10-Q 1 tropsepq.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q ---------------------- |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. ------------------------------------------------------ (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 --------------------------------------------------- (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 ~~June~~September 30, 2009 and December 31, 2008 (Restated) 3 Consolidated Statements of ~~Income~~Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2009 and 2008 4 Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2009 and 2008 56 Notes to Financial Statements 67 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 811 Item 3. Quantitative and Qualitative Disclosures About Market Risk 1520 Item 44T. Controls and Procedures 1621 Part II Other Information Item 1. Legal Proceedings 1924 Item 1A. Risk Factors 1924 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 1924 Item 3 -- Defaults Upon Senior Securities 1924 Item 4 -- Submission of Matters to a Vote of Security Holders 1924 Item 5 -- Other Information 1924 Item 6. Exhibits 2025 Signatures 2126

2 Part I. Financial Information Item 1. Financial Statements TROPICAL PC, INC. AND SUBSIDIARY (a development stage company) Consolidated Balance Sheets (Unaudited)

~~June~~December 3031, ~~2009~~September ~~December 31~~30, 2008 2009 (~~Unaudited~~restated) ~~2008~~ --------- --------- ASSETS Current Assets: Cash $ 1318,~~775~~204 $ 6,250 Funds held in escrow 18,~~600~~275 18,600 Prepaid expenses 31,~~559~~413 9,874 --------- --------- Total current assets 3537,~~934~~892 34,724 Equipment, net ~~459~~453,~~507~~570 469,063 --------- --------- TOTAL ASSETS $~~495~~491,~~441~~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 9094,~~000~~571 90,~~018~~930 Long term liabilities Due to Related Party 2820,~~825~~000 - Lease payable ~~160~~- related party 137,~~493~~993 205,493 Convertible debt, net of discount of $26,886 and $36,858, respectively 13,114 3,142 --------- --------- Total long term liabilities ~~189~~171,~~318~~107 ~~205~~208,~~493~~635 --------- --------- Total liabilities ~~279~~265,~~318~~678 ~~295~~299,~~511~~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 69/30/2009 and 12/31/2008, respectively 25,210 25,210 Additional paid-in capital ~~169~~209,724 ~~169~~209,724 ~~Non~~Earnings ~~Controlling Interest 40,000 40,000~~ (Deficit) accumulated during development stage (189,~~811~~150) (2630,~~658~~712) --------- --------- Total stockholders' equity ~~216~~225,~~123~~784 ~~208~~204,~~276~~222 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $~~495~~491,~~441~~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 ~~six~~nine September 22, months ending months ending 2004 ---------------------- ---------------------- (Inception) to ~~June~~Sep. 30, ~~June~~Sep. 30, ~~June~~Sep. 30, ~~June~~Sep. 30, ~~June~~Sep. 30, 2009 2008 2009 2008 2009 ---------- ---------- ---------- ---------- ------------ Revenue $ 4341,~~362~~667 $ - $ 5092,~~418~~085 $ - $ 98140,~~489~~156 ---------- ---------- ---------- ---------- ------------ Expenses: General and administrative 35,~~513~~137 15,~~033~~022 914,~~162~~299 610,~~820~~842 7277,~~765~~902 Repairs and maintenance 24,~~312~~008 - 2125,~~531~~539 - 2125,~~531~~539 Depreciation 5,938 100 1117,~~875~~813 ~~200~~300 1925,~~314~~252 Fixed asset distributed to former shareholder - - - - 3,690 ---------- ---------- ---------- ---------- ------------ Total expenses 1115,~~763~~083 15,~~133~~122 4257,~~568~~651 711,~~020~~142 ~~117~~132,~~300~~383 ---------- ---------- ---------- ---------- ------------ ~~Net~~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 3122,~~599~~247 (15,~~133~~122) 721,~~850~~565 (711,~~020~~142) (189,~~811~~150) Provision for income taxes - - - - - ---------- ---------- ---------- ---------- ------------ Net income (loss) $ 3122,~~599~~247 $ (15,~~133~~122) $ 721,~~850~~565 $ (711,~~020~~142) $ (189,~~811~~150) ========== ========== ========== ========== ============ Earnings (loss) per share- basic ~~and fully diluted~~ $ 0.01 $ (0.00) $ 0.0001 $ (0.0100) ========== ========== ========== ========== 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 ~~and fully diluted 2~~25,~~347~~210,~~534~~000 810,000 225,~~347~~210,~~534~~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 ~~six~~nine September 22, months ending 2004 ---------------------- (Inception) to ~~June~~Sep. 30, ~~June~~Sep. 30, ~~June~~Sep. 30, 2009 2008 2009 ---------- ---------- ------------ OPERATING ACTIVITIES: Net income (loss) $ 721,~~850~~565 $ (711,~~020~~142) $ (189,~~811~~150) Adjustments to reconcile net loss to net cash used by operating activities: Accretion of discount on Convertible debt 9,973 - 13,114 Depreciation 1117,~~875~~813 ~~200~~300 1925,~~314~~252 Fixed asset distributed to former shareholder - - 3,690 Decrease (Increase) in prepaid expense 68,~~313~~458 - (3,559) Increase (Decrease) in accounts payable 744 5,820 762 Increase (18Decrease) 6in accrued interest payable 2,~~754~~896 - 3,809 ---------- ---------- ------------ Net cash provided (used) by operating activities 2661,~~020~~449 (665,022) ~~634~~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 ~~Non-controlling~~Issuance ~~interest~~of convertible debt - - 40,000 Contributed capital - 70- 12,200 Lease payable (4567,~~000~~500) - ~~250~~230,~~493~~138 Due to: ~~Related~~related party 2820,~~825~~000 - 2820,~~825~~000 ---------- ---------- ------------ Net cash provided (used) by financing activities (1647,~~175~~500) 70- ~~514~~485,~~251~~071 ---------- ---------- ------------ NET INCREASE (DECREASE) IN CASH 711,~~525~~629 4(5,022) 3236,~~375~~479 CASH - BEGINNING OF PERIOD 24,850 5,~~018~~022 - ---------- ---------- ------------ CASH - END OF PERIOD $ 3236,~~375~~479 $ ~~5,022~~- $ 3236,~~375~~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

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