Business context and reporting period
The supplied filing is for TouchIT Technologies, Inc., a designer and marketer of interactive whiteboards and LCD products manufactured through third parties. It is not a BTCS Inc. filing, despite the request metadata. The report covers the six months ended June 30, 2012; the cover page also contains an inconsistent reference to a quarter ended June 30, 2011. The filing does not provide clearly separated results for the three-month quarter.
TouchIT says it closed its Turkish subsidiaries in August 2011 and shifted production to Taiwan. The financial statements combine the Turkish entities but are not consolidated, and the filing notes that intercompany transactions and balances exist.
Financial results and position
Unless noted otherwise, amounts are US dollars. The filing’s income-statement and MD&A figures identify the periods as the six months ended June 30.
| Metric | Six months ended June 30, 2012 | Comparable 2011 period |
|---|---|---|
| Revenue | $505,685 | $914,867 |
| Gross profit / margin | $152,683 / 30.2% | $82,466 / 9.0% |
| Operating loss | $50,092 | $468,442 |
| Net loss | $48,892 | $605,745 |
| Cash used in operating activities | $293,074 | $31,721 |
At June 30, 2012, reported cash was $15,584, current assets $170,196, total assets $572,228, current liabilities $525,431, long-term borrowings $71,841, and shareholders’ deficit $25,044. The company reported a $250,000 revolving receivables-purchase facility entered into in April 2012; the facility is secured by company assets and includes a personal guaranty from the CEO. The filing does not clearly reconcile the facility’s outstanding balance to the balance-sheet debt figure.
The cash-flow statement reports a $54,705 decrease in cash during the six-month period, from $70,289 to $15,584. Financing activities provided $238,574, while operations used $293,074. The filing’s narrative separately states a $66,645 cash decrease, which does not match the cash-flow statement.
Material changes versus the prior comparable period
- Revenue fell $409,182, or about 45%, which management attributed to customers’ uncertain budget commitments and slower market activity.
- Gross profit increased by $70,217 despite lower revenue; gross margin rose to about 30% from 9%. Management attributed improvement to restructuring and lower costs following the closure of the Turkish manufacturing facilities.
- Net loss narrowed by $556,853, and the operating loss also narrowed. Marketing and selling expense fell substantially, while general and administrative expense increased.
- Cash used in operations increased substantially. Management cites working-capital movements and changes following the Turkish subsidiaries’ closure; the statement also includes a $436,865 prior-period adjustment whose nature is not explained clearly in the supplied text.
- Employees decreased from 12 to five. Current assets and inventory were materially lower; management described the inventory approach as moving toward “just in time” supply.
- Common shares outstanding increased from 55,839,419 at January 1 to 74,189,419 at June 30. The equity statement records 18.35 million shares in capital transactions, but the consideration and transaction details are not clear in the supplied text.
Outlook, management commentary, risks and unusual items
- Management said product demand exceeded supply and expected revenue and gross profit to grow during the rest of 2012. It projected that the new LCD line could represent 40% of revenue by Q4 2012; this is management’s expectation, not a formal financial forecast.
- Management cited new distribution and retail relationships, prospective sales through Sam’s Club and OfficeMax, and a Western Australian government supply contract with procurement expected to begin in September 2012. These are forward-looking commercial prospects, not reported revenue.
- The TouchIT WebCast product was at prototype stage, with a planned Europe launch in September 2012 and wider rollout by year-end. Management expected associated cloud services to create recurring revenue.
- The company stated that achieving its business objectives depends on raising additional capital until operating revenue is adequate. Risks identified include demand fluctuations, product constraints, competition, executive departures, regulatory and intellectual-property developments, and financing needs. It also identified foreign-currency, credit, and liquidity risks.
- The filing records a $400,000 “Fully Reporting Public Shell” as a non-current asset. Its nature, valuation basis, and supporting detail are not clear in the supplied text.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2012. The filing says six material weaknesses were identified but the supplied text describes only three, including missing written control documentation, insufficient segregation of duties, and inadequate financial-reporting review and supervision. No control changes were reported during the six months.
- An independent CPA performed a review, not an audit, and expressed limited assurance rather than an audit opinion. The company reported no known legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Confirm the registrant and reporting period: the supplied document is TouchIT’s 2012 Form 10-Q, not a BTCS filing, and its cover contains a conflicting 2011 period reference.
- Reconcile the financial statements and notes. For example, June 2012 trade payables are shown as $478,171 in one balance-sheet presentation but $153,672 in the notes; other MD&A figures also differ from the primary statements. The filing text does not provide a clear reconciliation.
- Understand the $436,865 prior-period cash-flow adjustment, the reported $400,000 shell asset, and the terms and actual outstanding balance of the secured credit facility.
- Verify the basis for the reported share issuance, the impact of dilution, and the status and timing of the cited retail, government, distribution, and product-launch opportunities.
- Assess liquidity and funding needs alongside the operating cash outflow, low cash balance, negative working capital, and ineffective disclosure controls.