is owned by a majority shareholder of the Company. As of June 30, 2020, and December 31, 2019 the balance of the line of credit was $0. The Company recorded accrued interest of $4,732 at June 30, 2020 and December 31, 2019, respectively.
| 8 |
During 2014, the Company entered into a line of credit agreement with Gemini Southern, LLC. On April 1, 2018, the Company converted $525,000 of debt owed to Gemini Southern, LLC into 4,375,000 shares of stock. Gemini Southern, LLC will be treated as a related party for all activity from the date of the conversion forward. The line of credit is a demand loan with a maximum of $650,000 bearing interest at 10%, maturing December 2023. At June 30, 2020, and December 31, 2019, the balance due on the line was $609,980 and $450,000, respectively. The Company recorded accrued interest of $64,058 and $34,287 as of June 30, 2020 and December 31, 2019, respectively.
NOTE 8 – LONG-TERM LIABILITIES – RELATED PARTY
On October 1, 2017, the Company acquired from Gemini Southern, LLC a 2006 Ultra-Comp 53” NASCAR type vehicle transport hauler (the “Hauler”) to be used for promotional / advertising services. The purchase price of the Hauler was $165,000. The Company paid for the Hauler with a promissory note (the “Hauler Note”). The Hauler Note bears interest at 12% per annum and is payable as follows: (i) interest only from October 1, 2017 through February 28, 2018; (ii) $ $3,670 per month from March 1, 2018 through February 28, 2022; and $45,000 on February 1, 2022. The trailer is collateral for the promissory note. The balance of the loan was $100,099 and $115,567 as of June 30, 2020 and December 31, 2019, respectively. Accrued interest was $261 and $0 at June 30, 2020 and December 31, 2019.
Future principal payments will be as follows:
| 2020 (remainder of year) | $ | 16,420 | ||
| 2021 | 35,932 | |||
| 2022 | 47,747 | |||
| Total | $ | 100,099 |
On December 22, 2018, the Company leased a vehicle from the majority shareholder. The term of the lease is 84 months with payments of $423 per month. At the end of the lease the Company can purchase the vehicle for $2,500. As of June 30, 2020, it is reasonably expected that the Company will exercise the purchase option. The value of the asset and corresponding liability at the date of inception was $30,089, the net present value of the lease payments, including the purchase option, using an interest rate of 6.649% in accordance with the provisions of ASC 842. The balance of the lease liability at June 30, 2020 and December 31, 2019 was $24,782 and $26,464, respectively.
Future lease payments will be as follows:
| 2020 (remainder of year) | $ | 2,539 | ||
| 2021 | 5,078 | |||
| 2022 | 5,078 | |||
| 2023 | 5,078 | |||
| 2024 | 5,078 | |||
| Thereafter | 7,155 | |||
| Total payments | 30,006 | |||
| Less deferred interest | (5,224 | ) | ||
| Total liability | $ | 24,782 | ||
| Less current portion | (3,538 | ) | ||
| Long-term lease liability | $ | 21,244 |
There are no commitments or contingencies related to the long-term liabilities that are not disclosed above.
| 9 |
NOTE 9 – RELATED PARTY TRANSACTIONS
Consulting expense to related party (DEVCAP Partners, LLC)
On January 1, 2014, the Company executed a three-year consulting agreement with DEVCAP Partners, LLC, (“DEVCAP”), whereby the Company agreed to pay $7,500 a month for consulting services to be provided to the Company such as marketing, architectural development, accounting, finance, corporate structure and tax planning. Effective July 1, 2019, the agreement was transferred to FinTekk AP, LLC (“FinTekk”). All amounts due to DEVCAP and all future services will be assumed by FinTekk. For the three and six months ended June 30, 2020 and 2019, the Company recorded consulting fee expense of $22,500 and $45,000, respectively. The amount due but unpaid is $246,985 at June 30, 2020 and December 31, 2019, respectively, and is included in accounts payable related parties on the condensed balance sheet.
Consulting expense to related party (Cody Ware)
On January 1, 2019, the Company entered into a verbal consulting agreement with its Chief Executive Officer, Cody Ware, whereby the Company agreed to pay $1,500 per month for consulting services related to his duties as Chief Executive Officer. Effective May 1, 2020, the consulting fee was increased to $4,500 per month. For the three and six months ended June 30, 2020, the Company recorded consulting fee expense of $10,500 and $15,000, respectively. For the three and six months ended June 30, 2019, the Company recorded consulting fee expense of $4,500 and $9,000, respectively. At June 30, 2020 and December 31, 2019, the amount due but unpaid was $3,000 and $1,500, respectively and reflected in accounts payable – related parties on the condensed balance sheet.
Consulting expense to related party (Robert Wilson)
On January 1, 2014, the Company entered into a verbal consulting agreement with its Chief Financial Officer, Robert Wilson, whereby the Company agreed to pay $2,500 per quarter for consulting services related to his duties as Chief Financial Officer. Mr. Wilson resigned effective April 1, 2017. The amount due but unpaid was $17,500 at June 30, 2020 and December 31, 2019, respectively, and was included on the balance sheet as accounts payable - related parties.
Consulting expense to related party (Ray Gerrity)
On January 1, 2014, the Company entered into a verbal consulting agreement with its Chief Executive Officer, Ray Gerrity, whereby the Company agreed to pay $2,500 per quarter for consulting services related to his duties as Chief Executive Officer. Mr. Gerrity resigned his position effective March 31, 2018. The amount due but unpaid was $32,500 at June 30, 2020 and December 31, 2019, respectively, and was included on the balance sheet as accounts payable - related parties.
Expense reimbursements
The majority shareholder of the Company pays certain ongoing operating costs from personal funds and is periodically reimbursed. As of June 30, 2020, and December 31, 2019, the amount due to the shareholder was $28,750 and is reflected in accounts payable – related parties on the balance sheet.
NOTE 10 – STOCKHOLDERS’ DEFICIT
At the time of incorporation, the Company was authorized to issue 10,000 shares of common stock and 1,000 shares of preferred stock with a par value of $0.001. The Company amended its articles of incorporation to increase its authorized shares to 200,000,000 shares of common stock and 20,000,000 shares of preferred stock, both $0.001 par value.
NOTE 11 – SUBSEQUENT EVENTS
Management has concluded that the COVID-19 outbreak in 2020 may have a significant impact on business in general, but the potential impact on the Company is not currently measurable. Due to the level of risk this virus may have on the global economy, it is at least reasonably possible that it could have an impact on the operations of the Company in the near term that could materially impact the Company’s financials. Management has not been able to measure the potential financial impact on the Company but will review commercial and federal financing options should the need arise.
| 10 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor for Forward-Looking Statements
When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual result may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed under the “Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operations,” and also include general economic factors and conditions that may directly or indirectly impact the Company’s financial condition or results of operations.
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Revenues
The Company had $19,275 in revenue during the three months ended June 30, 2020 compared to $13,275 in revenue during the three months ended June 30, 2019. This increase is the result of consulting fees received from related parties.
Operating Expenses
For the three months ended June 30, 2020 operating expenses were $92,536 compared to $120,988 for the same period in 2019 for a decrease of $28,452 . The decrease was primarily a result of the decrease in consulting fees to unrelated parties to $9,970 from $26,471 and a decrease in professional fees to $11,225 from $27,400 for the same period in 2019.
Interest and Financing Costs
Interest expense was $15,097 for the three months ended June 30, 2020 compared to $10,996 for the three months ended June 30, 2019. The increase was due to a increase in the indebtedness of the company.
Net Loss
The Company incurred losses of $88,358 for the three months ended June 30, 2020 compared to $118,709 during the three months ended June 30, 2019 due to the factors discussed herein above.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Revenues
The Company had $32,550 in revenue during the six months ended June 30, 2020 compared to $26,550 in revenue during the six months ended June 30, 2019. This increase is the result of consulting fees from related party.
| 11 |
Operating Expenses
For the six months ended June 30, 2020 operating expenses were $260,484 compared to $202,768 for the same period in 2019 for an increase of $57,716 . The increase was primarily a result of the increase in general and administrative fees to $119,631 from $51,286 , and an increase in professional fees to $49,913 from $29,525 for the same period in 2019.
Interest and Financing Costs
Interest expense was $30,898 for the six months ended June 30, 2020 compared to $21,296 for the six months ended June 30, 2019. The increase was nominal over the period.
Net Loss
The Company incurred losses of $258,832 for the six months ended June 30, 2020 compared to $197,514 during the six months ended June 30, 2019 due to the factors discussed herein above.
Operating activities
During the six months ended June 30, 2020, we had ($121,703) used for operating activities compared to ($141,349) during the six months ended June 30, 2019, an increase in cash outflows of $19,646. The increase in operating activities was due to an increase to consulting fees to related parties.
Investing activities
We neither generated nor used cash flow in investing activities during the six months ended June 30, 2020 and June 30,2019.
Financing activities
During the six months ended June 30, 2020, we generated $131,090 from financing activities compared to $129,848 for the same period ended June 30, 2019. The increase was primarily due to proceeds received from a related party line of credit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustment relating to recoverability and classification of recorded amounts of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company has a minimum cash balance available for payment of ongoing operating expenses and has incurred losses since inception and anticipates future losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. Its continued existence is dependent upon its ability to continue to execute its operating plan and to obtain additional debt or equity financing. There can be no assurance the necessary debt or equity financing will be available or will be available on terms acceptable to the Company.
| 12 |
The Company had $59,422 in cash at June 30, 2020 with availability on our related party lines of credit with FinTekk AP, LLC and General Pacific Partners of $773,605. At June 30, 2020 we had a working capital deficit of $1,600,434.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
As a “smaller reporting company,” we are not required to provide the information under this Item 3.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our Chief Executive Officer as of the end of the period covered by this report, our Chief Executive Officer concluded that our disclosure controls and procedures have not been effective as a result of a weakness in the design of internal control over financial reporting identified below.
As used herein, “disclosure controls and procedures” mean controls and other procedures of our company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
This report does not include an attestation report of our registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered independent public accounting firm.
Changes in Internal Control Over Financial Reporting
No changes in our internal control over financial reporting occurred during the period ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 13 |
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or material pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended June 30, 2020, the Company had no unregistered sales of equity securities.
ITEM 3. Default Upon Senior Securities
During the six months ended June 30, 2020, the Company had no senior securities issued and outstanding.
ITEM 4. Mine Safety Disclosures
Not applicable to our Company.
None.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K
| SEC Ref. No. | Title of Document | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of the Principal Executive Officer pursuant to U.S.C. pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of the Principal Financial Officer pursuant to U.S.C. pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Schema Document | |
| 101.CAL* | XBRL Calculation Linkbase Document | |
| 101.DEF* | XBRL Definition Linkbase Document | |
| 101.LAB* | XBRL Label Linkbase Document | |
| 101.PRE* | XBRL Presentation Linkbase Document |
* Filed herewith.
| 14 |
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE TEARDROPPERS, INC.
August 14, 2020
By: /s/ Cody Ware
Cody Ware
Chief Executive Officer (Principal Executive Officer)
Chief Financial Officer (Principal Financial Officer)
| 15 |