PART I
Item .
Business
Business Development
TouchIT Technologies, Inc. was incorporated in the State of Nevada as “Hotel Management Systems, Inc.” (“HMSI”) in 2008. After HMSI's fiscal year end of April 30, 2010, we entered into a Share Exchange Agreement, dated May 7, 2010 (“Share Exchange”) with TouchIT Technologies Koll Sti (“TouchIT Tech KS”), the stockholders of TouchIT Tech KS, TouchIT Education Koll Sti (“TouchIT Ed”), and the stockholders of TouchIT Ed whereby HMSI effectively ceased doing business as HMSI. Both TouchIT Tech KS and TouchIT Ed are corporations formed under the laws of Turkey and are based in Istanbul, Turkey. The closing of the transaction (the “Closing”) took place on May 7, 2010 (the “Closing Date”).
In connection with the closing of the Share Exchange Agreement, on May 7, 2010, we entered into various subscription agreements (each “Subscription Agreement,” and collectively the “Subscription Agreements”) with certain investors for the sale of up to $1,500,000 of principal amount convertible promissory notes issued by our Company (“Note” or “Notes”) and share purchase warrants (the “Warrants”) to each subscriber to purchase shares of our Common Stock.
In connection with a breach of two promissory notes associated with the Share Exchange, we cancelled the Warrants related to those promissory notes.
In connection with the Share Exchange, we changed our fiscal year end from April 30 to December 31 and amended our Articles of Incorporation to change our name to TouchIT Technologies, Inc. This report shall cover the period of January 1 to December 31, 2010 and the description of the business and financial information provided herein will be the business and financials of TouchIT Technologies, Inc. and not HMSI, as the business was prior to the Share Exchange.
Unless the context indicates otherwise, as used herein the terms, the “Company”, “Registrant”, “we”, “our” and “us” refer to TouchIT Technologies, Inc.
Overview
We design, produce and market touch-based visual communication products. Our mission – the design and manufacture of high quality technology products under the TouchIT Technologies™ brand name. We manufacture a large range of touch screen and touch board products to suit all types of application from small liquid crystal display (“LCD”) touch-screens to large interactive whiteboard displays and audience response systems. To date, our revenues have come primarily from the sale of our Interactive Whiteboard products which we began shipping in 2009 to the worldwide market place. Most of our sales have been of the 78" TouchIT Board and original equipment manufacturer (“OEM”) equivalents that are suitable for use with almost any computer and data projector.
We plan to capitalize on the corporate vertical for boardroom and meeting room applications and also in the education market as there are an estimation of over a billion classrooms in the world that may develop a need for our products. In response to increased demand for interactive LCD displays, we have invested resources to expand our product line to include touch-based LCDs in 42", 55” and 65". We have also invested in the development of TouchIT Transcribe, our corporate annotation software. We undertake OEM and original design manufacturer (“ODM”) work for partners all over the world with 3rd party contract manufacturing facilities in Taiwan & China.
How We Generate Revenue
We generate revenue from the sales of goods under the TouchIT Technologies brand name manufactured through 3rd party OEM contract manufacturers in China and Taiwan.
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We also generate revenue from OEM manufacture facilities. This is where we take our existing products and rebrand them for a third party with differing degrees of customization.
Lastly, we generate revenue by charging for product design work where our team designs a new product for a customer that incorporates our technology. There is then repeat sales from this model as the customer engages the company to build its products.
Products or Services and their Markets
We offer a range of products that are designed for the education and the corporate government vertical markets. In addition, we offer our own proprietary annotation software designed for the corporate market.
TouchIT Interactive Whiteboard
TouchIT Board™ works in conjunction with a data projector and a computer to create a touch-based interactive whiteboard where the user obtains full control of a computer from the board. The TouchIT Board™ functions similar to a mouse allowing both left and right click functionality at the board. The TouchIT Board is supplied with Wizteach annotation software. The Wizteach annotation software is a 3rd party software that we purchase from Quizdom Uk Ltd based in Northern Ireland.
TouchIT LCD
The TouchIT LCD™ combines a HD display with IR touch technology to create an integrated, large format touch screen finished with a 4mm tempered glass for screen protection. The TouchIT LCD has a very small parallax enabling a much improved user experience when compared to traditional overlay products.
TouchIT Vote
TouchIT Vote™ is an radio Frequency (RF) audience response system that allows the user to obtain feedback or interaction from a class or audience to a series of questions posed with either Microsoft PowerPoint or the proprietary editor supplied. These responses can then be formulated into a series of reports where the data can be further analyzed.
TouchIT Tablet
TouchIT Tablet™ is a Radio Frequency (RF) wireless tablet that enables the user to control his/her computer from a distance with the tablet acting like a mouse.
TouchIT Transcribe Software
TouchIT Transcribe™ is the proprietary corporate annotation software supplied by us at no charge to users of the TouchIT Board™ and TouchIT LCD™. TouchIT Transcribe™ is unique in that currently on the market, there are very few pieces of software that cater directly for the corporate market.
Distribution Methods of the Products or Services
We currently maintain various distribution channels for our products in countries throughout the world. We would normally select a master distributor for a particular country where its specialty would be either the Information Technology (“IT”) Education or Audio Visual (“AV”) verticals. These master distributors usually sell on a trade-only basis to reselling companies that, in turn, supply the end user.
Status of New Product or Service
We are currently evaluating new touch technologies such as charge-couple device (“CCD”) image sensors that could be a more cost effective alternative in the future to IR. Our business strategy is to grow all three main areas of the business in tandem with the overall pursuit and development of new touch-based interactive products.
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First, we hope to increase the growth of sales of our Company’s branded products through distribution partners on a worldwide basis. This involves the recruitment, training and support of the distribution partner and its resellers.
Second, we aim to grow the OEM side of the business. This involves the recruitment, product customization and rebranding, technical support and training of new OEM partners on a worldwide basis.
Third, we aim to work with a wider selection of ODM partners that recruit our services for the design and manufacture of new products under the client’s own brand name.
Business Organization
We manage our business on a central basis with all customers being supplied through either directly from the third part manufacturing facilities in China and Taiwan, or from our warehouse located in Troy, MI USA.
Markets & Trends In Our Business
Global Interactive Display sales in Q4 2011 increased by 14% Year-on-Year according to the new Interactive Displays Quarterly Insight report from Futuresource Consulting. Last year, the global market ended far in excess of 850,000 units shipped, - the year had a 1% volume reduction compared with 2010. Considering the economic pressures, this is a resilient result and there have been a number of strong regional success stories.
In the USA there have been challenges to budgets and reductions in funding, resulting in a 19% YoY Q4 sales unit decrease. The US market is forecast to steadily decline, but it will continue to remain the world’s largest interactive displays market.
Almost 4.5 million Interactive Displays have now been installed globally, with the technology taking a secure hold within the education sector, there is still a huge opportunity to be exploited, though companies operating within this marketplace must work cleverer to understand the opportunities and react ahead of the curve.
On February 16, 2011, our Company 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 to Lender approval, may be increased up to USD 1,000,000. The outstanding principal amount is due on February 16, 2012.
Competition
We echo the sentiments of Futuresource and feel that our competitors, the Chinese brands that are selling outside of China and India, are a reducing threat in the developed EMEA and U.S. markets. They are making little headway because while their products are on the low-cost end of the spectrum, they are not engaged in important deals and transactions, and are only getting peripheral businesses in the industry. Furthermore, the Chinese brands are also pushing their way into developing markets such as South America and Africa; however, these developing markets offer very little opportunities for the visual communication companies.
While the examples provided above do not appear to place our Company in a competitive business situation, there are also exceptions to the Chinese brands. For instance, Julong Educational Technology Co., Ltd, which is an OEM, has a large U.S. operation and has successfully worked its way into the U.S. market.
Our greatest competitor is probably Interactive Projectors. We are aware that they have already obtained some contracts in preference to IWBs (Finland, Estonia, Russia). In some countries, Interactive Flat panels are also emerging.
Despite the competition we face, our Company is in a strong position to capitalize on emergence of Interactive Flat Panels with the new LCD range.
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Supply of Components
Although most components essential to our Company’s business are generally available from multiple sources, certain key components including but not limited to aluminum, plastics, LCDs, certain optical infrared technology (“IR”), and integrated circuits (“ICs”) are currently obtained by our Company from single or limited sources, which subjects us to significant supply and pricing risks.
Many of these and other key components that are available from multiple sources are subject at times to industry-wide shortages and significant commodity pricing fluctuations. In addition, we have entered into certain agreements for the supply of key components, including, but not limited to aluminum, plastics, LCDs, certain optical IR technology, and ICs at favorable pricing. However, there is no guarantee that we will be able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or otherwise obtain favorable pricing in the future. Therefore, we remain subject to significant risks of supply shortages and/or price increases that can materially adversely affect its financial condition and operating results.
The TouchIT Tablet and TouchIT Vote plus printed circuit boards (“PCBs”) are assembled or are manufactured by outsourcing partners, primarily in various parts of Asia. The loss of supply from any of these suppliers or vendors, whether temporary or permanent, could materially adversely affect our business and financial condition.
Dependence on one or a few major customers
We recognize that we have a reliance on a few major customers. Most notably, Sahara Presentation Products PLC in the UK. We do however, expect to increase our customer base in line with our sales plan, strategy and forecast.