Filing summary
Entity mismatch: The supplied filing is for TouchIT Technologies, Inc., not BTCS Inc. It describes interactive display products and contains no BTCS or cryptocurrency business information. The filing covers the quarter ended June 30, 2013; the financial statements and MD&A present year-to-date results for the six months ended June 30.
Business context and reporting period
TouchIT designed and sold interactive whiteboards, LCD/LED displays and related products, using third-party manufacturing. The filing says the Turkish subsidiaries’ financial information is combined but not consolidated; intercompany transactions existed, though described as insignificant. The company reported five employees.
Financial performance and position
- Revenue: $800,189 for the six months ended June 30, 2013, up 58% ($294,504) from $505,685 in the comparable 2012 period.
- Profitability: Gross profit was $249,700 versus $152,683; gross margin was approximately 31.2% versus 30.2%. Operating income was $71,384 versus an operating loss of $50,092. Net income was $80,405 versus a net loss of $48,892; net margin was approximately 10.0% versus negative 9.7%. No income tax was reported.
- Cash flow: Operating cash flow was $264,808, compared with cash used of $293,074 in 2012. The filing attributes the improvement substantially to increases in trade payables and other liabilities. Investing cash flow was zero. Financing cash flow was negative $261,499. Reported cash increased $3,309 from year-end 2012 to $9,722.
- Liquidity: Current assets were $279,890 and current liabilities $561,824, implying negative working capital of $281,934 and a current ratio of approximately 0.50. Cash was $9,722; net trade receivables were $201,339 and inventory $68,829.
- Debt and obligations: The balance sheet reported no borrowings at June 30, 2013, but showed $189,499 due to related parties, $218,517 in trade payables and $153,808 in other current liabilities. Total liabilities were $561,824. Shareholders’ equity was $123,419.
- Other asset: Non-current assets included $400,000 described in the notes as a “Fully Reporting Public Shell.”
Changes, outlook and risks
- Management attributed higher revenue and gross profit to a shift toward the LED product line and reported reduced marketing expense ($14,717 versus $37,458) and slightly lower general and administrative expense ($163,599 versus $165,317).
- Management said product demand exceeded supply and expected revenue and gross profit to rise. It forecast that LED products could represent 75% of revenue by Q4 2013, and anticipated digital signage could become a revenue stream by Q4. These are management expectations, not reported results or formal financial guidance.
- The Bibby International Trade Finance receivables facility was renewed for a year in April 2013. On August 5, after the reporting period, its maximum increased from $250,000 to $500,000. The facility is secured by company assets and includes a personal guaranty from the CEO.
- The filing describes low cash reserves and dependence on raising additional capital until revenues are sufficient. Risks cited include product constraints, demand and competition, key-person loss, regulatory and intellectual-property developments, and financing needs.
- Related-party balances were owed to Kamron, Inc. ($108,413) and ASB Trading ($81,086). The filing also describes agreements to issue 45 million restricted shares to each of two insiders for accrued service amounts of $10,000 each; total common shares outstanding were reported as 228,064,419 as of August 13, 2013.
- Management identified material weaknesses in internal controls, including lack of written procedures, insufficient segregation of duties and lack of financial-reporting review and supervision. The filing says no changes to internal control occurred during the six months. The independent accountant performed a review providing limited assurance, not an audit opinion. No material legal proceedings were reported.
Most important facts to verify
- Confirm the intended issuer: this is a TouchIT Technologies filing, not a BTCS filing.
- Reconcile the cash-flow presentation: MD&A says cash decreased by $5,862, while the reported beginning and ending balances show an increase of $3,309. The financing activity lines also warrant reconciliation.
- Verify the collectability and timing of the $201,339 receivables, the terms and availability of the expanded credit facility, and the company’s ability to meet current obligations.
- Review the $400,000 “Fully Reporting Public Shell” asset’s nature, valuation and impairment basis, and the substantial related-party balances.
- Confirm the insider share issuances, service consideration and resulting ownership dilution; the filing’s share-capital note contains date and presentation inconsistencies.
- Assess the internal-control weaknesses and note that the filing describes six weaknesses but the supplied text details only three; also verify the evaluation date, which is stated as March 31, 2013.