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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.
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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.
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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, PCMall.gov, Cascade, US
Markerboard, Touchboards.com 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.
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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:
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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.
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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 %
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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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