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EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - BTCS Inc.f10k2010a1ex31i_touchit.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - BTCS Inc.f10k2010a1ex32i_touchit.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - BTCS Inc.f10k2010a1ex31ii_touchit.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
   
FORM 10-K/A
Amendment No. 1
 
(Mark One)
x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2010
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-151252
 
TouchIT Technologies, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
Nevada
 
26-2477977
(State of Incorporation)
 
(I.R.S. Employer Identification Number)
     
 
Istanbul Trakya Serbest Bölgesi Atatürk Bulvari Ali Riza Efendi cd., A4 Blok Çatalca,
Istanbul Turkey
(Address of Principal Executive Offices, Including Zip Code)
 
Registrant’s telephone number: +44 207 858 1045/+90 212 768 6304
 
Securities registered pursuant to Section 12(b) of the Act:
     
None
 
Not Applicable
(Title of each class)
 
(Name of each exchange on which registered)
 
Securities registered pursuant to Section 12(g) of the Act:  None.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
 
 
 

 
 
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  o    No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    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 the definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
     Large Accelerated Filer   o
Accelerated Filer   o
Non-accelerated Filer   o
(Do not check if a smaller reporting company)
Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  ¨    No  x
 
The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $6,993,000.
 
The number of shares outstanding of common stock as of March 30, 2011 was 64,549,419.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
N/A.
 
 
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EXPLANATORY NOTE

TouchIT Technologies, Inc. (the “Company”) is filing this Amendment No. 1 (this “Amendment”) to its Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2011 (the “Original Report”) to amend the following:

1) Item 9A of Part II, to include Management’s Annual Report on Internal Control Over Financial Reporting as of December 31, 2010 as it was not included in the Original Report, and to update the evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the same reporting period; and

2) Item 15 of Part IV, to include a revised Independent Auditors Reports to reference the two year period ended December 31, 2010 and 2009 and confirm that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States). While Item 15 is restated herein in its entirety, the only change to this Item was the inclusion of the revised Independent Auditors Reports, located on pages F-1 and F-20. 
 
No other changes have been made to the Original Report. This Amendment speaks as of the original filing date of the Original Report, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way and other disclosures made in the Original Report.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements, included in this Amendment on Form10-K/A and other filings of the registrant under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as well as information communicated orally or in writing between the dates of such filings may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.

Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
 
 
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PART II

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and we concluded that our disclosure controls and procedures were ineffective as of December 31, 2010 because we did not include our management’s Annual Report on Internal Control Over Financial Reporting in the Original Report.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Mr. Andrew Brabin. 
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Management is responsible for the following:
 
· establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and
 
· assessing the effectiveness of internal control over financial reporting.
 
Our Company’s internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our board of directors, management and other personnel. It was designed to provide reasonable assurance to our management, our board of directors and external users regarding the fair presentation of financial statements in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that:
 
· pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets,
 
 
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· provide reasonable assurance that transactions are recorded as to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and board of directors, and
 
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
 
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in  Internal Control — Integrated Framework.
 
Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based upon the assessment, management believes that, as of December 31, 2010, our internal control over financial reporting is effective based on those criteria.
 
Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. We can report that there were no changes in the internal controls and procedures over financing reporting during the fourth quarter ended December 31, 2010 that have materially affected or were reasonably likely to affect our Internal Control Over Financial Reporting.
 
 
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PART IV

Item 15.   Exhibits, Financial Statements Schedules.

(a) Documents Filed. The following documents are filed as part of this Annual Report Form 10-K or incorporated by reference as indicated:

1.           Financial Statements. The financial statements of TouchIT Technologies, Inc. and its subsidiaries are filed under Item 8:
 
 
Report of Independent Registered Public Accounting Firm for TouchIT Ed
  F-1
     
 
TouchIT Ed Statement of Financial Position as of December 31, 2010 and 2009
  F-2
     
 
TouchIT Ed Statement of Income as of December 31, 2010 and 2009
  F-3
     
 
TouchIT Ed Statement of Cash Flow as of December 31, 2010 and 2009
  F-4
     
 
TouchIT Ed Statement of Changes in Equity as of December 31, 2010 and 2009
  F-5
     
 
Notes to TouchIT Ed Financial Statements
  F-6
     
 
Report of Independent Registered Public Accounting Firm for TouchIT Tech KS
  F-20
     
 
TouchIT Tech KS Statement of Financial Position as of December 31, 2010 and 2009
  F-21
     
 
TouchIT Tech KS Statement of Income as of December 31, 2010 and 2009
  F-22
     
 
TouchIT Tech KS Statement of Cash Flow as of December 31, 2010 and 2009
  F-23
     
 
TouchIT Tech KS Statement of Changes in Equity as of December 31, 2010 and 2009
  F-24
     
 
Notes to TouchIT Tech KS Financial Statements
  F-25
 
2.           Exhibits and Exhibit Index. See the Exhibit Index included as the last part of this Annual Report on Form 10-K, which is incorporated herein by reference.
 
 
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EXHIBIT INDEX
 
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
 
Exhibit Number  
Description
   
3.1  
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of Form 10-K filed March 31, 2011)
   
3.2
Bylaws of TouchIT Technologies, Inc. (incorporated by reference to Exhibit 3.2 of Form S-1 filed May 29, 2008)
   
10.1
Share Exchange Agreement (incorporated by reference to Exhibit 2.1of Form 8-K filed on May 12, 2010)
   
10.2
The Credit Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K filed February 23, 2011)
   
21 
Subsidiaries of TouchIT Technologies, Inc. (incorporated by reference to Exhibit 21 of Form 10-K filed March 31, 2011)
   
31.1*
Certification of Principal Executive Officer
   
31.2*
Certification of Principal Financial Officer
   
32.1*
Certification of Chief Executive Officer and Chief Financial Officer
   
* Filed herewith
 
 
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities  Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                                       TouchIT Technologies, Inc. f.k.a Hotel Management Systems, Inc.
 
By:  
/s/ Andrew Brabin
 
Andrew Brabin, Chief Financial Officer
 
September 7, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 

Signature
 
Title
 
Date
         
/s/ Recep Tanisman
 
Chief Executive Officer and Director (Principal Executive Officer)
 
September 7, 2011
Recep Tanisman
       
         
 
/s/ Andrew Brabin
 
Chief Financial Officer,  Corporate Secretary, Treasurer, and Director (Principal Financial and Accounting Officer)
 
 
September 7, 2011
Andrew Brabin
       
         
/s/ Ronald George Murphy
 
Officer and Director
 
September 7, 2011
 Ronald George Murphy
 
 
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TOUCH IT EDUCATION TECHNOLOGIES
DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI



FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2010
TOGETHER WITH INDEPENDENT AUDITORS’ REPORT
 

 

 
 

 

INDEPENDENT AUDITORS REPORT
 
To the Board of Directors of
Touch It Education Technologies
Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı
 
Report on the Financial Statements
 
We have audited the accompanying financial statements of Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı  (“the Company”) which comprise the financial position as of 31 December 2010 and 31 December 2009 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.
 
Auditor’s Responsibility
 
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
Opinion
 
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as of December 31, 2010, and of its financial performance and its cash flows for the year then ended in accordance with Accounting Principles Generally Accepted in the United States of America.
 
We would like to draw your attention to the following matter:
 
According to Turkish Tax Legislation, service invoices issued abroad are subject to withholding tax with a rate of 20%, provided that the service has been received in Turkey. During our audit of 2010, we have determined significant amount of such invoices under the name of consultant fee and expenses totally amounting to approximately USD 218,628. However, the Company Management does not foresee any risk on the basis of the interpretation that those consultancy services have been received abroad; the Company may face possible tax risk in case of a different interpretation by the tax office
 
Istanbul, 8 March  2011
 
DENGE BAĞIMSIZ DENETİM
SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Member of MAZARS
 
/s/ Gökhan Almacı
Partner
 
 
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TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)


   
Notes
      31.12.2010       31.12.2009  
ASSETS
                     
Cash and cash equivalents
    5       3,274       2,204  
Trade receivables, net
    6       35,288       5,408  
Due from related parties
    7       863,395       130,594  
Due from shareholders
    7       9,842       --  
Inventories, net
    8       191,417       93,435  
Other current assets
    9       221       382  
                         
        Total current assets
            1,103,437       232,023  
                         
Rights, net
    10       13,312       14,976  
                         
        Total non-current assets
            13,312       14,976  
                         
Total assets
            1,116,749       246,999  
                         
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
                   
Trade payables
    11       54,211       1,606  
Due to related parties
    7       104,887       28,816  
Due to shareholders
    7       22,147       19,924  
Other current liabilities
    12       48,001       49,103  
                         
     Total current liabilities
            229,246       99,449  
                         
Share purchase advances
    1       750,000       --  
Employee termination benefits
    13       --       1,041  
                         
     Total long-term liabilities
            750,000       1,041  
                         
Shareholders' Equity:
                       
Share capital
    14       37,570       35,500  
Retained Earnings
            111,009       53,743  
Net income/ (loss) for the period
            (11,076 )     57,266  
                         
Total shareholders’ equity
            137,503       146,509  
                         
Total liabilities and shareholders’ equity
            1,116,749       246,999  

The accompanying notes form an integral part of these financial statements.
 
 
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TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
STATEMENTS OF INCOME AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
   
Notes
      31.12.2010       31.12.2009  
                       
Sales
    15       1,307,420       777,013  
Cost of sales
    16       (929,350 )     (649,708 )
                         
Gross profit
            378,070       127,305  
                         
Marketing and selling expenses
    17       (154,275 )     (24,562 )
General and administrative expenses
    18       (289,285 )     (55,690 )
                         
Total operating income
            (65,490 )     47,053  
                         
Financial income / (expense), net
    20       (3,043 )     (2,172 )
Other income / (expense), net
    19       15,652       12,077  
                         
Profit  before provision for taxation
            (52,881 )     56,958  
                         
Provision for taxation
                       
   - Current
                       
   - Deferred
                       
                         
Net income for the period
            (52,881 )     56,958  
                         
Other comprehensive income
                       
Currency translation differences
            41,805       308  
                         
Total comprehensive income for the period
            (11,076 )     57,266  

The accompanying notes form an integral part of these financial statements.

 
F-3

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
STATEMENT OF CASH FLOW AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
      31.12.2010       31.12.2009  
                 
Cash flow from operating activities
               
Net income for the period
    (11,076 )     57,266  
                 
Adjustments to reconcile net profit to net cash provided by operating activities:
               
                 
Provision for employee termination benefit
    (1,041 )     727  
Depreciation
    1,664       8,493  
                 
Net income adjusted to non-cash items
    (10,453 )     66,486  
                 
Changes in operating assets and liabilities:
               
Change in trade receivables
    (29,880 )     (4,124 )
Change in due from related parties
    (732,801 )     203,282  
Change in due from shareholders
    (9,842 )     12,258  
Change in inventories
    (97,982 )     (23,205 )
Change in other current assets
    161       321  
Change in trade payables
    52,605       (331,716 )
Change in due to related parties
    84,963       19,924  
Change in due to shareholders
    (6,669 )     14,847  
Change in other current liabilities
    (1,102 )     29,475  
                 
Net cash provided from operating activities
    (751,000 )     (12,452 )
                 
Cash flows from investing activities:
               
Change in share purchase advances
    750,000       --  
                 
Net cash provided from investing activities
    (1,000 )     (12,452 )
                 
Cash flows from financing activities:
               
Increase of share capital
    2,070       --  
                 
Cash flows provided by financing activities
    2,070       --  
                 
Net decrease in cash and cash equivalents
    1,070       (12,452 )
                 
Cash and cash equivalents at the beginning of the year
    2,204       14,656  
                 
Cash and cash equivalents at the end of the period
    3,274       2,204  
 
The accompanying notes form an integral part of these financial statements.

 
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TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
STATEMENT OF CHANGES IN EQUITY AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009

 (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 31 December 2008
    35,500       7,749       45,994       89,243  
                                 
Transfer to retained earnings
    --       45,994       (45,994 )     --  
                                 
Net income for the year
    --       --       57,266       57,266  
                                 
Balances at 31 December 2009
    35,500       53,743       57,266       146,509  
                                 
Share capital increase
    2,070       --       --       2,070  
                                 
Transfer to retained earnings
    --       57,266       (57,266 )     --  
                                 
Net income for the year
    --       --       (11,076 )     (11,076 )
                                 
Balances at 31 December 2010
    37,570       111,009       (11,076 )     137,503  

The accompanying notes form an integral part of these financial statements.

 
F-5

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(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 Education Technologies Dıs Ticaret Kollektif Sirketi Andrew Stuart Brabin ve Ortağı, formerly RT Lojistik Dıs Ticaret Kollektif Sirketi Recep Tanısman ve Ortağı; (referred as “Touch ITEducation”) was established on 27 August 2007 with a ‘‘Share Transfer of Open Company andAmendment Agreement’’. Touch IT Education primarily engages in sales and purchases of theinteractive writing board and all educational equipment.

On May 7, 2010, Touch IT Education, Touch IT Technologies and their stockholders (“Touch ITTurkey”) entered into a Share Exchange Agreement with Hotel Management Systems, Inc (“HotelManagement”), a Nevada corporation.

Pursuant to the terms of the Share Exchange Agreement, Hotel Management issued a total of48,330,000 shares of their common stock, par value USD 0.001 per share (the “Common Stock”), tothe shareholders of Touch IT Technology and Touch IT Education in exchange for the transfer of100% of the shares of TouchIT Tech and Touch IT Education to Hotel Management. This exchangetransaction resulted in Touch IT Technologies and Touch IT Education becoming HotelManagement. The wholly-owned subsidiaries and the stockholders of Touch IT Turkey ownapproximately 78.93% of the Hotel Management’s issued and outstanding stock, prior to anyfinancing.

Simultaneously with the closing of the Share Exchange Agreement, on May 7, 2010, HotelManagement entered into a Subscription Agreement (the “Subscription Agreement”) with investorsfor the sale of shares up to the value of USD 1,500,000 (the “Purchase Price”). As a result, USD750,000 of the Purchase Price has been recognized in Touch IT Education’s balance sheet as a futureobligation 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 31 December 2010 is 6 while it was 3 as at December 31, 2009.

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.
 
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.
 
 
F-6

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(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.

Rights

Rights 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.

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 Licence for the exemption of income tax which is taken from Undersecretariat of The Prime Ministry for Foreign Trade, numbered TRY-149, dated November 1, 2001 and period of validation is 15 years.

Retirement pay provision

Under Turkish laws, lump sum payments are made to employees retiring or involuntarily leaving the Company. Such payments are considered as being part of defined retirement benefit plan.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses.
 
 
F-7

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
4.  
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 31 December 2010 and 2009;
 
      31.12.2010       31.12.2009  
                 
USD
    1.5460       1.5057  
EURO
    2.0491       2.1603  
GBP
    2.3886       2.3892  
                 
Average USD
    1.4991       1.5454  

Leasing - the Company as lessee

Leases are classified as capital leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

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.

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.

 
F-8

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
4.  
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial Instruments (continued)

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 amounts due from and 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.

5.  
CASH AND CASH EQUIVALENTS

As of 31 December2010 and 2009 cash and cash equivalents comprised of the followings:

      31.12.2010       31.12.2009  
                 
Cash in hand
    695       --  
Banks
    2,579       2,204  
      0          
Total
    3,274       2,204  

6.  
TRADE RECEIVABLES

As of 31 December2010 and 31 December 2009 trade receivables comprised of followings:

      31.12.2010       31.12.2009  
                 
Trade receivables
    54,829       5,408  
Provision for doubtful receivables (-)
    (19,541 )     --  
                 
Total
    35,288       5,408  
 
 
F-9

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
7.  
RELATED PARTY BALANCES AND TRANSACTIONS:

In the course of conducting its business, the Company conducted various business transactions with related parties on commercial terms.

Related parties and shareholders balances and transactions have been presented as follows:

Due from related parties
    31.12.2010       31.12.2009  
                 
Touch IT Technologies Koll. Şir. Ronald George Murphy ve Ortakları
    587,308       25,528  
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    276,087       105,066  
                 
Total
    863,395       130,594  

Due from shareholders
    31.12.2010       31.12.2009  
                 
Andrew Stuart Brabin
    9,842       --  
                 
Total
    9,842       --  

Due to related parties
    31.12.2010       31.12.2009  
                 
Kamron Inc
    50,467       --  
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    --       28,816  
ASB Trading
    54,420          
                 
Total
    104,887       28,816  

Due to shareholders
    31.12.2010       31.12.2009  
                 
Ali Rıza Tanışman
    22,147       19,924  
                 
Total
    22,147       19,924  

Major purchases from related parties have been presented as follows:

Major purchases from related parties
    31.12.2010       31.12.2009  
Touch It Technologies Koll. Şir. Ronald George Murphy ve Ortakları
    166,309       179,035  
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    --       15,734  
Total
    166,309       194,769  
 
Major sales to related parties
    31.12.2010       31.12.2009  
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    660,520       280,000  
Touch IT Technologies Koll. Şir. Ronald George Murphy ve Ortakları
    255,201       156,524  
Total
    915,721       436,524  
 
 
 
F-10

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
7.  
RELATED PARTY BALANCES AND TRANSACTIONS:

Service provided
    31.12.2010       31.12.2009  
                 
Kamron Inc.
    115,101       --  
Andrew Stuart Brabin
    103,527       --  
                 
Total
    218,628       --  

8.  
INVENTORIES

As of 31 December 2010 and 2009 inventories comprised of the followings:

      31.12.2010       31.12.2009  
                 
Advances given for purchases
    82,156       45,324  
Trade goods
    109,261       48,111  
                 
Total
    191,417       93,435  

The insurance on the inventories as of December 31, 2010 and 2009 is USD 100,000.

9.  
OTHER CURRENT ASSETS:

As of 31 December 2010 and 31 December 2009 other receivables and assets comprised of prepaid expenses of USD 221 and USD 382 respectively.

10.  
NON-CURRENT ASSETS

As of 31 December 2010 and 2009 non-current assets comprised of followings:

      31.12.2010       31.12.2009  
                 
License right
    35,500       35,500  
Depreciation allowance
    (22,188 )     (20,524 )
                 
Total
    13,312       14,976  

Rights represent the operating license obtained from Under secretariat of The Prime Ministry for Foreign Trade. The validation date of the licence has been extended from 10 year to 15 year in 2010.  The remaining useful life as of December 31, 2010 has been increased from 4 year to 9 year.

 
F-11

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
11.  
TRADE PAYABLES

As of 31 December 2010 and 2009 trade payables comprised as of the followings:

      31.12.2010       31.12.2009  
                 
Trade payables
    54,211       1,606  
                 
Total
    54,211       1,606  

12.  
OTHER CURRENT LIABILITIES

As of 31 December2010 and 31 2009 other current liabilities comprised of the followings:

      31.12.2010       31.12.2009  
Taxes and funds payable
    2,471       --  
Social security withholdings payable
    1,439       929  
Accrued expenses
    1,250       --  
Advances received
    40,731       48,174  
Due to personnel
    2,110          
Total
    48,001       49,103  

13.  
RESERVE FOR EMPLOYMENT TERMINATION BENEFITS

The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying financial statements as at December 31, 2010, the provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of the employees. The anticipated rate of forfeitures is considered. As the maximum liability is revised semi annually, the maximum amount of TRY 2,623 effective from January 1, 2011 has been taken into consideration in calculation of provision from employment termination benefits (2009: TRY 2,517).

14.  
SHARE CAPITAL

The issued share capital of the Company is respectively for the period ended at 31 December2010 and for the year ended 31 December 2009 comprised as follows;
 
     31.12.2010      31.12.2009  
   
Shareholding
           
Shareholding
       
   
Amount
   
%
   
Amount
   
%
 
                             
Andrew Stuart Brabin
    7,050       2       6,625       75  
Ali Rıza Tanışman
    1,503       4       8,875       25  
Recep Tanışman
    7,515       20       --       --  
Cansın Tanışman
    751       2       --       --  
 Volkan Tanışman
    751       2       --       --  
      37,570       100       35,500       100  
 
 
 
F-12

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
15.  
SALES

The composition of sales by principal operation for the period ended as at 31 December 2010 and 2009can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Electronic set
    1,023,279       383,466  
Remote Control for classroom
    153,335       6,297  
EBEAM whiteboard and devices
    --       194,890  
Touch IT board
    62,288       --  
Triumph board
    --       173,606  
Writing pad
    47,745       5,067  
Others
    20,773       14,392  
                 
Returns (-)
    --       (705 )
                 
Total
    1,307,420       777,013  

16.  
COST OF SALES

The composition of cost of sales by principal operations for the period ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Beginning inventory of trade goods
    48,111       70,230  
Purchases
    990,500       627,589  
Ending inventory of trade goods (-)
    (109,261 )     (48,111 )
                 
Total
    929,350       649,708  

 
F-13

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
17.  
MARKETING AND SELLING EXPENSES

The composition of marketing and selling expenses by principal operations for the year ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Shareholders  expenses (*)
    105,773       10,834  
Export expenses
    32,858       12,657  
Web site design expenses
    8,587       --  
Other expenses
    7,057       1,071  
                 
Total
    154,275       24,562  

(*) The balance comprises of the marketing and selling expense of Ronald George Murph and Andrew Stuart Brabin.

18.  
GENERAL AND ADMINISTRATIVE EXPENSES

The composition of general and administrative expenses by principal operations for the period ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Consultancy expenses (*)
    209,806       2,291  
Salaries
    59,176       29,378  
Rental expenses
    12,283       12,930  
Depreciation expenses
    1,664       8,493  
Other expenses
    6,356       2,598  
                 
Total
    289,285       55,690  

(*) The vast majority of the balance comprises of consultancy invoices issued by Kamron and ASB
 
 
F-14

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
19.   OTHER INCOME AND (EXPENSES), net:

The composition of other income and expenses for the years ended at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Other income
    2,508       1,023  
Insurance compensation income
    8,301       --  
Provision for doubtful receivables
    (20,152 )     --  
Consultancy income
    25,000       16,735  
Other expense
    (5 )     (5,681 )
                 
Total
    15,652       12,077  

20.   FINANCIAL EXPENSES:

The composition of financial expenses, net for the years ended at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Bank charges
    (3,043 )     (2,172 )
                 
Total
    (3,043 )     (2,172 )


 
F-15

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
21.  
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Capital risk management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Company consists of debt, which includes the borrowings, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings.

31 December2010
 
Financial assets at amortized cost
   
Loans and receivables
   
Financial liabilities at amortized cost
   
Carrying value
   
Fair value
   
Note
 
                                     
Financial assets
                                   
Cash and cash equivalents
    --       3,274       --       3,274       3,274       5  
Trade receivables (including related parties)
    --       898,683       --       898,683       898,683       6-7  
                                                 
Financial liabilities
                                               
Trade payables (including related parties)
    --       159,098       --       159,098       159,098       7-11  


31 December 2009
 
Financial assets at amortized cost
   
Loans and receivables
   
Financial liabilities at amortized cost
   
Carrying value
   
Fair value
   
Note
 
                                     
Financial assets
                                   
Cash and cash equivalents
    --       2,204       --       2,204       2,204       5  
Trade receivables (including related parties)
    --       136,002       --       136,002       136,002       6-7  
                                                 
Financial liabilities
                                               
Trade payables (including related parties)
    --       30,442       --       30,442       30,442       7-11  

Financial risk factors

The Company’s activities expose it to variety of financial risks; market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets seeks to minimize potential adverse effects on the Company’s financial performance.

Market risk

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates.
 
 
F-16

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
22.  
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Foreign currency risk management

The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign currency position, net for the period ended at 31 December 2010 and for the year ended 31 December 2009 can be summarized as follows:
 
              31.12.2010      31.12.2009  
    F/C      
Foreign
            Foreign        
    Type      
Currency
     
TRY
    Currency     TRY  
                                     
Banks
 
USD
      2,138       3,306       2,157       3,248  
   
EUR
      19       38                  
                                         
Due from related parties
 
USD
      587,308       907,979       123,953       186,636  
                                         
Trade receivables
 
USD
      34,731       53,694       3,843       5,786  
                                         
Advances given
 
USD
      72,544       112,153       45,324       68,244  
(Inventories)
                                       
                                         
Trade payables
 
USD
      (43,480 )     (67,220 )     --       --  
                                         
Advances received
 
USD
      (40,731 )     (62,970 )     (48,173 )     (72,534 )
(Other current liabilities)
                                       
                                         
Due to related parties
 
USD
      (104,887 )     (162,155 )     --       --  
                                         
Share purchase advances
 
USD
      (750,000 )     (1,159,500 )     --       --  
                                         
Net F/C Assets and Liabilities
                    (374,675 )             191,380  


 
F-17

 
 

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ
ANDREW STUART BRABIN VE ORTAĞI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
23.  
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

Liquidity risk management

Liquidity risk arises from the fact that the Company may not receive funds from its counterparties at the expected time. This risk is managed by maintaining a balance between continuity of funding and flexibility through the use of overdrafts and trade receivables.

The following tables details the Company’s remaining contractual maturity for its non derivative financial liabilities. The tables have drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.
 
   
Current
   
Noncurrent
   
Total
 
31 December 2010
                 
                   
Trade payables (including related parties)
    159,098       --       159,098  
                         
31 December 2009
                       
                         
Trade payables (including related parties)
    21,530       --       21,530  

24.  
SUBSEQUENT EVENTS

Effective from January 1, 2011, the ceiling for employee termination benefits has increased to RY 2,623.
 
 
F-18

 
 









TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI




FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2010
TOGETHER WITH INDEPENDENT AUDITORS’ REPORT





 
F-19

 
 
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 audited the accompanying financial statements of Touch IT Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları  (“the Company”) which comprise the financial position as of 31 December 2010 and 31 December 2009 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.
 
Auditor’s Responsibility
 
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
Opinion
 
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as of December 31, 2010, and of its financial performance and its cash flows for the year then ended in accordance with Accounting Principles Generally Accepted in the United States of America.
 
We would like to draw your attention to the following matters:
 
The accompanying financial statements of the Company have been prepared on a going concern basis. However, in the accompanying financial statements, the Company’s current liabilities exceed its current assets by an amount of USD 231,259 and the total equity shows a negative balance amounting to USD 153,218 as of December 31, 2010. 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.
 
 
Istanbul, 8 March 2011
 
DENGE BAĞIMSIZ DENETİM
SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.
Member of MAZARS
 
 
/s/ Gökhan Almacı
Partner
 
 
F-20

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF FINANCIAL POSITION
AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)


 
Notes
31.12.2010
31.12.2009
ASSETS
     
Cash and cash equivalents
5
47,282
52,641
Trade receivables, net
6
669,937
269,394
Due from shareholders
7
40,743
--
Inventories, net
8
174,226
166,448
Other current assets
9
885
400
       
Total current assets
 
933,073
488,883
       
Property and equipment, net
10
64,495
29,872
Intangible assets, net
11
11,833
--
Other non-current assets
12
3,555
3,725
       
Total non-current assets
 
79,883
33,597
       
Total assets
 
1,012,956
522,480

LIABILITIES AND SHAREHOLDERS' EQUITY
     
Short-term bank loans
13
2,351
11,282
Trade payables
14
58,150
69,013
Due to shareholders
7
37,494
55,660
Due to related parties
7
1,041,105
642,160
Other current liabilities
15
25,232
71,516
       
Total current liabilities
 
1,164,332
849,631
       
Long-term bank loans
13
--
2,321
Employee termination benefits
16
1,842
--
       
Total long-term liabilities
 
1,842
2,321
       
Shareholders' Equity:
     
Share capital
17
90,000
90,000
Accumulated deficit
 
(419,472)
(100,028)
Net profit/(loss) for the period
 
176,254
(319,444)
       
Total shareholders’ equity
 
(153,218)
(329,472)
       
Total liabilities and shareholders’ equity
 
1,012,956
522,480
 
 
F-21

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED AS OF
31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)


 
Notes
31.12.2010
31.12.2009
Sales
18
2,270,461
1,252,061
Cost of sales
19
(1,572,687)
(1,092,339)
       
Gross profit
 
697,774
159,722
       
Marketing and selling expenses
20
(350,054)
(384,824)
General and administrative expenses
21
(189,779)
(84,431)
       
Total operating profit
 
157,941
(309,533)
       
Financial income / (expense), net
23
(5,252)
(6,569)
Other income / (expense), net
22
(39,745)
(5,456)
       
Profit before provision for taxation
 
112,944
(321,558)
       
Provision for taxation
     
- Current
 
--
--
- Deferred
 
--
--
       
Net profit for the period
 
112,944
(321,558)
       
Other comprehensive income
     
Currency translation differences
 
63,310
2,114
       
Total comprehensive income for the period
 
176,254
(319,444)
 
The accompanying notes form an integral part of these financial statements.
 
 
F-22

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CASH FLOW AS OF 31 DECEMBER 2010 AND31 DECEMBER 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)  

 
 
31.12.2010
31.12.2009
Cash flow from operating activities
   
Net profit for the period
176,254
(319,444)
     
Adjustments to reconcile net profit to net
cash provided by operating activities:
   
     
Depreciation
15,852
8,640
Provision for employee termination benefit
1,842
 
     
Net profit adjusted to non-cash items
193,948
(310,804)
     
Changes in operating assets and liabilities:
   
Change in trade receivables
(400,548)
(185,692)
Change in due from shareholders
(40,743)
--
Change in inventories
(7,778)
46,198
Change in other current assets
(485)
3,575
Change in other non current assets
170
(3,725)
Change in trade payables
(10,863)
58,791
Change in due to shareholders
(18,166)
15,583
Change in due to related parties
398,945
366,805
Change in other current liabilities
(46,284)
65,857
     
Net cash used for operating activities
68,196
56,588
     
Cash flows from investing activities:
   
Purchased of property and equipment and intangibles
(62,304)
(17,324)
     
Net cash outflows from investing activities
5,892
39,264
     
Cash flows from financing activities:
   
Increase in short-term borrowings
(8,930)
6,815
Decrease in long-term  borrowings
(2,321)
(2,797)
     
Cash outflows generated by financing activities
(11,251)
4,018
     
Net decrease in cash and cash equivalents
(5,359)
43,282
     
Cash and cash equivalents at the beginning of the year
52,641
9,359
     
Cash and cash equivalents at the end of the period
47,282
52,641
 
The accompanying notes form an integral part of these financial statements.
 
 
F-23

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
STATEMENT OF CHANGES IN EQUITY AS OF 31 DECEMBER 2010 AND 31 DECEMBER 2009

 (All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
 
Share
capital
Accumulated
deficit
Net (loss) /profit for the
 year/ period
Total Shareholders' Equity
Opening balance as of 1 January 2009
90,000
--
(100,028)
(10,028)
         
Transfer to accumulated deficit
 
(100,028)
100,028)
--
         
Lloss for the year 2009
--
--
(319,444) 
(319,444) 
         
Balances at 31 December 2009
90,000
(100,028)
(319,444) 
(329,472)
         
Transfer to accumulated deficit
--
(319,444)
319,444
--
         
Net profit for the year 2010
--
--
176,254
176,254
         
Balances at 31 December 2010
90,000
(419,472)
176,254
(153,218)
 
The accompanying notes form an integral part of these financial statements.
 
 
F-24

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(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 formalregistration has not yet been completed.
 
Average number of employees of the Company as of 31 December 2010 is 10 while it was 6 as at December 31, 2009.

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.
 
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.
 
 
F-25

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(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.

 
F-26

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(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 Undersecretariat 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 31 December 2010 and 2009:

      31.12.2010       31.12.2009  
USD
    1.5460       1.5057  
EURO
    2.0491       2.1603  
GBP
    2.3886       2.3892  
                 
Average USD
    1.4991       1.5454  
 
Comprehensive income

In September 1997, the Financial Accounting Standard Board issued SFAS No. 130, “Reporting Comprehensive Income”. SFAS 130 is effective for years beginning after 15 September 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.

 
F-27

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(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 31 December 2010 and 2009 cash and cash equivalents comprised of the followings:

      31.12.2010       31.12.2009  
Cash in hand
    1,196       9,621  
Banks
    46,086       43,020  
                 
Total
    47,282       52,641  

 
F-28

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
6.  
TRADE RECEIVABLES

As of 31 December 2010 and 31 December 2009 trade receivables comprised of followings:

      31.12.2010       31.12.2009  
PROFORMANCE PRODUCTS
    526,077       --  
TRIUMPH BOARD S.R.O
    --       204,913  
Others ( less than USD 60,000)
    143,860       64,481  
                 
Total
    669,937       269,394  

7.  
RELATED PARTY BALANCES AND TRANSACTIONS

Due from shareholders has been presented as follows:

Due from shareholders
    31.12.2010       31.12.2009  
Recep Tanışman
    40,743       --  
                 
Total
    40,743       --  
 
Due to related parties and shareholders has been presented as follows:

Due to related parties
    31.12.2010       31.12.2009  
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    417,709       570,532  
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
    587,308       25,529  
Kamron Inc
    36,088       46,099  
                 
Total
    1,041,105       642,160  

Due to shareholders
    31.12.2010       31.12.2009  
Ali Rıza Tanışman
    22,549       22,657  
Andrew Stuart Brabin
    14,566       --  
Recep Tanışman
    379       --  
                 
Total
    37,494       55,660  
 
 
F-29

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
7.  
RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)

In the course of conducting its business, the Company conducted various business transactions with related parties on commercial terms

Major purchases from related parties have been presented as follows:

Major purchases from related parties
           
             
Trade goods
    31.12.2010       31.12.2009  
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    568,439       447,898  
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
    181,256       156,524  
Total
    749,695       604,422  

Major sales from related parties have been presented as follows:

Major sales from related parties
           
             
Trade goods
    31.12.2010       31.12.2009  
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    3,507       --  
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi
    167,270       179,035  
Total
    170,777       179,035  

Services provided
           
             
      31.12.2010       31.12.2009  
Kamron Inc.
    55,364       88,181  
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.
    --       21,267  
Total
    55,364       109,448  

8.  
INVENTORIES:
 
  As of 31 December 2010 and 2009 inventories comprised of the followings:

      31.12.2010       31.12.2009  
Raw material and supplies
    196,971       120,691  
Finished goods
    1,534       16,045  
Advances given for purchases
    11,232       22,632  
Other inventories
    2,738       7,080  
Provision for damaged and slow moving stock (-)
    (38,249 )     --  
Total
    174,226       166,448  

  The insurance on the inventories as of 31 December 2010 and 2009 is USD 600,000.

 
F-30

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
9.  
OTHER CURRENT ASSETS:

    As of 31 December 2010 and 2009 other receivables and assets comprised of the followings:

      31.12.2010       31.12.2009  
Deposits and Guarantees given
    400       400  
Other
    485       --  
                 
Total
    885       400  

10.
PROPERTY, PLANT AND EQUIPMENT, NET

    The movement of property, plant and equipment, net as of 31 December 2010 and 2009 is as follows;

   
1 January 2009
   
Additions
   
31 December 2009
   
Additions
   
31 December 2010
 
Cost
                             
Machinery and equipment
    3,655       --       3,655       1,483       5,139  
Vehicles
    12,522       16,933       29,455       --       29,455  
Furniture and fixtures
    5,911       391       6,302       46,165       52,467  
                                         
                                         
Total
    22,088       17,324       39,412       47,648       87,061  
                                         
Depreciation
                                       
Machinery and equipment
    (171 )     (1,023 )     (1,194 )     (1,113 )     (2,308 )
Vehicles
    (522 )     (6,306 )     (6,828 )     (5,883 )     (12,711 )
Furniture and fixtures
    (207 )     (1,311 )     (1,518 )     (6,029 )     (7,547 )
                                         
                                         
Total
    (900 )     (8,640 )     (9,540 )     (13,025 )     (22,566 )
                                         
Net book value
    21,188               29,872               64,495  

The insurance on property, plant and equipment as of 31 December 2010 and 2009 is USD 10,000.

 
F-31

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
11.  
INTANGIBLE ASSETS, NET

The movement of intangible assets, net as of 31 December 2010 and 2009 is as follows;

 
31 December 2009
Additions
31 December 2010
Cost
     
Rights
--
10,774
10,774
Other tangible assets
--
3,885
3,885
       
Total
--
14,659
14,659
       
Depreciation
     
Rights
--
2,394
2,394
Other tangible assets
--
432
432
       
Total
--
2,826
2,826
       
Net book value
--
 
11,833

12.  
OTHER NON CURRENT ASSETS:

As of 31 December 2010 and 2009 non-current assets comprised of the prepaid expenses of USD 3,555 and USD 3,725 respectively.

 
F-32

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
13.
BANK LOANS

As of 31 December 2010 and 31 December 2009 bank loans comprised the followings:

      31.12.2010       31.12.2009  
                 
Short term borrowings
               
TRY bank loans
    2,351       11,282  
                 
Sub total
    2,351       11,282  
                 
Long term borrowings
               
TRY bank loans
    --       2,321  
                 
Sub total
    --       2,321  
                 
Total
    2,351       13,603  

Analysis of bank loans’ repayments is as follows:

      31.12.2010       31.12.2009  
                 
Within one year
    2,351       11,282  
Between one to two years
    --       2,321  
                 
Total
    2,351       13,603  

Bank Loans arise from purchases of two motor vehicles.

14.  
TRADE PAYABLES

As of 31 December 2010 and 2009, trade payables comprised the followings:

      31.12.2010       31.12.2009  
                 
Suppliers
    58,150       65,831  
Other trade payables
    --       3,182  
                 
Total
    58,150       69,013  

 
F-33

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
15.  
OTHER CURRENT LIABILITIES

As of 31 December 2010 and 2009 other current liabilities comprised the followings:

      31.12.2010       31.12.2009  
                 
Social security withholdings payable
    6,010       685  
Due to personnel
    7,056       --  
Accrued expenses
    1,350       --  
Advances received
    10,776       68,597  
Other liabilities
    40       2,234  
                 
Total
    25,232       71,516  

16.  
RESERVE FOR EMPLOYEE TERMINATION BENEFITS

The principal assumption is that the maximum liability for each year of service will increase parallel with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying financial statements as at 31 December 2010, the provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of the employees. The anticipated rate of forfeitures is considered. As the maximum liability is revised semi annually, the maximum amount of TRY 2,517 effective from 1 July 2010 has been taken into consideration in calculation of provision from employment termination benefits (2009: TRY 2,365).

The principal actuarial assumptions used at the statement of financial position s dates are as follows:

      31.12.2010       31.12.2009  
Discount rate
    10.00 %     11.00 %
Expected rates of salary / limit increases
    5.1 %     4.80 %
 
17.
SHARE CAPITAL

The shareholders and their participation percentages as of 31 December 2010 and 2009 are as follows:

 
31.12.2010
 
31.12.2009
 
Shareholding
   
Shareholding
 
 
Amount
%
 
Amount
%
Ali Rıza Tanışman
2,676
2.97%
 
29,700
33.00%
Andrew Stuart Brabin
30,324
33.70%
 
30,600
34.00%
Recep Tanışman
26,757
29.73%
 
--
--
Ronald George Murphy
29,432
32.70%
 
29,700
33.00%
Cansın Tanışman
811
0.90%
 
--
--
 
90,000
100.00%
 
90,000
100.00%
 
18.  
SALES

The composition of sales by principal operation for the year ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Clever board
    887,639       42,034  
Touch it board 78 inch
    628,105       254,816  
Touch it board 80 inch
    179,794       17,533  
Triumph board 78 inch
    136,867       423,203  
Electronic circuit
    222,100       --  
Touch it board 90 inch
    121,048       9,462  
Triumph board 80 inch
    53,182       330,937  
Touch it board 50 inch
    34,589       17,578  
Triumph board 50 inch
    1,244       5,880  
RM easyboard 78 inch
    --       120,423  
Triumph board 90 inch
    --       34,114  
RM easyboard 50 inch
            9,299  
Others
    23,807       64,566  
                 
Returns and discounts(-)
    (17,914 )     (77,784 )
                 
Total
    2,270,461       1,252,061  
 
 
F-34

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
19.  
COST OF SALES

The composition of cost of sales by principal operations for the year ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Direct material cost
    1,334,558       1,028,469  
Direct labor cost
    125,833       23,697  
General production overheads
    108,283       51,715  
Ending inventory (trade goods)
    (1,534 )     (16,045 )
Depreciation
    5,547       4,503  
                 
Total
    1,572,687       1,092,339  

20.  
MARKETING AND SELLING EXPENSES

The composition of marketing and selling expenses by principal operations for the year ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Export expenses
    156,185       169,528  
Sales & marketing expenses of shareholders
    45,748       109,381  
Software expenses
    44,506       --  
Fair expense
    --       36,849  
Salaries
    --       8,782  
Consultancy expenses
    24,333       --  
Cargo expenses
    5,626       6,208  
Depreciation
    748       2,780  
Others
    72,908       51,296  
                 
Total
    350,054       384,824  

21.  
GENERAL AND ADMINISTRATIVE EXPENSES

The composition of general and administrative expenses by principal operations for the year ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2010  
Shareholders expenses
    102,632       46,200
Consulting expenses
    57,877       20,315
Food expenses
    5,057       3,132
Depreciation
    9,556       1,357
Tax and duties
    931       918
Employee termination benefits
    1,842       --
Other
    11,533       12,509
Total
    189,428       84,431

 
F-35

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
22.
OTHER INCOME AND (EXPENSES),NET

The composition of other income and (expenses), net for the year ended as at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Provision for impairment of inventory
    (38,249 )     --  
Non tax deductable expenses
    (4,990 )     (10,516 )
Other income
    3,494       5,060  
                 
Total
    (39,745 )     (5,456 )

23.  
FINANCIAL EXPENSES

The composition of financial expenses for the year ended at 31 December 2010 and 2009 can be summarized as follows:

      31.12.2010       31.12.2009  
                 
Interest expenses
    1,224       4,284  
Other banking expenses
    4,028       2,285  
                 
Total
    5,252       6,569  

24.  
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Capital risk management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance.

The capital structure of the Company consists of debt, which includes the borrowings, cash and cash equivalents and equity, comprising issued capital, reserves and retained earnings.

31 December 2010
Financial assets at amortized cost
Loans and receivables
Financial liabilities at amortized cost
Carrying value
Fair value
Note
Financial assets
           
Cash and cash equivalents
--
47,282
--
47,282
47,282
5
Trade receivables
--
669,937
--
669,937
669,937
6
             
Financial liabilities
           
Borrowings
--
--
2,351
2,351
2,351
13
Trade payables (including related parties)
--
1,111,639
--
1,111,639
1,111,639
7-14

 
F-36

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
24.  
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
 
31 December 2009
Financial assets at amortized cost
Loans and receivables
Financial liabilities at amortized cost
Carrying value
Fair value
Note
Financial assets
           
Cash and cash equivalents
--
52,641
--
52,641
52,641
5
Trade receivables
--
269,394
--
269,394
269,394
6
             
Financial liabilities
           
Borrowings
--
--
13,603
13,603
13,603
13
Trade payables(including related parties)
--
711,173
--
711,173
711,173
7-14

Financial risk factors

The Company’s activities expose it to variety of financial risks; market risk, credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets seeks to minimize potential adverse effects on the Company’s financial performance.

Market risk

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates.

Foreign currency risk management

The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign currency position, net for the period ended at 31 December 2010 and for the year ended 31 December 2009 can be summarized as follows:

   
31.12.2010
31.12.2009
 
F/C
Type
Foreign
Currency
TRY
Foreign
Currency
TRY
Cash
USD
-
-
--
--
Banks
USD
45,538
70,401
41,901
63,090
 
EUR
78
160
   
Trade receivables
USD
669,937
1,035,723
269,394
405,628
Advances Given (inventories)
USD
-
-
10,774
16,222
   
31,302
48,393
-
-
           
Trade payables
USD
(23,829)
(36,839)
(553,238)
(833,010)
Due to related parties
USD
(1,039,944)
(1,607,753)
-
-
 
EUR
   
(904)
(1,953)
Due to shareholders
USD
(9,170)
(14,177)
(33,003)
(49,693)
Other current liabilities
USD
(10,776)
(16,660)
(68,598)
(103,288)
           
Net F/C Assets and Liabilities
   
(520,752)
 
(503,004)

 
F-37

 
 

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ
RONALD GEORGE MURPHY VE ORTAKLARI
NOTES TO FINANCIAL STATEMENTS AS OF 31 DECEMBER 2010 AND 2009

(All amounts are expressed in US Dollars (USD) in full, unless otherwise indicated)

 
24.  
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.

Liquidity risk management

Liquidity risk arises from the fact that the Company may not receive funds from its counterparties at the expected time. This risk is managed by maintaining a balance between continuity of funding and flexibility through the use of overdrafts and trade receivables.

The following tables details the Company’s remaining contractual maturity for its non derivative financial liabilities. The tables have drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay.

   
Current
   
Noncurrent
   
Total
 
31 December 2010
                 
                   
Borrowings
    2,351       --       2,351  
Trade payables
    70,534       --       70,534  
Due to related parties
    1,041,105       --       1,041,105  
                         
31 December 2009
                       
                         
Borrowings
    11,282       2,321       13,603  
Trade payables
    69,013       --       69,013  
Due to related parties
    642,160       --       642,160  

25.  
SUBSEQUENT EVENTS

On February 16, 2011 the Company has borrowed USD 250,000 from TCA Global Credit Master Fund pursuant to a revolving credit facility evidenced by a Credit Agreement with an effective date as of November 30, 2010. The Credit Agreement evidences a revolving credit facility in the maximum principal amount of USD 250,000, which subject Lender approval may be increased up to USD 1,000,000. The outstanding principal amount is due on February 16, 2012.

Effective from January 1, 2011, the ceiling for employee termination benefits has increased to
TRY 2,623.
 
 ======================

F-38