Attached files
| file | filename |
|---|---|
| EX-32.2 - CERTIFICATION - Teardroppers, Inc. | tear_ex3202.htm |
| EX-32.1 - CERTIFICATION - Teardroppers, Inc. | tear_ex3201.htm |
| EX-31.2 - CERTIFICATION - 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 March 31, 2021
☐ 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
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| 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 May 12, 2021.
THE TEARDROPPERS, INC.
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. Condensed Unaudited Financial Statements
The Teardroppers, Inc.
| March 31, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 46,206 | $ | 49,473 | ||||
| Lease receivable | 1,000 | 1,000 | ||||||
| Lease receivable - related party (current portion) | 48,478 | 46,816 | ||||||
| Interest receivable | 555 | 565 | ||||||
| Prepaid expenses | 3,659 | 4,072 | ||||||
| Other receivables | 2,000 | – | ||||||
| Total current assets | 101,898 | 101,926 | ||||||
| Property and equipment: | ||||||||
| Cost | 324,202 | 288,089 | ||||||
| Less accumulated depreciation | (200,511 | ) | (185,153 | ) | ||||
| Property and equipment, net | 123,691 | 102,936 | ||||||
| Lease receivable - related party (net) | 156,469 | 168,957 | ||||||
| Total Assets | $ | 382,058 | $ | 373,819 | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 345,369 | $ | 319,455 | ||||
| Accounts payable - related parties | 353,591 | 336,081 | ||||||
| Customer deposits | 14,500 | 14,500 | ||||||
| Contract liability - related party | 11,760 | 11,760 | ||||||
| Current portion of notes payable | 4,876 | 4,737 | ||||||
| Current portion of notes payable - related party | 75,095 | 35,932 | ||||||
| Current portion of right of use asset lease payable - related party | 4,016 | 3,656 | ||||||
| Accrued interest - unrelated parties | 555 | 566 | ||||||
| Line of credit from related party | 958,002 | 867,011 | ||||||
| Accrued interest payable-related parties | 292,327 | 272,338 | ||||||
| Total current liabilities | 2,060,091 | 1,866,036 | ||||||
| Long-term liabilities: | ||||||||
| Note payable | 61,759 | 63,125 | ||||||
| Note payable - related party | – | 47,747 | ||||||
| Right of use asset lease payable - related party | 18,433 | 19,386 | ||||||
| 80,192 | 130,258 | |||||||
| Total Liabilities | 2,140,283 | 1,996,294 | ||||||
| Commitments and Contingencies (Note 11) | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, par value $0.001, authorized 20,000,000 shares, issued shares 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 | (2,632,703 | ) | (2,496,953 | ) | ||||
| Total Stockholders' Deficit | (1,758,225 | ) | (1,622,475 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 382,058 | $ | 373,819 | ||||
The accompanying notes are an integral part of the condensed financial statements.
| 3 |
The Teardroppers, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2021 | 2020 | |||||||
| Revenues | ||||||||
| Lease revenue - unrelated parties | $ | 1,275 | $ | 1,275 | ||||
| Lease revenue - related parties | 12,000 | 12,000 | ||||||
| 13,275 | 13,275 | |||||||
| Operating expenses: | ||||||||
| Consulting to related party | 36,000 | 27,000 | ||||||
| Consulting to unrelated party | 22,500 | 20,970 | ||||||
| General and administrative | 55,177 | 81,290 | ||||||
| Professional fees | 18,113 | 38,688 | ||||||
| 131,790 | 167,948 | |||||||
| Operating loss | (118,515 | ) | (154,673 | ) | ||||
| Other income (expense): | ||||||||
| Interest income - related parties | 7,023 | 4,410 | ||||||
| Interest expense - unrelated parties | (1,676 | ) | – | |||||
| Interest expense - related parties | (22,582 | ) | (20,211 | ) | ||||
| (17,235 | ) | (15,801 | ) | |||||
| Net loss before taxes | (135,750 | ) | (170,474 | ) | ||||
| Income tax provision | – | – | ||||||
| Net loss | $ | (135,750 | ) | $ | (170,474 | ) | ||
| Net loss per share | ||||||||
| (Basic and fully diluted) | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 45,920,000 | 45,920,000 | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
| 4 |
The Teardroppers, Inc.
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the three months ended March 31, 2021 and 2020
(Unaudited)
| Additional | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid In | Accumulated | Stockholders | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balances December 31, 2020 | – | – | 45,920,000 | 45,920 | 828,558 | (2,496,953 | ) | (1,622,475 | ) | |||||||||||||||||||
| Net loss for the period | – | – | – | – | – | (135,750 | ) | (135,750 | ) | |||||||||||||||||||
| Balances March 31, 2021 | – | – | 45,920,000 | $ | 45,920 | $ | 828,558 | $ | (2,632,703 | ) | $ | (1,758,225 | ) | |||||||||||||||
| Balances 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 | ) | |||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
| 5 |
The Teardroppers, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2021 | 2020 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (135,750 | ) | $ | (170,474 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | 15,358 | 17,321 | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Decrease in lease receivable | – | (4,240 | ) | |||||
| Decrease in interest receivable - related party | 10 | – | ||||||
| Decrease in prepaid expenses | 413 | 3,254 | ||||||
| Decrease in lease receivable - related party | 10,826 | 5,596 | ||||||
| Increase in other receivable | (2,000 | ) | – | |||||
| Increase in accounts payable - unrelated parties | 25,914 | 37,988 | ||||||
| Increase (Decrease) in accounts payable - related parties | 17,510 | (19,499 | ) | |||||
| Increase in accrued interest-related parties | 19,989 | 16,801 | ||||||
| Increase in advance lease payments | – | 5,003 | ||||||
| Decrease in accrued interest - unrelated parties | (11 | ) | – | |||||
| Net cash used in operating activities | (47,741 | ) | (108,250 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of vehicle | (36,113 | ) | – | |||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from line of credit to related parties | 163,500 | 233,717 | ||||||
| Repayments on line of credit to related party | (72,509 | ) | (126,149 | ) | ||||
| Repayments on notes payable - unrelated parties | (1,227 | ) | – | |||||
| Repayments on notes payable - related parties | (8,584 | ) | (8,452 | ) | ||||
| Repayments on lease payable - related parties | (593 | ) | – | |||||
| Net cash provided by financing activities | 80,587 | 99,116 | ||||||
| Net Decrease In Cash | (3,267 | ) | (9,134 | ) | ||||
| Cash At The Beginning Of The Period | 49,473 | 50,035 | ||||||
| Cash At The End Of The Period | 46,206 | 40,901 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Assets transferred in a direct financing lease | $ | – | $ | 180,500 | ||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 4,280 | $ | 3,410 | ||||
| Franchise and income tax | $ | – | $ | – | ||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
| 6 |
TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
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 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 three months ended March 31, 2021 is not necessarily indicative of the final results that may be expected for the year ended December 31, 2021. 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, 2020 filed with the SEC on April 14, 2021.
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, lease liabilities, useful lives of assets and related depreciation, and valuation of deferred tax assets 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. At March 31, 2021 and December 31, 2020, the Company had no cash equivalents.
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.
| 7 |
TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses, and deferred revenue approximate their fair value because of the short maturity of those instruments. The Company’s loans 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 March 31, 2021 and December 31, 2020.
The Company had no assets and/or liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, 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 revenue and performance obligation is from the rental of advertising space on custom designed Teardrop Trailers. The length of the rental agreements varies from one to thirty days. Customers pay in advance and revenue is recognized based on the number of days of each contract that have expired. For the three months ended March 31, 2021 and 2020, the Company recognized no income from the rental of the trailers.
Subsequent to the adoption of amended accounting guidance for leasing transactions (the “new lease standard”), new leases are classified as sales-type leases, direct financing leases, or operating leases. Leases that commenced prior to the adoption of the new lease standard were not reassessed or restated pursuant to the practical expedients elected and will continue to be accounted for under previous lease accounting guidance.
When a contract includes lease and non-lease components, the Company allocates consideration under the contract to each component based on relative standalone selling price. Whenever the terms of the lease transfer control to the lessee, the contract is typically classified as a sales-type lease.
All other leases that do not meet the definition of a sales-type lease or direct financing lease are classified as operating leases. The underlying asset in an operating lease arrangement is carried at depreciated cost as “Equipment under operating leases” within Property, plant, and equipment, net on the balance sheets. Depreciation is calculated using the straight-line method over the term of the underlying lease contract and is recognized as Cost of net revenue. The depreciable basis is the original cost of the equipment less the estimated residual value of the equipment at the end of the lease term. The Company recognizes operating lease revenue on a straight-line basis over the lease term and expenses deferred initial direct costs on the same basis. Impairment of equipment under operating leases is assessed on the same basis as other long-lived assets.
The Company provides lessees with the option to extend the lease or purchase the underlying asset at the end of the lease term, which is considered when evaluating lease classification. In general, the Company’s lease arrangements do not have variable payment terms and are non-cancelable.
| 8 |
TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
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 is considered a related party. For the three months ended March 31, 2021 and 2020, related party lease income was $12,000 and $12,000 respectively.
In January 2019, the Company entered into a two-year agreement to lease a vehicle to an unrelated third party. For the three months ended March 31, 2021 and 2020, recognized operating lease income was $1,275 and $1,275, respectively.
In January 2015, the Company received $14,500 as a deposit for advertising space to be provided in the future. As of March 31, 2021 and December 31, 2020, the customer has not utilized the space and no revenue has been recognized as the performance obligations have not been satisfied. At the time the service is provided under the terms of the agreement, the Company will recognize the revenue.
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.
There were no potentially dilutive shares outstanding as of March 31, 2021 and December 31, 2020, respectively.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued 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 March 31, 2021, the Company has an accumulated deficit of $2,632,703, net cash outflow from operating activities of $47,741, and a net loss for the current period of $135,750. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance 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. 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 has 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.
| 9 |
TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
The undiscounted cash flow principal payments for the remaining term of the lease will be as follows:
| 2021 (remainder of year) | $ | 45,027 | ||
| 2022 | 60,036 | |||
| 2023 | 60,036 | |||
| 2024 | 5,004 | |||
| Total | 170,103 | |||
| Less deferred interest | (31,807 | ) | ||
| Less current portion | (42,400 | ) | ||
| Long-term lease receivable | $ | 95,896 |
On August 1, 2020, the company purchased a vehicle for $69,000 from a related party and leased it to the same related party. The term of the lease is for 60 months with payments of $1,000 per month. At the end of the lease, the related party has the right to purchase the vehicle for $37,000. 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 $47,065. The Company is using the net book value of $69,000 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:
| 2021 (remainder of year) | $ | 9,000 | ||
| 2022 | 12,000 | |||
| 2023 | 12,000 | |||
| 2024 | 12,000 | |||
| 2025 | 8,000 | |||
| Purchase option | 37,000 | |||
| Total | 90,000 | |||
| Less deferred interest | (23,349 | ) | ||
| Less current portion | (6,078 | ) | ||
| Long-term lease receivable | $ | 60,573 |
Income from both leases is reflected on the statement of operations as interest income – related parties. For the three months ended March 31, 2021 and 2020 interest income of $7,023 and $4,410, respectively was reported.
NOTE 5 – PROPERTY & EQUIPMENT
Property and equipment consists of the following at March 31, 2021 and December 31, 2020.
| March 31, 2021 | December 31, 2020 | |||||||
| Property and equipment, purchased | $ | 294,113 | $ | 258,000 | ||||
| Property and equipment, leased | 30,089 | 30,089 | ||||||
| 324,202 | 288,089 | |||||||
| Less: accumulated depreciation | (200,511 | ) | (185,153 | ) | ||||
| Property and equipment, net | $ | 123,691 | $ | 102,936 | ||||
Depreciation expense for the three months ended March 31, 2021 and 2020 was $15,358 and $17,321 respectively.
On November 12, 2019, the Company acquired for $190,000 a 2008 Freightliner truck and a 2007 Featherlite trailer for use in the business operations.
| 10 |
TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
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 balance sheet as lease receivable – related party. See Note 4 for details.
On February 4, 2021, the Company purchased for $36,113, a 1983 Toyota truck from a related party for use in the business operations.
NOTE 6 – 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 an extended maturity date of December 31, 2023, 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 March 31, 2021 and December 31, 2020, the balance of the line of credit was $257,385 and $226,385, respectively. The Company recorded accrued interest of $32,507 and $27,374 on the line of credit at March 31, 2021 and December 31, 2020, 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. General Pacific Partners, LLC is a related party to the Company as it is owned by a majority shareholder of the Company. On July 5, 2017, the balance of $25,000 was converted into 500,000 shares of stock valued at $.05 per share. The balance of the line of credit was $0 as of March 31, 2021 and December 31, 2020. The Company owes accrued interest of $4,732 as of March 31, 2021 and December 31, 2020, respectively.
During 2014, the Company entered into a line of credit agreement with Gemini Southern, LLC, a related party. The line of credit is a demand loan with a maximum of $950,000 bearing interest at 10%, maturing December 2023. As of March 31, 2021 and December 31, 2020, the balance due on the line was $700,617 and $640,626, respectively. The Company recorded accrued interest of $109,332 and $94,600 as of March 31, 2021 and December 31, 2020, respectively
NOTE 7 – LONG-TERM LIABILITIES – RELATED PARTY
During 2014, the Company entered into a loan agreement with Gemini Southern, LLC, pursuant to which monies were to be paid to the Company by Gemini Southern, LLC, pursuant to the Consulting Agreement dated September 20, 2013. The balance was to be paid with interest commencing 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 shares of common stock of the Company. The Company recorded accrued interest on this loan of $145,632 as of March 31, 2021 and December 31, 2020, respectively. The accrued interest was not part of the conversion agreement and continues to be reflected as a liability.
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 $75,095 and $83,679 as of March 31, 2021 and December 31, 2020, respectively. On April 2, 2021, the company sold the trailer to a related party Rick Ware Racing, LLC and paid off the promissory note in the amount of $75,095.
| 11 |
TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
Principal payments for the remaining term of the loan will be as follows:
| 2021 (reminder of year) | $ | 27,342 | ||
| 2022 | 47,753 | |||
| Total | 75,095 | |||
| Less current portion | (75,095 | ) | ||
| Long-term liability | $ | – |
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 March 31, 2021, it is reasonably expected that the Company will exercise the purchase option. The value of the right of use 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 right of use asset is included in property and equipment as a leased asset.
The undiscounted cash flow principal payments for the next five years will be as follows:
| 2021 (remainder of year) | $ | 3,807 | ||
| 2022 | 5,078 | |||
| 2023 | 5,078 | |||
| 2024 | 5,078 | |||
| 2025 | 7,156 | |||
| Total | 26,197 | |||
| Less deferred interest | (3,748 | ) | ||
| Less current portion | (4,016 | ) | ||
| Long-term right of use asset lease liability | $ | 18,433 |
On August 1, 2020, the Company borrowed $69,000 from an unrelated party to purchase a 2020 Porsche Maran that was subsequently leased to a related party. See Note 4 for details of the lease agreement. The term of the loan is 60 months with payments of $912 per month with interest at 10%. A final payment of $42,434 is due in August 2025. The loan is secured by the vehicle.
Principal payments for the next five years will be as follows:
| 2021 (reminder of year) | $ | 3,704 | ||
| 2022 | 4,870 | |||
| 2023 | 5,380 | |||
| 2024 | 5,943 | |||
| 2025 | 46,738 | |||
| Total | 66,635 | |||
| Less current portion | (4,876 | ) | ||
| Long-term liability | $ | 61,759 |
NOTE 8 – OTHER RELATED PARTY TRANSACTIONS and RELATED PARTIES ACCOUNTS PAYABLE
Line of credit from related parties
The Company has two line of credit agreements with related parties. FinTekk AP, LLC is also the majority shareholder in the Company. DEVCAP Partners, LLC is owned by the same related party that owns Fintekk AP. See Note 6 for further disclosure.
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TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
Consulting expense to related party (FinTekk AP, LLC)
On January 1, 2014, the Company executed a three-year consulting agreement with DEVCAP Partners, LLC, (“DEVCAP”), whereby the Company agreed to pay approximately $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 months ended March 31, 2021 and 2020, the Company recorded consulting fee expense of $22,500, respectively. The amount due but unpaid is $242,835 and $243,825 at March 31, 2021 and December 31, 2020, respectively, and is included in accounts payable related parties on the balance sheets.
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 March 31, 2021 and December 31, 2020, respectively, and was included on the balance sheet as accounts payable - related parties.
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 March 31, 2021 and December 31, 2020, respectively, and was included on the balance sheet as accounts payable - related parties.
Consulting expense to related party (Cody Ware)
On January 1, 2019, the Company entered into a 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 July 2020, the amount was increased to $4,500 per month. For the three months ended March 31, 2021 and 2020, the Company recorded consulting fee expense of $13,500 and $4,500, respectively. As of March 31, 2021 and December 31, 2020, the amount due but unpaid was $16,500 and $3,000, respectively and is included in accounts payable – related parties on the balance sheet.
Expense reimbursements
The majority shareholder of the Company pays certain ongoing operating costs from personal funds and is periodically reimbursed. As of March 31, 2021 and December 31, 2020 the amounts due to the shareholder was $34,250 and $29,250 and is reflected in accounts payable – related parties on the balance sheet.
Other related party transactions
On January 9, 2019, the Company leased a 2018 Ford F-150 truck for a term of two years at $425 per month. The truck was acquired December 22, 2018 from the majority shareholder as described in Note 10. The lessee is an outside consultant for the Company. Additionally, as of March 31, 2021 and December 31, 2020, there was an outstanding payable balance of $10,006 advances owed to related parties.
On February 4, 2021, the Company purchased a 1983 Toyota truck from the majority shareholder for use in the business operations.
NOTE 9 – 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 it authorized shares to 200,000,000 shares of common stock and 20,000,000 shares of preferred stock, both $0.001 par value.
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TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2021
NOTE 10 – OPERATING LEASES
Operating Leases - Lessee
On December 22, 2018, the Company leased a vehicle from the majority shareholder. See further details of this lease in Note 7.
Operating Leases – Lessor
The Company entered into an agreement with a principal vendor for the lease of a Company vehicle. The lease is classified as a lessor operating lease under ASC 842. The term of the lease is 24 months, effective January 2019 and expiring December 2020. Depreciation expense for the vehicle subject to the lease is provided on the straight-line method over the useful life of the vehicle in accordance with the Company’s normal depreciation policy. Estimated and actual residual values are reviewed on a regular basis to determine that depreciation amounts are appropriate. Depreciation expense related to the vehicle was $6,018 for the years ended December 31, 2020 and 2019.
Investments in operating leases are as follows at March 31, 2021 and December 31, 2020:
| 2021 | 2020 | |||||||
| Machinery and equipment, at cost | $ | 30,089 | $ | 30,089 | ||||
| Accumulated depreciation | (13,540 | ) | (12,036 | ) | ||||
| Net investments in operating leases | $ | 16,549 | $ | 18,053 | ||||
NOTE 11—CONTINGENCIES AND COMMITMENTS
The Company’s ability to collect on receivables and pay liabilities is connected to NASCAR race schedule. The 2020 NASCA schedule was severely disrupted by Covid, which caused delays in both collections and payments. Management believes the 2021 NASCAR schedule will not be disrupted. This will allow collections on receivables and payments on liabilities to be timely made. There are no other commitments or contingencies related to the assets and liabilities that are not disclosed above.
The COVID-19 outbreak in 2020 had a significant impact on business in general. The NASCAR race schedule was severely disrupted. The Company’s operations are directly connected to the NASCAR schedule. Due to the disruption in NASCAR events, collection of revenues and payment of expenses was delayed in some cases. Overall, revenues and expenses for 2020 were consistent with prior periods. The Company did not experience a significant detrimental change. Management believes the 2021 NASCAR race schedule will not be significantly impacted and should not have a material impact on future operations. 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.
NOTE 12 – SUBSEQUENT EVENTS
On April 2, 2021, the Company sold its interest in the 2005 Ultra Comp trailer to Rick Ware Racing, LLC. The sale price of the trailer was $75,095.
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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 March 31, 2021 Compared to Three Months Ended March 31, 2020
Revenues
The Company had $13,275 in revenue during the three months ended March 31, 2021 compared to $13,275 in revenue during the three months ended March 31, 2020.
Operating Expenses
For the three months ended March 31, 2021 operating expenses were $131,790 compared to $167,948 for the same period in 2020 for a decrease of $36,158. The decrease was due primarily to decrease in general and administrative fees and professional fees.
Interest and Financing Costs
Interest expense was $24,258 for the three months ended March 31, 2021 compared to $20,211 for the three months ended March 31, 2020. The increase in interest expenses was due to an increase in the amount of indebtedness of the company.
Net Income (Loss)
The Company incurred losses of $135,750 for the three months ended March 31, 2021 compared to losses of $170,474 during the three months ended March 31, 2020. The change was due primarily to the factors discussed above.
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.
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The Company had $46,206 in cash at March 31, 2021 with availability on our related party lines of credit with DEVCAP Partners, LLC, General Pacific Partners, LLC, and Gemini Southern, LLC of $958,002. As at March 31, 2021 we had a working capital deficit of $1,958,193.
Operating activities
During the three months ended March 31, 2021, we had cash used in operating activities of $47,741 as compared to $108,250 during the three months ended March 31, 2020, an increase in cash outflows of $60,509. The decrease between the periods was largely due to higher payments for consulting fees and audit fees in the three months ended March 31, 2020.
Investing activities
We used cash flows in investing activities of $36,113 during the three months ended March 31, 2021 compared to $0 for the same period in 2020.
Financing activities
During the three months ended March 31, 2021, we generated $80,587 from financing activities compared to $99,116 for the same period ended March 31, 2020. The increase was primarily due to an increase in the amount received from a related party line of credit.
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.
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This quarterly 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 quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 three months ended March 31, 2021, the Company issued no shares of common stock.
ITEM 3. Default Upon Senior Securities
During the three months ended March 31, 2021, the Company had no senior securities issued and outstanding.
ITEM 4. Mine Safety Disclosures
Not applicable to our Company.
During the three months ended March 31, 2021, the Company reported no other information.
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. |
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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. | ||
| By: | /s/ Cody Ware | |
| Cody Ware Chief Executive Officer | ||
Date: May 12, 2021