BTCS INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2010
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Commission file number: 333-151252
TouchIT Technologies, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Nevada
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26-2477977
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(State of Incorporation)
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(I.R.S. Employer
Identification Number)
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Istanbul Trakya Serbest Bölgesi Atatürk Bulvari Ali Riza Efendi cd., A4 Blok Çatalca,
Istanbul Turkey
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(Address of Principal Executive Offices, Including Zip Code)
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Registrant’s telephone number:
+44 207 858 1045/+90 212 768 6304
Securities registered pursuant to Section 12(b) of the Act:
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None
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Not Applicable
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(Title of each class)
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(Name of each exchange on which registered)
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Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes
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No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Accelerated Filer
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Non-accelerated Filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $6,993,000.
The number of shares outstanding of common stock as of March 30, 2011 was 64,549,419.
DOCUMENTS INCORPORATED BY REFERENCE
N/A.
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TABLE OF CONTENTS
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Part I
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Item 1.
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Business.
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Item 1A.
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Risk Factors.
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4 |
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Item 2.
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Properties.
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Item 3.
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Legal Proceedings.
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Item 4.
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Removed and Reserved.
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Part II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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Item 6.
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Selected Financial Data.
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk.
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Item 8.
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Financial Statements and Supplementary Data.
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
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Item 9A.
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Controls and Procedures.
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Item 9B.
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Other Information.
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Part III
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Item 10.
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Directors, Executive Officers and Corporate Governance.
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Item 11.
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Executive Compensation.
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence.
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Item 14.
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Principal Accounting Fees and Services.
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Part IV
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Item 15.
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Exhibits, Financial Statement Schedules.
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Signatures
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Business Development
TouchIT Technologies, Inc. was incorporated in the State of Nevada as “Hotel Management Systems, Inc.” (“HMSI”) in 2008. After HMSI's fiscal year end of April 30, 2010, we entered into a Share Exchange Agreement, dated May 7, 2010 (“Share Exchange”) with TouchIT Technologies Koll Sti (“TouchIT Tech KS”), the stockholders of TouchIT Tech KS, TouchIT Education Koll Sti (“TouchIT Ed”), and the stockholders of TouchIT Ed whereby HMSI effectively ceased doing business as HMSI. Both TouchIT Tech KS and TouchIT Ed are corporations formed under the laws of Turkey and are based in Istanbul, Turkey. The closing of the transaction (the “Closing”) took place on May 7, 2010 (the “Closing Date”).
In connection with the closing of the Share Exchange Agreement, on May 7, 2010, we entered into various subscription agreements (each “Subscription Agreement,” and collectively the “Subscription Agreements”) with certain investors for the sale of up to $1,500,000 of principal amount convertible promissory notes issued by our Company (“Note” or “Notes”) and share purchase warrants (the “Warrants”) to each subscriber to purchase shares of our Common Stock.
In connection with a breach of two promissory notes associated with the Share Exchange, we cancelled the Warrants related to those promissory notes.
In connection with the Share Exchange, we changed our fiscal year end from April 30 to December 31 and amended our Articles of Incorporation to change our name to TouchIT Technologies, Inc. This report shall cover the period of January 1 to December 31, 2010 and the description of the business and financial information provided herein will be the business and financials of TouchIT Technologies, Inc. and not HMSI, as the business was prior to the Share Exchange.
Unless the context indicates otherwise, as used herein the terms, the “Company”, “Registrant”, “we”, “our” and “us” refer to TouchIT Technologies, Inc.
Overview
We design, produce and market touch-based visual communication products. Our mission – the design and manufacture of high quality technology products under the TouchIT Technologies™ brand name. We manufacture a large range of touch screen and touch board products to suit all types of application from small liquid crystal display (“LCD”) touch-screens to large interactive whiteboard displays and audience response systems. To date, our revenues have come primarily from the sale of our Interactive Whiteboard products which we began shipping in 2009 to the worldwide market place. Most of our sales have been of the 78" TouchIT Board and original equipment manufacturer (“OEM”) equivalents that are suitable for use with almost any computer and data projector.
We plan to capitalize on the corporate vertical for boardroom and meeting room applications and also in the education market as there are an estimation of over a billion classrooms in the world that may develop a need for our products. In response to increased demand for interactive LCD displays, we have invested resources to expand our product line to include touch-based LCDs in 42", 55” and 65". We have also invested in the development of TouchIT Transcribe, our corporate annotation software. We undertake OEM and original design manufacturer (“ODM”) work for partners all over the world with manufacturing facilities in Istanbul Turkey.
How We Generate Revenue
We generate revenue from the sales of goods under the TouchIT Technologies brand name that are manufactured in house or, when it is more economically viable, manufactured through 3
rd
party OEM contract manufacturers in China and Taiwan.
We also generate revenue from our own OEM manufacture facilities. This is where we take our existing products and rebrand them for a third party with differing degrees of customization.
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Lastly, we generate revenue by charging for product design work where our team designs a new product for a customer that incorporates our technology. There is then repeat sales from this model as the customer engages the company to build its products.
Products or Services and their Markets
We offer a range of products that are designed for the education and the corporate government vertical markets. In addition, we offer our own proprietary annotation software designed for the corporate market.
TouchIT Interactive Whiteboard
TouchIT Board™ works in conjunction with a data projector and a computer to create a touch-based interactive whiteboard where the user obtains full control of a computer from the board. The TouchIT Board™ functions similar to a mouse allowing both left and right click functionality at the board. The TouchIT Board is supplied with Wizteach annotation software. The Wizteach annotation software is a 3
rd
party software that we purchase from Quizdom Uk Ltd based in Northern Ireland.
TouchIT LCD
The TouchIT LCD™ combines a HD display with IR touch technology to create an integrated, large format touch screen finished with a 4mm tempered glass for screen protection. The TouchIT LCD has a very small parallax enabling a much improved user experience when compared to traditional overlay products.
TouchIT Vote
TouchIT Vote™ is an radio Frequency (RF) audience response system that allows the user to obtain feedback or interaction from a class or audience to a series of questions posed with either Microsoft PowerPoint or the proprietary editor supplied. These responses can then be formulated into a series of reports where the data can be further analyzed.
TouchIT Tablet
TouchIT Tablet™ is a Radio Frequency (RF) wireless tablet that enables the user to control his/her computer from a distance with the tablet acting like a mouse.
TouchIT Transcribe Software
TouchIT Transcribe™ is the proprietary corporate annotation software supplied by us at no charge to users of the TouchIT Board™ and TouchIT LCD™. TouchIT Transcribe™ is unique in that currently on the market, there are very few pieces of software that cater directly for the corporate market.
Distribution Methods of the Products or Services
We currently maintain various distribution channels for our products in countries throughout the world. We would normally select a master distributor for a particular country where its specialty would be either the Information Technology (“IT”) Education or Audio Visual (“AV”) verticals. These master distributors usually sell on a trade-only basis to reselling companies that, in turn, supply the end user.
Status of New Product or Service
We are currently evaluating new touch technologies such as charge-couple device (“CCD”) image sensors that could be a more cost effective alternative in the future to IR. Our business strategy is to grow all three main areas of the business in tandem with the overall pursuit and development of new touch-based interactive products.
First, we hope to increase the growth of sales of our Company’s branded products through distribution partners on a worldwide basis. This involves the recruitment, training and support of the distribution partner and its resellers.
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Second, we aim to grow the OEM side of the business. This involves the recruitment, product customization and rebranding, technical support and training of new OEM partners on a worldwide basis.
Third, we aim to work with a wider selection of ODM partners that recruit our services for the design and manufacture of new products under the client’s own brand name.
Business Organization
We manage our business on a central basis with all customers being supplied through our wholly owned subsidiaries, TouchIT Tech KS and TouchIT Ed, both incorporated in Turkey.
Markets & Trends In Our Business
From information obtained from Futuresource Consulting UK Ltd. (“Futuresource”), Global Interactive Whiteboard (“IWB”) sales in the fourth quarter were down 5% to approximately 197,000 IWBs. This is the first quarter in three years without a year-to-year growth.
For the year 2010, there was an increase of 21% in value and 15% volume growth
with 895k IWBs sold at a value of $1.4 billion. For the year 2011, Futuresource now estimates a 12% volume and 13% value growth, with 967K IWBs at a value of $1.5 billion.
Currently, over 3.6 million IWBs have now been installed globally. World classroom penetration has just tipped 8%, leaving 35 million of the total 39 million classrooms in the world without an IWB. There is still a large opportunity in the school sector. In the current economically unsure world, education is one thing that is globally valued. Additionally, the higher education, corporate and government markets are major unexploited opportunities.
We currently have contracts in Greece, Hungary, Spain and Ireland, which highlights the fact that the state of a country's economy can bear little relation to their implementation of educational technology. These contracts are normally financed by EU money. We are also in the process of obtaining eight additional contracts, mostly in Southern / Eastern European countries.
On February 16, 2011, our Company borrowed USD 250,000 from TCA Global Credit Master Fund pursuant to a revolving credit facility evidenced by a credit agreement with an effective date as of November 30, 2010. The Credit Agreement evidences a revolving credit facility in the maximum principal amount of USD 250,000, which subject to Lender approval, may be increased up to USD 1,000,000. The outstanding principal amount is due on February 16, 2012.
Competition
We echo the sentiments of Futuresource and feel that our competitors, the Chinese brands that are selling outside of China and India, are a reducing threat in the developed EMEA and U.S. markets. They are making little headway because while their products are on the low-cost end of the spectrum, they are not engaged in important deals and transactions, and are only getting peripheral businesses in the industry. Furthermore, the Chinese brands are also pushing their way into developing markets such as South America and Africa; however, these developing markets offer very little opportunities for the visual communication companies.
While the examples provided above do not appear to place our Company in a competitive business situation, there are also exceptions to the Chinese brands. For instance, Julong Educational Technology Co., Ltd, which is an OEM, has a large U.S. operation and has successfully worked its way into the U.S. market.
Our greatest competitor is probably Interactive Projectors. We are aware that they have already obtained some contracts in preference to IWBs (Finland, Estonia, Russia). In some countries, Interactive Flat panels are also emerging.
Despite the competition we face, our Company is in a strong position to capitalise on emergence of Interactive Flat Panels with the new LCD range.
Supply of Components
Although most components essential to our Company’s business are generally available from multiple sources, certain key components including but not limited to aluminum, plastics, LCDs, certain optical infrared technology (“IR”), and integrated circuits (“ICs”) are currently obtained by our Company from single or limited sources, which subjects us to significant supply and pricing risks.
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Many of these and other key components that are available from multiple sources are subject at times to industry-wide shortages and significant commodity pricing fluctuations. In addition, we have entered into certain agreements for the supply of key components, including, but not limited to aluminum, plastics, LCDs, certain optical IR technology, and ICs at favorable pricing. However,, there is no guarantee that we will be able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or otherwise obtain favorable pricing in the future. Therefore, we remain subject to significant risks of supply shortages and/or price increases that can materially adversely affect its financial condition and operating results.
The TouchIT Tablet and TouchIT Vote plus printed circuit boards (“PCBs”) are assembled or are manufactured by outsourcing partners, primarily in various parts of Asia. The loss of supply from any of these suppliers or vendors, whether temporary or permanent, could materially adversely affect our business and financial condition.
Dependence on one or a few major customers
We recognize that we have a reliance on a few major customers. Most notably, Emko Emaye in Turkey and Sahara Presentation Products PLC in the UK. We do, however, expect to increase our customer base in line with our sales plan, strategy and forecast.
Patents and Trademark Licenses
We allow the use of the TouchIT Technologies brand name for trading purposes in Ireland and the UK. In Ireland, Mr. John Hughes operates TouchIT Technologies Ireland Limited. Our Company has no financial interest in this company. In the UK, Dynascreens UK Limited trades as TouchIT Technologies UK. We also have no financial interest in this company. Both the aforementioned companies use the TouchIT Technologies brand name and act as a master distributor in their respective countries.
Environmental Laws
As a third party manufacturer of visual communication products, we have not incurred or have been subject to environmental laws and expenses.
Employees
During the year, we had up to 19 employees: including 16 full-time employees such as staff and our three Officers and Directors, Mr. Andrew Brabin, Mr. Recep Tanisman and Mr. Ronald Murphy, along with the services of two part-time sales consultants.
Available Information
The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the “SEC”). Such reports and other information filed by the Company with the SEC are available free of charge on the Company’s website at www.touchittechnologies.com/investor when such reports are available on the SEC website.
The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.
Risks Relating to Our Business
WE HAVE A LIMITED OPERATING HISTORY THAT YOU CAN USE TO EVALUATE US, AND THE LIKELIHOOD OF OUR SUCCESS MUST BE CONSIDERED IN LIGHT OF THE PROBLEMS, EXPENSES, DIFFICULTIES, COMPLICATIONS AND DELAYS FREQUENTLY ENCOUNTERED BY A SMALL DEVELOPING COMPANY.
We were incorporated in Nevada in April 2008, under HMSI. Following the transactions described herein, we are now a manufacturer of touch based communication products for the education and corporate marketplaces. As such, we have a limited operating history, and historical operating results may not provide a meaningful basis for evaluating the business, financial performance and prospects. We have limited assets or financial resources and/or limited operating history. Therefore, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate.
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WE NEED TO MANAGE GROWTH IN OPERATIONS TO MAXIMIZE OUR POTENTIAL GROWTH AND ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO MANAGE GROWTH WILL CAUSE A DISRUPTION OF OUR OPERATIONS RESULTING IN THE FAILURE TO GENERATE REVENUE.
In order to maximize potential growth in our current and potential markets, we believe that we must expand our marketing operations. This expansion will place a significant strain on our management and our operational, accounting, and information systems. We expect that we will need to continue to improve our financial controls, operating procedures, and management information systems. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth will disrupt our operations and ultimately prevent us from generating the revenues we expect.
In order to achieve the above mentioned targets, our general strategy is to maintain and search for hard-working employees who have innovative initiatives; on the other hand, we will also keep a close eye on expanding opportunities.
IF WE NEED ADDITIONAL CAPITAL TO FUND OUR GROWING OPERATIONS, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL AND MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.
If adequate additional financing is not available on favorable terms or we are unable to secure additional financing, we may not be able to undertake expansion, continue our marketing efforts and we would have to modify our business plans accordingly. There is no assurance that additional financing will be available to us or financing on favorable terms.
In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs.
Even if we do find a source of additional capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.
NEED FOR ADDITIONAL EMPLOYEES.
The Company’s future success also depends upon its continuing ability to attract and retain highly qualified personnel. Expansion of our business and the management and operation of the Company will require additional managers and employees with industry experience, and the success of our Company will be highly dependent on our ability to attract and retain skilled management personnel and other employees. Competition for such personnel is intense. There can be no assurance that we will be able to attract or retain highly qualified personnel.
Competition for skilled personnel in our industry is significant. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees. Our inability to attract skilled management personnel and other employees as needed could have a material adverse effect on our business, operating results and financial condition. Our arrangement with our current employees is at will, meaning its employees may voluntarily terminate their employment at any time. We anticipate that the use of stock options, restricted stock grants, stock appreciation rights, and phantom stock awards will be valuable in attracting and retaining qualified personnel. However, the effects of such plan cannot be certain.
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OUR FUTURE SUCCESS IS DEPENDENT, IN PART, ON THE PERFORMANCE AND CONTINUED SERVICE OF OUR MANAGEMENT TEAM.
We are presently dependent to a great extent upon the experience, abilities and continued services of Andrew Brabin, Ronald Murphy, and Recep Tanisman, our management team. The loss of services of Mr. Brabin, Mr. Murphy, or Mr. Tanisman could have a material adverse effect on our business, financial condition or results of operation.
WE ARE IN AN INTENSELY COMPETITIVE INDUSTRY AND THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO COMPETE WITH OUR COMPETITORS WHO MAY HAVE GREATER RESOURCES.
We could face strong competition from our competitors in the touch technology industry who could duplicate our model. These competitors may have substantially greater financial resources and marketing, development and other capabilities than we have. In addition, there are very few barriers to enter into the market for our products. There can be no assurance, therefore, that any of our competitors, many of whom have far greater resources will not independently develop products that are substantially equivalent or superior to our products. Therefore, an investment in our Company is very risky and speculative due to the competitive environment in which we intend to operate.
OUR ABILITY TO CONTINUE TO DEVELOP AND EXPAND OUR PRODUCT OFFERINGS TO ADDRESS EMERGING CONSUMER DEMANDS AND TECHNOLOGICAL TRENDS WILL IMPACT OUR FUTURE GROWTH. IF WE ARE NOT SUCCESSFUL IN MEETING THESE BUSINESS CHALLENGES, OUR RESULTS OF OPERATIONS AND CASH FLOWS WILL BE MATERIALLY AND ADVERSELY AFFECTED.
Our ability to implement solutions for our customers incorporating new developments and improvements in technology which translate into productivity improvements for our customers and to develop product offerings that meet the current and prospective customers’ needs are critical to our success. The markets we serve are highly competitive. Our competitors may develop solutions or products which make our offerings obsolete. Our ability to develop and implement up to date solutions utilizing new technologies which meet evolving customer needs in touch technology solutions will impact our future revenue growth and earnings.
OUR FUTURE SUCCESS IS DEPENDENT UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY.
We may not be able to protect unauthorized use of our intellectual property and take appropriate steps to enforce our rights. Although management does not believe that our products infringe on the intellectual rights of others, there is no assurance that we may not be the target of infringement or other claims. Such claims, even if not true, could result in significant legal and other costs associated and may be a distraction to management. We plan to rely on a combination of copyright, trade secret, trademark laws and non-disclosure and other contractual provisions to protect our proprietary rights. We use and intend to use the trademark “TouchIT Technology” name and logo. We intend to file federal trademark applications for “TouchIT Technology” and to secure the Internet trade domain “TouchITtechnologies.com” and related logo. There can be no assurance that the registrations applied for will be accepted. Because the policing of intellectual and intangible rights may be difficult and the ideas and other aspects underlying our business model may not in all cases be protectable under intellectual property laws, there can be assurance that we can prevent competitors from marketing the same or similar products and services.
Risks Associated with Our Shares of Common Stock
BROAD DISCRETION OF MANAGEMENT TO USE OF PROCEEDS FROM FINANCING.
Our management will have broad discretion with respect to the expenditure of the net proceeds from the financing that closed in connection with the Share Exchange Agreement. Accordingly, Subscribers will be entrusting their funds to our management, upon whose judgment they must depend, with limited information concerning the specific working capital requirements and general corporate purposes to which the funds will be ultimately applied.
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THE SECURITIES BEING ISSUED IN CONNECTION WITH AND FOLLOWING THE SHARE EXCHANGE AGREEMENT ARE RESTRICTED SECURITIES AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF A RESALE EXEMPTION.
The shares of Common Stock, Notes and Warrants being issued in connection with the Share Exchange Agreement and financing described herein are being issued in reliance on an exemption from the registration requirements of the Securities Act under Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act. Consequently, these securities will be subject to restrictions on transfer under the Securities Act and may not be transferred in the absence of registration or the availability of a resale exemption. In particular, in the absence of registration, such securities cannot be resold to the public until certain requirements under Rule 144 promulgated under the Securities Act have been satisfied, including certain holding period requirements. Furthermore, we are under no obligation to file a resale registration statement with respect to those securities except in connection with an unrelated secondary offering. As a result, a purchaser who receives any such securities issued in connection with the Share Exchange Agreement or the financing may be unable to sell such securities at the time, or at the price or upon such other terms and conditions, as the purchaser desires, and the terms of such sale may be less favorable to the purchaser than might be obtainable in the absence of such limitations and restrictions.
RESTRICTED SECURITIES; LIMITED TRANSFERABILITY.
Purchase of the Securities should be considered a long-term, illiquid investment. The Securities have not been registered under the Act, are being offered by reason of a specific exemption from registration and are “restricted securities” under Rule 144 promulgated under the Act, and cannot be sold without registration under the Act or any exemption from registration. In addition, the Securities will not be registered under any state securities laws that would permit their transfer. Because of these restrictions and the absence of a trading market for the Securities, a Subscriber will likely be unable to liquidate an investment even though other personal financial circumstances would dictate such liquidation.
OUR COMMON STOCK IS QUOTED ON THE OTC BULLETIN BOARD WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.
Our common stock is quoted on the OTC Bulletin Board (the “OTCBB”). The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or Nasdaq system. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
IF WE FAIL TO ESTABLISH AND MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL, WE MAY NOT BE ABLE TO REPORT OUR FINANCIAL RESULTS ACCURATELY OR TO PREVENT FRAUD. ANY INABILITY TO REPORT AND FILE OUR FINANCIAL RESULTS ACCURATELY AND TIMELY COULD HARM OUR REPUTATION AND ADVERSELY IMPACT THE TRADING PRICE OF OUR COMMON STOCK.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if in the past un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.
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OUR SHARES OF COMMON STOCK ARE VERY THINLY TRADED, AND THE PRICE MAY NOT REFLECT OUR VALUE AND THERE CAN BE NO ASSURANCE THAT THERE WILL BE AN ACTIVE MARKET FOR OUR SHARES OF COMMON STOCK EITHER NOW OR IN THE FUTURE.
Our shares of common stock are very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.
THERE IS CURRENTLY NO LIQUID TRADING MARKET FOR OUR COMMON STOCK AND WE CANNOT ENSURE THAT ONE WILL EVER DEVELOP OR BE SUSTAINED.
To date there has been no liquid trading market for our common stock. We cannot predict how liquid the market for our common stock might become. We anticipate having our common stock continue to be quoted for trading on the OTC Bulletin Board, however, we cannot be sure that such quotations will continue. We currently do not satisfy the initial listing standards, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remain listed on the OTC Bulletin Board or suspended from the OTC Bulletin Board, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.
Furthermore, for companies whose securities are traded in the OTC Bulletin Board, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.
In addition, the price at which our common stock may be sold is very unpredictable because there are very few trades in our common stock. Because our common stock is so thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price.
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
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limited “public float” following the Share Exchange, in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
|
|
-
|
sales of our common stock; and
|
|
-
|
our ability to execute our business plan.
|
Our shares of common stock are very thinly traded, and the price may not reflect our value and there can be no assurance that there will be an active market for our shares of common stock either now or in the future. Our shares of common stock are very thinly traded, only a small percentage of our common stock is available to be traded and is held by a small number of holders and the price, if traded, may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business, among other things. We will take certain steps including utilizing investor awareness campaigns, press releases, road shows and conferences to increase awareness of our business and any steps that we might take to bring us to the awareness of investors may require we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business and trading may be at an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares. If a market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms or clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of low priced shares of common stock as collateral for any loans.
8
WE CURRENTLY HAVE A LIMITED PUBLIC FLOAT HELD BY A LIMITED NUMBER OF PERSONS.
Of our 64,549,419 issued and outstanding shares of common stock, only 12,900,000 shares are presently eligible for resale without further registration by the holders thereof or pursuant to an exemption from registration. In addition, these 12,900,000 shares are presently held by a limited number of shareholders. As a result of the relatively small size of our public float and its initial concentration in the hands of only a few people, the liquidity of the market for our common stock may be both severely limited and subject to high levels of volatility.
Not Applicable.
We do not own any real property. We rent approximately 2,000 square meters (m2) of factory and office space on the fifth, sixth and seventh floor of the Interfarma building in Trakya Serbest Bolge, Catalca, Istanbul. Our address is Istanbul Trakya Serbest Bölgesi Atatürk Bulvari Ali Riza Efendi cd. A4 Blok Çatalca, Istanbul, Turkey.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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 currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
Market Information
Our common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is sponsored by FINRA. Our shares are quoted on the OTCBB under the symbol “TUCN.” The following table sets forth the calendar quarter indicated, the quarterly range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCBB. Trading in our common stock in the over-the-counter market has become limited and sporadic and the quotations set forth below are not necessarily indicative of actual conditions. Further, the quotations mainly reflect the prices at which transactions were proposed, and do not necessarily represent actual transactions.
|
Fiscal Year Ending December 30, 2010
|
||||
|
Quarter Ended
|
High $
|
Low $
|
||
|
March 31, 2010
|
$0.000
|
$0.000
|
||
|
June 30, 2010
|
$0.388
|
$0.378
|
||
|
September 30, 2010
|
$0.286
|
$0.263
|
||
|
December 31, 2010
|
$0.184
|
$0.157
|
9
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Record Holders of Our Common Stock
As of March 30, 2011, there were 43 stockholders of record of our common stock.
Dividends
There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. We would not be able to pay our debts as they become due in the usual course of business, or;
2. Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
We are a “smaller reporting company” (as defined by Rule 12b-2 of the Exchange Act) and are not required to provide the information required under this item.
10
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Plan of Operation – Executive Overview
We manufacture touch-based visual communication products for the education and corporate worldwide marketplaces specializing in Interactive Whiteboards and Interactive LCDs. Our products stand out from the competition in terms of their design, functionality and price offering. Our customers seek our products as they provide them a different point of entry to the market in terms of price, quality of design and margin. Currently, demand for our products is exceeding our ability to supply.
From market data, we understand that the market for our products will continue to grow for the next five years and possibly beyond.
Interactive Whiteboard World Wide Market Overview
Data compiled by Futuresource Consulting UK Ltd, Q4 2010 Report, author - Colin Messenger
(Left axis, IWB Sales Volume (millions)) (Right axis, market Value ($billions))
11
Critical Accounting Policies and Estimates
The accompanying financial statements include the financial statements of TouchIT Tech KS and TouchIT Ed. Although not significant, it should be noted that inter-company transactions and balances do exist and have not been consolidated. TouchIT Tech KS and TouchIT Ed together are referred to as the Company.
This management's discussion and analysis of our financial condition and results of operations are based on the financial statements of both TouchIT Tech and TouchIT Ed, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we will evaluate these estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis:
Basis of presentation financial statements:
We maintain our books of account and prepares its statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and tax legislation. The accompanying financial statements are based on the statutory records, with adjustments and reclassifications, for the purpose of fair presentation in accordance with United States generally accepted accounting principles (“US GAAP”).
There are inter-company transactions that have not been consolidated on these financial statements.
Revenue recognition:
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for customer returns, rebates, and other similar allowances.
Inventories:
Inventories are stated at the lower of cost or net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory being valued on the weighted average basis. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to deliver service.
Property, plant and equipment:
Property, plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment losses, if any. Depreciation is charged so as to write off the cost of assets, other than land and construction in progress, over their estimated useful lives, using straight line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
The ranges of estimated useful lives are as follows:
| - |
Machinery and equipment 2-6 years
|
| - |
Motor vehicles 4 years
|
| - |
Furniture, fixtures and office equipment 4-5 years
|
Shipping and handling:
Shipping and handling costs related to costs of the raw material purchased is included in cost of revenues.
Research and development costs:
Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities, and have alternative future uses, either in research and development, marketing, or sales, are classified as property and equipment or depreciated over their estimated useful lives.
Company reporting year end:
Our company uses a calendar year as its fiscal year ending December 31.
12
Results of Operations for the years ended December 31, 2010 and December 31 2009.
|
31/12/2010
|
31/12/2009
|
|||||||
|
NET SALES
|
3,577,881 | 2,029,074 | ||||||
|
COST OF SALES
|
(2,502,037 | ) | (1,742,047 | ) | ||||
|
Gross profit
|
1,075,844 | 287,027 | ||||||
|
MARKETING AND SELLING EXPENSE
|
(504,329 | ) | (409,386 | ) | ||||
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
(479,064 | ) | (140,121 | ) | ||||
|
Profit from operations
|
92,451 | (262,480 | ) | |||||
|
OTHER INCOME AND EXPENSES,net
|
24,094 | 6,621 | ||||||
|
FINANCIAL INCOME AND EXPENSES, net
|
(8,294 | ) | (8,741 | ) | ||||
|
Profit Loss before taxation and currency translation gain/(loss)
|
60,063 | (264,600 | ) | |||||
|
TAXATION CHARGE
|
-- | |||||||
|
Taxation current
|
-- | |||||||
|
Deferred
|
-- | |||||||
|
CURRENCY TRANSLATION GAIN/(LOSS)
|
60,063 | 2,422 | ||||||
|
Net income/(loss) for the year
|
105,115 | (262,178 | ) | |||||
|
OTHER COMPREHENSIVE INCOME
|
-- | |||||||
|
Total comprehensive income
|
165,178 | (262,178 | ) | |||||
Net Sales
Net sales for the fiscal year ended December 31, 2010 were $3,577,88, an increase of approximately $1.5 million compared to the net sales for the year ended December 31, 2009. The increase in our revenues from 2009 to 2010 was due primarily to the increase in sales of our interactive whiteboard products. This increase, $1.548,807 in sales was achieved by the adoption of new sales accounts across the world as we expanded our global reach in line with our sales strategy. 2010 saw the entry of our products into the Unites States of America which is one of the fastest growing markets in the world for Interactivity according to industry statistics. Our products are now sold into more than thirty countries.
Cost of Sales
The cost of sales for the fiscal year ended December 31, 2010 was a loss of $2,502,037, compared to a loss of $1,742,047, for the cost of sales for the fiscal year ended December 31, 2009. The increase in the cost of sales from 2009 to 2010 clearly demonstrates our ability to manage costs and the percentage increase in revenues versus the increase in cost of sales has grown disproportionally.
|
31/12/2010
|
31/12/2009
|
|||||||
|
NET SALES
|
3,577,881 | 2,029,074 | ||||||
|
COST OF SALES
|
(2,502,037 | ) | (1,742,047 | ) | ||||
|
As a percentage of sales
|
70 | % | 86 | % | ||||
Marketing and Selling Expenses
Marketing and selling expenses for the fiscal year ended December 31, 2010 were a loss of $504,329 compared to a loss of $409,386 for the fiscal year ended December 31 2009. Marketing and selling expenses were up 123% from 2009 to 2010, which was primarily due to an increased customer base demanding MDF (market development funds) and also the “pay to play” culture in the USA. This is where a distributor or a reseller will charge the vendor a setup fee to get the products onto their system or charge for a internal training day for staff. These trends are currently becoming more common.
13
General and Administrative Expenses
General and administrative expenses for the fiscal year ended December 31, 2010 were a loss of $479,064, compared to a loss of $140,121 for the fiscal year ended December 31, 2009. General and administrative expenses increased by 341% or $338,943 from 2009 to 2010. This increase can be attributed to the cost of two new sales consultants, one based in the U.S. and one based in the Middle East. The travel expenses and monthly retainers account for approximately $25,000 a month in increased cost.
|
31/12/2010
|
31/12/2009
|
|||||||
|
MARKETING AND SELLING EXPENSE
|
(504,329 | ) | (409,386 | ) | ||||
|
As a percentage of revenue
|
14 | % | 20 | % | ||||
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
(479,064 | ) | (140,121 | ) | ||||
|
As a percentage of revenue
|
13 | % | 7 | % | ||||
Operational Profit
The operational profit for the fiscal year ended December 31, 2010 was $92,451, compared to a loss of $262,480 for the fiscal year ended December 31, 2009. Operational profit was increased by $355,205 from 2009 to 2010 and this can be attributed to the increase in revenue whilst maintaining margin.
Foreign Currency Translation Adjustments
We have booked a currency gain of $116,060, which has contributed to our NET profit. This currency gain is due to the fall of the dollar against the Turkish Lira which is our primary accounting currency. This gain is booked from accounts receivable as well as on the advance share purchase in connection with the reverse merge transaction (see introductory notes).
Total Comprehensive Income
Our total comprehensive income has increased by $436,067 from a loss in 2009 of $262,178 to a profit in 2010 of $173,889. We maintained quarterly profitability throughout 2010. The reason for this increase was an increase in revenue whilst maintaining margins, as well as the development of our core product, the IWBs being complete.
|
31/12/2010
|
31/12/2009
|
|||||||
|
Cash and cash equivalents
|
50,556 | 54,845 | ||||||
|
Trade receivables, net
|
705,225 | 274,802 | ||||||
|
Due from related parties
|
863,395 | 130,594 | ||||||
|
Due from Shareholders
|
50,585 | - | ||||||
|
Inventories
|
365,643 | 259,883 | ||||||
|
Other current assets
|
1,106 | 782 | ||||||
|
Total current assets
|
2,036,510 | 720,906 | ||||||
|
NON CURRENT ASSETS
|
||||||||
|
Rights Net
|
- | 14,976 | ||||||
|
Property, plant and equipment, net
|
64,495 | 29,872 | ||||||
|
Intangible assets, net
|
25,145 | - | ||||||
|
Other non current assets
|
3,555 | 3,725 | ||||||
|
Total non current assets
|
93,195 | 48,573 | ||||||
|
TOTAL ASSETS
|
2,129,705 | 769,479 | ||||||
|
CURRENT LIABILITIES
|
||||||||
|
Borrowings
|
2,351 | 11,282 | ||||||
|
Trade payables
|
124,745 | 70,619 | ||||||
|
Due to shareholders
|
47,257 | 75,584 | ||||||
|
Due to related parties
|
1,145,992 | 670,976 | ||||||
|
Other current liabilities
|
73,233 | 120,619 | ||||||
|
Total current liabilities
|
1,393,578 | 949,080 | ||||||
14
|
NON CURRENT LIABILITIES
|
||||||||
|
Borrowings
|
- | 2,321 | ||||||
|
Employee termination benefits
|
- | - | ||||||
|
Reserve for retirement pay
|
1,842 | 1,041 | ||||||
|
Share purchase advances
|
750,000 | - | ||||||
|
Total non current liabilities
|
751,842 | 3,362 | ||||||
|
COMMITMENTS AND CONTINGENCIES
|
||||||||
|
SHAREHOLDERS' EQUITY
|
||||||||
|
Share capital
|
127,570 | 125,500 | ||||||
|
Retained earnings
|
(308,463 | ) | (46,285 | ) | ||||
|
Net income / (loss) for the period
|
173,899 | (262,178 | ) | |||||
|
Total shareholders’ equity
|
(7,004 | ) | (182,963 | ) | ||||
|
TOTAL LIABILITIES AND
|
||||||||
|
SHAREHOLDERS' EQUITY
|
3,138,416 | 769,479 | ||||||
Cash and Equivalents
Cash and equivalents remain very much unchanged from 2009 to 2010, which does indicate that there has been a restriction on working capital given the revenue growth that we have seen. We believe a lack of working capital has hindered our growth this year and we are currently evaluating new finance facilities that should be in place in early 2011 to improve our cash situation.
Trade Receivables
Trade receivables for the fiscal year ended December 31, 2010 were $705,225, compared to $274,802 for the fiscal year ended December 31, 2009. Trade receivables have increased by 256% or $430,423 from 2009 to 2010. This is the by-product of increased revenues with the industry expectations remaining prevalent of extended credit terms in order to win the business.
Related Party Transactions
Related party transactions NET for the fiscal year ended December 31, 2010 were $282,597 compared to 540,382 for the fiscal year ended December 31, 2009. Related party transactions have increased. This increase is due to inter-company transactions where TouchIT Ed supplies TouchIT Tech KS with products that it has imported and TouchIT Ed supplies Emko Emaye raw materials. TouchIT Tech KS also imports raw materials from Emko Emaye.
|
31/12/2010
|
31/12/2009
|
|||||||
|
Due from related parties
|
863,395 | 130,594 | ||||||
|
Due to related parties
|
1,145,992 | 670,976 | ||||||
|
NET Amount
|
282,597 | 540,382 | ||||||
Inventories
Inventories for the fiscal year ended December 31, 2010 were at a loss of $17,620, compared to $22,993 for fiscal year ended December 31, 2009. Inventories have increased from 2009 to 2010 by 140% reflecting our need to hold more stock in order to supply our larger customer base.
Overall, our Company’s current assets have increased by 282% from 2009 to 2010 or by $1,315,604.
|
31/12/2010
|
31/12/2009
|
|||||||
|
Total current assets
|
2,036,510 | 720,906 | ||||||
15
Trade Payables
Trade payables for the fiscal year ended December 31, 2010 were $54,126, compared to a loss of $272,925 for the fiscal year ended December 31, 2009. Trade Payables have increased by 176% or $54,126. Credit facilities offered by trade vendors has remained very much the same with a large proportion of our raw materials being paid for in advance.
Due to Related Parties
Due to related parties have increased from 2009 to 2010 by 170% or $475,016. This was primarily due to the increase in raw materials purchased from Emko Emaye, but also that management’s wages were invoiced from the respective tax billing entities in management’s respective tax countries. Andrew Brabin is tax resident in the United Kingdom, Recep Tanisman is tax resident in Turkey, and Ronald Murphy is Tax resident in the United States of America.
However, if we net off the amounts due from related parties against the amounts due to, we see that overall, the net amount due to related parties has decreased from $540,382 in 2009 to $282,597 in 2010.
|
31/12/2010
|
31/12/2009
|
|||||||
|
Due from related parties
|
863,395 | 130,594 | ||||||
|
Due to related parties
|
1,145,992 | 670,976 | ||||||
|
NET Amount
|
282,597 | 540,382 | ||||||
Our NET Income has increased by $427,356 from a loss in 2009 of $(262,178) to a profit in 2010 of $165,178. We maintained quarterly profitability throughout 2010 and were profitable before the reverse merger transaction that took place in May 2010, as referenced in the “Business” Section in Item 1.
|
31/12/2010
|
31/12/2009
|
|||||||
|
Net income / (loss) for the period
|
165,178 | (262,178 | ) | |||||
Liquidity and Capital Resources
|
31/12/2010
|
31.12.2009 | ||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|||||||||
|
Net income
|
165,178 | (262,178 | ) | ||||||
|
Adjustments to reconcile net income to net cash provided
|
-- | -- | |||||||
|
By operating activities:
|
-- | -- | |||||||
|
Depreciation and amortisation
|
17,516 | 17,133 | |||||||
|
Provision for employee benefit
|
801 | 727 | |||||||
|
Changes in operating assets and liabilities
|
|||||||||
|
Trade receivables, net
|
(430,428 | ) | (189,816 | ) | |||||
|
Due from shareholders
|
(773,544 | ) | 12,258 | ||||||
|
Due from related parties
|
203,282 | ||||||||
|
Inventories
|
(17,620 | ) | 22,993 | ||||||
|
Other current assets
|
98,467 | 3,896 | |||||||
|
Other non current assets
|
331 | (3,725 | ) | ||||||
|
Trade payables
|
54,126 | (272,925 | ) | ||||||
|
Due to shareholders
|
54,413 | 30,430 | |||||||
|
Due to related parties
|
392,276 | 386,729 | |||||||
|
Other current liabilities
|
(47,386 | ) | 95,332 | ||||||
|
Share Purchase Advances
|
750,000 | ||||||||
|
Net cash generated from (used for) operating activities
|
67,197 | 44,136 | |||||||
16
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Increase/(decrease) in short-term borrowings
|
(8,931 | ) | 6,815 | |||||
|
Increase/(decrease) in long-term borrowings
|
(2,797 | ) | ||||||
|
Dividends paid
|
||||||||
|
Net cash (used for) provided from financing activities
|
(8,931 | ) | 4,018 | |||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Purchases of property, plant and equipment and intangible assets
|
(62,304 | ) | (17,324 | ) | ||||
|
Share capital increase
|
-- | -- | ||||||
|
Net cash used for investing activities
|
(62,304 | ) | (17,324 | ) | ||||
|
NET INCREASE / (DECREASE) IN CASH AND BANKS
|
(4,289 | ) | 30,830 | |||||
|
CASH AND BANKS AT BEGINNING OF THE YEAR
|
54,845 | 24,015 | ||||||
|
CASH AND BANKS AT END OF THE PERIOD
|
50,556 | 54,845 | ||||||
Net Income
For fiscal year ended December 31, 2010, when compared to the same period in 2009, NET income for the period has increased by $427,356. This was an increase from a loss of $262,178 to a gain of $165,178. This increase can be attributed to the maintenance of margin whilst increasing sales revenue. The sales revenue predominately comes from TouchIT Interactive Whiteboards, or OEM models under a different name that are sold into distribution companies that in turn, supply to education.
Net Cash Generated from Operating Activities
For fiscal year ended December 31, 2010, when compared to the same period in 2009, NET cash generated from operating activities was $67,197 compared to $44,136 for the same period in 2009. This is an increase of $23,061. This increase was due to the stabilisation of margins.
Cash Flow Used Investing Activities
For fiscal year ended December 31, 2010, when compared to the same period in 2009, there was a NET cash flow increase of $44,980 from a loss of $17,324 to $62,304. This increase was due to investment in the construction of two new offices, an LCD production area and a showroom, as well as a refit of the production area for IWBs.
Cash Flow from Financing Activities
For fiscal year ended December 31, 2010, cash flow from financing activities was at a loss of $11,252.
Cash Position
There was a net decrease in cash and cash equivalents of $4,289 for the beginning and the end of the period showing cash amounts that were changed by a small amount.
Off Balance Sheet Arrangements
As of December 31, 2010, there were no off balance sheet arrangements.
A smaller reporting company is not required to provide the information required by this Item.
See the financial statements annexed to this annual report.
No events occurred requiring disclosure under Item 304(b) of Regulation S-K during the fiscal year ending December 31, 2010.
17
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2010. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Mr. Andrew Brabin. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2010, our disclosure controls and procedures are effective. There have been no significant changes in our internal controls over financial reporting during the quarter ended December 31, 2010 that have materially affected or are reasonably likely to materially affect such controls.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Management’s Annual Report on Internal Control over Financial Reporting
This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
Changes in Internal Control over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
None.
18
The following information sets forth the names of our current directors and executive officers, their ages as of December 31, 2010 and their present positions.
|
Name
|
Age
|
Position(s) and Office(s) Held
|
|
Andrew Brabin
|
30
|
Chief Financial Officer, and Director, Secretary and Treasurer
|
|
Recep Tanisman
|
57
|
CEO and Director
|
|
Ronald George Murphy
|
45
|
Officer and Director
|
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Ronald Murphy
has 15 years of International Sales experience and is the former Head of World-Wide Sales for Zoom Technologies, Virtual Ink and Luidia (the two latter companies being Interactive Whiteboard Manufacturers). Ronald took all three of these companies from the low millions of revenues to the tens of millions in sales revenues in less than 4 years at each company. He also has 8 years experience in the IWB marketplace.
Mr. Murphy is President of World Wide Sales at our Company where he formulates sales strategy, actively seeks new partners, and manages the sales team. Mr. Murphy also has an active role in new product development providing the requirements from feedback he receives from the markets.
Andrew Brabin
has 8 years of International Sales experience and is the former Head of European Sales for Luidia, manufacturer of the eBeam IWBs. Aside from a strong technical and product design background, Mr. Brabin is also a multi-linguist. Andrew assumed the role of Chief Financial Officer in 2009 and was instrumental in the reverse merge transaction detailed in the Form 8K filed with the SEC on the 12
th
of May 2010, as well as leading our Company into profitability in 2010.
Mr. Brabin is the Chief Financial Officer and President of World Wide Operations of our Company. He formulates financial, product, marketing and purchasing strategy whilst managing the activities at the production facility in Turkey. Mr. Brabin also manages the public side of the business liaising with corporate council, the auditors and the investment community.
Recep Tanisman
is
founder and CEO of Emko Emaye
www.ee.com.tr
.
Emko Emaye is a whiteboard manufacturer established for over 30 years in Istanbul Turkey and is the
l
argest importer of P3 Enamel Steel in Europe. Emko manufactures and sells approximately
100,000 whiteboards / chalkboards a year and turns over $8-10m per annum. Recep has strong manufacturing background with 35 years of experience and strong manufacturing contacts.
Mr Tanisman is the CEO and provides an advisory role at our Company..
Directors
Our Bylaws authorize no less than one (1) director. We currently have three Directors.
Term of Office
Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our Bylaws. Our officers are appointed by our Board of Directors and hold office until removed by the board.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
19
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past five years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and
Code of Ethics
As of December 31, 2010, we have adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Ethics have been posted and may be found on our Company’s website at
www.touchittechnologies.com
.
Compensation Discussion and Analysis
We presently have employment agreements with all of our named executive officers and have established a system of executive compensation. Due to financial constraints typical of those faced by a company in this stage of its growth, we have not paid the officers in full for the year 2010. These costs reside in the related party transactions (as monies owed) of our financial statements. Our Company officers draw on these monies owed when we our in a position to pay them.
As our business and operations expand and mature, we expect to be able to pay our Company officers their monthly compensation in full.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to each named executive officer for our last two completed fiscal years for all services rendered to us.
|
SUMMARY COMPENSATION TABLE
|
|||||||||
|
Name and
principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Non-qualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
|
Total
($)
|
|
Recep Tanisman,
CEO and director
|
2008
2009
2010
|
0
0
144,000
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
144,000
|
|
Ronald George Murphy,
Officer and Director
|
2008
2009
2010
|
0
0
144,000
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
144,000
|
|
Andrew Stuart Brabin,
CFO and Director
|
2008
2009
2010
|
0
0
144,000
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
144,000
|
Narrative Disclosure to the Summary Compensation Table
In 2008 and 2009, the officers and directors did not draw salaries and only out of pocket business expenses were paid.
20
Employment Agreements with Executive Officers
Mr. Brabin, Mr. Murphy, and Mr. Tanisman have entered into employment agreements with our Company effective May 10, 2010. The agreements provide for a three year term with an automatic renewal for an additional year unless either party provides a written notice of non-renewal.
Andrew Brabin
The agreement provides for an annual base salary of $144,000.00. In addition, Mr. Brabin is entitled to receive an annual bonus determined by the Board of Directors along with vacation days and reimbursement for all reasonable business expenses. In the event that Mr. Brabin’s employment is terminated without cause (as defined in the agreement), change of control (as defined in the agreement), disability, or by the employee for good reason, then Mr. Brabin is entitled to an amount equal to his base salary as of his last day of employment for a period of 36 months from the date of termination. In the event that Mr. Brabin’s employment is terminated for cause or other than for good reason, he is entitled to any base salary earned but not paid through the date of termination, plus any accrued vacation time, and any other monies owed to him by the Company.
Ronald Murphy
The agreement provides for an annual base salary of $144,000.00. In addition, Mr. Murphy is entitled to receive an annual bonus determined by the Board of Directors along with vacation days and reimbursement for all reasonable business expenses. In the event that Mr. Murphy’s employment is terminated without cause (as defined in the agreement), change of control (as defined in the agreement), disability, or by the employee for good reason, Mr. Murphy is entitled to an amount equal to his base salary as of his last day of employment for a period of 36 months from the date of termination. In the event that Mr. Murphy’s employment is terminated for cause or other than for good reason, he is entitled to any base salary earned but not paid through the date of termination, plus any accrued vacation time, and any other monies owed to him by the Company.
Recep Tanisman
The agreement provides for an annual base salary of $144,000.00. In addition, Mr. Tanisman is entitled to receive an annual bonus determined by the Board of Directors along with vacation days and reimbursement for all reasonable business expenses. In the event that Mr. Tanisman’s employment is terminated without cause (as defined in the agreement), change of control (as defined in the agreement), disability, or by the employee for good reason, Mr. Tanisman is entitled to an amount equal to his base salary on his last day of employment for a period of 36 months from the date of termination. In the event that Mr. Tanisman’s employment is terminated for cause or other than for good reason, he is entitled to any base salary earned but not paid through the date of termination, plus any accrued vacation time, and any other monies owed to him by the Company.
Grants of Plan Based Award
None.
Outstanding Equity Awards At Fiscal Year-end Table
None.
Compensation of Directors Table
The table below summarizes all compensation paid to our directors for our last completed fiscal year.
|
DIRECTOR COMPENSATION
|
|||||||
|
Name
|
Fees Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
Andrew Brabin
|
144,000
|
0
|
0
|
0
|
0
|
0
|
$144,000
|
|
Ronald Murphy
|
144,000
|
0
|
0
|
0
|
0
|
0
|
$144,000
|
|
Recep Tanisman
|
144,000
|
0
|
0
|
0
|
0
|
0
|
$144,000
|
21
Narrative Disclosure to the Director Compensation Table
Due to financial constraints typical of those faced by a company in this stage of its growth, the company has not paid the officers in full for 2010. These costs reside in the related party transactions (as monies owed) of our financial statements. The company officers draw on these monies owed when the company is in a position to pay them.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of December 31, 2010, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of the our common stock and by the executive officers and directors as a group. Except as otherwise indicated, all shares are owned directly and the percentage shown is based on
63,877,932
shares of common stock issued and outstanding on December 31, 2010.
|
Title of class
|
Name of beneficial owner
|
Amount of
beneficial ownership
|
Percent
of class*
|
|
Common
|
Andrew Brabin, UK
|
16,110,000
|
25.21%
|
|
Common
|
Recep Tanisman, Turkey
|
16,110,000
|
25.21%
|
|
Common
|
Ronald Murphy, USA
|
16,110,000
|
25.21%
|
|
Common
|
Total all executive officers and directors
|
48,330,000
|
75.63%
|
|
Common
|
5% Shareholders
|
None
|
None
|
As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
None of the following parties has, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
|
Any of our directors or officers;
|
|
Any person proposed as a nominee for election as a director;
|
|
Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock;
|
|
Any of our promoters; and
|
|
Any relative or spouse of any of the foregoing persons who has the same house address as such person.
|
22
Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:
|
Financial Statements for the
Year Ended December 31
|
Audit Services
|
Audit Related Fees
|
Tax Fees
|
Other Fees
|
|
2010
|
$16,600
|
$
|
$0
|
$0
|
|
2009
|
$0
|
$
|
$0
|
$0
|
We did not incur audit costs until 2010 with the preparation for the reverse merger transaction detailed in the Form 8K filed with the SEC on May 12
th
2010.
(a) Documents Filed. The following documents are filed as part of this Annual Report Form 10-K or incorporated by reference as indicated:
1. Financial Statements. The financial statements of TouchIT Technologies, Inc. and its subsidiaries are filed under Item 8:
|
Report of Independent Registered Public Accounting Firm for TouchIT Ed
|
F-2 | |
|
TouchIT Ed Statement of Financial Position as of December 31, 2010 and 2009
|
F-3 | |
|
TouchIT Ed Statement of Income as of December 31, 2010 and 2009
|
F-4 | |
|
TouchIT Ed Statement of Cash Flow as of December 31, 2010 and 2009
|
F-5 | |
|
TouchIT Ed Statement of Changes in Equity as of December 31, 2010 and 2009
|
F-6 | |
|
Notes to TouchIT Ed Financial Statements
|
F-7 - F-19 | |
|
Report of Independent Registered Public Accounting Firm for TouchIT Tech KS
|
F-21 | |
|
TouchIT Tech KS Statement of Financial Position as of December 31, 2010 and 2009
|
F-22 | |
|
TouchIT Tech KS Statement of Income as of December 31, 2010 and 2009
|
F-23 | |
|
TouchIT Tech KS Statement of Cash Flow as of December 31, 2010 and 2009
|
F-24 | |
|
TouchIT Tech KS Statement of Changes in Equity as of December 31, 2010 and 2009
|
F-25 | |
|
Notes to TouchIT Tech KS Financial Statements
|
F-26 - F-40 |
2. Exhibits and Exhibit Index. See the Exhibit Index included as the last part of this Annual Report on Form 10-K, which is incorporated herein by reference.
23
EXHIBIT INDEX
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
| Exhibit Number | Description |
| 3.1* | Amended and Restated Articles of Incorporation |
|
3.2
|
Bylaws of TouchIT Technologies, Inc. (incorporated by reference to Exhibit 3.2 of Form S-1 filed May 29, 2008)
|
| 10.1 |
Share Exchange Agreement (incorporated by reference to Exhibit 2.1of Form 8-K filed on May 12, 2010)
|
| 10.2 | The Credit Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K filed February 23, 2011) |
| 21* | Subsidiaries of TouchIT Technologies, Inc. |
| 31.1* | Certification of Principal Executive Officer |
| 31.2* | Certification of Principal Financial Officer |
| 32.1* | Certification of Chief Executive Officer and Chief Financial Officer |
| * Filed herewith | |
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TouchIT Technologies, Inc. f.k.a Hotel Management Systems, Inc.
|
By:
|
/s/ Andrew Brabin
|
|
Andrew Brabin, Chief Financial Officer
|
|
|
March 31, 2011
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
|
Signature
|
Title
|
Date
|
||
|
/s/ Recep Tanisman
|
Chief Executive Officer and Director (Principal Executive Officer)
|
March 31, 2011
|
||
|
Recep Tanisman
|
||||
|
/s/ Andrew Brabin
|
Chief Financial Officer, Corporate Secretary, Treasurer, and Director (Principal Financial and Accounting Officer)
|
March 31, 2011
|
||
|
Andrew Brabin
|
||||
|
/s/ Ronald George Murphy
|
Officer and Director
|
March 31, 2011
|
Ronald George Murphy
25
TOUCH IT EDUCATION TECHNOLOGIES
DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2010
TOGETHER WITH INDEPENDENT AUDITORS’ REPORT
F-1
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
Touch It Education Technologies
Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı
Report on the Financial Statements
We have audited the accompanying financial statements of Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı (“the Company”) which comprise the financial position as of 31 December 2010 and statements of comprehensive income, changes in equity and cash flows for the period then ended, and a summary of significant acc
ounting policies and other explanatory notes.
Management Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Generally Accepted Accounting Principles in the United States of America. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Opinion
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as of December 31, 2010, and of its financial performance and its cash flows for the year then ended in accordance with Accounting Principles Generally Accepted in the United States of America.
We would like to draw your attention to the following matter:
According to Turkish Tax Legislation, service invoices issued abroad are subject to withholding tax with a rate of 20%, provided that the service has been received in Turkey. During our audit of 2010, we have determined significant amount of such invoices under the name of consultant fee and expenses totally amounting to approximately USD 218,628. However, the Company Management does not foresee any risk on the basis of the interpretation that those consultancy services have been received abroad; the Company may face possible tax risk in case of a different interpretation by the tax office
Istanbul, 8 March 2011
DENGE BAĞIMSIZ DENETİM
SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Member of MAZARS
/s/Gökhan Almacı
Partner
F-2
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
|
Notes
|
31.12.2010 | 31.12.2009 | ||||||||||
|
ASSETS
|
||||||||||||
|
Cash and cash equivalents
|
5 | 3,274 | 2,204 | |||||||||
|
Trade receivables, net
|
6 | 35,288 | 5,408 | |||||||||
|
Due from related parties
|
7 | 863,395 | 130,594 | |||||||||
|
Due from shareholders
|
7 | 9,842 | -- | |||||||||
|
Inventories, net
|
8 | 191,417 | 93,435 | |||||||||
|
Other current assets
|
9 | 221 | 382 | |||||||||
|
Total current assets
|
1,103,437 | 232,023 | ||||||||||
|
Rights, net
|
10 | 13,312 | 14,976 | |||||||||
|
Total non-current assets
|
13,312 | 14,976 | ||||||||||
|
Total assets
|
1,116,749 | 246,999 | ||||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||||||
|
Trade payables
|
11 | 54,211 | 1,606 | |||||||||
|
Due to related parties
|
7 | 104,887 | 28,816 | |||||||||
|
Due to shareholders
|
7 | 22,147 | 19,924 | |||||||||
|
Other current liabilities
|
12 | 48,001 | 49,103 | |||||||||
|
Total current liabilities
|
229,246 | 99,449 | ||||||||||
|
Share purchase advances
|
1 | 750,000 | -- | |||||||||
|
Employee termination benefits
|
13 | -- | 1,041 | |||||||||
|
Total long-term liabilities
|
750,000 | 1,041 | ||||||||||
|
Shareholders' Equity
:
|
||||||||||||
|
Share capital
|
14 | 37,570 | 35,500 | |||||||||
|
Retained Earnings
|
111,009 | 53,743 | ||||||||||
|
Net income/ (loss) for the period
|
(11,076 | ) | 57,266 | |||||||||
|
Total shareholders’ equity
|
137,503 | 146,509 | ||||||||||
|
Total liabilities and shareholders’ equity
|
1,116,749 | 246,999 | ||||||||||
The accompanying notes form an integral part of these financial statements.
F-3
TOUCH IT EDUCATIO
N TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
|
Notes
|
31.12.2010 | 31.12.2009 | ||||||||||
|
Sales
|
15 | 1,307,420 | 777,013 | |||||||||
|
Cost of sales
|
16 | (929,350 | ) | (649,708 | ) | |||||||
|
Gross profit
|
378,070 | 127,305 | ||||||||||
|
Marketing and selling expenses
|
17 | (154,275 | ) | (24,562 | ) | |||||||
|
General and administrative expenses
|
18 | (289,285 | ) | (55,690 | ) | |||||||
|
Total operating income
|
(65,490 | ) | 47,053 | |||||||||
|
Financial income / (expense), net
|
20 | (3,043 | ) | (2,172 | ) | |||||||
|
Other income / (expense), net
|
19 | 15,652 | 12,077 | |||||||||
|
Profit before provision for taxation
|
(52,881 | ) | 56,958 | |||||||||
|
Provision for taxation
|
||||||||||||
|
- Current
|
||||||||||||
|
- Deferred
|
||||||||||||
|
Net income for the period
|
(52,881 | ) | 56,958 | |||||||||
|
Other comprehensive income
|
||||||||||||
|
Currency translation differences
|
41,805 | 308 | ||||||||||
|
Total comprehensive income for the period
|
(11,076 | ) | 57,266 | |||||||||
The accompanying notes form an integral part of these financial statements.
F-4
TOUCH IT EDUCATION
TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
| 31.12.2010 | 31.12.2009 | |||||||
|
Cash flow from operating activities
|
||||||||
|
Net income for the period
|
(11,076 | ) | 57,266 | |||||
|
Adjustments to reconcile net profit to net
cash provided by operating activities:
|
||||||||
|
Provision for employee termination benefit
|
(1,041 | ) | 727 | |||||
|
Depreciation
|
1,664 | 8,493 | ||||||
|
Net income adjusted to non-cash items
|
(10,453 | ) | 66,486 | |||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Change in trade receivables
|
(29,880 | ) | (4,124 | ) | ||||
|
Change in due from related parties
|
(732,801 | ) | 203,282 | |||||
|
Change in due from shareholders
|
(9,842 | ) | 12,258 | |||||
|
Change in inventories
|
(97,982 | ) | (23,205 | ) | ||||
|
Change in other current assets
|
161 | 321 | ||||||
|
Change in trade payables
|
52,605 | (331,716 | ) | |||||
|
Change in due to related parties
|
84,963 | 19,924 | ||||||
|
Change in due to shareholders
|
(6,669 | ) | 14,847 | |||||
|
Change in other current liabilities
|
(1,102 | ) | 29,475 | |||||
|
Net cash provided from operating activities
|
(751,000 | ) | (12,452 | ) | ||||
|
Cash flows from investing activities:
|
||||||||
|
Change in share purchase advances
|
750,000 | -- | ||||||
|
Net cash provided from investing activities
|
(1,000 | ) | (12,452 | ) | ||||
|
Cash flows from financing activities:
|
||||||||
|
Increase of share capital
|
2,070 | -- | ||||||
|
Cash flows provided by financing activities
|
2,070 | -- | ||||||
|
Net decrease in cash and cash equivalents
|
1,070 | (12,452 | ) | |||||
|
Cash and cash equivalents at the beginning of the year
|
2,204 | 14,656 | ||||||
|
Cash and cash equivalents at the end of the period
|
3,274 | 2,204 | ||||||
The accompanying notes form an integral part of these financial statements.
F-5
TOUCH IT EDUCATION TECHNOLOGIE
S DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
STATEMENT OF CHANGES IN EQUITY AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
|
Share capital
|
Retained Earnings
|
Net income for the year / period
|
Total Shareholders' Equity
|
|||||||||||||
|
Balances at 31 December 2008
|
35,500 | 7,749 | 45,994 | 89,243 | ||||||||||||
|
Transfer to retained earnings
|
-- | 45,994 | (45,994 | ) | -- | |||||||||||
|
Net income for the year
|
-- | -- | 57,266 | 57,266 | ||||||||||||
|
Balances at 31 December 2009
|
35,500 | 53,743 | 57,266 | 146,509 | ||||||||||||
|
Share capital increase
|
2,070 | -- | -- | 2,070 | ||||||||||||
|
Transfer to retained earnings
|
-- | 57,266 | (57,266 | ) | -- | |||||||||||
|
Net income for the year
|
-- | -- | (11,076 | ) | (11,076 | ) | ||||||||||
|
Balances at 31 December 2010
|
37,570 | 111,009 | (11,076 | ) | 137,503 | |||||||||||
The accompanying notes form an integral part of these financial statements.
F-6
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
1.
OPERATIONS OF THE COMPANY
:
General
The Company was established as a form of partnership (kollektif şirket). In Turkey, partnership is an association of two or more people who co-own a business for tradi
ng goods under a trade name. The co-owners have unlimited responsibility to their creditors. This type of entity does not have minimum capital requirements.
Nature of Activities
Touch IT Education Technologies Dıs Ticaret Kollektif Sirketi Andrew Stuart
Brabin ve Orta
ğı, formerly RT Lojistik Dıs Ticaret Kollektif Sirketi Recep Tanısman ve Ortağı; (referred as “Touch IT Education”) was established on 27 August 2007 with a ‘‘Share Transfer of Open Company and Amendment Agreement’’. Touch IT Education primar
ily engages in sales and purchases of the interactive writing board and all educational equipment.
On May 7, 2010, Touch IT Education, Touch IT Technologies and their stockholders (“Touch ITTurkey”) entered into a Share Exchange Agreement with Hotel Management Systems, Inc (“HotelManagement”), a Nevada corporation.
Pursuant to the terms of the Share Exchange Agreement, Hotel Management issued a total of 48,330,000 shares of its common stock, at par value USD 0.001 per share (the “Common Stock”), to the shareholders of Touch IT Technologies and Touch IT Education in exchange for the transfer of 100% of the shares of TouchIT Technologies and Touch IT Education to Hotel Management. This exchange transaction resulted in Touch IT Technologies and Touch IT Education becoming HotelManagement. The wholly-owned subsidiaries and the stockholders of Touch IT Turkey own approximately 78.93% of the Hotel Management’s issued and outstanding stock, prior to any financing.
Simultaneously with the closing of the Share Exchange Agreement, on May 7, 2010, Hotel Management entered into a Subscription Agreement (the “Subscription Agreement”) with investors for the sale of shares up to the value of USD 1,500,000 (the “Purchase Price”). As a result, USD750,000 of the Purchase Price has been recognized in Touch IT Education’s balance sheet as a future obligation to one of the investors.
No changes in the shareholder structure of Touch IT Turkey has been made since registration has not yet been completed.
Average number of employees of the Company as of 31 December 2010 is 6 while it was 3 during the same time in 2009.
2.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2010, the FASB issued an amendment to ASC 820, “Fair Value Measurements and Disclosure”, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard became effective for interim and annual reporting periods after 15 December 2009, with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures, which are effective for fiscal years after 15 December 2010. This adoption of the new standard will not have a material impact on the Company’s financial statements.
F-7
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
3.
BASIS OF PRESENTATION
The Company maintains its books of account and prepares its statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and tax legislation and the uniform chart of accounts issued by the Ministry of Finance. The accompanying US Dollar financial statements are based on the statutory records which are obtained under the historical cost convention, with adjustments and reclassifications, for the purpose of fair presentation in accordance with Generally Accepted Accounting Principles in the United States of America (US GAAP). The Company’s fiscal year ends on December 31.
4.
SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
Cash equivalents consist of highly liquid investments, which are readily convertible into cash, with original maturities of three months or less.
Revenue recognition
The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at the time of shipment. Sales are recorded as net of discounts, rebates and returns.
Inventories
Inventories are stated at the lower of cost or market. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory being valued on the weighted average basis.
Related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making the financial and operating decisions. For the purpose of these financial statements shareholders are referred to as related parties. Related parties also included individuals that are principle owners, management and members of the Company’s Board of Directors and their families.
Rights
Rights are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Assets are reviewed for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference.
Taxation
Partnerships (“kollektif şirket”) are an incorporated body according to Turkish Commercial Code; however, partnerships are not recognized as an incorporated body by income tax act. This fact results in paying individual income tax by partnerships, instead
of being subject to corporate income tax. Moreover, services rendered by the Company in free zone area is excluded from paying both value added tax and individual income tax. The Company has Operating Licence for the exemption of income tax which is taken from Under secretariat of The Prime Ministry for Foreign Trade, numbered TRY-149, dated November 1, 2001 and period of validation is 15 years.
Retirement pay provision
Under Turkish laws, lump sum payments are made to employees retiring or involuntarily leaving the Company. Such payments are considered as being part of defined retirement benefit plan.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses.
F-8
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
4.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency transactions
The Company’s functional and reporting currency is in United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated, using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate income and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
Following period rates are applicable as of 31 December 2010 and 2009;
| 31.12.2010 | 31.12.2009 | |||||||
|
USD
|
1.5460 | 1.5057 | ||||||
|
EURO
|
2.0491 | 2.1603 | ||||||
|
GBP
|
2.3886 | 2.3892 | ||||||
|
Average USD
|
1.4991 | 1.5454 |
Leasing - the Company as lessee
Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Comprehensive income
In June 1997, the Financial Accounting Standard Board issued SFAS No. 130, “Reporting Comprehensive Income”. SFAS 130 is effective as of 15 June 1997. This statement provides reporting standards of comprehensive income and its components and requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The Company has adopted the provisions of SFAS No. 130 in its financial statements and adoption of this statement did not have any effect.
Financial Instruments
Pursuant to ASC 820, “Fair Value Measurements and Disclosures”, and ASC 825, “Financial Instruments”, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
F-9
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
4.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments (continued)
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, trade receivables and payables, borrowings and amounts due from and due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.
5.
CASH AND CASH EQUIVALENTS
As of 31 December 2010 and 2009 cash and cash equivalents comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Cash in hand
|
695 | -- | ||||||
|
Banks
|
2,579 | 2,204 | ||||||
| 0 | ||||||||
|
Total
|
3,274 | 2,204 |
6.
TRADE RECEIVABLES
As of 31 December 2010 and 31 December 2009 trade receivables comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Trade receivables
|
54,829 | 5,408 | ||||||
|
Provision for doubtful receivables (-)
|
(19,541 | ) | -- | |||||
|
Total
|
35,288 | 5,408 |
F-10
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
7.
RELATED PARTY BALANCES AND TRANSACTIONS:
In the course of conducting its business, the Company conducted various business transactions with related parties on commercial terms.
Related parties and shareholders balances and transactions have been presented as follows:
|
Due from related parties
|
31.12.2010 | 31.12.2009 | ||||||
|
Touch IT Technologies Koll. Şir. Ronald George Murphy ve Ortakları
|
587,308 | 25,528 | ||||||
|
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
|
276,087 | 105,066 | ||||||
|
Total
|
863,395 | 130,594 |
|
Due from shareholders
|
31.12.2010 | 31.12.2009 | ||||||
|
Andrew Stuart Brabin
|
9,842 | -- | ||||||
|
Total
|
9,842 | -- |
|
Due to related parties
|
31.12.2010 | 31.12.2009 | ||||||
|
Kamron Inc
|
50,467 | -- | ||||||
|
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
|
-- | 28,816 | ||||||
|
ASB Trading
|
54,420 | |||||||
|
Total
|
104,887 | 28,816 |
|
Due to shareholders
|
31.12.2010 | 31.12.2009 | ||||||
|
Ali Rıza Tanışman
|
22,147 | 19,924 | ||||||
|
Total
|
22,147 | 19,924 |
Major purchases from related parties have been presented as follows:
|
Major purchases from related parties
|
31.12.2010 | 31.12.2009 | ||||||
|
Tou
ch It Technologies Koll. Şir. Ronald George Murphy ve Ortakları
|
166,309 | 179,035 | ||||||
|
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
|
-- | 15,734 | ||||||
|
Total
|
166,309 | 194,769 | ||||||
|
Major sales to related parties
|
31.12.2010 | 31.12.2009 | ||||||
|
Emko Yazı Tahtaları ve Eğitim Gereçler
i A.Ş.
|
660,520 | 280,000 | ||||||
|
Touch IT Technologies Koll. Şir. Ronald George Murphy ve Ortakları
|
255,201 | 156,524 | ||||||
|
Total
|
915,721 | 436,524 |
F-11
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
7.
RELATED PARTY BALANCES AND TRANSACTIONS:
|
Service provided
|
31.12.2010 | 31.12.2009 | ||||||
|
Kamron Inc.
|
115,101 | -- | ||||||
|
Andrew Stuart Brabin
|
103,527 | -- | ||||||
|
Total
|
218,628 | -- |
8.
INVENTORIES
As of 31 December 2010 and 2009, inventories comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Advances given for purchases
|
82,156 | 45,324 | ||||||
|
Trade goods
|
109,261 | 48,111 | ||||||
|
Total
|
191,417 | 93,435 |
The insurance on the inventories as of December 31, 2010 and 2009 is USD 100,000.
9.
OTHER CURRENT ASSETS:
As of 31 December 2010 and 31 December 2009, other receivables and assets comprised of prepaid expenses of USD 221 and USD 382 respectively.
10.
NON-CURRENT ASSETS
As of 31 December 2010 and 2009, non-current assets comprised of following:
| 31.12.2010 | 31.12.2009 | |||||||
|
License right
|
35,500 | 35,500 | ||||||
|
Depreciation allowance
|
(22,188 | ) | (20,524 | ) | ||||
|
Total
|
13,312 | 14,976 |
Rights represent the operating license obtained from Under secretariat of The Prime Ministry for Foreign Trade. The validation date of the licence has been extended from 10 year to 15 year in 2010. The remaining useful life as of December 31, 2010 has been increased from 4 year to 9 year.
F-12
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
11.
TRADE PAYABLES
As of 31 December 2010 and 2009, trade payables comprised as of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Trade payables
|
54,211 | 1,606 | ||||||
|
Total
|
54,211 | 1,606 |
12.
OTHER CURRENT LIABILITIES
As of 31 December2010 and 31 2009, other current liabilities comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Taxes and funds payable
|
2,471 | -- | ||||||
|
Social security withholdings payable
|
1,439 | 929 | ||||||
|
Accrued expenses
|
1,250 | -- | ||||||
|
Advances received
|
40,731 | 48,174 | ||||||
|
Due to personnel
|
2,110 | |||||||
|
Total
|
48,001 | 49,103 |
13.
RESERVE FOR EMPLOYMENT TERMINATION BENEFITS
The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying financial statements as at December 31, 2010, the provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of the employees. The anticipated rate of forfeitures is considered. As the maximum liability is revised semi annually, the maximum amount of TRY 2,623, effective from January 1, 2011, has been taken into consideration in calculation of provision from employment termination benefits (2009: TRY 2,517).
14.
SHARE CAPITAL
The issued share capital of the Company for the year ended 31 December 2010 and for the year ended 31 December 2009 are comprised as follows;
|
31.12.2010
|
31.12.2009
|
||||||
|
Shareholding
|
Shareholding
|
||||||
|
Amount
|
%
|
Amount
|
%
|
||||
|
Andrew Stuart Brabin
|
27,050
|
72
|
26,625
|
75
|
|||
|
Ali Rıza Tanışman
|
1,503
|
4
|
8,875
|
25
|
|||
|
Recep Tanışman
|
7,515
|
20
|
--
|
--
|
|||
|
Cansın Tanışman
|
751
|
2
|
--
|
--
|
|||
|
Volkan Tanışman
|
751
|
2
|
--
|
--
|
|||
|
37,570
|
100
|
35,500
|
100
|
||||
F-13
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
15.
SALES
The composition of sales by principal operation for the year ended as at 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Electronic set
|
1,023,279 | 383,466 | ||||||
|
Remote Control for classroom
|
153,335 | 6,297 | ||||||
|
EBEAM whiteboard and devices
|
-- | 194,890 | ||||||
|
Touch IT board
|
62,288 | -- | ||||||
|
Triumph board
|
-- | 173,606 | ||||||
|
Writing pad
|
47,745 | 5,067 | ||||||
|
Others
|
20,773 | 14,392 | ||||||
|
Returns (-)
|
-- | (705 | ) | |||||
|
Total
|
1,307,420 | 777,013 |
16.
COST OF SALES
The composition of cost of sales by principal operations for the year ended as at 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Beginning inventory of trade goods
|
48,111 | 70,230 | ||||||
|
Purchases
|
990,500 | 627,589 | ||||||
|
Ending inventory of trade goods (-)
|
(109,261 | ) | (48,111 | ) | ||||
|
Total
|
929,350 | 649,708 |
F-14
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
17.
MARKETING AND SELLING EXPENSES
The composition of marketing and selling expenses by principal operations for the year ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Shareholders expenses (*)
|
105,773 | 10,834 | ||||||
|
Export expenses
|
32,858 | 12,657 | ||||||
|
Web site design expenses
|
8,587 | -- | ||||||
|
Other expenses
|
7,057 | 1,071 | ||||||
|
Total
|
154,275 | 24,562 |
(*) The balance comprises of the marketing and selling expense of Ronald George Murphy and Andrew Stuart Brabin.
18.
GENERAL AND ADMINISTRATIVE EXPENSES
The composition of general and administrative expenses by principal operations for the period ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Consultancy expenses (*)
|
209,806 | 2,291 | ||||||
|
Salaries
|
59,176 | 29,378 | ||||||
|
Rental expenses
|
12,283 | 12,930 | ||||||
|
Depreciation expenses
|
1,664 | 8,493 | ||||||
|
Other expenses
|
6,356 | 2,598 | ||||||
|
Total
|
289,285 | 55,690 |
(*) The vast majority of the balance comprises of consultancy invoices issued by Kamron and ASB
F-15
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
19.
OTHER INCOME AND (EXPENSES), net:
The composition of other income and expenses for the years ended 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Other income
|
2,508 | 1,023 | ||||||
|
Insurance compensation income
|
8,301 | -- | ||||||
|
Provision for doubtful receivables
|
(20,152 | ) | -- | |||||
|
Consultancy income
|
25,000 | 16,735 | ||||||
|
Other expense
|
(5 | ) | (5,681 | ) | ||||
|
Total
|
15,652 | 12,077 |
20.
FINANCIAL EXPENSES:
The composition of financial expenses, net for the years ended 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Bank charges
|
(3,043 | ) | (2,172 | ) | ||||
|
Total
|
(3,043 | ) | (2,172 | ) |
F-16
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
21.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Company consists of debt, which includes the borrowings, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings.
|
31 December2010
|
Financial assets
at amortized cost
|
Loans and
receivables
|
Financial liabilities
at amortized cost
|
Carrying
value
|
Fair
value
|
Note
|
|
Financial assets
|
||||||
|
Cash and cash equivalents
|
--
|
3,274
|
--
|
3,274
|
3,274
|
5
|
|
Trade receivables (including related parties)
|
--
|
898,683
|
--
|
898,683
|
898,683
|
6-7
|
|
Financial liabilities
|
||||||
|
Trade payables (including related parties)
|
--
|
159,098
|
--
|
159,098
|
159,098
|
7-11
|
|
31 December 2009
|
Financial assets
at amortized cost
|
Loans and
receivables
|
Financial liabilities
at amortized cost
|
Carrying
value
|
Fair
value
|
Note
|
|
Financial assets
|
||||||
|
Cash and cash equivalents
|
--
|
2,204
|
--
|
2,204
|
2,204
|
5
|
|
Trade receivables (including related parties)
|
--
|
136,002
|
--
|
136,002
|
136,002
|
6-7
|
|
Financial liabilities
|
||||||
|
Trade payables (including related parties)
|
--
|
30,442
|
--
|
30,442
|
30,442
|
7-11
|
Financial risk factors
The Company’s activities expose itself to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets seeks to minimize potential adverse effects on the Company’s financial performance.
Market risk
The Company’s activities expose itself primarily to the financial risks of changes in foreign currency exchange rates.
F-17
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
22.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Foreign currency risk management
The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign currency position, net for the year ended at 31 December 2010 and for the year ended 31 December 2009 can be summarized as follows:
|
31.12.2010
|
31.12.2009
|
||||
|
F/C
|
Foreign
|
TRY
|
Foreign
|
TRY
|
|
|
Type
|
Currency
|
Currency
|
|||
|
Banks
|
USD
|
2,138
|
3,306
|
2,157
|
3,248
|
|
EUR
|
19
|
38
|
|||
|
Due from related parties
|
USD
|
587,308
|
907,979
|
123,953
|
186,636
|
|
Trade receivables
|
USD
|
34,731
|
53,694
|
3,843
|
5,786
|
|
Advances given
|
USD
|
72,544
|
112,153
|
45,324
|
68,244
|
|
(Inventories)
|
|||||
|
Trade payables
|
USD
|
(43,480)
|
(67,220)
|
--
|
--
|
|
Advances received
|
USD
|
(40,731)
|
(62,970)
|
(48,173)
|
(72,534)
|
|
(Other current liabilities)
|
|||||
|
Due to related parties
|
USD
|
(104,887)
|
(162,155)
|
--
|
--
|
|
Share purchase advances
|
USD
|
(750,000)
|
(1,159,500)
|
--
|
--
|
|
Net F/C Assets and Liabilities
|
(374,675)
|
191,380
|
|||
F-18
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
23.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Credit risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
Liquidity risk management
Liquidity risk arises from the fact that the Company may not receive funds from its counterparties at the expected time. This risk is managed by maintaining a balance between continuity of funding and flexibility through the use of overdrafts and trade receivables.
The following table shows details of the Company’s remaining contractual maturity for its non derivative financial liabilities. The table has drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.
|
Current
|
Noncurrent
|
Total
|
||||||||||
|
31 December 2010
|
||||||||||||
|
Trade payables (including related parties)
|
159,098 | -- | 159,098 | |||||||||
|
31 December 2009
|
||||||||||||
|
Trade payables (including related parties)
|
21,530 | -- | 21,530 | |||||||||
24.
SUBSEQUENT EVENTS
Effective of January 1, 2011, the ceiling for employee termination benefits has been capped at
TRY 2,623.
F-19
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2010
TOGETHER WITH INDEPENDENT AUDITORS’ REPORT
F-20
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
To
uch IT Technologies Kollektif Şirketi
Ronald George Murphy ve Ortakları
Report on the Financial Statements
We have audited the accompanying financial statements of Touch IT Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları (“the Company”
) which comprise the financial position as of 31 December 2010 and statements of comprehensive income, changes in equity and cash flows for the period then ended, and a summary of significant accounting policies and other explanatory notes.
Management Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Generally Accepted Accounting Principles in the United States of America. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Scope of Review
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Opinion
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as of December 31, 2010, and of its financial performance and its cash flows for the year then ended in accordance with Accounting Principles Generally Accepted in the United States of America.
We would like to draw your attention to the following matters:
The accompanying financial statements of the Company have been prepared on a going concern basis. However, in the accompanying financial statements, the Company’s current liabilities exceed its current assets by an amount of USD 231,259 and the total equity shows a negative balance amounting to USD 153,218 as of December 31, 2010. Accordingly, the continuity of the Company’s operations is dependent on the profitability of future operations and the existence of necessary financial support by shareholders and other creditors.
Istanbul, 8 March 2011
DENGE BAĞIMSIZ DENETİM
SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Member of MAZARS
/s/Gökhan Almacı
Partner
F-21
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
|
Notes
|
31.12.2010 | 31.12.2009 | ||||||||||
|
ASSETS
|
||||||||||||
|
Cash and cash equivalents
|
5 | 47,282 | 52,641 | |||||||||
|
Trade receivables, net
|
6 | 669,937 | 269,394 | |||||||||
|
Due from shareholders
|
7 | 40,743 | -- | |||||||||
|
Inventories, net
|
8 | 174,226 | 166,448 | |||||||||
|
Other current assets
|
9 | 885 | 400 | |||||||||
|
Total current assets
|
933,073 | 488,883 | ||||||||||
|
Property and equipment, net
|
10 | 64,495 | 29,872 | |||||||||
|
Intangible assets, net
|
11 | 11,833 | -- | |||||||||
|
Other non-current assets
|
12 | 3,555 | 3,725 | |||||||||
|
Total non-current assets
|
79,883 | 33,597 | ||||||||||
|
Total assets
|
1,012,956 | 522,480 | ||||||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||||||
|
Short-term bank loans
|
13 | 2,351 | 11,282 | |||||||||
|
Trade payables
|
14 | 58,150 | 69,013 | |||||||||
|
Due to shareholders
|
7 | 37,494 | 55,660 | |||||||||
|
Due to related parties
|
7 | 1,041,105 | 642,160 | |||||||||
|
Other current liabilities
|
15 | 25,232 | 71,516 | |||||||||
|
Total current liabilities
|
1,164,332 | 849,631 | ||||||||||
|
Long-term bank loans
|
13 | -- | 2,321 | |||||||||
|
Employee termination benefits
|
16 | 1,842 | -- | |||||||||
|
Total long-term liabilities
|
1,842 | 2,321 | ||||||||||
|
Shareholders' Equity
:
|
||||||||||||
|
Share capital
|
17 | 90,000 | 90,000 | |||||||||
|
Accumulated deficit
|
(419,472 | ) | (100,028 | ) | ||||||||
|
Net profit/(loss) for the period
|
176,254 | (319,444 | ) | |||||||||
|
Total shareholders’ equity
|
(153,218 | ) | (329,472 | ) | ||||||||
|
Total liabilities and shareholders’ equity
|
1,012,956 | 522,480 | ||||||||||
The accompanying notes form an integral part of these financial statements.
F-22
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED AS OF
31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
|
Notes
|
31.12.2010 | 31.12.2009 | ||||||||||
|
Sales
|
18 | 2,270,461 | 1,252,061 | |||||||||
|
Cost of sales
|
19 | (1,572,687 | ) | (1,092,339 | ) | |||||||
|
Gross profit
|
697,774 | 159,722 | ||||||||||
|
Marketing and selling expenses
|
20 | (350,054 | ) | (384,824 | ) | |||||||
|
General and administrative expenses
|
21 | (189,779 | ) | (84,431 | ) | |||||||
|
Total operating profit
|
157,941 | (309,533 | ) | |||||||||
|
Financial income / (expense), net
|
23 | (5,252 | ) | (6,569 | ) | |||||||
|
Other income / (expense), net
|
22 | (39,745 | ) | (5,456 | ) | |||||||
|
Profit before provision for taxation
|
112,944 | (321,558 | ) | |||||||||
|
Provision for taxation
|
||||||||||||
|
- Current
|
-- | -- | ||||||||||
|
- Deferred
|
-- | -- | ||||||||||
|
Net profit for the period
|
112,944 | (321,558 | ) | |||||||||
|
Other comprehensive income
|
||||||||||||
|
Currency translation differences
|
63,310 | 2,114 | ||||||||||
|
Total comprehensive income for the period
|
176,254 | (319,444 | ) | |||||||||
The accompanying notes form an integral part of these financial statements.
F-23
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CASH FLOW AS OF 31 DECEMBER 2010 AND31 DECEMBER 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
| 31.12.2010 | 31.12.2009 | |||||||
|
Cash flow from operating activities
|
||||||||
|
Net profit for the period
|
176,254 | (319,444 | ) | |||||
|
Adjustments to reconcile net profit to net
cash provided by operating activities:
|
||||||||
|
Depreciation
|
15,852 | 8,640 | ||||||
|
Provision for employee termination benefit
|
1,842 | |||||||
|
Net profit adjusted to non-cash items
|
193,948 | (310,804 | ) | |||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Change in trade receivables
|
(400,548 | ) | (185,692 | ) | ||||
|
Change in due from shareholders
|
(40,743 | ) | -- | |||||
|
Change in inventories
|
(7,778 | ) | 46,198 | |||||
|
Change in other current assets
|
(485 | ) | 3,575 | |||||
|
Change in other non current assets
|
170 | (3,725 | ) | |||||
|
Change in trade payables
|
(10,863 | ) | 58,791 | |||||
|
Change in due to shareholders
|
(18,166 | ) | 15,583 | |||||
|
Change in due to related parties
|
398,945 | 366,805 | ||||||
|
Change in other current liabilities
|
(46,284 | ) | 65,857 | |||||
|
Net cash used for operating activities
|
68,196 | 56,588 | ||||||
|
Cash flows from investing activities:
|
||||||||
|
Purchased of property and equipment and intangibles
|
(62,304 | ) | (17,324 | ) | ||||
|
Net cash outflows from investing activities
|
5,892 | 39,264 | ||||||
|
Cash flows from financing activities:
|
||||||||
|
Increase in short-term borrowings
|
(8,930 | ) | 6,815 | |||||
|
Decrease in long-term borrowings
|
(2,321 | ) | (2,797 | ) | ||||
|
Cash outflows generated by financing activities
|
(11,251 | ) | 4,018 | |||||
|
Net decrease in cash and cash equivalents
|
(5,359 | ) | 43,282 | |||||
|
Cash and cash equivalents at the beginning of the year
|
52,641 | 9,359 | ||||||
|
Cash and cash equivalents at the end of the period
|
47,282 | 52,641 | ||||||
The accompanying notes form an integral part of these financial statements.
F-24
TO
UCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CHANGES IN EQUITY AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
|
Share
capital
|
Accumulated
deficit
|
Net (loss) /profit for the year/ period
|
Total Shareholders' Equity
|
|||||||||||||
|
Opening balance as of 1 January 2009
|
90,000 | -- | (100,028 | ) | (10,028 | ) | ||||||||||
|
Transfer to accumulated deficit
|
(100,028 | ) | 100,028 | ) | -- | |||||||||||
|
Loss for the year 2009
|
-- | -- | (319,444 | ) | (319,444 | ) | ||||||||||
|
Balances at 31 December 2009
|
90,000 | (100,028 | ) | (319,444 | ) | (329,472 | ) | |||||||||
|
Transfer to accumulated deficit
|
-- | (319,444 | ) | 319,444 | -- | |||||||||||
|
Net profit for the year 2010
|
-- | -- | 176,254 | 176,254 | ||||||||||||
|
Balances at 31 December 2010
|
90,000 | (419,472 | ) | 176,254 | (153,218 | ) | ||||||||||
The accompanying notes form an integral part of these financial statements.
F-25
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
1.
OPERATIONS OF THE COMPANY
:
General
The Company was established as a form of partnership (kollektif şirket). In Turkey, partnership is an asso
ciation of two or more people who co-own a business for trading goods under a trade name. The co-owners have unlimited responsibility to their creditors. This type of entity does not have minimum capital requirements.
Nature of activities
Touch IT Technologies Kollektif
S
irketi Ronald George Murphy ve Ortakları (referred as“Touch IT Technologies”) was established in September 2008. Touch IT Technologies engages primarily in production and trade of technological blackboard run by infrared system.
The Company has an operating license in Trakya, Istanbul free zone area for 15 years, which commenced on 9 September 2008.
On May 7, 2010, Touch IT Education, Touch IT Technologies and their stockholders (“Touch IT Turkey”) entered into a Share Exchange Agreement with Hotel Management Systems, Inc (“Hotel Management”), a Nevada corporation.
Pursuant to the terms of the Share Exchange Agreement, Hotel Management issued a total of 48,330,000 shares of their common stock, par value USD 0.001 per share (the “Common Stock”), to the shareholders of Touch IT Technologies and Touch IT Education in exchange for the transfer of 100% of the shares of TouchIT Technologies and Touch IT Education to Hotel Management. This exchange transaction resulted in Touch IT Technologies and Touch IT Education becoming Hotel Management. The wholly-owned subsidiaries and the stockholders of Touch IT Turkey own approximately 78.93% of the Hotel Management’s issued and outstanding stock, prior to any financing.
Simultaneously with the closing of the Share Exchange Agreement, on May 7, 2010, Hotel Management entered into a Subscription Agreement (the “Subscription Agreement”) with investors for the sale of shares up to the value of USD 1,500,000 (the “Purchase Price”). As a result, USD 750,000 of the Purchase Price has been recognized in Touch IT Education’s balance sheet as a future obligation to one of the investors.
No changes in the shareholder structure of Touch IT Turkey have been made since the formal registration has not yet been completed.
Average number of employees of the Company as of 31 December 2010 was 10 while it was 6 on December 31, 2009.
2.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2010, the FASB issued an amendment to ASC 820, “Fair Value Measurements and Disclosure”, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard became effective for interim and annual reporting periods after 15 December 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures, which became effective for fiscal years after 15 December 2010. This adoption of the new standard will not have a material impact on the Company’s financial statements.
F-26
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
3.
BASIS OF PRESENTATION
The Company maintains its books of account and prepares its statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and tax legislation and the uniform chart of accounts issued by the Ministry of Finance. The accompanying US Dollar financial statements are based on the statutory records, which are obtained under the historical cost convention, with adjustments and reclassifications, for the purpose of fair presentation in accordance with Generally Accepted Accounting Principles in the United States of America (US GAAP). The Company’s fiscal year ends on December 31.
4.
SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash equivalents consist of highly liquid investments, which are readily convertible into cash, with original maturities of three months or less.
Revenue recognition
The company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable, and collectability is reasonably assured. Revenue typically is recognized at time of shipment. Sales are recorded as net of discounts, rebates and returns.
Inventories
Inventories are stated at the lower of cost or market. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory being valued on the weighted average basis.
Related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making the financial and operating decisions. For the purpose of these financial statements shareholders are referred to as related parties. Related parties also included individuals that are principle owners, management and members of the Company’s Board of Directors and their families.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Assets are reviewed for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference.
The ranges of estimated useful lives are as follows:
|
Machinery and equipments
|
2-6 years
|
|
Motor vehicles
|
4 years
|
|
Furniture, fixtures and office equipments
|
4-5 years
|
Intangible assets
Intangible assets and related amortization: Intangible fixed assets are carried at cost and are depreciated by using straight-line method over three years.
F-27
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
4.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Borrowing costs
The historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use. If an asset requires a period of time in which to carry out the activities necessary to bring it to that condition and location, the interest cost incurred during that period as a result of expenditures for the asset is a part of the historical cost of acquiring the asset.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
Taxation
Partnerships (kollektif şirket) are an incorporated body acco
rding to the Turkish Commercial Code; however, partnerships are not recognized as an incorporated body by income tax act. This fact results in paying individual income tax by partnerships, instead of being subject to corporate income tax. Moreover, services rendered by the Company in free zone area is excluded from paying both value added tax and individual income tax. The Company has Operating License for the exemption of income tax which has been taken from Under secretariat of The Prime Ministry for Foreign Trade, numbered TRY-469, dated on 9 September 2008 and period of validation is 15 years.
Foreign currency transactions
The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated, using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate income and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
Following period rates are applicable as of 31 December 2010 and 2009:
|
31.12.2010
|
31.12.2009
|
|
|
USD
|
1.5460
|
1.5057
|
|
EURO
|
2.0491
|
2.1603
|
|
GBP
|
2.3886
|
2.3892
|
|
Average USD
|
1.4991
|
1.5454
|
Comprehensive income
In September 1997, the Financial Accounting Standard Board issued SFAS No. 130, “Reporting Comprehensive Income”. SFAS 130 became effective after 15 September 1997. This statement provides reporting standards of comprehensive income and its components and requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The Company has adopted the provisions of SFAS No. 130 in its financial statements and adoption of this statement did not have any effect on the Company.
F-28
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
4.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments
Pursuant to ASC 820, “Fair Value Measurements and Disclosures”, and ASC 825, “Financial Instruments”, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, trade receivables and payables, borrowings and amount due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. It is assumed that carrying amounts of financial instruments approximate their current fair values in line with their short term nature.
5.
CASH AND CASH EQUIVALENTS
As of 31 December 2010 and 2009, cash and cash equivalents comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Cash in hand
|
1,196 | 9,621 | ||||||
|
Banks
|
46,086 | 43,020 | ||||||
|
Total
|
47,282 | 52,641 |
F-29
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
6.
TRADE RECEIVABLES
As of 31 December 2010 and 31 December 2009, trade receivables comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
PROFORMANCE PRODUCTS
|
526,077 | -- | ||||||
|
TRIUMPH BOARD S.R.O
|
-- | 204,913 | ||||||
|
Others ( less than USD 60,000)
|
143,860 | 64,481 | ||||||
|
Total
|
669,937 | 269,394 |
7.
RELATED PARTY BALANCES AND TRANSACTIONS
Due from shareholders has been presented as follows:
|
Due from shareholders
|
31.12.2010 | 31.12.2009 | ||||||
|
Recep Tanışman
|
40,743 | -- | ||||||
|
Total
|
40,743 | -- |
Due to related parties and shareholders has been presented as follows:
|
Due to related parties
|
31.12.2010 | 31.12.2009 | ||||||
|
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
|
417,709 | 570,532 | ||||||
|
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
|
587,308 | 25,529 | ||||||
|
Kamron Inc
|
36,088 | 46,099 | ||||||
|
Total
|
1,041,105 | 642,160 |
|
Due to shareholders
|
31.12.2010 | 31.12.2009 | ||||||
|
Ali Rıza Tanışman
|
22,549 | 22,657 | ||||||
|
Andrew Stuart Brabin
|
14,566 | -- | ||||||
|
Recep Tanışman
|
379 | -- | ||||||
|
Total
|
37,494 | 55,660 |
F-30
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
7.
RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)
In the course of conducting its business, the Company conducted various business transactions with related parties on commercial terms.
Major purchases from related parties have been presented as follows:
|
Major purchases from related parties
|
||||||||
|
Trade goods
|
31.12.2010 | 31.12.2009 | ||||||
|
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
|
568,439 | 447,898 | ||||||
|
Touch IT Educations T
echnologies Dış. Tic. Koll. Şirketi
|
181,256 | 156,524 | ||||||
|
Total
|
749,695 | 604,422 | ||||||
Major sales from related parties have been presented as follows:
|
Major sales from related parties
|
||||||||
|
Trade goods
|
31.12.2010 | 31.12.2009 | ||||||
|
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
|
3,507 | -- | ||||||
|
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
|
167,270 | 179,035 | ||||||
|
Total
|
170,777 | 179,035 | ||||||
|
Services provided
|
||||||||
| 31.12.2010 | 31.12.2009 | |||||||
|
Kamron Inc.
|
55,364 | 88,181 | ||||||
|
Emko Emaye ve Ya
zı Tahtaları ve Eğitim Gereçleri A.Ş.
|
-- | 21,267 | ||||||
|
Total
|
55,364 | 109,448 | ||||||
8.
INVENTORIES:
As of 31 December 2010 and 2009, inventories comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Raw material and supplies
|
196,971 | 120,691 | ||||||
|
Finished goods
|
1,534 | 16,045 | ||||||
|
Advances given for purchases
|
11,232 | 22,632 | ||||||
|
Other inventories
|
2,738 | 7,080 | ||||||
|
Provision for damaged and slow moving stock (-)
|
(38,249 | ) | -- | |||||
|
Total
|
174,226 | 166,448 |
The insurance on the inventories as of 31 December 2010 and 2009 is USD 600,000.
F-31
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
9.
OTHER CURRENT ASSETS:
As of 31 December 2010 and 2009, other receivables and assets comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Deposits and Guarantees given
|
400 | 400 | ||||||
|
Other
|
485 | -- | ||||||
|
Total
|
885 | 400 |
10.
PROPERTY, PLANT AND EQUIPMENT, NET
The movement of property, plant and equipment, net as of 31 December 2010 and 2009 is as follows;
|
1 January 2009
|
Additions
|
31 December 2009
|
Additions
|
31 December 2010
|
||||||||||||||||
|
Cost
|
||||||||||||||||||||
|
Machinery and equipment
|
3,655 | -- | 3,655 | 1,483 | 5,139 | |||||||||||||||
|
Vehicles
|
12,522 | 16,933 | 29,455 | -- | 29,455 | |||||||||||||||
|
Furniture and fixtures
|
5,911 | 391 | 6,302 | 46,165 | 52,467 | |||||||||||||||
|
Total
|
22,088 | 17,324 | 39,412 | 47,648 | 87,061 | |||||||||||||||
|
Depreciation
|
||||||||||||||||||||
|
Machinery and equipment
|
(171 | ) | (1,023 | ) | (1,194 | ) | (1,113 | ) | (2,308 | ) | ||||||||||
|
Vehicles
|
(522 | ) | (6,306 | ) | (6,828 | ) | (5,883 | ) | (12,711 | ) | ||||||||||
|
Furniture and fixtures
|
(207 | ) | (1,311 | ) | (1,518 | ) | (6,029 | ) | (7,547 | ) | ||||||||||
|
Total
|
(900 | ) | (8,640 | ) | (9,540 | ) | (13,025 | ) | (22,566 | ) | ||||||||||
|
Net book value
|
21,188 | 29,872 | 64,495 | |||||||||||||||||
The insurance on property, plant and equipment as of 31 December 2010 and 2009 is USD 10,000.
F-32
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
11.
INTANGIBLE ASSETS, NET
The movement of intangible assets, net as of 31 December 2010 and 2009 is as follows;
|
31 December 2009
|
Additions
|
31 December 2010
|
||||||||||
|
Cost
|
||||||||||||
|
Rights
|
-- | 10,774 | 10,774 | |||||||||
|
Other tangible assets
|
-- | 3,885 | 3,885 | |||||||||
|
Total
|
-- | 14,659 | 14,659 | |||||||||
|
Depreciation
|
||||||||||||
|
Rights
|
-- | 2,394 | 2,394 | |||||||||
|
Other tangible assets
|
-- | 432 | 432 | |||||||||
|
Total
|
-- | 2,826 | 2,826 | |||||||||
|
Net book value
|
-- | 11,833 | ||||||||||
12.
OTHER NON CURRENT ASSETS:
As of 31 December 2010 and 2009, non-current assets comprised of the prepaid expenses of USD 3,555 and USD 3,725 respectively.
F-33
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
13.
BANK LOANS
As of 31 December 2010 and 31 December 2009, bank loans comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Short term borrowings
|
||||||||
|
TRY bank loans
|
2,351 | 11,282 | ||||||
|
Sub total
|
2,351 | 11,282 | ||||||
|
Long term borrowings
|
||||||||
|
TRY bank loans
|
-- | 2,321 | ||||||
|
Sub total
|
-- | 2,321 | ||||||
|
Total
|
2,351 | 13,603 |
Analysis of bank loans’ repayments is as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Within one year
|
2,351 | 11,282 | ||||||
|
Between one to two years
|
-- | 2,321 | ||||||
|
Total
|
2,351 | 13,603 |
Bank Loans arise from purchases of two motor vehicles.
14.
TRADE PAYABLES
As of 31 December 2010 and 2009, trade payables comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Suppliers
|
58,150 | 65,831 | ||||||
|
Other trade payables
|
-- | 3,182 | ||||||
|
Total
|
58,150 | 69,013 |
F-34
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
15.
OTHER CURRENT LIABILITIES
As of 31 December 2010 and 2009, other current liabilities comprised of the following:
| 31.12.2010 | 31.12.2009 | |||||||
|
Social security withholdings payable
|
6,010 | 685 | ||||||
|
Due to personnel
|
7,056 | -- | ||||||
|
Accrued expenses
|
1,350 | -- | ||||||
|
Advances received
|
10,776 | 68,597 | ||||||
|
Other liabilities
|
40 | 2,234 | ||||||
|
Total
|
25,232 | 71,516 |
16.
RESERVE FOR EMPLOYEE TERMINATION BENEFITS
The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying financial statements as of 31 December 2010, the provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of the employees. The anticipated rate of forfeitures is considered. As the maximum liability is revised semi annually, the maximum amount of TRY 2,517 effective from 1 July 2010 has been taken into consideration in calculation of provision from employment termination benefits (2009: TRY 2,365).
The principal actuarial assumptions used at the statement of financial positions dates are as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Discount rate
|
10.00 | % | 11.00 | % | ||||
|
Expected rates of salary / limit increases
|
5.1 | % | 4.80 | % |
F-35
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
17.
SHARE CAPITAL
The shareholders and their participation percentages as of 31 December 2010 and 2009 are as follows:
|
31.12.2010
|
31.12.2009
|
||||||
|
Shareholding
|
Shareholding
|
||||||
|
Amount
|
%
|
Amount
|
%
|
||||
|
Ali Rıza Tanışman
|
2,676
|
2.97%
|
29,700
|
33.00%
|
|||
|
Andrew Stuart Brabin
|
30,324
|
33.70%
|
30,600
|
34.00%
|
|||
|
Recep Tanışman
|
26,757
|
29.73%
|
--
|
--
|
|||
|
Ronald George Murphy
|
29,432
|
32.70%
|
29,700
|
33.00%
|
|||
|
Cansın Tanışman
|
811
|
0.90%
|
--
|
--
|
|||
|
90,000
|
100.00%
|
90,000
|
100.00%
|
||||
18.
SALES
The composition of sales by principal operation for the year ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Clever board
|
887,639 | 42,034 | ||||||
|
Touch it board 78 inch
|
628,105 | 254,816 | ||||||
|
Touch it board 80 inch
|
179,794 | 17,533 | ||||||
|
Triumph board 78 inch
|
136,867 | 423,203 | ||||||
|
Electronic circuit
|
222,100 | -- | ||||||
|
Touch it board 90 inch
|
121,048 | 9,462 | ||||||
|
Triumph board 80 inch
|
53,182 | 330,937 | ||||||
|
Touch it board 50 inch
|
34,589 | 17,578 | ||||||
|
Triumph board 50 inch
|
1,244 | 5,880 | ||||||
|
RM easyboard 78 inch
|
-- | 120,423 | ||||||
|
Triumph board 90 inch
|
-- | 34,114 | ||||||
|
RM easyboard 50 inch
|
9,299 | |||||||
|
Others
|
23,807 | 64,566 | ||||||
|
Returns and discounts(-)
|
(17,914 | ) | (77,784 | ) | ||||
|
Total
|
2,270,461 | 1,252,061 |
F-36
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
19.
COST OF SALES
The composition of cost of sales by principal operations for the year ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Direct material cost
|
1,334,558 | 1,028,469 | ||||||
|
Direct labor cost
|
125,833 | 23,697 | ||||||
|
General production overheads
|
108,283 | 51,715 | ||||||
|
Ending inventory (trade goods)
|
(1,534 | ) | (16,045 | ) | ||||
|
Depreciation
|
5,547 | 4,503 | ||||||
|
Total
|
1,572,687 | 1,092,339 |
20.
MARKETING AND SELLING EXPENSES
The composition of marketing and selling expenses by principal operations for the year ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Export expenses
|
156,185 | 169,528 | ||||||
|
Sales & marketing expenses of shareholders
|
45,748 | 109,381 | ||||||
|
Software expenses
|
44,506 | -- | ||||||
|
Fair expense
|
-- | 36,849 | ||||||
|
Salaries
|
-- | 8,782 | ||||||
|
Consultancy expenses
|
24,333 | -- | ||||||
|
Cargo expenses
|
5,626 | 6,208 | ||||||
|
Depreciation
|
748 | 2,780 | ||||||
|
Others
|
72,908 | 51,296 | ||||||
|
Total
|
350,054 | 384,824 |
21.
GENERAL AND ADMINISTRATIVE EXPENSES
The composition of general and administrative expenses by principal operations for the year ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2010 | |||||||
|
Shareholders expenses
|
102,632 | 46,200 | ||||||
|
Consulting expenses
|
57,877 | 20,315 | ||||||
|
Food expenses
|
5,057 | 3,132 | ||||||
|
Depreciation
|
9,556 | 1,357 | ||||||
|
Tax and duties
|
931 | 918 | ||||||
|
Employee termination benefits
|
1,842 | -- | ||||||
|
Other
|
11,533 | 12,509 | ||||||
|
Total
|
189,428 | 84,431 |
F-37
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
22.
OTHER INCOME AND (EXPENSES), NET
The composition of other income and (expenses), net for the year ended as of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Provision for impairment of inventory
|
(38,249 | ) | -- | |||||
|
Non tax deductable expenses
|
(4,990 | ) | (10,516 | ) | ||||
|
Other income
|
3,494 | 5,060 | ||||||
|
Total
|
(39,745 | ) | (5,456 | ) |
23.
FINANCIAL EXPENSES
The composition of financial expenses for the year ended of 31 December 2010 and 2009 can be summarized as follows:
| 31.12.2010 | 31.12.2009 | |||||||
|
Interest expenses
|
1,224 | 4,284 | ||||||
|
Other banking expenses
|
4,028 | 2,285 | ||||||
|
Total
|
5,252 | 6,569 |
24.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance.
The capital structure of the Company consists of debt, which includes the borrowings, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings.
|
31 December 2010
|
Financial assets
at
amortized cost
|
Loans and
receivables
|
Financial liabilities
at amortized cost
|
Carrying
value
|
Fair
value
|
Note
|
|
Financial assets
|
||||||
|
Cash and cash equivalents
|
--
|
47,282
|
--
|
47,282
|
47,282
|
5
|
|
Trade receivables
|
--
|
669,937
|
--
|
669,937
|
669,937
|
6
|
|
Financial liabilities
|
||||||
|
Borrowings
|
--
|
--
|
2,351
|
2,351
|
2,351
|
13
|
|
Trade payables (including related parties)
|
--
|
1,111,639
|
--
|
1,111,639
|
1,111,639
|
7-14
|
F-38
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
24.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
|
31 December 2009
|
Financial assets
at amortized cost
|
Loans and
receivables
|
Financial liabilities
at amortized cost
|
Carrying
value
|
Fair
value
|
Note
|
|
Financial assets
|
||||||
|
Cash and cash equivalents
|
--
|
52,641
|
--
|
52,641
|
52,641
|
5
|
|
Trade receivables
|
--
|
269,394
|
--
|
269,394
|
269,394
|
6
|
|
Financial liabilities
|
||||||
|
Borrowings
|
--
|
--
|
13,603
|
13,603
|
13,603
|
13
|
|
Trade payables(including related parties)
|
--
|
711,173
|
--
|
711,173
|
711,173
|
7-14
|
Financial risk factors
The Company’s activities expose itself to a variety of financial risks, including market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets seeks to minimize potential adverse effects on the Company’s financial performance.
Market risk
The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates.
Foreign currency risk management
The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign currency position, net for the period ended 31 December 2010 and for the year ended 31 December 2009 can be summarized as follows:
|
31.12.2010
|
31.12.2009
|
||||
|
F/C
Type
|
Foreign
Currency
|
TRY
|
Foreign
Currency
|
TRY
|
|
|
Cash
|
USD
|
-
|
-
|
--
|
--
|
|
Banks
|
USD
|
45,538
|
70,401
|
41,901
|
63,090
|
|
EUR
|
78
|
160
|
|||
|
Trade receivables
|
USD
|
669,937
|
1,035,723
|
269,394
|
405,628
|
|
Advances Given (inventories)
|
USD
|
-
|
-
|
10,774
|
16,222
|
|
31,302
|
48,393
|
-
|
-
|
||
|
Trade payables
|
USD
|
(23,829)
|
(36,839)
|
(553,238)
|
(833,010)
|
|
Due to related parties
|
USD
|
(1,039,944)
|
(1,607,753)
|
-
|
-
|
|
EUR
|
(904)
|
(1,953)
|
|||
|
Due to shareholders
|
USD
|
(9,170)
|
(14,177)
|
(33,003)
|
(49,693)
|
|
Other current liabilities
|
USD
|
(10,776)
|
(16,660)
|
(68,598)
|
(103,288)
|
|
Net F/C Assets and Liabilities
|
(520,752)
|
(503,004)
|
|||
F-39
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
24.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Credit risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
Liquidity risk management
Liquidity risk arises from the fact that the Company may not receive funds from its counterparties at the expected time. This risk is managed by maintaining a balance between continuity of funding and flexibility through the use of overdrafts and trade receivables.
The following tables details the Company’s remaining contractual maturity for its non derivative financial liabilities. The tables have drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.
|
Current
|
Noncurrent
|
Total
|
||||||||||
|
31 December 2010
|
||||||||||||
|
Borrowings
|
2,351 | -- | 2,351 | |||||||||
|
Trade payables
|
70,534 | -- | 70,534 | |||||||||
|
Due to related parties
|
1,041,105 | -- | 1,041,105 | |||||||||
|
31 December 2009
|
||||||||||||
|
Borrowings
|
11,282 | 2,321 | 13,603 | |||||||||
|
Trade payables
|
69,013 | -- | 69,013 | |||||||||
|
Due to related parties
|
642,160 | -- | 642,160 | |||||||||
25.
SUBSEQUENT EVENTS
On February 16, 2011, the Company has borrowed USD 250,000 from
TCA Global Credit Master Fund pursuant to a revolving credit facility evidenced by a Credit Agreement with an effective date as of November 30, 2010. The Credit Agreement evidences a revolving credit facility in the maximum principal amount of USD 250,000, which subject Lender approval may be increased up to USD 1,000,000. The outstanding principal amount is due on February 16, 2012.
Effective from January 1, 2011, the ceiling for employee termination benefits has been capped at
TRY 2,623.
======================
F-40
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertyItem 3. Legal ProceedingsItem 4. (removed and Reserved)Part IIItem 5. Market For Registrant S Common Equity, and Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statements Schedules