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 September 30, 2022March 31, 2023
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to _____________
Commission file number 333-197889
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 DriveSuite 1100 PMB 48823 Corporate Plaza #231
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 |
Securities registered pursuant to Section 12(g) of the Act: None
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.
| 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 shares of the registrant’s common stock, $0.001 par value per share, outstanding on November 15, 2022.May 22, 2023.
THE TEARDROPPERS, INC.
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
The Teardroppers, Inc.
BALANCE SHEETS
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 11,309 | $ | 29,158 | ||||
| Lease receivable – related party (current portion) | 199,509 | 54,309 | ||||||
| Interest receivable - related parties | 987 | 1,053 | ||||||
| Total current assets | 211,805 | 84,520 | ||||||
| Property and equipment: | ||||||||
| Cost | 129,114 | 129,114 | ||||||
| Less accumulated depreciation | (102,705 | ) | (90,088 | ) | ||||
| Property and equipment, net | 26,409 | 39,026 | ||||||
| Lease receivable – related party (net) | 559,583 | 116,178 | ||||||
| Total Assets | $ | 797,797 | $ | 239,724 | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable – unrelated parties | $ | 392,125 | $ | 358,625 | ||||
| Accounts payable – related parties | 561,376 | 453,176 | ||||||
| Customer deposits | 14,500 | 14,500 | ||||||
| Current portion of notes payable | 6,204 | 5,695 | ||||||
| Accrued interest payable – unrelated parties | 981 | 1,051 | ||||||
| Note payable – related party | 137,150 | – | ||||||
| Line of credit from related party | 1,141,642 | 1,104,060 | ||||||
| Accrued interest payable-related parties | 410,608 | 326,224 | ||||||
| Total current liabilities | 2,664,586 | 2,263,331 | ||||||
| Long-term liabilities | ||||||||
| Note payable | 52,882 | 57,516 | ||||||
| Note payable – related party | 490,542 | – | ||||||
| Total Long-term liabilities | 543,424 | 57,516 | ||||||
| Total Liabilities | 3,208,010 | 2,320,847 | ||||||
| Commitments and Contingencies (Note 11) | – | – | ||||||
| Stockholders' Deficit | ||||||||
| Preferred stock, par value $, shares authorized, shares issued shares and outstanding, respectively | – | – | ||||||
| Common stock, par value $, shares issued | 184 | 184 | ||||||
| Additional paid in capital | 874,294 | 874,294 | ||||||
| Accumulated deficit | (3,284,691 | ) | (2,955,601 | ) | ||||
| Total Stockholders' Deficit | (2,410,213 | ) | (2,081,123 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 797,797 | $ | 239,724 | ||||
| March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 811 | $ | 170,847 | ||||
| Lease receivable - related party (current portion) | 199,471 | 206,008 | ||||||
| Interest receivable | 940 | 788 | ||||||
| Prepaid expenses | 96,667 | 970 | ||||||
| Total current assets | 297,889 | 378,613 | ||||||
| Property and equipment: | ||||||||
| Cost | 129,114 | 129,114 | ||||||
| Less accumulated depreciation | (108,650 | ) | (105,911 | ) | ||||
| Property and equipment, net | 20,464 | 23,203 | ||||||
| Lease receivable - related party (net of current portion) | 465,964 | 510,567 | ||||||
| Total Assets | $ | 784,317 | $ | 912,383 | ||||
| LIABILITIES & STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 29,425 | $ | 28,625 | ||||
| Accounts payable - related parties | 1,009,172 | 961,616 | ||||||
| Customer deposits | 14,500 | 14,500 | ||||||
| Contract liability | 122,500 | 175,000 | ||||||
| Current portion of notes payable | 6,564 | 5,590 | ||||||
| Current portion of notes payable - related party | 145,587 | 141,305 | ||||||
| Accrued interest - unrelated parties | 932 | – | ||||||
| Line of credit from related parties | 224,015 | 242,033 | ||||||
| Accrued interest payable-related parties | 439,153 | 433,530 | ||||||
| Total current liabilities | 1,991,848 | 2,002,199 | ||||||
| Noncurrent liabilities: | ||||||||
| Note payable | 49,596 | 51,068 | ||||||
| Note payable - related party | 415,577 | 453,619 | ||||||
| Total noncurrent liabilities | 465,173 | 504,687 | ||||||
| Total Liabilities | 2,457,021 | 2,506,886 | ||||||
| Commitments and Contingencies (Note 13) | – | – | ||||||
| Stockholders' Deficit | ||||||||
| Series A redeemable, convertible preferred stock, par value $, shares authorized , shares issued and outstanding | 3,400 | – | ||||||
| Additional paid in capital | 846,600 | – | ||||||
| Series A preferred stock to be issued | – | 850,000 | ||||||
| Common stock, par value $, shares authorized shares issued at March 31, 2023 and at December 31, 2022 | 434 | 184 | ||||||
| Additional paid in capital | 936,544 | 874,294 | ||||||
| Common stock to be issued | – | 62,500 | ||||||
| Accumulated deficit | (3,459,682 | ) | (3,381,481 | ) | ||||
| Total Stockholders' Deficit | (1,672,704 | ) | (1,594,503 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 784,317 | $ | 912,383 | ||||
The accompanying condensed notes are an integral part of the unaudited financial statements.
| 3 |
The Teardroppers, Inc.
STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Lease revenue – unrelated parties | $ | – | $ | 1,275 | $ | – | $ | 3,825 | ||||||||
| Lease revenue – related parties | – | – | – | 12,000 | ||||||||||||
| Total revenue | – | 1,275 | – | 15,825 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Consulting from related parties | 36,000 | 36,000 | 115,500 | 123,000 | ||||||||||||
| Consulting fees – unrelated parties | 5,000 | 10,000 | 15,000 | 42,500 | ||||||||||||
| General and administrative | 27,386 | 31,854 | 93,221 | 118,883 | ||||||||||||
| Professional fees | 5,700 | 5,700 | 31,193 | 29,513 | ||||||||||||
| Total operating expenses | 74,086 | 83,554 | 254,914 | 313,896 | ||||||||||||
| Operating loss | (74,086 | ) | (82,279 | ) | (254,914 | ) | (298,071 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense – related parties | (41,221 | ) | (25,382 | ) | (97,258 | ) | (74,979 | ) | ||||||||
| Interest expense – unrelated parties | (1,477 | ) | (1,616 | ) | (4,536 | ) | (4,937 | ) | ||||||||
| Gain on sale of asset | – | – | – | 25,595 | ||||||||||||
| Interest income – related parties | 17,325 | 6,224 | 27,618 | 19,879 | ||||||||||||
| Total other income (expense) | (25,373 | ) | (20,774 | ) | (74,176 | ) | (34,442 | ) | ||||||||
| Net loss before taxes | (99,459 | ) | (103,053 | ) | (329,090 | ) | (332,513 | ) | ||||||||
| Income Tax Provision | – | – | – | – | ||||||||||||
| Net loss | $ | (99,459 | ) | (103,053 | ) | $ | (329,090 | ) | (332,513 | ) | ||||||
| Net loss per share | ||||||||||||||||
| (Basic and fully diluted) | $ | ) | ) | $ | ) | ) | ||||||||||
| Weighted average number of common shares outstanding – basic and diluted | ||||||||||||||||
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Consulting income | $ | 52,500 | $ | – | ||||
| Operating expenses: | ||||||||
| Consulting fees from related party | 22,500 | 43,500 | ||||||
| Consulting fees from unrelated party | 57,333 | 5,000 | ||||||
| General and administrative - related party | 24,000 | – | ||||||
| General and administrative | 3,749 | 38,606 | ||||||
| Professional fees | 20,303 | 16,193 | ||||||
| Total operating expenses | 127,885 | 103,299 | ||||||
| Operating loss | (75,385 | ) | (103,299 | ) | ||||
| Other income (expense): | ||||||||
| Interest income - related parties | 21,724 | 5,372 | ||||||
| Interest expense - related parties | (23,136 | ) | (27,559 | ) | ||||
| Interest expense - unrelated parties | (1,404 | ) | (1,547 | ) | ||||
| Total other expense | (2,816 | ) | (23,734 | ) | ||||
| Net loss before taxes | (78,201 | ) | (127,033 | ) | ||||
| Income tax provision | – | – | ||||||
| Net loss | (78,201 | ) | (127,033 | ) | ||||
| Undeclared preferred stock dividends | (97,249 | ) | – | |||||
| Net loss available to common shareholders | $ | (175,450 | ) | $ | (127,033 | ) | ||
| Net loss per share | ||||||||
| (Basic and fully diluted) | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||
The accompanying condensed notes are an integral part of the unaudited financial statements.
| 4 |
The Teardroppers, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2023 AND 2022 AND 2021
(UNAUDITED)
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount (($.001 Par) | Additional Paid in Capital | Preferred Stock to be issued | Shares | Amount ($.001 Par) | Additional Paid In Capital | Common Stock to be issued | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||
| Balances December 31, 2022 | – | $ | – | $ | – | $ | 850,000 | 183,680 | $ | 184 | $ | 874,294 | $ | 62,500 | $ | (3,381,481 | ) | $ | (1,594,503 | ) | ||||||||||||||||||||
| Common shares issued | – | – | – | – | 250,000 | 250 | 62,250 | (62,500 | ) | – | – | |||||||||||||||||||||||||||||
| Preferred shares issued | 3,400,000 | 3,400 | 846,600 | (850,000 | ) | – | – | – | – | – | – | |||||||||||||||||||||||||||||
| Net loss for the period | – | – | – | – | – | – | – | – | (78,201 | ) | (78,201 | ) | ||||||||||||||||||||||||||||
| Balances March 31, 2023 | 3,400,000 | $ | 3,400 | $ | 846,600 | $ | – | 433,680 | $ | 434 | $ | 936,544 | $ | – | $ | (3,459,682 | ) | $ | (1,672,704 | ) | ||||||||||||||||||||
| Balances December 31, 2021 | – | $ | – | $ | – | $ | – | 183,680 | $ | 184 | $ | 874,294 | $ | – | $ | (2,955,601 | ) | $ | (2,081,123 | ) | ||||||||||||||||||||
| Net loss for the period | – | – | – | – | – | – | – | – | (127,033 | ) | (127,033 | ) | ||||||||||||||||||||||||||||
| Balances March 31, 2022 | – | $ | – | $ | – | $ | – | 183,680 | $ | 184 | $ | 874,294 | $ | – | $ | (3,082,634 | ) | $ | (2,208,156 | ) | ||||||||||||||||||||
The accompanying condensed notes are an integral part of the unaudited financial statements.
| Common Stock | Total | |||||||||||||||||||
| Amount | Additional | Accumulated | Stockholders' | |||||||||||||||||
| Shares | ($.001 Par) | Paid in Capital | Deficit | Deficit | ||||||||||||||||
| Balance December 31, 2021 | 183,680 | $ | 184 | $ | 874,294 | $ | (2,955,601 | ) | $ | (2,081,123 | ) | |||||||||
| Net loss for the period | – | – | – | (127,033 | ) | (127,033 | ) | |||||||||||||
| Balances March 31, 2022 | 183,680 | 184 | 874,294 | (3,082,634 | ) | (2,208,156 | ) | |||||||||||||
| Net loss for the period | – | – | – | (102,598 | ) | (102,598 | ) | |||||||||||||
| Balance June 30, 2022 | 183,680 | 184 | 874,294 | (3,185,232 | ) | (2,310,754 | ) | |||||||||||||
| Net loss for the period | – | – | – | (99,459 | ) | (99,459 | ) | |||||||||||||
| Balances September 30, 2022 | 183,680 | $ | 184 | $ | 874,294 | $ | (3,284,691 | ) | $ | (2,410,213 | ) | |||||||||
| Balance December 31, 2020 | 183,680 | $ | 184 | $ | 874,294 | $ | (2,496,953 | ) | $ | (1,622,475 | ) | |||||||||
| Net loss for the period | – | – | – | (135,750 | ) | (135,750 | ) | |||||||||||||
| Balances March 31, 2021 | 183,680 | 184 | 874,294 | (2,632,703 | ) | (1,758,225 | ) | |||||||||||||
| Net loss for the period | – | – | – | (93,710 | ) | (93,710 | ) | |||||||||||||
| Balances June 30, 2021 | 183,680 | 184 | 874,294 | (2,726,413 | ) | (1,851,935 | ) | |||||||||||||
| Net loss for the period | – | – | – | (103,053 | ) | (103,053 | ) | |||||||||||||
| Balances September 30, 2021 | 183,680 | $ | 184 | $ | 874,294 | $ | (2,829,466 | ) | $ | (1,954,988 | ) | |||||||||
| 5 |
The Teardroppers, Inc.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (78,201 | ) | $ | (127,033 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | 2,739 | 6,306 | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Increase in interest receivable - related party | (152 | ) | (1,205 | ) | ||||
| Increase in prepaid expenses | (95,697 | ) | – | |||||
| Decrease in lease receivable - related party | 51,141 | 8,690 | ||||||
| Increase in accounts payable - unrelated parties | 800 | 19,200 | ||||||
| Increase in accounts payable - related parties | 47,556 | 22,994 | ||||||
| Decrease in contract liability | (52,500 | ) | – | |||||
| Increase in accrued interest - related parties | 5,623 | 27,559 | ||||||
| Increase (decrease) in accrued interest - unrelated parties | 932 | (23 | ) | |||||
| Net cash used in operating activities | (117,759 | ) | (43,512 | ) | ||||
| Cash Flows From Investing Activities: | – | – | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from line of credit to related party | 12,000 | 75,000 | ||||||
| Repayments on line of credit to related party | (30,018 | ) | (25,000 | ) | ||||
| Repayments on notes payable - related parties | (33,760 | ) | – | |||||
| Repayments on notes payable - unrelated parties | (499 | ) | (1,341 | ) | ||||
| Principal payments on lease payable - related parties | – | – | ||||||
| Net cash (used in) provided by financing activities | (52,277 | ) | 48,659 | |||||
| Net (Decrease) Increase In Cash | (170,036 | ) | 5,147 | |||||
| Cash At The Beginning Of The Period | 170,847 | 29,158 | ||||||
| Cash At The End Of The Period | $ | 811 | $ | 34,305 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Issuance of preferred stock to be issued | $ | 850,000 | $ | – | ||||
| Issuance of common stock to be issued | $ | 62,500 | $ | – | ||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 17,512 | $ | 1,569 | ||||
| Franchise and income tax | $ | – | $ | – | ||||
The accompanying condensed notes are an integral part of the unaudited financial statements.
The Teardroppers, Inc.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (329,090 | ) | $ | (332,513 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 12,617 | 30,778 | ||||||
| Gain on sale of asset | – | (25,595 | ) | |||||
| Changes in Operating Assets and Liabilities | ||||||||
| Decrease (Increase) in interest receivable - related parties | 66 | (3,089 | ) | |||||
| Decrease in prepaid expenses | – | 4,072 | ||||||
| Decrease in lease receivable - related parties | 60,395 | 28,934 | ||||||
| Increase in other receivable | – | (2,000 | ) | |||||
| Increase in accounts payable - unrelated parties | 108,200 | 38,070 | ||||||
| Increase in accounts payable - related parties | 33,500 | 49,887 | ||||||
| Increase in accrued interest-related parties | 84,384 | 72,138 | ||||||
| (Decrease) Increase in accrued interest - unrelated party | (70 | ) | 1,594 | |||||
| Net cash (used in) operating activities | (29,998 | ) | (137,724 | ) | ||||
| . | ||||||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of equipment | (649,000 | ) | (36,113 | ) | ||||
| Sale of asset | – | 75,095 | ||||||
| Net cash used in provided by investing activities | (649,000 | ) | 38,982 | |||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from note payable - related party | 649,000 | – | ||||||
| Repayments on notes payable - related parties | (21,308 | ) | (83,679 | ) | ||||
| Repayments on note payable - unrelated party | (4,125 | ) | (2,484 | ) | ||||
| Principal payments on lease payable | – | (1,192 | ) | |||||
| Proceeds from lines of credit - related parties | 127,600 | 352,744 | ||||||
| Repayments on lines of credit related parties | (90,018 | ) | (142,177 | ) | ||||
| Net cash provided by financing activities | 661,149 | 123,212 | ||||||
| Net Increase (Decrease) In Cash | (17,849 | ) | 24,470 | |||||
| Cash At The Beginning Of The Period | 29,158 | 49,473 | ||||||
| Cash At The End Of The Period | $ | 11,309 | $ | 73,943 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Non-cash investing and financing activities | ||||||||
| Assets transferred in direct financing lease | $ | 649,000 | $ | – | ||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 17,480 | $ | 6,182 | ||||
| Franchise and income tax | $ | – | $ | – | ||||
The accompanying condensed notes are an integral part of the unaudited financial statements.
| 6 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 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.
On June 13, 2022, (the “Company”) filed with the Secretary of State of the State of Nevada a Certificate of Change, pursuant to Nevada Revised Statutes 78.209, to (i) effect a one-for-250 reverse stock split (the “Reverse Split”) of the Company’s issued and outstanding common stock, par value $0.001 per share, on July 6, 2022 at 8:00 A:M Eastern Time (the “Effective Time”). The total number of shares of common stock that the Company shall have the authority to issue will remain at 200,000,000. As a result of the one-for-250 reverse stock split (the “Reverse Stock Split”), at the Effective Time, each 250 shares of the Company’s common stock issued and outstanding immediately prior to the Effective Time was automatically combined into and become one share of Company common stock. Fractional shares resulting from the reverse stock split were settled by cash payments. As of July 6, 2022,March 31, 2023, the total amount of common shares outstanding of the Company was 183,680.433,680. All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the financial statements to reflect the reverse stock split.
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 ninethree months ended September 30, 2022 areMarch 31, 2023 is not necessarily indicative of the final results that may be expected for the year ended December 31, 2021.2023. 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, 20212022 filed with the SEC on April 15, 2022.17, 2023.
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.
| 7 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three Months Ended March 31, 2023 and 2022
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 September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had nocash 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 TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30, 2022 and 2021
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, customer deposits, and line of credit 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 September 30, 2022March 31, 2023 and December 31, 2021.2022.
The Company had noassets or liabilities measured at fair value on a recurring basis as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, using the market and income approaches.
Prepaid Expenses
The Company signed a consulting agreement on December 26, 2022 for due diligence and business development services to be provided over a six-month period. Payment of $145,000 was made January 25, 2023. The expense will be recognized over the term of the agreement beginning January 1, 2023. As of March 31, 2023, $48,333 was reflected on the statements of operations as part of consulting fees - unrelated party. The remainder of $96,667 is reflected on the balance sheet as prepaid expense at March 31, 2023.
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 the statements of operations.
Revenue recognition
On January 1, 2018, theThe Company adoptedfollows 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.
In December 2022, the Company entered into an agreement to provide consulting services to an unrelated party. The impactagreement resulted in a contract liability as described below under Consulting Revenue. The terms of the Company’s initial application of ASC 606 didagreement require the Company to provide marketing and branding services on an as needed basis. The single performance obligation is to provide the services requested by the customer. The Company is not haveresponsible for how the customer chooses to utilize the services rendered. The Company has concluded it is a material impact on its financial statementsprincipal in the transaction and disclosures.
Onerecognizes the gross amount of the primary sources of revenues are from the rental of advertising space on custom designed Teardrop Trailers, Various types and sizes of cargo trailers, leasecontract as 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 nine months ended September 30, 2022 and 2021, the Company recognized no income from the rental of the trailers.satisfied.
In March 2018,January 2023, signed an agreement with the Company entered intosame unrelated party for services to be provided to the Company. The agreement resulted in a four-year agreement to lease equipment to an unrelated shareholder. In September 2018, the soncontract asset as discussed above under Prepaid Expenses. The terms of the shareholder becameagreement require the Chief Financial Officer. At that pointcustomer to provide business development and due diligences services on an as needed basis. The Company controls how and when the shareholderservices will be consideredutilized. The Company has evaluated the agreement and concluded that it is a related party. Forprincipal in the three months ended September 30, 2022 and 2021, related party lease income was $0. Fortransaction. The gross amount of the nine months ended September 30, 2022 and 2021, related party lease income was $0 and $12,000, respectively. On April 2, 2021,expense will be recognized over the equipment was sold toterm of the lessee and the lease terminated. See Note 9 for details.agreement.
| 8 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 2021
In January 2019,Advertising Revenue
The primary source of revenue and performance obligation is from the Company entered into a two-year agreementrental of advertising space on custom designed Teardrop Trailers. The length of the rental agreements varies from one to lease a vehicle to an unrelated third party.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 and nine months ended September 30, 2021,March 31, 2023 and 2022, the Company recognized leaseno income from the rental of the trailers.
In January 2015, the Company received $1,275 14,500 as a deposit for advertising space to be provided in the future. As of March 31, 2023 and $3,825, respectively. The vehicle was soldDecember 31, 2022 the customer has not utilized the space and no revenue has been recognized as the lease terminated on October 8, 2021.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.
Direct Financing Lease and Interest Revenue
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 statementstatements of operations. For the three months ended September ended September 30,March 31, 2023 and 2022, and 2021, the Company recognized interest revenue of $2,9672,049 and $4,610, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized interest revenue of $10,185 and $14,9433,819, respectively. See Note 54 for details.
On SeptemberAugust 1, 2020, the Company leased a vehicle for $69,000 to a related party. The lease is classified as a direct financing lease. The lease is reflected on the balance sheet as lease receivable – related party. Interest revenue is reflected on the condensed statements of operations. For the three months ended March 31, 2023 and 2022, the Company recognized interest revenue of $1,417 and $1,553, respectively. See Note 4 for details
On July 1, 2022 the Company borrowed $649,000 from Gemini Southern. The terms of the loan call for monthly payments on the loan due on the first of each month, a term of 48 months with an interest rate of twelve 12%. On July 5th, 2022, the Company used the proceeds from the loan to acquire two Competition trailers and two over the road tractors. The equipment was then leased to a third-party lessee. Monthly lease payments are $17,250 per month. The Company received a personal guarantee from the Lessee, and is additional insured on the assets. The lease is classified as a direct financing lease. The lease is reflected on the balance sheet as lease receivable – related party. Interest revenue is reflected on the condensed statement of operations. For the year three months ended September 30, 2022 and 2021, the Company recognizedMarch 31, 2023, interest revenue of $1,486 18,258and $ was recognized. See Note 4 for details.
1,614 Consulting Revenuerespectively. For the nine months ended September 30,
On December 26, 2022, and 2021, the Company recognized interest revenue of $4,560 and $4,936 respectively. See Note 5 for details. In January 2015, the Company received $14,500 as a deposit for advertising spaceentered into an agreement to be provided in the future. As of September 30, 2022 and December 31, 2021, 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 ofprovide business development services to an unrelated party. Under the agreement the Company will recognize the revenue.
On July 5,provide services for a period of ten months for $175,000. Payment was received in 2022 the Company leased twoin advance of services being performed. The income will be recognized over the road Kenworth trucks and two motorsports related competition trailers to a related party.term of the agreement beginning January 2023. The lease term is for four years with monthly payments of $17,250. The lease is classified as a direct financing lease. The leaseadvance payment is reflected on the condensed balance sheet as lease receivable – related party. Interest revenueof March 31, 2023 and December 31, 2022 under current liabilities as a contract liability. For the three months ended March 31, 2023, consulting fee income of $52,500 is reflectedrecognized on the condensed statementstatements of operations.
Credit Losses on Financial Instruments
The Company has leased vehicles to related parties as discussed in Note 4. In accordance with ASC Topic 326 Financial Instruments – Credit losses, the Company reviewed the leases for expected credit losses over the term of the leases. Management considered significant risk factors, historical information and current conditions to forecast expected losses. Based on this information, Management concluded that a reserve for expected losses was not necessary.
| 9 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the threeThree Months Ended March 31, 2023 and nine months September 30, 2022 interest revenue of $12,872 was recognized. See Note 5 for details.
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.
Dividends on preferred stock accumulate beginning on the date of issuance, but are not payable until the Board of Directors makes a formal declaration. Accumulated but undeclared dividends are not reported as dividends payable but are included in determining net income or loss available to common shareholders.
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
As of December 31, 2022, the Company had shares of preferred stock and shares of common stock to be issued in debt cancellation agreements. Such preferred and common shares were issued on January 6, 2023. The preferred stock can be converted into common stock at the option of the Company. There were no potentially dilutive securities are excluded from the computation if their effect is in anti-dilutive.
There were potentially dilutive shares outstanding for the three and nine-month periods ended September 30, 2022 and 2021, respectively.as of March 31, 2023.
Recently issued accounting pronouncementsIssued 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 materialthat may impact on theits 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.
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30, 2022 and 2021
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 September 30, 2022,March 31, 2023, the Company hashad a cash balance of $811, an accumulated deficit of $3,284,691 3,459,682and negative working capital of $2,452,781. For the nine months ended September 30, 2022, the Company had a net loss of $329,090 and, a net cash outflow from operating activities of $29,998117,759, and a net loss for the current period of $78,201. These mattersconditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issueissuance 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 September 30, 2022 and December 31, 2021:
| Schedule of property and equipment | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Property and equipment, purchased | $ | 129,114 | $ | 129,114 | ||||
| Less: accumulated depreciation | (102,705 | ) | (90,088 | ) | ||||
| Property and equipment, net | $ | 26,409 | $ | 39,026 | ||||
Depreciation expense for the three months ended September 30, 2022 and 2021 was $3,206 and $7,710, respectively. Depreciation expense for the nine months ended September 30, 2022 and 2021 was $12,617 and $30,778, respectively.
On April 2, 2021 the Company sold a NASCAR hauler to a related party at a gain of $25,595.
NOTE 5 – LEASE RECEIVABLERECEIVABLES – 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%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.
| 10 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 2021
The undiscounted cash flow principal payments for the remaining term of the lease will be as follows:
Schedule of lease receivable payments
| 2022 (remainder of year) | $ | 15,003 | ||||||
| 2023 | 60,036 | |||||||
| Schedule of lease receivable payments | ||||||||
| 2023 (remainder of year) | $ | 45,027 | ||||||
| 2024 | 5,003 | 5,003 | ||||||
| Total | 80,042 | 50,030 | ||||||
| Less deferred interest | (7,798 | ) | (3,239 | ) | ||||
| Less current portion | (52,846 | ) | (46,791 | ) | ||||
| Long-term lease receivable | $ | 19,398 | $ | 0 | ||||
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 60months 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%10%, is $47,065. The Company is using the net book value of $69,000of 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:
Schedule of lease receivable payments
| 2022 (remainder of year) | $ | 5,000 | ||||||
| 2023 | 12,000 | |||||||
| Schedule of lease receivable payments | ||||||||
| 2023 (remainder of year) | $ | 11,000 | ||||||
| 2024 | 12,000 | 12,000 | ||||||
| 2025 | 8,000 | 9,119 | ||||||
| Purchase option | 37,000 | 37,000 | ||||||
| Total | 74,000 | 69,119 | ||||||
| Less deferred interest | (14,524 | ) | (12,426 | ) | ||||
| Less current portion | (7,456 | ) | (7,800 | ) | ||||
| Long-term lease receivable | $ | 52,020 | $ | 48,893 | ||||
On July 5, 2022, the Company purchased two over the road Kenworth trucks and two motorsports related competition trailers from a related party for $649,000 and leased them to the same related party.party effective August 1, 2022. The lease term is for four years with monthly payments of $17,250 with no option to purchase the assets at the end of the lease. The lease is classified as a direct financing lease under ASC 842. The present value of the lease payments is $655,051 discounted at an interest rate of 12%12%. The Company is using the net book value of $649,000 of the asset as the initial value of the lease in accordance with ASC 842-30-55-17A. This results in an effective interest rate of 12.498%.
The undiscounted cash flow principal payments for the remaining term of the lease will be as follows:
Schedule of lease receivable payments
| 2022 (remainder of year) | $ | 51,750 | ||||||
| 2023 | 207,000 | |||||||
| Schedule of lease receivable payments | ||||||||
| 2023 (remainder of year) | $ | 155,250 | ||||||
| 2024 | 207,000 | 207,000 | ||||||
| 2025 | 207,000 | 207,000 | ||||||
| 2026 | 120,750 | 120,750 | ||||||
| Total | 793,500 | 690,000 | ||||||
| Less deferred interest | (166,128 | ) | (128,049 | ) | ||||
| Less current portion | (139,207 | ) | (144,880 | ) | ||||
| Long-term lease receivable | $ | 488,165 | $ | 417,071 | ||||
Income from all leases is reflected on the statement of operations as interest income – related parties. For the three months ended September 30, 2022 and 2021 interest income of $17,325 and $6,224 respectively was reported. For the nine months ended September 30, 2022 and 2021 interest income of $27,618 and $19,879, respectively was reported.
| 11 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 2021
Income from leases is reflected on the condensed statements of operations as interest income – related parties. For the three months ended March 31, 2023 and 2022, interest income was reported of $21,724 and $5,372, respectively.
NOTE 65 – NOTE PAYABLE – RELATED PARTYPROPERTY & EQUIPMENT
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 balanceProperty and equipment consists of the debt, $525,000, was converted into of common stock. The Company recorded accrued interest on this loan of $145,632 as of September 30, 2022following at March 31, 2023 and December 31, 2021, 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.2022.
| Schedule of property and equipment | ||||||||
| March 31, 2023 | December 31, 2022 | |||||||
| Property and equipment, purchased | $ | 129,114 | $ | 129,114 | ||||
| Less: accumulated depreciation | (108,650 | ) | (105,911 | ) | ||||
| Property and equipment, net | $ | 20,464 | $ | 23,203 | ||||
On July 1, 2022, the Company purchased equipment with cash from a related party described as: two (2) over the road Kenworth trucks and two (2) motorsports related Competition branded haulers for use in our business. The Company received cash to finance the purchase of the equipment with a new loan from a related party for $649,000. The term on the loan is 48 months, interest rate is 12% with a monthly payment of $17,091 per month. The company has leased the equipment to a related party, Rick Ware Racing, LLC for a term of 48 months beginning August 1, 2022. The monthly lease payment is $17,250 per month and the lessee is responsible for all insurances, scheduled and unscheduled maintenance and the procurement of trained drivers. The Lessee assumes all risk related to the use of the equipment and there is no prescribed optionDepreciation expense for the Leesee to acquire the equipment at the end of the lease term.three months ended March 31, 2023 and 2022 was $2,739 and $6,306, respectively.
Principal payments for the loan are as follows:
| Schedule of principal payments for loan | ||||
| 2022 (remainder of year) | $ | 32,768 | ||
| 2023 | 141,305 | |||
| 2024 | 159,226 | |||
| 2025 | 179,420 | |||
| 2026 | 114,973 | |||
| Total | 627,692 | |||
| Less current portion | (137,150 | ) | ||
| Long-term liability | $ | 490,542 |
NOTE 76 – 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 aan extended maturity date of December 31, 2023, bearing interest of 10%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. On December 15, 2022, the Company converted $62,500 on the line of credit into shares of common stock at a value of $0.25 per share. As of September 30, 2022,March 31, 2023 and December 31, 2021,2022, the balance of the line of credit was $219,72947,129 and $227,12935,129, respectively. The Company recorded accrued interest of $21,827$27,315 and $6,307$26,411 on the line of credit at September 30, 2022March 31, 2023 and December 31, 2021,2022, 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. AsGeneral Pacific Partners, LLC is a related party to the Company as it is owned by a majority shareholder of September 30, 2022 the Company. On July 5, 2017, the balance of $25,000 was converted into shares of stock valued at $.05 per share. The balance of the line of credit was $0. as March 31, 2023 and December 31, 2022. The Company recordedowes accrued interest of $4,732 at September 30, 2022as of March 31, 2023 and December 31, 2021,2022, respectively.
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 shares of stock. Gemini Southern, LLC will be treated as a related party for all activity from the date of the conversion forward.party. The line of credit is a demand loan with a maximum of $950,000 bearing interest at 10%, maturing December 2023. At September 30,Effective December 5, 2022, $850,000 of the balance due was converted to of Class A preferred stock at a value of $0.25 per share. See Note 10 for details of the preferred stock. As of March 31, 2023 and December 31, 2021,2022, the balance due on the line was $921,913176,886 and $876,931206,904, respectively. The Company recorded accrued interest of $238,417261,474 and $169,553256,755as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
NOTE 8 – NOTE PAYABLE - UNRELATED 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 mon12th 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 $83,679 as of December 31, 2020. On April 2, 2021, the Company sold the Hauler for $75,095 and paid Gemini Southern the balance of the loan. The book value of the Hauler was $49,500 resulting in a gain of $25,595.
| 12 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30,March 31, 2023 and 2022 and 2021
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, 2023 and December 31, 2022, respectively. The accrued interest was not part of the conversion agreement and continues to be reflected as a liability.
On July 1, 2022, the Company purchased equipment with cash from a related party described as: two (2) over the road Kenworth trucks and two (2) motorsports related Competition branded haulers for use in our business. The Company received cash to finance the purchase of the equipment with a new loan from a related party for $649,000. The term on the loan is 48 months, interest rate is 12% with a monthly payment of $17,091 per month. The company has leased the equipment to a related party, Rick Ware Racing, LLC for a term of 48 months beginning August 1, 2022. The monthly lease payment is $17,250 per month and the lessee is responsible for all insurances, scheduled and unscheduled maintenance and the procurement of trained drivers. The Lessee assumes all risk related to the use of the equipment and there is no prescribed option for the Lessee to acquire the equipment at the end of the lease term.
Principal payments for the loan are as follows:
| Schedule of principal payments for loan | ||||
| 2023 (remainder of year) | $ | 107,545 | ||
| 2024 | 159,226 | |||
| 2025 | 179,420 | |||
| 2026 | 114,973 | |||
| Total | 561,164 | |||
| Less current portion | (145,587 | ) | ||
| Long-term liability | $ | 415,577 |
NOTE 8 – NOTE PAYABLE – UNRELATED PARTY
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$912 per month with interest at 10%10%. A final payment of $40,988$40,529 is due in August 2025. The loan is secured by the vehicle. The Company recorded accrued interest of $932 and $0 at March 31, 2023 and December 31, 2022, respectively.
Principal payments for the next fourfive years will be as follows:
| Maturities of capital lease payments | ||||
| 2023 (remainder of year) | $ | 5,094 | ||
| 2024 | 6,112 | |||
| 2025 | 44,954 | |||
| Total | 56,160 | |||
| Less current portion | (6,564 | ) | ||
| Long-term liability | $ | 49,596 |
| Maturities of capital lease payments | ||||
| 2022 (remainder of year) | $ | 2,133 | ||
| 2023 | 5,496 | |||
| 2024 | 6,072 | |||
| 2025 | 45,385 | |||
| Total | 59,086 | |||
| Less current portion | (6,204 | ) | ||
| Long-term liability | $ | 52,882 |
| 13 |
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three Months Ended March 31, 2023 and 2022
NOTE 9 – OTHER RELATED PARTY TRANSACTIONS and RELATED PARTY ACOUNTSPARTIES ACCOUNTS PAYABLE
Line of credit from related parties
The Company has two line of credit agreements with related parties, FinTekk AP, LLC and Gemini Southern, LLC. 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, LLC. See Note 6 for further disclosure.
Consulting expense to related party (DEVCAP Partners,(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 $7,500a 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 nine months ended September 30,March 31, 2023 and 2022, and 2021, the Company recorded consulting fee expense of $22,500 and $67,500, respectively. The amount due but unpaid is $355,335 400,335and $287,835 377,835at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and is included in accounts payable related parties on the balance sheets.
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 nine months ended September 30, 2022, the Company recorded consulting fee expense of $13,500 and $40,500, respectively. For the three and nine months ended September 30, 2021, the Company recorded consulting fee expense of $13,500 and $40,500, respectively. At September 30, 2022 and December 31, 2021, the amount due but unpaid was $81,000 and $43,500, respectively and reflected in accounts payable – related parties on the condensed balance sheets.
THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three and Nine Months Ended September 30, 2022 and 2021
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 September 30, 2022 and December 31, 2021, respectively, and was included on the balance sheets 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 September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and was included on the balance sheets 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, 2023 and December 31, 2022, respectively, and was included on the balance sheets 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. Mr Ware resigned his position effective December 15, 2022. .For the three months ended March 31, 2023 and 2022, the Company recorded consulting fee expense of $0 and$13,500, respectively. As of March 31, 2023 and December 31, 2022, the amount due but unpaid was $89,500 and is included in accounts payable – related parties on the balance sheets.
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THE TEARDROPPERS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS (Unaudited)
For the Three Months Ended March 31, 2023 and 2022
Consulting expense to related party (Rayna Austin)
In March 2018, the Company signed a consulting agreement with RMA Services to perform sales, due diligence and general administrative services. RMA Services is owned by Rayna Austin. The agreement provides for fees of $8,000 per month with $4,000 paid monthly and $4,000 to be accrued and payable at a future date. Effective December 2, 2022, Rayna Austin became the CFO. For the three months ended March 31, 2023, the Company recorded $24,000 and is reflected as general and administrative expense – related party on the statement of operations. For the three months ended March 31, 2022, was not a related party and the fees are reflected as general and administrative expense. As of March 31, 2023 and December 31, 2022, The Company owed $393,500 and $377,500, respectively. This liability is reflected on the balance sheets 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 September 30, 2022,March 31, 2023 and December 31, 2021,2022, the amountamounts due to the shareholder was $ and $, respectively is reflected in accounts payable – related parties on the balance sheets.
Sale of asset
In March 2018, the Company entered into a four-year agreement to lease equipment to a related party. On April 2, 2021 when the lease expired, the Company sold the asset to the related party for $75,095 and recognized a gain of $25,595. The gain is reported on statement of operations as other income.
Other related party transactions
On February 4, 2021, the Company purchased a 1983 Toyota truck from the majority shareholder for use in the business operations.
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 $. The Company amended its articles of incorporation in April 2016 to increase itsit authorized shares to shares of common stock and shares of preferred stock, both $0.001 par value.
The Company is authorized to issued shares of Class A preferred stock. The dividend rate on Class A preferred shares is $ per share per annum. Dividends on Class A Preferred Shares shall be fully cumulative, accruing, without interest, from the date of original issuance of the Class through the date of redemption or conversion thereof, and may be distributed, or not distributed, at the discretion of the board of directors of the Company, in arrears on March 31, June 30, and September 30 of each year, commencing January 1, 2023. The Company has the right to convert preferred stock to common stock at $0.25 per share and there are no mandatory redemption provisions.
On December 5, 2022, the Company converted $850,000 of related party debt to of Class A preferred stock at a value of $0.25 per share. No gain or loss has been recognized on the debt conversion. The shares were issued January 6, 2023. See Note 6 for details. Under the terms of the preferred stock authorization, dividends on issued shares begin to accumulate at the rate of $0.12 per share on the date of issuance. Until formally declared by the Board of Directors, preferred dividends are not reported as a liability. As of March 31, 2023, no dividends had been declared. Dividends totaling $97,249 have accumulated but are unpaid as of March 31, 2023.
On December 15, 2022, the Company converted $62,500 of related party debt into shares of common stock at a value of $0.25 per share. No gain or loss has been recognized on the conversion. The shares were issued January 6, 2023. See Note 6 for details.
NOTE 1113 – CONTINGENCIESCOMMITMENTS AND COMMITMENTSCONTINGENCIES
The Company’s ability to collect on receivables and pay liabilities is connected to NASCAR race schedule. The 20202022 and 2021 NASCAR schedules were severely disrupted by Covid,COVID-19, which caused delays in both collections and payments. Management believes the 20222023 NASCAR schedule will not be disrupted.impacted as significantly. 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.
NOTE 14 – SUBSEQUENT EVENTS
There were no significant events subsequent to March 31, 2023 through the date the financial statements were issued that are not disclosed.
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 September 30, 2022March 31, 2023 Compared to Three Months Ended September 30, 2021March 31, 2022
Revenues
The Company had $52,500 in revenue during the three months ended March 31, 2023 compared to $0 in revenue during the three months ended September 30, 2022 compared to $1,275 in revenue during the three months ended September 30, 2021.March 31, 2022. The decreaseincrease in revenue for the quarter was due to termination of the leasea consulting agreement with an unrelated party.
Operating Expenses
For the three months ended September 30, 2022March 31, 2023 operating expenses were $74,086$127,885 compared to $83,554$103,299 for the same period in 20212022 for a decreaseincrease of $9,468.$27,920. The decreaseincrease was primarily a result of a decreasean increase in general and administrative fees from $31,854 to $27,386– related party and a decreasean increase in consulting fees to unrelated parties from $10,000$57,333 from to $5,000.$5,000 a year prior.
Other Income (Expense)
Interest expense was $42,698$24,540 for the three months ended September 30, 2022March 31, 2023 compared to $26,998$29,106 for the three months ended September 30, 2021.March 31, 2022. The interest expense increaseddecreased due to an increasea decrease in the indebtedness of the Company.
Net Loss
The Company incurred losses of $99,459$78,201 for the three months ended September 30, 2022March 31, 2023 compared to $103,053$127,033 during the three months ended September 30, 2021 due to the factors discussed above.
Nine Months Ended September 30,March 31, 2022 Compared to Nine Months Ended September 30, 2021
Revenues
The Company had $0 in revenue during the nine months ended September 30, 2022 compared to $15,825 in revenue during the nine months ended September 30, 2021. The decrease was related to the termination of leases in 2021.
Operating Expenses
For the nine months ended September 30, 2022 operating expenses were $254,914 compared to $313,896 for the same period in 2021 for a decrease of $58,982. The decrease was a result of the decrease in general and administrative fees from $118,883 to $93,221, consulting fees to unrelated parties from $42,500 to $15,000, and consulting fees to related parties from $123,000 to $115,500.
Interest and Financing Costs
Interest expense was $101,794 for the nine months ended September 30, 2022 compared to $79,916 for the nine months ended September 30, 2021. The interest expense increased for the period due to an increase the indebtedness for the company.
Net Loss
The Company incurred losses of $329,090 for the nine months ended September 30, 2022 compared to $332,513 during the nine months ended September 30, 2021 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company'sCompany’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 $11,309$811 in cash at September 30, 2022March 31, 2023 with availability on our related party lines of credit with FinTekk AP, LLC of $230,271,$402,871, General Pacific Partners, LLC of $450,000, and Gemini Southern, LLC of $28,087. As of September 30, 2022 we had a working capital deficit of $2,452,781.$773,114.
Operating activities
During the ninethree months ended September 30, 2022,March 31, 2023 , we had $29,998$117,759 cash used in operating activities compared to $137,724$43,512 during the ninethree months ended September 30, 2021, a decrease in cash outflows of $107,726.March 31, 2022. The change was primarily due to an increases in accounts payable - unrelated partiesprepaid expenses of $70,130$95.697 and an increase in accrued interest –- related parties of $12,246.$21,936, and decreases in lease receivables of $42,451 and contract liability of $52,500.
Investing activities
We had $649,000$0 of cash used inby investing activities during the ninethree months ended September 30, 2022March 31, 2023 versus $38,982$0 provided by in 2021. The decrease was due primarily to the purchase of equipment.2022.
Financing activities
During the ninethree months ended September 30, 2022,March 31, 2023, we generated $661,149had $52,277 used from financing activities compared to $123,212$48,659 provided for the same period ended September 30, 2021.March 31, 2022. The increasechange was primarily due to increased principal payments on debt incurred to the purchase equipment.of $37,936 and a reduction in amounts borrowed on related party lines of credit of $50,000.
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
Management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of September 30, 2022,March 31, 2023, the end of the fiscal period covered by this Quarterly Report on Form 10-Q. SEC rules define the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in its reports filed under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2022March 31, 2023 to ensure that the information required to be disclosed in the reports filed or submitted by us under the Exchange Act was recorded, processed, summarized and reported within the requisite time periods and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure. Management plans to address these deficiencies by undertaking various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
No changes in our internal control over financial reporting occurred during the period ended September 30, 2022March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
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
None
ITEM 3. Default Upon Senior Securities
During the ninethree months ended September 30, 2022,March 31, 2023, the Company had no senior securities issued and outstanding.
ITEM 4. Mine Safety Disclosures
Not applicable to our Company.
ITEM 5. Other Information
None
ITEM 6. Exhibits
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* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
| * | Filed herewith. |
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SIGNATURES
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.
November 17, 2022May 22, 2023
By: /s/ Cody WareKevin O’Connell
Cody WareKevin O’Connell
Chief Executive Officer
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