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TOUCHIT TECHNOLOGIES, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
[November 09, 2012]

TOUCHIT TECHNOLOGIES, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Quarterly Report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors.

Forward-Looking Statements This Quarterly Report contains forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the sections entitled "Management's Discussion and Analysis or Plan of Operation," "Business" and those listed in our other Securities and Exchange Commission filings. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as "anticipate," "believe," "continue," "ongoing," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project" or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this Report.

15 -------------------------------------------------------------------------------- Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Report.

Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of our control, and involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made, including, but not limited to, the following: actual or anticipated fluctuations in our quarterly and annual operating results; actual or anticipated product constraints; decreased demand for our products resulting from changes in consumer preferences; product and services announcements by us or our competitors; loss of any of our key executives; regulatory announcements, proceedings or changes; announcements in the touch technology community; competitive product developments; intellectual property and legal developments; mergers or strategic alliances in the touch technology industry; any business combination we may propose or complete; any financing transactions we may propose or complete; or broader industry and market trends unrelated to its performance.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Plan of Operation The ability of our Company to achieve our business objectives is contingent upon our success in raising additional capital until adequate revenues are realized from operations.

We are a manufacturer (via 3rd party contract manufacture) of touch based visual communication products for education and corporate worldwide marketplaces. Our mission is to design and manufacture high quality technology products. We manufacture a large range of touch screen and touch board products to suite all types of application from pen input wireless tablets, to large enameled steel touch-sensitive interactive whiteboards, large interactive Liquid Crystal Displays ("LCD") and large Light Emitting Diode Displays ("LED"). Our products stand out from our competition in terms of our design, functionality and price offering. Our customers seek our products as they provide them with 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.

In the past four years, we have designed, manufactured, launched, developed and sold five new products as well as established the business from scratch.

COMPANY OVERVIEW We manufacture touch-based visual communication products for the education and corporate worldwide marketplaces. Our products stand out from our competition in terms of 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.

Our keys to success are: 1. Establish and maintain working relationships and contractual agreements with distribution and Original Equipment Manufacturer ("OEM") customers; 2. Increase our profit margin by lowering the import and raw material costs by bulk purchasing from vendors; 3. By increasing our purchasing power, we can increase our stock holding and lowering delivery times to customers thus enabling further sales growth; and 4. Effectively communicate with our current and potential customers, through targeted efforts, our position as a differentiated provider of the highest quality of margin laden touch-based communication products.

16 -------------------------------------------------------------------------------- Recent Developments On April 11, 2012, we borrowed Two Hundred Fifty Thousand Dollars ($250,000) (the "Advance") from Bibby International Trade Finance (the "Lender") pursuant to a revolving credit facility evidenced by a Master Purchase Agreement with an effective date of April 11, 2012 (the "MPA").

The MPA evidences a revolving credit facility for the purchase of the Company's accounts receivable up to the principal amount of $250,000, which subject to Lender approval, may be increased. The outstanding principal amount is due on April 11, 2013.

The Advance is secured by, among other things, (i) the MPA made by and between our Company and the Lender pursuant to which the Borrower has granted a security interest in all of the Borrower's assets to the Lender (the "Security Agreement"), (ii) a personal guaranty and validity guaranty executed by Andrew Brabin, Chief Executive Officer of our Company.

The MPA also includes customary representations and warranties and affirmative and negative covenants, including, among others, payment of certain customary fees and expenses, covenants relating to financial reporting, maintenance of property and insurance, incurrence of liens and/or other indebtedness. The MPA also contains customary provisions for events of default, remedies in circumstances of default, required notices, governing law and jurisdiction of governance.

We have now completed the development and the establishment of a production line in Taiwan for a new range of Interactive LCD & LED products. These products include Interactive LCDs, with and without an embedded PC in sizes from 32" to 82" and LEDs from 42" to 80". The unique feature for the range of LCDs and LEDs is that they do not require a driver to be installed, nor do they require any form of calibration by the user. These are true plug and play devices. All of these products are full high definition and touch-based and include options of multiple input "multi-touch". We have also launched the TouchIT Fusion which is three interactive products in one. An Interactive LCD, and Interactive Easel and an Interactive Table. This is a revolutionary product as it takes us into new group collaboration markets.

We have seeded units and sold into the United States, Australia and the Middle East for the new LCD product line. The company has received excellent feedback on these models and Management expects that by Quarter 4 2012, the LCD range will be 40% of revenue. The LCD range represents a higher ticket item which will impact revenues positively and also presents a greater margin opportunity which Management believes will have a positive impact on profits.

We have continued our efforts of expanding our product line through the K thru 12 markets as well as the higher Educational market. We are working on opportunities in Pennsylvania, Michigan, Mississippi, and higher educational institutions in Upstate NY and NJ.

We have expanded our reseller base with Demco,, Cascade, US Markerboard, and OfficeMax and look to expand further into the Canadian and South American marketplaces with several interested parties looking at the TouchIT product lines.

We have enlisted the services of a new Sales Rep for the USA that will commence activities in Q4 2012. His role will involve the appointment of new resellers through the USA. Coming from the industry, Management is optimistic he will have a positive impact on revenues for Q4 2012 and beyond.

We have had additional interest from the US government on our interactive boards and Interactive LCD. Subsequently, the US Government has purchased sample units of the new TouchIT LCD Duo. This was delivered this quarter and is being installed and trialed.

We have targeted the retail marketplace and partnered with the Sales and Marketing Team, Berberian Associates Group covering New England, Florida, Midwest and the South in order to take TouchIT Technologies' product line to the retail, online, educational and enterprise channels. Established for over 30 years, Berberian Associates have a wealth of experience in Sales and Marketing of technology products. They represent a host of brands and have the necessary infrastructure to help grow businesses. Berberian Associates completed sales training on the products and began the product introductions to some of the largest retailers in the USA. Companies that have expressed initial interest are Tech Depot, Tiger Direct and Sam's Club. We have singed initial vendor agreements with Costco and Sam's Club. Sam's Club are now live with the products in their online portfolio. Initial meetings have also taken place with Staples USA with a look to launch the range in 2013.

17 -------------------------------------------------------------------------------- We have signed a vendor agreement with Office Max in the United States of America. Office Max underwent a training program and the product line has been loaded into their website. OfficeMax have placed their first orders with TouchIT Technologies and Management expects this business to grow. We have also committed to being in the Office Max Maxi Catalogue which is released in Q4 2012 ready for 2013 as well as putting a demonstration fleet of 46" LED products at their disposal for the US marketplace.

We entered the Australian market place by partnering with Ingram Micro PTY late in 2011. Ingram Micro is currently working on several large projects which encompass both the Interactive Whiteboard and the LCD/LED product lines. Through one of the company's resellers, our products have been chosen for the Western Australian Government Supply Contract for the next four years. Procurement from which began in September 2012. This includes both the TouchIT Board and the TouchIT LCD Duo range. We have also signed a third party vendor agreement with Dell Australia to allow Dell access to our products.

We have continued our expansion into the Middle East and are currently tendering our product in various government and private tenders. The outcomes of which we expect to be received before the end of calendar year 2012.

We continue to grow in the South African market. We officially launched the TouchIT LCD Duo range of LCD products in July and reseller took place in September 2012 in Johannesburg.

We launched this quarter a new product called TouchIT WebCast. TouchIT WebCast is a media presentation system that allows the streaming of synchronized multimedia and video presentations over the Internet from a single location, a lecture theater or boardroom for example. One can then make the presentations available to multiple viewers on cross platform devices either live or on demand anywhere in the world. TouchIT WebCast is a combination of hardware and software that when used in conjunction with our Cloud Storage and Streaming Services, allows the capture, streaming and storage of lectures, training presentations or corporate updates for example. Our current product line enables the user to present and teach. With the addition of TouchIT WebCast, those same presentations and lessons can be captured, stored and shared with anyone anywhere in the world with an internet connection.

We will generate revenue from the sale of the Recorder Box, the Cloud Services Package and the Accessories. The accessories are still being finalized and one will be the HD Camera as well as a lapel microphone to enable the Company to offer the complete package. The Cloud Services are an annual subscription so enables the company to have a reoccurring revenue stream which has not been available to the company before.

Last, we have undertaken and completed significant research and development of new technologies for a low cost interactive whiteboard. We have launched for the purpose of low cost tenders an Electromagnetic Interactive Whiteboard. This is a low cost product that will enable the Company to compete in large tenders that are particularly price sensitive in markets such as the Middle East and certain parts of Europe.

Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.

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 also 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: 18 -------------------------------------------------------------------------------- Basis of presentation financial statements: Our Company maintains its books of account and prepares its statutory financial statements in accordance with accounting principles in the United States of America 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 equipments: 2-6 years - Motor vehicles: 4 years - Furniture, fixtures and office equipments: 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: We use a calendar year as our fiscal year ending December 31.

19 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS TOUCHIT TECHNOLOGIES, INC STATEMENTS OF COMPREHENSIVE INCOME FOR QUARTER ENDED SEPTEMBER 30, 2012 & 2011 (Amounts expressed in US Dollars (USD) in full unless otherwise indicated) 30/09/2012 30/09/2011 NET SALES 983,949 1,150,427 COST OF SALES 685,489 1,024,118 Gross profit 298,460 126,309 MARKETING AND SELLING EXPENSE 46,382 437,851 GENERAL AND ADMINISTRATIVE EXPENSES 248,622 279,900 Profit from operations 3,457 (591,442 ) OTHER INCOME AND EXPENSES,net 5,190 57,876 FINANCIAL INCOME AND EXPENSES, net -- 178,028 Profit Loss before taxation and currency translation gain/(loss) 8,647 (355,538 ) TAXATION CHARGE -- Taxation current -- Deferred -- CURRENCY TRANSLATION GAIN/(LOSS) -- Net income/(loss) for the year 8,647 (355,538 ) OTHER COMPREHENSIVE INCOME -- Total comprehensive income 8,647 (355,538 ) NET SALES (REVENUE) - For the first nine months of the year, quarter ended September 30, 2012, as compared to the nine months ended September 30, 2011, revenue has decreased by 14% or by $166,478 from $1,150,427 to $983,949. This decrease can be attributed firstly, to a slow down in the Interactive Whiteboard market due to uncertain budgetary commitments from certain of our customers. Our going forward sales activity reflects our management's plan of increasing focus on the development of recurring business in existing and new markets for the new Interactive LCD & LED Lines as well as TouchIT WebCast. We are also looking to break into the retail market (Business to Business Divisions) of some of the larger retailers in the USA. The launch of the TouchIT WebCast product will also add reoccurring sales revenue to the Company. Our management does anticipate that revenues will continue to grow for the balance of the year due to the LCD/LED product lines which represents a much larger value ticket item which will drive revenues higher, despite a decrease in Interactive Whiteboard Sales.

Management also notes that the Interactive LCD/LED range is a more profitable product line than the Interactive Whiteboards.

GROSS PROFIT - For the first nine months of the year, quarter ended September 30, 2012, as compared to the nine months ended September 30, 2011, gross profit has decreased by $338,629 from $1,024,118 to $685,489. This is primarily due to the restructuring of the business over the last four quarters. Our management does anticipate gross profits to rise for the balance of the year.

OPERATIONAL PROFIT - For the first nine months of the year, quarter ended September 30, 2012, as compared to the nine months ended September 30, 2011, operational profit has decreased from $279,900 to $248,622 an decrease of $31,278. This can be attributed to the decrease in revenues.

30/09/2012 30/09/2012 MARKETING AND SELLING EXPENSE $ 46,382 $ 437,851 As a percentage of revenue 5 % 38 % GENERAL AND ADMINISTRATIVE EXPENSES $ 248,622 $ 279,900 As a percentage of revenue 25 % 24 % 20-------------------------------------------------------------------------------- NET INCOME FOR THE PERIOD - For the first nine months of the year, quarter ended September 30, 2012, as compared to the nine months ended September 30, 2011, NET income for the period has increased by $364,185 from $(355,538) to $8,647 This can be attributed to the Management's focus on reducing overhead costs to maximize profitability when revenues increase, and also the shift in sales to the more profitable LCD/LED product lines.

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