10-Q 1 f10q0611_touchit.htm QUARTERLY REPORT f10q0611_touchit.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
Form 10-Q
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 For the quarterly period ended June 30, 2011
   
o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
   
For the transition period from _________ to _____________
 
Commission file number 333-151252
 
TouchIT Technologies, Inc.
 
 (Exact Name of Registrant as Specified in Its Charter)

Nevada
 
26-2477977
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
Istanbul Trakya Serbest Bölgesi Atatürk Bulvari Ali Riza Efendicd., A4 Blok Çatalca, Istanbul Turkey
 (Address of Principal Executive Offices) (Zip Code)

00 44 207 858 1045
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   

Yes  x     No  o
 
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

Yes  x     No  o
 
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Larger accelerated filer       o
Accelerated filer    o
Non-accelerated filer       o
Smaller reporting company     x
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes  ¨     No  x

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 68,449,419 shares of common stock outstanding as of August 12, 2011.
 
 
 

 
 
TOUCHIT TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

INDEX

   
Page
PART I - FINANCIAL INFORMATION
  4
     
Item 1. 
Financial Statements.
4
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
58
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
  65
     
Item 4.
Controls and Procedures.
  65
     
PART II - OTHER INFORMATION
  65
     
Item 1.
Legal Proceedings.
66
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.  66
     
Item 6.
Exhibits.
66
     
Signature
 
 
 
2

 
 
EXPLANATORY NOTE
 
TouchIT Technologies, Inc. (the “Company”) was incorporated in the State of Nevada as “Hotel Management Systems, Inc.”  On May 7, 2010, the Company entered into a share exchange agreement, with TouchIT Technologies Koll Sti (“TouchIT Tech KS”), TouchIT Education Koll Sti (“TouchIT Ed”)(“TouchIT Ed” and together with TouchIT Tech KS, “TouchIT”), and the stockholders of TouchIT Tech KS and Touch Ed.  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”), all as disclosed on Form 8-K filed by the Company with the Securities and Exchange Commission on May 24, 2010.  See “Recent Developments”.  Subsequently, the Registrant amended its Articles of Incorporation to change its name to TouchIT Technologies, Inc., as disclosed on Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 24, 2010.
 
Unless otherwise specified or required by context, as used in this Quarterly Report on Form 10-Q, the terms “we,” “our,” “us” and the “Company” refer collectively to (i) TouchIT Technologies, Inc., a Nevada corporation (“TouchIT”), (ii) TouchIT Tech KS and TouchIT Ed, both being wholly-owned subsidiaries of TouchIT.  In this Quarterly Report on Form 10-Q, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the shares of our common stock, $0.001 par value per share. All financial information presented is for the combined entity TouchIT, which comprises of TouchIT Tech KS and TouchIT Ed. They have not been consolidated and inter-company transactions, although not significant, do exist.
 
CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
 
In addition to historical information, this Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  The forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward looking statements.  Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management’s opinions only as of the date thereof. 
 
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other forward-looking information. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, growth rates, and levels of activity, performance or achievements. There may be events in the future that we are not able to accurately predict or control.

All forward-looking statements included in this Quarterly Report are based on information available to us on the date of this Quarterly Report.  Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Quarterly Report.
 
 
3

 
 
PART I -  FINANCIAL INFORMATION
 
Item 1.           Financial Statements.

TOUCHIT TECHNOLOGIES KS & TOUCH IT EDUCATION TECHNOLOGIES KS
  COMBINED BALANCE SHEETS
FOR THE PERIODS ENDED 30 JUNE 2011 & 2010 AND YEARS ENDED 31 DECEMBER 2010 & 2009
(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

CURRENT ASSETS
 
30/06/2011
   
31/12/2010
   
30/06/2010
   
31/12/2009
 
                         
Cash and cash equivalents
    1,239       50,556       215,613       54,845  
Trade receivables, net
    5,060       705,225       709,121       274,802  
Due from related parties
    655,135       863,395       602,391       130,594  
Due from Shareholders
    41,955       50,585       56,406       -  
Inventories
    571,586       365,643       291,394       259,883  
Other current assets
    4,223       1,106       5,249       782  
                                 
Total current assets
    1,279,198       2,036,510       1,880,174       720,906  
                                 
NON CURRENT ASSETS
                               
                                 
Property, plant and equipment, net
    59,530       64,495       53,387       29,872  
Intangible assets, net
    18,426       25,145       3,777       -  
Rights
    -       -       11,000       14,976  
Other non current assets
    12,763       3,555       280       3,725  
                                 
Total non current assets
    90,719       93,195       68,444       48,573  
                                 
                                 
TOTAL ASSETS
    1,369,917       2,129,705       1,948,618       769,479  
                                 
                                 
CURRENT LIABILITIES
                               
Borrowings
    -       2,351       8,277       11,282  
Trade payables
    104,721       124,745       51,169       70,619  
Due to shareholders
    188,293       47,257       52,516       75,584  
Due to related parties
    878,822       1,145,992       980,750       670,976  
Other current liabilities
    68,463       73,233       15,898       120,619  
                                 
Total current liabilities
    1,240,299       1,393,578       1,108,610       949,080  
                                 
                                 
NON CURRENT LIABILITIES
                               
Borrowings
    -       -       -       2,321  
Employee termination benefits
    -       -       1,183       -  
Reserve for retirement pay
    -       1,842               1,041  
Share purchase advances
    750,000       750,000       750,000       -  
                                 
Total non current liabilities
    751,078       751,842       751,183       3,362  
                                 
                                 
COMMITMENTS AND CONTINGENCIES
                               
                                 
SHAREHOLDERS' EQUITY
                               
Share capital
    127,570       127,570       125,500       125,500  
Retained earnings
    (143,285 )     (308,463 )     (308,463 )     (46,285 )
Net income / (loss) for the period
    (605,745 )     173,899       271,788       (262,178 )
                                 
Total shareholders’ equity
    (621,460 )     (7,004 )     88,825       (182,963 )
                                 
TOTAL LIABILITIES AND
                               
SHAREHOLDERS' EQUITY
    1,369,917       3,138,416       1,948,618       769,479  
 
 
4

 
 
TOUCHIT TECHNOLOGIES KS & TOUCH IT EDUCATION TECHNOLOGIES KS
  COMBINED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE PERIODS ENDED 30 JUNE 2011 & 2010 AND YEARS ENDED 31 DECEMBER 2010 & 2009
(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

   
30/06/2011
   
31/12/2010
   
30/06/2010
   
31/12/2009
 
                         
NET SALES
    914,867       3,577,881       2,171,547       2,029,074  
COST OF SALES
    (832,401 )     (2,502,037 )     (1,419,424 )     (1,742,047 )
Gross profit
    82,466       1,075,844       752,123       287,027  
MARKETING AND SELLING EXPENSE
    (427,851 )     (504,329 )     (337,590 )     (409,386 )
GENERAL AND ADMINISTRATIVE  EXPENSES
    (123,057 )     (479,064 )     (131,421 )     (140,121 )
Profit from operations
    (468,442 )     92,451       283,112       (262,480 )
OTHER INCOME AND EXPENSES, net
    (46,344 )     24,094       (3,226 )     6,621  
FINANCIAL INCOME AND EXPENSES, net
    (28,433 )     (8,294 )     (4,854 )     (8,741 )
Profit Loss before taxation and currency translation gain/(loss)
    (605,745 )     60,063       275,032       (264,600 )
TAXATION CHARGE
    --       --               --  
Taxation current
    --       --       --       --  
Deferred
    --       --       --       --  
CURRENCY TRANSLATION GAIN/(LOSS)
    --       60,063       (3,244 )     2,422  
Net income/(loss) for the period/year
    (605,745 )     105,115       271,788       (262,178 )
OTHER COMPREHENSIVE INCOME
    --       --       --       --  
Total comprehensive income
    (605,745 )     165,178       271,788       (262,178 )
 
 
5

 
 
TOUCHIT TECHNOLOGIES KS & TOUCH IT EDUCATION TECHNOLOGIES KS
  COMBINED STATEMENTS OF CASH FLOW
FOR THE PERIODS ENDED 30 JUNE 2011 & 2010 AND YEARS ENDED 31 DECEMBER 2010 & 2009
(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)
 
   
30/06/2011
   
31/12/2010
   
30/06/2010
      31.12.2009  
CASH FLOWS FROM OPERATING  ACTIVITIES
                         
Net income
    (605,745 )     165,178       271,788       (262,178 )
Adjustments to reconcile net income to net cash provided
                    --          
By operating activities:
                    --          
Depreciation and amortization
    14,357       17,516       3,859       17,133  
Provision for employee benefit
    (764 )     801       684       727  
                                 
                                 
Changes in operating assets and liabilities
                               
Trade receivables, net
    700,165       (430,428 )     (434,319 )     (189,816 )
Due from shareholders
    1,047       (773,544 )     (56,406 )     12,258  
Due from related parties
    215,844               (471,797 )     203,282  
Inventories
    (205,944 )     (17,620 )     (31,511 )     22,993  
Other current assets
    (3,117 )     98,467       (4,467 )     3,896  
Other non current assets
    (3,117 )     331       3444       (3,725 )
Trade payables
    (7,640 )     54,126       (19,450 )     (272,925 )
Due to shareholders
    45,912       54,413       (31,960 )     30,430  
Due to related parties
    (184,430 )     392,276       318,666       386,729  
Other current liabilities
    (4,770 )     (47,386 )     (104,720 )     95,332  
Share Purchase Advances
            750,000                  
                                 
Net cash generated from (used for)  operating activities
    (31,721 )     67,197       (552,213 )     44,136  
                                 
CASH FLOWS FROM FINANCING ACTIVITIES
                               
Increase/(decrease) in short-term borrowings
    (2,351 )     (8,931 )     (3,005 )     6,815  
Increase/(decrease) in long-term  borrowings
    --               (2,321 )     (2,797 )
Dividends paid
    --               --          
                                 
Net cash (used for) provided from  financing activities
    (2,351 )     (8,931 )     (5,326 )     4,018  
                                 
                                 
CASH FLOWS FROM INVESTING ACTIVITIES
                               
Purchases of property, plant and equipment and intangible assets
    (15,245 )     (62,304 )     (31,693 )     (17,324 )
Share  capital increase
    --                          
                                 
Net cash used for investing activities
    (15,245 )     (62,304 )     (31,693 )     (17,324 )
                                 
NET INCREASE / (DECREASE) IN CASH AND BANKS
    (49,317 )     (4,289 )     160,768       30,830  
                                 
CASH AND BANKS AT BEGINNING OF THE YEAR
    50,556       54,845       54,845       24,015  
                                 
CASH AND BANKS AT END OF THE PERIOD
    1,239       50,556       215,613       54,845  
 
 
6

 
 
 
 
 
COMBINED FINANCIAL STATEMENT OF
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI AND
TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI
AS OF 30 JUNE 2011
 
 
 
 
 
 
7

 


To the Board of
Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı and Touch It Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları
 
We have reviewed the stand-alone financial statements of Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı and Touch It Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları which comprise the financial position as of 30 June 2011 and statements of comprehensive income, changes in equity and cash flows for the period then ended in accordance with Generally Accepted Accounting Principles in the United States of America and issued our qualified review conclusion dated 1 August 2011.
 
The accompanying combined financial statements have been prepared from the reviwed financial statements of Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı and Touch It Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları in the direction of management request for information purposes only.
 
DENGE BAĞIMSIZ DENETİM
SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Member of MAZARS
 
Gökhan Almacı
Partner

Istanbul, 1 August 2011
 
DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL
Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr
 
 
8

 
 

COMBINED FINANCIAL POSITIONS OF
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI  AND
TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI
AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 
     30.06.2011      31.12.2010  
ASSETS
           
Cash and cash equivalents
    1,239       50,556  
Trade receivables, net
    5,060       705,225  
Due from related parties
    655,135       863,395  
Due from shareholders
    41,955       50,585  
Inventories, net
    571,586       365,643  
Other current assets
    4,223       1,106  
                 
Total current assets
    1,279,198       2,036,510  
                 
Property, plant and equipment, net
    59,530       64,495  
Intangible assets, net
    18,426       25,145  
Other non-current assets
    12,763       3,555  
                 
Total non-current assets
    90,719       93,195  
                 
Total assets
    1,369,917       2,129,705  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Short-term bank loans
            2,351  
Trade payables
    104,721       112,361  
Due to shareholders
    51,969       142,381  
Due to related parties
    1,015,146       1,063,252  
Other current liabilities
    68,463       73,233  
                 
Total current liabilities
    1,240,299       1,393,578  
                 
Share purchase advances
    750,000       750,000  
Employee termination benefits
    --       1,842  
                 
Total long-term liabilities
    751,078       751,842  
                 
Shareholders' Equity:
               
Share capital
    127,570       127,570  
Accumulated deficit
    (143,285 )     (308,463 )
Net profit/(loss) for the period
    (605,745 )     165,178  
                 
Total shareholders’ equity
    (621,460 )     (15,715 )
                 
Total liabilities and shareholders’ equity
    1,369,917       2,129,705  
 
 
9

 
 

COMBINED STATEMENT OF COMPREHENSIVE INCOME
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI  AND
TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI
FOR THE THREE MONTHS PERIOD ENDED AS OF 30 JUNE 2011 AND 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 
      30.06.2011       30.06.2010  
                 
Net sales
    914,867       2,171,547  
Cost of sales
    (832,401 )     (553,326 )
                 
Gross profit
    82,466       756,027  
                 
Marketing and selling expenses
    (427,851 )     (411,078 )
General and administrative expenses
    (123,057 )     (61,837 )
                 
Total operating profit
    (468,442 )     283,112  
                 
Financial income / (expense), net
    (28,433 )     (4,727 )
Other income / (expense), net
    (46,344 )     (3,353 )
Translation gain (loss)
    (62,526 )     (3,244 )
                 
Profit before provision for taxation
    (605,745 )     271,788  
                 
Provision for taxation
    --       --  
- Current
               
- Deferred
               
                 
Net profit / (loss) for the year
    (605,745 )     271,788  
 
 
10

 


COMBINED STATEMENT OF CASH FLOW OF
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI  AND
TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CASH FLOWS AS OF 30 JUNE 2011 AND 2010
 (All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

      30.06.2011       30.06.2010  
                 
Cash flow from operating activities
               
Net income for the period
    (605,745 )     273,643  
                 
Adjustments to reconcile net loss to net
               
cash provided by operating activities:
               
                 
Depreciation
    14,357       6,522  
Provision for employee termination benefit
    (764 )     142  
                 
Net income adjusted to non-cash items
    (592,152 )     280,307  
                 
Changes in operating assets and liabilities:
               
Change in trade receivables
    700,165       (442,930 )
Change in due from related parties
    215,844       (463,186 )
Change in due from shareholders
    1,047       (56,406 )
Change in inventories
    (205,944 )     (31,511 )
Change in other current assets
    (3,117 )     (4,467 )
Change in trade payables
    3,364       3,444  
Change in due to related parties
    (7,640 )     (19,450 )
Change in due to shareholders
    45,912       (43,802 )
Change in other current liabilities
    (184,430 )     330,508  
      (4,770 )     (104,720 )
Net cash provided from operating activities
               
      (31,721 )     (552,213 )
Cash flows from investing activities:
               
Purchased of property and equipment
    (15,245 )     (31,693 )
Change in share purchase agreement
    0       750,000  
Net cash provided from investing activities
    (15,245 )     718,307  
                 
Cash flows from financing activities:
               
Increase/(decrease) in short-term borrowings
    (2,351 )     (3,005 )
Increase/(decrease) in long-term borrowings
    0       (2,321 )
                 
Cash flows provided by financing activities
    (2,351 )     (5,326 )
                 
Net decrease in cash and cash equivalents
    (49,317 )     160,768  
                 
Cash and cash equivalents at the beginning of the period
    50,556       54,845  
                 
Cash and cash equivalents at the end of the period
    1,239       215,613  
 
 
11

 
 

COMBINED STATEMENT OF CHANGES IN EQUITY OF
TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI  AND
TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI
AS OF 30 JUNE 2011 AND 31 DECEMBER 2010
(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 1 January 2010
    125,500       (46,285 )     (262,178 )     (182,963 )
                                 
Share capital increase
    2,070       0       0       2,070  
      0       0       0       0  
Transfer to retained earnings
    0       (262,178 )     262,178       0  
      0       0       0       0  
Net income for the year
    0       0       165,178       165,178  
                                 
Balances at 31 December 2010
    127,570       (308,463 )     165,178       -15,715  
                                 
Transfer to retain earnings
    0       165,178       (165,178 )     0  
      0       0       0       0  
Net profit / (loss) for the six months period
    0       0       (605,745 )     (605,745 )
                                 
Balances at 30 June 2011
    127,570       (143,285 )     (605,745 )     -621,460  
 
 
 
12

 
 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
 
 
FINANCIAL STATEMENTS
AS OF 30 JUNE 2011
TOGETHER WITH INDEPENDENT AUDITORS’ REPORT
 
 
 
 
 
 
13

 
 
 
 
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
Touch IT Technologies Kollektif Şirketi
Ronald George Murphy ve Ortakları
 
 
Report on the Financial Statements
 
We have reviewed the accompanying financial statements of Touch IT Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları (“the Company”) which comprise the financial position as of
 
30 June 2011 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 a conclusion on these financial statements based on our review. We conducted our review in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the review to obtain reasonable assurance whether the financial statements are free from material misstatement. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
 
 
DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL
Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr
 
 
14

 
 
 
Basis for Qualification
 
The accompanying financial statements have been prepared assuming that Company will continue as a going concern. Company has suffered recurring losses from operations and has net capital deficiency, negative equity balance amounting to USD 538,604 and the Company’s current liabilities exceed its current assets by an amount of USD 615,673 as of June 30, 2011 that raises substantial doubt about the company's ability to continue as a going concern. 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Conclusion
 
Based on our review, except for the effect of the matter discussed in the preceding paragraph, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not give a true and fair view of the financial position of the Company as at 30 June 2011, and of its financial performance and its cash flows for the three months period then ended in accordance with Accounting Principles Generally Accepted in the United States of America.
DENGE BAĞIMSIZ DENETİM
SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Member of MAZARS
 
Gökhan Almacı
Partner
 
Istanbul, 1 August 2011
 
DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL
Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr
 
 
15

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF FINANCIAL POSITION AS OF 30 JUNE 2011 AND 31 DECEMBER 2010
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
   
Notes
      30.06.2011       31.12.2010  
ASSETS
                     
Cash and cash equivalents
    5       1,049       47,282  
Trade receivables, net
    6       5,060       669,937  
Due from shareholders
    7       40,206       40,743  
Due from related parties
    7       32,622       --  
Inventories, net
    8       316,101       174,226  
Other current assets
    9       2,824       885  
                         
        Total current assets
            397,861       933,073  
                         
Property, plant and equipment, net
    10       59,530       64,495  
Intangible assets, net
    11       18,426       11,833  
Other non-current assets
    12       191       3,555  
                         
        Total non-current assets
            78,147       79,883  
                         
Total assets
            476,008       1,012,956  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
Short-term bank loans
    13       --       2,351  
Trade payables
    14       65,467       58,150  
Due to shareholders
    7       29,743       37,494  
Due to related parties
    7       856,596       1,041,105  
Other current liabilities
    15       61,728       25,232  
                         
     Total current liabilities
            1,013,534       1,164,332  
                         
Employee termination benefits
    16       1,078       1,842  
                         
     Total long-term liabilities
            1,078       1,842  
                         
Shareholders' Equity:
                       
Share capital
    17       90,000       90,000  
Accumulated deficit
            (243,218 )     (419,472 )
Net profit / (loss) for the period
            (385,386 )     176,254  
                         
Total shareholders’ equity
            (538,604 )     (153,218 )
                         
Total liabilities and shareholders’ equity
            476,008       1,012,956  
 
 
The accompanying notes form an integral part of these financial statements.
 
 
 
16

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS PERIOD ENDED AS OF 30 JUNE 2011 AND 2010
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
   
Notes
      30.06.2011       30.06.2010  
                       
Net Sales
    18       536,884       1,500,024  
Cost of sales
    19       (537,338 )     (984,423 )
                         
    Gross profit
            (454 )     515,601  
                         
Marketing and selling expenses
    20       (216,498 )     (342,760 )
General and administrative expenses
    21       (74,589 )     (27,380 )
                         
   Total operating loss
            (291,541 )     145,461  
                         
                         
Other income / (expense), net
    22       (11,471 )     (3,535 )
Financial expenses
    23       (28,433 )     (3,408 )
Currency translation differences
            (53,941 )     6,438  
                         
   Loss before provision for taxation
            (385,386 )     144,956  
                         
Provision for taxation
            --       --  
   - Current
                       
   - Deferred
                       
                         
   Net loss for the period
            (385,386 )     144,956  
                         
 
The accompanying notes form an integral part of these financial statements.
 
 
17

 
 


TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CASH FLOWS AS OF 30 JUNE 2011 AND 2010
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
      30.06.2011       30.06.2010  
Cash flow from operating activities
               
Net loss for the period
    (385,386 )     144,956  
                 
Adjustments to reconcile net loss to net
cash provided by operating activities:
               
                 
Depreciation
    13,617       4,401  
Provision(reversal) for employee termination benefit
    (764 )     684  
                 
Net loss adjusted to non-cash items
    (372,533 )     150,041  
                 
Changes in operating assets and liabilities:
               
Change in trade receivables
    664,877       (391,072 )
Change in due from shareholders
    538       (46,744 )
Change in due from related parties
    (32,622 )        
Change in inventories
    (141,875 )     123,999  
Change in other current assets
    (1,939 )     (4,625 )
Change in other non current assets
    3,364       3,444  
Change in trade payables
    7,317       (51,039 )
Change in due to shareholders
    (7,751 )     (23,878 )
Change in due to related parties
    (184,509 )     338,590  
Change in other current liabilities
    36,496       (64,474 )
                 
Net cash used for operating activities
    (28,637 )     34,242  
                 
Cash flows from investing activities:
               
Purchased of property and equipment
    (15,245 )     (31,693 )
                 
Net cash outflows from investing activities
    (15,245 )     (31,693 )
                 
Cash flows from financing activities:
               
Increase (decrease) in short-term borrowings
    (2,351 )     (3,005 )
Increase (decrease) in long-term  borrowings
    --       (2,321 )
                 
Cash outflows generated by financing activities
    (2,351 )     (5,326 )
                 
Net decrease in cash and cash equivalents
    (46,233 )     (2,777 )
                 
Cash and cash equivalents at the beginning of the period
    47,282       52,641  
                 
Cash and cash equivalents at the end of the period
    1,049       49,864  
 
 
The accompanying notes form an integral part of these financial statements.
 
 
18

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CHANGES IN EQUITY AS OF 30 JUNE 2011 AND 31 DECEMBER 2010
 
 (All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
   
Share
capital
   
Accumulated
deficit
   
Net loss for the year/ period
   
Total Shareholders' Equity
 
                         
Opening balance as of 1 January 2010
    90,000       (100,028 )     (319,444     (329,472 )
                                 
Transfer to accumulated deficit
    --       (319,444 )     319,444       --  
                                 
Net profit (loss) for the year 2010
    --       --       176,254       176,254  
                                 
Balances at 31 December 2010
    90,000       (419,472 )     176,254       (153,218 )
                                 
Transfer to accumulated deficit
    --       176,254       (176,254 )     0  
                                 
Net profit / (loss) for the six months period of 2011
    --       --       (385,386 )     (385,386 )
                                 
Balances at 30 June 2011
    90,000       (243,218 )     (385,386 )     (538,604 )
 
 
The accompanying notes form an integral part of these financial statements.
 
 
19

 
 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
1.     OPERATIONS OF THE COMPANY:
 
General
 
The Company established as a form of partnership (kollektif şirket). In Turkey, partnership is the association 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 form of companies does not have minimum capital requirements.
 
Nature of activities
 
Touch IT Technologies Kollektif Sirketi 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 Technology and Touch IT Education in exchange for the transfer of 100% of the shares of TouchIT Tech 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 30 June 2011 is 11 while it was 10 as at December 31, 2010.
 
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 is effective for interim and annual reporting periods beginning 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 beginning after 15 December 2010, its adoption will not have a material impact on the Company’s financial statements.
 
 
20

 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(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.
Change in Accounting Estimates;
 
In previous periods
 
·  
the depreciation and shareholders marketing expenses were presented under the account of marketing & selling expense,
·  
the administrative personnel wages was presented under the direct labor cost
 
rather than administrative expense.
 
The change in accounting estimates had the following impact on the opening figures;
 
   
Administrative expense
   
Marketing expense
   
Cost of Sales
 
Balances as reported at 30 June 2010
    96,964       269,272       988,327  
Classification of personnel cost
    3,904       --       (3,904 )
Classification of depreciation
    1,822       (1,822 )     --  
Classification of shareholders marketing expense
    (75,310 )     75,310       --  
Restated balance at 30 June 2010
    27,380       342,760       984,423  
 
 
21

 
 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
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 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.
 
 
22

 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(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 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 License for the exemption of income tax which has been taken from Undersecretaries 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 30 June 2011 and 31 December 2010:
 
      30.06.2011       31.12.2010  
                 
USD
    1.6302       1.5460  
EURO
    2.3492       2.0491  
GBP
    2.6111       2.3886  
                 
Average USD
    1.5934       1.4991  
 
Comprehensive income
 
In June 1997, the Financial Accounting Standard Board issued SFAS No. 130, “Reporting Comprehensive Income”. SFAS 130 is effective for years beginning after 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.
 
 
23

 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(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 30 June 2011 and 31 December 2010 cash and cash equivalents comprised of the followings:
 
      30.06.2010       31.12.2010  
                 
Cash in hand
    911       1,196  
Banks
    138       46,086  
                 
Total
    1,049       47,282  
 
 
24

 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
6.     TRADE RECEIVABLES
 
As of 30 June 2011 and 31 December 2010 trade receivables comprised of followings:
 
      30.06.2011       31.12.2010  
                 
Proformance Products
    1,836       526,077  
Others ( less than USD 60,000)
    5,060       143,860  
Doubtful receivables (-)
    (1,836 )     --  
                 
Total
    5,060       669,937  
 
7.     RELATED PARTY TRANSACTIONS
 
Due from shareholders has been presented as follows:
 
Due from shareholders
    30.06.2011       31.12.2010  
                 
Recep Tanışman
    40,165       40,743  
Andrew Stuart Brabin
    41       --  
Total
    40,206       40,743  
 
Due from related parties has been presented as follows:
 
Due from related parties
    30.06.2011       31.12.2010  
                 
Touchit Technologies USA LLC
    32,622       --  
Total
    32,622       --  
 
Due to related parties and shareholders has been presented as follows:
 
Due to related parties
    30.06.2011       31.12.2010  
                 
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    339,542       417,709  
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
    468,965       587,308  
Kamron Inc
    36,089       36,088  
International RT
    12,000       0  
                 
Total
    856,596       1,041,105  
 
Due to shareholders
    30.06.2011       31.12.2010  
                 
Ali Rıza Tanışman
    29,743       22,549  
Andrew Brabian Stuart
    --       14,566  
Recep Tanışman
    --       379  
                 
Total
    29,743       37,494  
 
 
 
25

 
 

 
TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011
 
(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)
 

 
7.    RELATED PARTY TRANSACTIONS (CONTINUED)
 
In the course of conducting its business, the Company conducted various business transactions with related parties on commercial terms
 
Major purchases and service provided from related parties have been presented as follows:
 
Trade goods
    30.06.2011       30.06.2010  
                 
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    139,908       201,119  
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
    152,822       55,680  
                 
Total
    292,730       256,799  
 
             
Services provided
    30.06.2011       30.06.2010  
                 
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    372       40,994  
International TR
    36,000       1,730  
                 
Total
    36,372       42,724  
 
Major sales to related parties have been presented as follows:
 
      30.06.2011       30.06.2010  
                 
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
    58,451       146,408  
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    271       --  
Touchit Technologies USA LLC
    66,622       --  
                 
      125,344       146,408  
 
8.     INVENTORIES:
 
As of 30 June 2011 and 31 December 2010 inventories comprised of the followings:
 
      30.06.2011       31.12.2010  
                 
Raw material and supplies
    228,384       196,971  
Finished goods
    125,459       1,534  
Advances given for purchases