Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 000-52171
TROPICAL PC, INC.
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(Exact name of registrant as specified in its charter)
Nevada 20-5220693
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3118 W. Parkwood Ave., #111, Webster, TX 77598
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(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (281) 554-9560
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 |X| No |_|
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act (Check one).
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller Reporting Company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
As of March 30, 2010, the registrant's outstanding common stock consisted
of 25,210,000 shares, $0.001 Par Value. Authorized - 75,000,000 common
voting shares.
Table of Contents
Tropical PC, Inc.
Index to Form 10-Q
For the Quarterly Period Ended September 30, 2009
Part I. Financial Information
Page
Item 1. Financial Statements
Balance Sheets as of September 30, 2009 and
December 31, 2008 (Restated) 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 2009 and 2008 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2009 and 2008 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Item 4T. Controls and Procedures 21
Part II Other Information
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3 -- Defaults Upon Senior Securities 24
Item 4 -- Submission of Matters to a Vote of Security Holders 24
Item 5 -- Other Information 24
Item 6. Exhibits 25
Signatures 26
2
Part I. Financial Information
Item 1. Financial Statements
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Balance Sheets
(Unaudited)
December 31,
September 30, 2008
2009 (restated)
--------- ---------
ASSETS
Current Assets:
Cash $ 18,204 $ 6,250
Funds held in escrow 18,275 18,600
Prepaid expenses 1,413 9,874
--------- ---------
Total current assets 37,892 34,724
Equipment, net 453,570 469,063
--------- ---------
TOTAL ASSETS $491,462 $ 503,787
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities
Accounts payable $ 762 $ 18
Accrued interest payable-related party 3,809 912
Current portion lease payable - related party 90,000 90,000
--------- ---------
Total current liabilities 94,571 90,930
Long term liabilities
Due to Related Party 20,000 -
Lease payable - related party 137,993 205,493
Convertible debt, net of discount of
$26,886 and $36,858, respectively 13,114 3,142
--------- ---------
Total long term liabilities 171,107 208,635
--------- ---------
Total liabilities 265,678 299,565
--------- ---------
Stockholders' equity:
Common stock, $0.001 par value, 75,000,000
shares authorized, 25,210,000, 25,210,000
shares issued and outstanding as of
9/30/2009 and 12/31/2008, respectively 25,210 25,210
Additional paid-in capital 209,724 209,724
Earnings (Deficit) accumulated during
development stage (9,150) (30,712)
--------- ---------
Total stockholders' equity 225,784 204,222
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $491,462 $503,787
========= =========
The accompanying notes are an integral part of these statements
3
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
For the three For the nine September 22,
months ending months ending 2004
---------------------- ---------------------- (Inception) to
Sep. 30, Sep. 30, Sep. 30, Sep. 30, Sep. 30,
2009 2008 2009 2008 2009
---------- ---------- ---------- ---------- ------------
Revenue $ 41,667 $ - $ 92,085 $ - $ 140,156
---------- ---------- ---------- ---------- ------------
Expenses:
General and
administrative 5,137 5,022 14,299 10,842 77,902
Repairs and
maintenance 4,008 - 25,539 - 25,539
Depreciation 5,938 100 17,813 300 25,252
Fixed asset
distributed to
former
shareholder - - - - 3,690
---------- ---------- ---------- ---------- ------------
Total expenses 15,083 5,122 57,651 11,142 132,383
---------- ---------- ---------- ---------- ------------
Operating income
(loss) 26,584 (5,122) 34,434 (11,142) 7,773
Interest expense-
related party 4,337 - 12,869 - 16,923
---------- ---------- ---------- ---------- ------------
Income (loss)
before income
taxes 22,247 (5,122) 21,565 (11,142) (9,150)
Provision for
income taxes - - - - -
---------- ---------- ---------- ---------- ------------
Net income
(loss) $ 22,247 $ (5,122) $ 21,565 $ (11,142) $ (9,150)
========== ========== ========== ========== ============
Earnings (loss)
per share-
basic $ 0.01 $ (0.00) $ 0.01 $ (0.00)
========== ========== ========== ==========
Earnings (loss)
Per share-
fully diluted $ 0.00 $ 0.00
========== ==========
The accompanying notes are an integral part of these financial statements.
4
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Operations (continued)
(Unaudited)
Weighted average
number of common
shares outstanding-
basic 25,210,000 810,000 25,210,000 810,000
========== ========== ========== ==========
Weighted average
Number of common
Shares outstanding-
Fully diluted 12,347,524 12,347,534
========== ==========
The accompanying notes are an integral part to these financial statements.
5
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statement of Cash Flows
(Unaudited)
For the nine September 22,
months ending 2004
---------------------- (Inception) to
Sep. 30, Sep. 30, Sep. 30,
2009 2008 2009
---------- ---------- ------------
OPERATING ACTIVITIES:
Net income (loss) $ 21,565 $ (11,142) $ (9,150)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Accretion of discount on
Convertible debt 9,973 - 13,114
Depreciation 17,813 300 25,252
Fixed asset distributed to
former shareholder - - 3,690
Decrease (Increase) in prepaid
expense 8,458 - (3,559)
Increase (Decrease) in accounts
payable 744 5,820 762
Increase (Decrease) in accrued
interest payable 2,896 - 3,809
---------- ---------- ------------
Net cash provided (used) by
operating activities 61,449 (5,022) 33,918
---------- ---------- ------------
INVESTING ACTIVITIES:
Purchase of fixed asset (2,320) - (482,510)
---------- ---------- ------------
Net cash (used) by
investing activities (2,320) - (482,510)
---------- ---------- ------------
FINANCING ACTIVITIES:
Issuances of common stock - - 182,733
Issuance of convertible debt - - 40,000
Contributed capital - - 12,200
Lease payable (67,500) - 230,138
Due to related party 20,000 - 20,000
---------- ---------- ------------
Net cash provided (used) by
financing activities (47,500) - 485,071
---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH 11,629 (5,022) 36,479
CASH - BEGINNING OF PERIOD 24,850 5,022 -
---------- ---------- ------------
CASH - END OF PERIOD $ 36,479 $ - $ 36,479
========== ========== ============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
Non-cash transactions $ - $ - $ -
The accompanying notes are an integral part of these financial statements.
6
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
The consolidated interim financial statements included herein, presented in
accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments, which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that
these consolidated interim financial statements be read in conjunction with
the financial statements of the Company for the year ended December 31, 2008
and notes thereto included in the Company's 10-K annual report. The
Company follows the same accounting policies in the preparation of interim
reports.
Results of operations for the interim periods are not indicative of annual
results.
Note 2 - Going Concern
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. As of September 30, 2009,
the Company has recognized $140,156 in revenues and has accumulated operating
deficit of approximately $9,150 since inception. The Company's ability to
continue as a going concern is contingent upon the successful completion of
additional financing arrangements and its ability to maintain profitable
operations. Management plans to raise equity capital to finance the
operating and capital requirements of the Company. Amounts raised will be
used to further develop the Company's services, to provide financing for
marketing and promotion, to secure additional property and equipment, and
for other working capital purposes. While the Company is expending its best
efforts to achieve the above plans, there is no assurance that any such
activity will generate funds that will be available for operations.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. These financial statements do not include any
adjustments that might arise from this uncertainty.
7
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Notes to Unaudited Consolidated Financial Statements
NOTE 3 - Restatement and Correction of Error and Adoption of Accounting
Standards Codification, Subtopic 480-10-25-11
An error was discovered in the December 31, 2008 financial statements,
whereby convertible preferred stock issued on October 7, 2008 was incorrectly
presented as Non-controlling Interest in the financial statements.
Accounting Standards Codification ("ASC"), Subtopic 480-10-25-11 states that
all obligations that permit the holder to require the issuer to transfer
assets result in liabilities, regardless of whether the settlement
alternatives have the potential to differ. Accordingly, the preferred shares
should be recorded as convertible debt and not Non-controlling Interest.
The Company adopted the guidance of ASC 480, Distinguishing Liabilities from
Equity, effective January 1, 2009, and retroactive application to all
periods presented is required. Upon adoption, the Company recorded a
cumulative debt discount of $40,000 with an offsetting increase to
stockholders' equity. The debt discount is being amortized to interest
expense over the term of the convertible debt, which resulted in $3,142 in
interest expense being recorded as of December 31, 2008. In accordance with
Subtopic 480-10-24-11, the Company is restating its December 31, 2008
financial statements.
Note 4 - Related party transactions
Office services are provided without charge by a director. Such costs are
immaterial to the financial statements and, accordingly, have not been
reflected therein. The officers and directors of the Company are involved in
other business activities and may, in the future, become involved in other
business opportunities. If a specific business opportunity becomes
available, such persons may face a conflict in selecting between the Company
and their other business interests. The Company has not formulated a policy
for the resolution of such conflicts.
Further, the Company has an outstanding loan due to an officer in the
amount of $28,825. This loan has no stated interest or fixed terms of
repayment. The total loans payable to officers are $20,000 at
September 30, 2009.
On December 8, 2008, Grand Horizons Excursions, a Nevada corporation and
subsidiary of Tropical PC, Inc. entered into a related party Capital Lease
Agreement, whereby Grand Horizons Excursions acquired a yacht from Mr. David
D. Selmon in exchange for 25,000,000 restricted shares of the Registrant's
common stock. The Board of Director approved the Capital Lease arrangement
on October 1, 2008; however, the lease agreement was not finalized until
December 8, 2008.
8
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
December 31, 2008
Note 4 - Related party transactions (Continued)
The term of the lease is for three (3) years commencing on October 1, 2008,
and ends at midnight on September 30, 2011.
October 1, 2008 to December 31, 2008 $ 22,500
January 1, 2009 to December 31, 2009 $ 90,000
January 1, 2010 to December 31, 2010 $ 90,000
January 1, 2011 to September 30, 2011 $ 67,500
--------
Total: $270,000
Note 5 - Convertible debt
On October 7, 2008, Armenian Development Corporation purchased 40,000 shares
of 8.5% cumulative preferred stock at a purchase price of $1.00 per share.
The preferred stock has a liquidation preference of $1.00 per share plus all
cumulative dividends. At the earlier of a public offering of the Company's
stock or the three year anniversary date of the initial issue, the preferred
stock will convert into 10,000,000 shares of common stock at a ratio of 250
common shares for one share of preferred stock, unless the holder or assignee
of the preferred shares exercises an option to convert each preferred share
into cash at $1.30 per share plus all unpaid cumulative dividends.
ASC 480-10-25-11 states that all obligations that permit the holder to
require the issuer to transfer assets result in liabilities, regardless of
whether the settlement alternatives have the potential to differ.
Accordingly, the Company has recorded the convertible preferred shares as
convertible debt.
9
TROPICAL PC, INC. AND SUBSIDIARY
(a development stage company)
Notes to Unaudited Consolidated Financial Statements
Note 5 - Convertible debt (Continued)
As discussed in Note 3, Correction of Error and Adoption of Accounting
Standards Codification Subtopic 480-10-25-11, the carrying value of the
Company's 8.5% Convertible Preferred Stock was impacted for all periods
presented. As a result of the adoption of ASC 480-10-25-11, the Company is
amortizing the debt discount of $40,000 over the term of the debt.
September 30, 2009
-----------------------------------------
Unamortized
Face Value Debt Discount Carrying Value
---------- ------------- --------------
8.5% Convertible debt $40,000 $(26,886) $13,114
========== ============= ==============
December 31, 2008
-----------------------------------------
Unamortized
Face Value Debt Discount Carrying Value
---------- ------------- --------------
8.5% Convertible debt $40,000 $(36,858) $3,142
========== ============= ==============
Note 6 - Concentration of Credit Risk
Cash Balances
-------------
The Company maintains its cash in financial institutions in the United
States. Balances maintained in the United States are insured by the Federal
Deposit Insurance Corporation (FDIC). This government corporation insured
balances up to $100,000 through October 13, 2008. As of October 14, 2008
all non-interest bearing transaction deposit accounts at an FDIC-insured
institution, including all business checking deposit accounts that do not
earn interest, are fully insured for the entire amount in the deposit
account. This unlimited insurance coverage was temporary and remained in
effect for participating institutions until December 31, 2009. All other
deposit accounts at FDIC-insured institutions are insured up to at least
$250,000 per depositor until December 31, 2013.
Note 7 - Subsequent Events
None. The Company has evaluated subsequent events through March 29, 2010,
the date which the financial statements were available to be issued.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information
The Company may from time to time make written or oral "forward-looking
statements" including statements contained in this report and in other
communications by the Company, which are made in good faith by the Company
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.
These forward-looking statements include statements of the Company's plans,
objectives, expectations, estimates and intentions, which are subject to
change based on various important factors (some of which are beyond the
Company's control). The following factors, in addition to others not listed,
could cause the Company's actual results to differ materially from those
expressed in forward looking statements: the strength of the domestic and
local economies in which the Company conducts operations, the impact of
current uncertainties in global economic conditions and the ongoing financial
crisis affecting the domestic and foreign banking system and financial
markets, including the impact on the Company's suppliers and customers,
changes in client needs and consumer spending habits, the impact of
competition and technological change on the Company, the Company's ability to
manage its growth effectively, including its ability to successfully integrate
any business which it might acquire, and currency fluctuations. All forward-
looking statements in this report are based upon information available to the
Company on the date of this report. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result
of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
----------------------------
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", included in
our Annual Report for the fiscal year ended December 31, 2008.
11
Results of Operations
---------------------
Overview of Current Operations
------------------------------
Tropical PC, Inc. ("Tropical" or "the Company") was incorporated under the laws
of the State of Nevada on September 22, 2004, under the name Tropical PC, Inc.
On October 31, 2006, Tropical PC, Inc., a Nevada corporation and DEZ,
Inc., ("DEZ") a Nevada corporation entered into an Acquisition Agreement and
Plan of Merger (the "Merger Agreement") whereby Tropical acquired all the
outstanding shares of common stock of DEZ from its sole stockholder in an
exchange for $5,000 cash in a transaction where Tropical is the successor
corporation. The Merger was approved by the unanimous consent of the
Board of Directors of Tropical on October 30, 2006.
On December 8, 2008, Grand Horizons Excursions, a Nevada corporation and
subsidiary of Tropical PC, Inc. entered into a related party Capital Lease
Agreement, whereby Grand Horizons Excursions acquired a yacht from Mr.
David D. Selmon in exchange for 25,000,000 restricted shares of the
Registrant's common stock. The Board of Director approved the Capital Lease
arrangement on October 1, 2008; however, the lease agreement was not finalized
until December 8, 2008.
Our Business
------------
From inception through October, 2008, Tropical PC provided pest control
management for residential and commercial properties.
Pest control workers treat residential and commercial properties with chemicals
and mechanical traps to get rid of rodents, insects, and other common pests.
They make periodic visits to their clients' properties to make sure they remain
pest-free. They may also control diseases and pests that attack lawns, shrubs,
and other outdoor vegetation. The Company's prospective customers and
marketing targets included new and pre-owned homebuyers.
With the acquisition of the yacht by our subsidiary, our business focus has
shifted, and we are now a provider of yacht services in the Gulf of Mexico.
12
Yachting offers a broad range of services to suit vacationing customers of
many ages, backgrounds and interests. We offer contemporary, and premium
yachting experiences. The contemporary experience typically includes cruises
that last one days or less, have a more casual ambiance and are less expensive
than premium cruises. The premium experience typically includes cruises that
last from two to seven days. Premium cruises emphasize quality, comfort,
style and more destination-focused itineraries and the average pricing on
these cruises is typically higher than contemporary cruises. There generally
is significant overlap and competition among all yachting providers.
Marketing Strategy
------------------
We are a customer service-driven company. We believe that we have established
satisfactory support systems for our clients to book a cruise on our yacht.
Currently, we sell our services mainly through word of mouth. We are looking
at expanding the marketing of our services through a wide variety of marketing
techniques including websites, seminars and videos, to familiarize
prospective customers with our yachting services.
Our investment in customer service has been focused on the development of
systems and specific cruise destinations on the Gulf of Mexico. We have
improved our systems by developing greater contact and interactivity with our
customer base.
We plan to pursue comprehensive marketing campaigns to market our yachting
services to vacationers, and business people. To stimulate demand, we also
plan to offer more home port locations, which enable certain guests to lower
the price of their cruise vacation by substantially reducing or eliminating
the cost of air travel to and from the port.
Seasonality
-----------
Our revenues from the sale of yachting services are seasonal. Historically,
demand for yachting has been greatest during the second and third fiscal
quarters, which includes the summer months. This higher demand will results
in higher revenues during the better weather seasons. The seasonality of our
results is also increased due to our yacht being taken out of service for
maintenance, which we typically schedule during non-peak demand periods.
13
Competition
-----------
We compete with land-based vacation alternatives throughout Texas,
including, among others, hotels, resorts, theme parks, vacation ownership
properties located near the Gulf of Mexico and numerous other vacation choices
on the Gulf of Mexico.
There are many other yachts based in the Gulf of Mexico which competes for our
customers. Most of our competitors are significantly larger than we are, have
been in business much longer than we have, and have significantly more
resources at their disposal.
Tropical PC, Inc.'s Funding Requirements
----------------------------------------
Future funding could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's business, results of
operations and financial condition. Any future acquisitions of other
businesses, technologies, services or product(s) might require the Company to
obtain additional equity or debt financing, which might not be available on
terms favorable to the Company, or at all, and such financing, if available,
might be dilutive.
Results of Operations
---------------------
During the nine months ended September 30, 2009, the Company had a net income
of $21,565 or $0.01 per share, versus a net loss of $(11,142) or $(0.00) per
share for the same period last year. During the three months ended
September 30, 2009, the Company had a net income of $22,247 or $0.01 per
share, versus a net loss of $(5,122) or $(0.00) per share for the same period
last year. For the nine months ended September 30, 2009, the Company
experienced general and administrative expenses of $14,299, primarily
accounting and legal fees, repairs and maintenance expenses of $25,539, and
depreciation expenses of $17,813. For the three months ended September 30,
2009, the Company experienced general and administrative expenses of $5,137,
for repairs and maintenance expenses of $4,008, and depreciation expenses of
$5,938. Since the Company's inception on September 22, 2004, the Company
experienced a net loss of $9,150.
Revenues
--------
During the nine month period ended September 30, 2009, the Company recognized
revenues of $92,085, as compared with no revenues for the same period last
year, when the Company was inactive. During the three month period ended
September 30, 2009, the Company recognized revenues of $41,667, as compared
with no revenues for the same period last year. Since inception on
September 22, 2004, the Company had revenues of $140,156.
14
Plan of Operation
-----------------
Management does not believe that the Company will be able to generate
any significant profit during the coming year.
Management believes the Company can sustain itself for the next twelve months.
Management has agreed to keep the Company funded at its own expense, without
seeking reimbursement for expenses paid. The Company's need for capital may
change dramatically if it can generate additional revenues from its operations.
In the event the Company requires additional funds, the Company will have to
seek loans or equity placements to cover such cash needs. There are no
assurances additional capital will be available to the Company on acceptable
terms.
Going Concern
-------------
Going Concern - As of September 30, 2009, the Company has recognized $140,156
in revenues and has an accumulated deficit of approximately $9,150
since inception.
The financial statements have been prepared assuming the Company will continue
to operate as a going concern which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. No adjustment
has been made to the recorded amount of assets or the recorded amount or
classification of liabilities which would be required if the Company were
unable to continue its operations. (See Financial Footnote 2)
Summary of any product research and development that we will perform for the
term of our plan of operation
----------------------------------------------------------------------------
We do not anticipate performing any additional significant product research
and development under our current plan of operation.
Expected purchase or sale of plant and significant equipment
------------------------------------------------------------
We do not anticipate the purchase or sale of any plant or significant
equipment; as such items are not required by us at this time.
Significant changes in the number of employees
----------------------------------------------
As of September 30, 2009, we did not have any employees. We are dependent upon
our sole officer and director for our future business development. As our
operations expand we anticipate the need to hire additional employees,
consultants and professionals; however, the exact number is not quantifiable
at this time.
15
Liquidity and Capital Resources
-------------------------------
The Company has limited financial resources available, which has had an
adverse impact on the Company's liquidity, activities and operations.
These limitations have adversely affected the Company's ability to obtain
certain projects and pursue additional business.
The balance sheet as of September 30, 2009 reflects cash of $18,204, and an
additional $18,275 cash held in an escrow account, prepaid expenses of $1,413
for total current assets of $37,892. Total current liabilities are $94,571.
Cash and cash equivalents from inception to date have been sufficient to
provide the operating capital necessary to operate to date. Management
believes it has sufficient funds to remain operational for the next twelve
months.
In order for the Company to remain a Going Concern it will need to find
additional capital. Additional working capital may be sought through
additional debt or equity private placements, additional notes payable to
banks or related parties (officers, directors or stockholders), or from other
available funding sources at market rates of interest, or a combination of
these. The ability to raise necessary financing will depend on many factors,
including the nature and prospects of any business to be acquired and the
economic and market conditions prevailing at the time financing is sought.
No assurances can be given that any necessary financing can be obtained on
terms favorable to the Company, or at all.
As a result of our the Company's current limited available cash, no officer
or director received compensation through the nine months ended September 30,
2009. No officer or director received stock options or other non-cash
compensation since the Company's inception through September 30, 2009. The
Company has no employment agreements in place with its officers. Nor does
the Company owe its officers any accrued compensation, as the Officers agreed
to work for company at no cost, until the company can become profitable on
a consistent Quarter-to-Quarter basis.
Off-Balance Sheet Arrangements
------------------------------
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results or operations,
liquidity, capital expenditures or capital resources that is material to
investors.
Critical Accounting Policies and Estimates
------------------------------------------
Revenue Recognition: We recognize revenue from product sales once all of the
following criteria for revenue recognition have been met: pervasive evidence
that an agreement exists; the services have been rendered; the fee is fixed
and determinable and not subject to refund or adjustment; and collection of
the amount due is reasonable assured.
16
New Accounting Standards
------------------------
In January 2010, the FASB issued Accounting Standards Update 2010-02,
Consolidation (Topic 810): Accounting and Reporting for Decreases in
Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but
does not change, the scope of current US GAAP. It clarifies the
decrease in ownership provisions of Subtopic 810-10 and removes the
potential conflict between guidance in that Subtopic and asset
derecognition and gain or loss recognition guidance that may exist in
other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now
included in Subtopic 810-10). For those entities that have already
adopted FAS 160, the amendments are effective at the beginning of the
first interim or annual reporting period ending on or after December
15, 2009. The amendments should be applied retrospectively to the first
period that an entity adopted FAS 160. The Company does not expect the
provisions of ASU 2010-02 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01,
Equity (Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash (A Consensus of the FASB Emerging Issues
Task Force). This amendment to Topic 505 clarifies the stock portion
of a distribution to shareholders that allows them to elect to receive
cash or stock with a limit on the amount of cash that will be
distributed is not a stock dividend for purposes of applying Topics 505
and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The
Company does not expect the provisions of ASU 2010-01 to have a
material effect on the financial position, results of operations or
cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities. This Accounting
Standards Update amends the FASB Accounting Standards Codification for
Statement 167. (See FAS 167 effective date below)
In December 2009, the FASB issued Accounting Standards Update 2009-16,
Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets. This Accounting Standards Update amends the FASB
Accounting Standards Codification for Statement 166. (See FAS 166
effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15,
Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance or Other Financing. This Accounting
Standards Update amends the FASB Accounting Standard Codification for
EITF 09-1. (See EITF 09-1 effective date below)
17
In October 2009, the FASB issued Accounting Standards Update 2009-14,
Software (Topic 985): Certain Revenue Arrangements That Include
Software Elements. This update changed the accounting model for
revenue arrangements that include both tangible products and software
elements. Effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June
15, 2010. Early adoption is permitted. The Company does not expect
the provisions of ASU 2009-14 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13,
Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements. This update addressed the accounting for multiple-
deliverable arrangements to enable vendors to account for products or
services (deliverables) separately rather than a combined unit and will
be separated in more circumstances that under existing US GAAP. This
amendment has eliminated that residual method of allocation. Effective
prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company does not expect the provisions of
ASU 2009-13 to have a material effect on the financial position,
results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12,
Fair Value Measurements and Disclosures (Topic 820): Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent). This update provides amendments to Topic 820 for the fair
value measurement of investments in certain entities that calculate net
asset value per share (or its equivalent). It is effective for interim
and annual periods ending after December 15, 2009. Early application
is permitted in financial statements for earlier interim and annual
periods that have not been issued. The Company does not expect the
provisions of ASU 2009-12 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging
Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt
Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the
accounting treatment and disclosure of share-lending arrangements that
are classified as equity in the financial statements of the share
lender. An example of a share-lending arrangement is an agreement
between the Company (share lender) and an investment bank (share
borrower) which allows the investment bank to use the loaned shares to
enter into equity derivative contracts with investors. EITF 09-1 is
effective for fiscal years that beginning on or after December 15, 2009
and requires retrospective application for all arrangements outstanding
as of the beginning of fiscal years beginning on or after December 15,
2009.
18
Share-lending arrangements that have been terminated as a
result of counterparty default prior to December 15, 2009, but for
which the entity has not reached a final settlement as of December 15,
2009 are within the scope. Effective for share-lending arrangements
entered into on or after the beginning of the first reporting period
that begins on or after June 15, 2009. The Company does not expect the
provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), "Amendments
to FASB Interpretation No. 46(R) ("SFAS 167"). SFAS 167 amends the
consolidation guidance applicable to variable interest entities. The
provisions of SFAS 167 significantly affect the overall consolidation
analysis under FASB Interpretation No. 46(R). SFAS 167 is effective as
of the beginning of the first fiscal year that begins after November
15, 2009. SFAS 167 will be effective for the Company beginning in 2010.
The Company does not expect the provisions of SFAS 167 to have a
material effect on the financial position, results of operations or
cash flows of the Company.
In June 2009, the FASB issued SFAS No. 166, (ASC Topic 860) "Accounting
for Transfers of Financial Assets-an amendment of FASB Statement No.
140" ("SFAS 166"). The provisions of SFAS 166, in part, amend the
derecognition guidance in FASB Statement No. 140, eliminate the
exemption from consolidation for qualifying special-purpose entities
and require additional disclosures. SFAS 166 is effective for financial
asset transfers occurring after the beginning of an entity's first
fiscal year that begins after November 15, 2009. The Company does not
expect the provisions of SFAS 166 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In April 2009, the FASB issued SFAS No. 164, (ASC Topic 810) "Not-for-
Profit Entities: Mergers and Acquisitions - including an amendment of
FASB Statement No. 142" ("SFAS 164"). The provisions of SFAS 164
provide guidance on accounting for a combination of not-for-profit
entities either via merger or acquisition. SFAS 164 is effective for
mergers occurring on or after the beginning of an initial reporting
period beginning on or after December 15, 2009 and acquisitions
occurring on or after the beginning of the first annual reporting
period beginning on or after December 15, 2009. The Company does not
expect the provisions of SFAS 164 to have a material effect on the
financial position, results of operations or cash flows of the Company.
19
In June 2009, the Securities and Exchange Commission's Office of the
Chief Accountant and Division of Corporation Finance announced the
release of Staff Accounting Bulletin (SAB) No. 112. This staff
accounting bulletin amends or rescinds portions of the interpretive
guidance included in the Staff Accounting Bulletin Series in order to
make the relevant interpretive guidance consistent with current
authoritative accounting and auditing guidance and Securities and
Exchange Commission rules and regulations. Specifically, the staff is
updating the Series in order to bring existing guidance into conformity
with recent pronouncements by the Financial Accounting Standards Board,
namely, Statement of Financial Accounting Standards No. 141 (revised
2007) (ASC Topic 805), Business Combinations, and Statement of
Financial Accounting Standards No. 160 (ASC Topic 810), Non-controlling
Interests in Consolidated Financial Statements. The statements in staff
accounting bulletins are not rules or interpretations of the
Commission, nor are they published as bearing the Commission's official
approval. They represent interpretations and practices followed by the
Division of Corporation Finance and the Office of the Chief Accountant
in administering the disclosure requirements of the Federal securities
laws.
In September 2008, the FASB issued exposure drafts that eliminate
qualifying special purpose entities from the guidance of SFAS No. 140
(ASC Topic 860), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," and FASB Interpretation
46 (ASC Topic 810) (revised December 2003), "Consolidation of Variable
Interest Entities - an interpretation of ARB No. 51 (ASC Topic 810),"
as well as other modifications. While the proposed revised
pronouncements have not been finalized and the proposals are subject to
further public comment, the Company anticipates the changes will not
have a significant impact on the Company's financial statements. The
changes would be effective March 1, 2010, on a prospective basis.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
20
Item 4T. Controls and Procedures
Evaluation of disclosure controls and procedures
------------------------------------------------
Management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness
of those internal controls. As defined by the SEC, internal control over
financial reporting is a process designed by our principal executive
officer/principal financial officer, who is also the sole member of our Board
of Directors, to provide reasonable assurance regarding the reliability of
financial reporting and the reparation of the financial statements in
accordance with U. S. generally accepted accounting principles.
As of the end of the period covered by this report, we initially carried out
an evaluation, under the supervision and with the participation of our
President (who is also our principal financial and accounting officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our President and chief financial
officer initially concluded that our disclosure controls and procedures were
not effective.
Management's Report On Internal Control Over Financial Reporting
----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934 as a process designed by, or under the
supervision of, the company's principal executive and principal financial
officer and effected by the company's board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that:
- Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
company;
- 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
- 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.
21
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. All internal
control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation. Because of the inherent limitations of internal control, there
is a risk that material misstatements may not be prevented or detected on a
timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process.
Therefore, it is possible to design into the process safeguards to reduce,
though not eliminate, this risk.
As of December 31, 2008 management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this
report, such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below.
This was due to deficiencies that existed in the design or operation of our
internal controls over financial reporting that adversely affected our
internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: lack of a functioning audit committee due to
a lack of a majority of independent members and a lack of a majority of outside
directors on our board of directors, resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures; and
the aforementioned material weakness was identified by our President in
connection with the review of our financial statements as of March 31, 2009.
Management believes that the lack of a functioning audit committee and the
lack of a majority of outside directors on our board of directors results in
ineffective oversight in the establishment and monitoring of required internal
controls and procedures, which could result in a material misstatement in our
financial statements in future periods.
This quarterly report does not include an attestation report of the
Corporation's registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to attestation
by the Corporation's registered public accounting firm pursuant to temporary
rules of the SEC that permit the Corporation to provide only the management's
report in this quarterly report.
22
Management's Remediation Initiatives
------------------------------------
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
We plan to appoint one or more outside directors to our board of directors who
shall be appointed to an audit committee resulting in a fully functioning
audit committee who will undertake the oversight in the establishment and
monitoring of required internal controls and procedures such as reviewing and
approving estimates and assumptions made by management when funds are
available to us.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the
lack of a functioning audit committee and a lack of a majority of outside
directors on our Board.
We anticipate that these initiatives will be at least partially, if not fully,
implemented by December 31, 2009. Additionally, we plan to test our updated
controls and remediate our deficiencies by December 31, 2009.
Changes in internal controls over financial reporting
-----------------------------------------------------
There was no change in our internal controls over financial reporting that
occurred during the period covered by this report, that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
23
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in
these or other matters may arise from time to time that may harm our
business.
We are not presently a party to any material litigation, nor to the knowledge
of management is any litigation threatened against us, which may materially
affect us.
Item 1A -- Risk Factors
See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report
on Form 10K for the fiscal year ended December 31, 2008 and the discussion in
Item 1, above, under "Liquidity and Capital Resources."
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
24
Item 6 -- Exhibits
Incorporated by reference
-------------------------
Filed Period Filing
Exhibit Exhibit Description herewith Form ending Exhibit date
-------------------------------------------------------------------------------
3.1 Articles of Incorporation, 10-Q 3.1 11/21/2008
as currently in effect
-------------------------------------------------------------------------------
3.2 Bylaws 10-Q 3.1 11/21/2008
as currently in effect
-------------------------------------------------------------------------------
3.3 Articles of Merger, by 8-K 3.3 12/22/2006
and between Tropical PC, Inc.
and DEZ, Inc. dated
December 11, 2006.
-------------------------------------------------------------------------------
10.1 Capital Lease Agreement dated 8-K 10.1 12/09/2008
December 8, 2008
-------------------------------------------------------------------------------
31.1 Certification of President X
and Principal Financial
Officer, pursuant to Section
302 of the Sarbanes-Oxley
Act
-------------------------------------------------------------------------------
32.1 Certification of President X
and Principal Financial
Officer, pursuant to Section
906 of the Sarbanes-Oxley
Act
-------------------------------------------------------------------------------
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Tropical PC, Inc.
------------------------
Registrant
By: /s/ David D. Selmon
------------------------------
Name: David D. Selmon
Title: Chief Executive Officer
and Director
Dated: March 30, 2010
-----------------
26
