BTCS Inc. - Quarter Report: 2011 June (Form 10-Q)

f10q0611_touchit.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _____________

Commission file number 333-151252

TouchIT Technologies, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		26-2477977
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Istanbul Trakya Serbest Bölgesi Atatürk Bulvari Ali Riza Efendicd., A4 Blok Çatalca, Istanbul Turkey

(Address of Principal Executive Offices) (Zip Code)

00 44 207 858 1045

(Registrant’s Telephone Number, Including Area Code)

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Larger accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 68,449,419 shares of common stock outstanding as of August 12, 2011.

TOUCHIT TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

INDEX

		Page
PART I - FINANCIAL INFORMATION		4

Item 1.	Financial Statements.	4

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	58

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	65

Item 4.	Controls and Procedures.	65

PART II - OTHER INFORMATION		65

Item 1.	Legal Proceedings.	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	66

Item 6.	Exhibits.	66

Signature

EXPLANATORY NOTE

TouchIT Technologies, Inc. (the “Company”) was incorporated in the State of Nevada as “Hotel Management Systems, Inc.” On May 7, 2010, the Company entered into a share exchange agreement, with TouchIT Technologies Koll Sti (“TouchIT Tech KS”), TouchIT Education Koll Sti (“TouchIT Ed”)(“TouchIT Ed” and together with TouchIT Tech KS, “TouchIT”), and the stockholders of TouchIT Tech KS and Touch Ed. 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”), all as disclosed on Form 8-K filed by the Company with the Securities and Exchange Commission on May 24, 2010. See “Recent Developments”. Subsequently, the Registrant amended its Articles of Incorporation to change its name to TouchIT Technologies, Inc., as disclosed on Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 24, 2010.

Unless otherwise specified or required by context, as used in this Quarterly Report on Form 10-Q, the terms “we,” “our,” “us” and the “Company” refer collectively to (i) TouchIT Technologies, Inc., a Nevada corporation (“TouchIT”), (ii) TouchIT Tech KS and TouchIT Ed, both being wholly-owned subsidiaries of TouchIT. In this Quarterly Report on Form 10-Q, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the shares of our common stock, $0.001 par value per share. All financial information presented is for the combined entity TouchIT, which comprises of TouchIT Tech KS and TouchIT Ed. They have not been consolidated and inter-company transactions, although not significant, do exist.

CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management’s opinions only as of the date thereof.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “proposed,” “intended” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other forward-looking information. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, growth rates, and levels of activity, performance or achievements. There may be events in the future that we are not able to accurately predict or control.

All forward-looking statements included in this Quarterly Report are based on information available to us on the date of this Quarterly Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Quarterly Report.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

TOUCHIT TECHNOLOGIES KS & TOUCH IT EDUCATION TECHNOLOGIES KS

COMBINED BALANCE SHEETS

FOR THE PERIODS ENDED 30 JUNE 2011 & 2010 AND YEARS ENDED 31 DECEMBER 2010 & 2009

(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

CURRENT ASSETS	30/06/2011			31/12/2010			30/06/2010			31/12/2009

Cash and cash equivalents		1,239			50,556			215,613			54,845
Trade receivables, net		5,060			705,225			709,121			274,802
Due from related parties		655,135			863,395			602,391			130,594
Due from Shareholders		41,955			50,585			56,406			-
Inventories		571,586			365,643			291,394			259,883
Other current assets		4,223			1,106			5,249			782

Total current assets		1,279,198			2,036,510			1,880,174			720,906

NON CURRENT ASSETS

Property, plant and equipment, net		59,530			64,495			53,387			29,872
Intangible assets, net		18,426			25,145			3,777			-
Rights		-			-			11,000			14,976
Other non current assets		12,763			3,555			280			3,725

Total non current assets		90,719			93,195			68,444			48,573


TOTAL ASSETS		1,369,917			2,129,705			1,948,618			769,479


CURRENT LIABILITIES
Borrowings		-			2,351			8,277			11,282
Trade payables		104,721			124,745			51,169			70,619
Due to shareholders		188,293			47,257			52,516			75,584
Due to related parties		878,822			1,145,992			980,750			670,976
Other current liabilities		68,463			73,233			15,898			120,619

Total current liabilities		1,240,299			1,393,578			1,108,610			949,080


NON CURRENT LIABILITIES
Borrowings		-			-			-			2,321
Employee termination benefits		-			-			1,183			-
Reserve for retirement pay		-			1,842						1,041
Share purchase advances		750,000			750,000			750,000			-

Total non current liabilities		751,078			751,842			751,183			3,362


COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Share capital		127,570			127,570			125,500			125,500
Retained earnings		(143,285	)		(308,463	)		(308,463	)		(46,285	)
Net income / (loss) for the period		(605,745	)		173,899			271,788			(262,178	)

Total shareholders’ equity		(621,460	)		(7,004	)		88,825			(182,963	)

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY		1,369,917			3,138,416			1,948,618			769,479

TOUCHIT TECHNOLOGIES KS & TOUCH IT EDUCATION TECHNOLOGIES KS

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE PERIODS ENDED 30 JUNE 2011 & 2010 AND YEARS ENDED 31 DECEMBER 2010 & 2009

(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

	30/06/2011			31/12/2010			30/06/2010			31/12/2009

NET SALES		914,867			3,577,881			2,171,547			2,029,074
COST OF SALES		(832,401	)		(2,502,037	)		(1,419,424	)		(1,742,047	)
Gross profit		82,466			1,075,844			752,123			287,027
MARKETING AND SELLING EXPENSE		(427,851	)		(504,329	)		(337,590	)		(409,386	)
GENERAL AND ADMINISTRATIVE EXPENSES		(123,057	)		(479,064	)		(131,421	)		(140,121	)
Profit from operations		(468,442	)		92,451			283,112			(262,480	)
OTHER INCOME AND EXPENSES, net		(46,344	)		24,094			(3,226	)		6,621
FINANCIAL INCOME AND EXPENSES, net		(28,433	)		(8,294	)		(4,854	)		(8,741	)
Profit Loss before taxation and currency translation gain/(loss)		(605,745	)		60,063			275,032			(264,600	)
TAXATION CHARGE		--			--						--
Taxation current		--			--			--			--
Deferred		--			--			--			--
CURRENCY TRANSLATION GAIN/(LOSS)		--			60,063			(3,244	)		2,422
Net income/(loss) for the period/year		(605,745	)		105,115			271,788			(262,178	)
OTHER COMPREHENSIVE INCOME		--			--			--			--
Total comprehensive income		(605,745	)		165,178			271,788			(262,178	)

TOUCHIT TECHNOLOGIES KS & TOUCH IT EDUCATION TECHNOLOGIES KS

COMBINED STATEMENTS OF CASH FLOW

FOR THE PERIODS ENDED 30 JUNE 2011 & 2010 AND YEARS ENDED 31 DECEMBER 2010 & 2009

(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

	30/06/2011			31/12/2010			30/06/2010			31.12.2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		(605,745	)		165,178			271,788		(262,178	)
Adjustments to reconcile net income to net cash provided								--
By operating activities:								--
Depreciation and amortization		14,357			17,516			3,859		17,133
Provision for employee benefit		(764	)		801			684		727


Changes in operating assets and liabilities
Trade receivables, net		700,165			(430,428	)		(434,319	)	(189,816	)
Due from shareholders		1,047			(773,544	)		(56,406	)	12,258
Due from related parties		215,844						(471,797	)	203,282
Inventories		(205,944	)		(17,620	)		(31,511	)	22,993
Other current assets		(3,117	)		98,467			(4,467	)	3,896
Other non current assets		(3,117	)		331			3444		(3,725	)
Trade payables		(7,640	)		54,126			(19,450	)	(272,925	)
Due to shareholders		45,912			54,413			(31,960	)	30,430
Due to related parties		(184,430	)		392,276			318,666		386,729
Other current liabilities		(4,770	)		(47,386	)		(104,720	)	95,332
Share Purchase Advances					750,000

Net cash generated from (used for) operating activities		(31,721	)		67,197			(552,213	)	44,136

CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in short-term borrowings		(2,351	)		(8,931	)		(3,005	)	6,815
Increase/(decrease) in long-term borrowings		--						(2,321	)	(2,797	)
Dividends paid		--						--

Net cash (used for) provided from financing activities		(2,351	)		(8,931	)		(5,326	)	4,018


CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment and intangible assets		(15,245	)		(62,304	)		(31,693	)	(17,324	)
Share capital increase		--

Net cash used for investing activities		(15,245	)		(62,304	)		(31,693	)	(17,324	)

NET INCREASE / (DECREASE) IN CASH AND BANKS		(49,317	)		(4,289	)		160,768		30,830

CASH AND BANKS AT BEGINNING OF THE YEAR		50,556			54,845			54,845		24,015

CASH AND BANKS AT END OF THE PERIOD		1,239			50,556			215,613		54,845

COMBINED FINANCIAL STATEMENT OF

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI AND

TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI

AS OF 30 JUNE 2011

To the Board of

Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı and Touch It Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları

We have reviewed the stand-alone financial statements of Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı and Touch It Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları which comprise the financial position as of 30 June 2011 and statements of comprehensive income, changes in equity and cash flows for the period then ended in accordance with Generally Accepted Accounting Principles in the United States of America and issued our qualified review conclusion dated 1 August 2011.

The accompanying combined financial statements have been prepared from the reviwed financial statements of Touch IT Education Technologies Dış Ticaret Kollektif Şirketi Andrew Stuart Brabin ve Ortağı and Touch It Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları in the direction of management request for information purposes only.

DENGE BAĞIMSIZ DENETİM

SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Member of MAZARS

Gökhan Almacı

Partner

Istanbul, 1 August 2011

DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL

Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr

COMBINED FINANCIAL POSITIONS OF

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI AND

TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI

AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

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

	30.06.2011			31.12.2010
ASSETS
Cash and cash equivalents		1,239			50,556
Trade receivables, net		5,060			705,225
Due from related parties		655,135			863,395
Due from shareholders		41,955			50,585
Inventories, net		571,586			365,643
Other current assets		4,223			1,106

Total current assets		1,279,198			2,036,510

Property, plant and equipment, net		59,530			64,495
Intangible assets, net		18,426			25,145
Other non-current assets		12,763			3,555

Total non-current assets		90,719			93,195

Total assets		1,369,917			2,129,705

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term bank loans					2,351
Trade payables		104,721			112,361
Due to shareholders		51,969			142,381
Due to related parties		1,015,146			1,063,252
Other current liabilities		68,463			73,233

Total current liabilities		1,240,299			1,393,578

Share purchase advances		750,000			750,000
Employee termination benefits		--			1,842

Total long-term liabilities		751,078			751,842

Shareholders' Equity:
Share capital		127,570			127,570
Accumulated deficit		(143,285	)		(308,463	)
Net profit/(loss) for the period		(605,745	)		165,178

Total shareholders’ equity		(621,460	)		(15,715	)

Total liabilities and shareholders’ equity		1,369,917			2,129,705

COMBINED STATEMENT OF COMPREHENSIVE INCOME

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI AND

TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI

FOR THE THREE MONTHS PERIOD ENDED AS OF 30 JUNE 2011 AND 2010

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

	30.06.2011		30.06.2010

Net sales	914,867		2,171,547
Cost of sales	(832,401	)	(553,326	)

Gross profit	82,466		756,027

Marketing and selling expenses	(427,851	)	(411,078	)
General and administrative expenses	(123,057	)	(61,837	)

Total operating profit	(468,442	)	283,112

Financial income / (expense), net	(28,433	)	(4,727	)
Other income / (expense), net	(46,344	)	(3,353	)
Translation gain (loss)	(62,526	)	(3,244	)

Profit before provision for taxation	(605,745	)	271,788

Provision for taxation	--		--
- Current
- Deferred

Net profit / (loss) for the year	(605,745	)	271,788

COMBINED STATEMENT OF CASH FLOW OF

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI AND

TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI

STATEMENT OF CASH FLOWS AS OF 30 JUNE 2011 AND 2010

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

	30.06.2011		30.06.2010

Cash flow from operating activities
Net income for the period	(605,745	)	273,643

Adjustments to reconcile net loss to net
cash provided by operating activities:

Depreciation	14,357		6,522
Provision for employee termination benefit	(764	)	142

Net income adjusted to non-cash items	(592,152	)	280,307

Changes in operating assets and liabilities:
Change in trade receivables	700,165		(442,930	)
Change in due from related parties	215,844		(463,186	)
Change in due from shareholders	1,047		(56,406	)
Change in inventories	(205,944	)	(31,511	)
Change in other current assets	(3,117	)	(4,467	)
Change in trade payables	3,364		3,444
Change in due to related parties	(7,640	)	(19,450	)
Change in due to shareholders	45,912		(43,802	)
Change in other current liabilities	(184,430	)	330,508
	(4,770	)	(104,720	)
Net cash provided from operating activities
	(31,721	)	(552,213	)
Cash flows from investing activities:
Purchased of property and equipment	(15,245	)	(31,693	)
Change in share purchase agreement	0		750,000
Net cash provided from investing activities	(15,245	)	718,307

Cash flows from financing activities:
Increase/(decrease) in short-term borrowings	(2,351	)	(3,005	)
Increase/(decrease) in long-term borrowings	0		(2,321	)

Cash flows provided by financing activities	(2,351	)	(5,326	)

Net decrease in cash and cash equivalents	(49,317	)	160,768

Cash and cash equivalents at the beginning of the period	50,556		54,845

Cash and cash equivalents at the end of the period	1,239		215,613

COMBINED STATEMENT OF CHANGES IN EQUITY OF

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TICARET KOLLEKTIF ŞIRKETI ANDREW STUART BRABIN VE ORTAĞI AND

TOUCH IT TECHNOLOGIES KOLLEKTIF ŞIRKETI RONALD GEORGE MURPHY VE ORTAKLARI

AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

(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 1 January 2010		125,500		(46,285	)		(262,178	)		(182,963	)

Share capital increase		2,070		0			0			2,070
		0		0			0			0
Transfer to retained earnings		0		(262,178	)		262,178			0
		0		0			0			0
Net income for the year		0		0			165,178			165,178

Balances at 31 December 2010		127,570		(308,463	)		165,178			-15,715

Transfer to retain earnings		0		165,178			(165,178	)		0
		0		0			0			0
Net profit / (loss) for the six months period		0		0			(605,745	)		(605,745	)

Balances at 30 June 2011		127,570		(143,285	)		(605,745	)		-621,460

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

FINANCIAL STATEMENTS

AS OF 30 JUNE 2011

TOGETHER WITH INDEPENDENT AUDITORS’ REPORT

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 reviewed the accompanying financial statements of Touch IT Technologies Kollektif Şirketi Ronald George Murphy ve Ortakları (“the Company”) which comprise the financial position as of

30 June 2011 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.

Scope of Review

Our responsibility is to express a conclusion on these financial statements based on our review. We conducted our review in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the review to obtain reasonable assurance whether the financial statements are free from material misstatement. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL

Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr

Basis for Qualification

The accompanying financial statements have been prepared assuming that Company will continue as a going concern. Company has suffered recurring losses from operations and has net capital deficiency, negative equity balance amounting to USD 538,604 and the Company’s current liabilities exceed its current assets by an amount of USD 615,673 as of June 30, 2011 that raises substantial doubt about the company's ability to continue as a going concern. 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Conclusion

Based on our review, except for the effect of the matter discussed in the preceding paragraph, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not give a true and fair view of the financial position of the Company as at 30 June 2011, and of its financial performance and its cash flows for the three months period then ended in accordance with Accounting Principles Generally Accepted in the United States of America.

DENGE BAĞIMSIZ DENETİM

SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Member of MAZARS

Gökhan Almacı

Partner

Istanbul, 1 August 2011

DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL

Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

STATEMENT OF FINANCIAL POSITION AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

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

	Notes		30.06.2011	31.12.2010
ASSETS
Cash and cash equivalents		5	1,049	47,282
Trade receivables, net		6	5,060	669,937
Due from shareholders		7	40,206	40,743
Due from related parties		7	32,622	--
Inventories, net		8	316,101	174,226
Other current assets		9	2,824	885

Total current assets			397,861	933,073

Property, plant and equipment, net		10	59,530	64,495
Intangible assets, net		11	18,426	11,833
Other non-current assets		12	191	3,555

Total non-current assets			78,147	79,883

Total assets			476,008	1,012,956

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term bank loans	13	--		2,351
Trade payables	14	65,467		58,150
Due to shareholders	7	29,743		37,494
Due to related parties	7	856,596		1,041,105
Other current liabilities	15	61,728		25,232

Total current liabilities		1,013,534		1,164,332

Employee termination benefits	16	1,078		1,842

Total long-term liabilities		1,078		1,842

Shareholders' Equity:
Share capital	17	90,000		90,000
Accumulated deficit		(243,218	)	(419,472	)
Net profit / (loss) for the period		(385,386	)	176,254

Total shareholders’ equity		(538,604	)	(153,218	)

Total liabilities and shareholders’ equity		476,008		1,012,956

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

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS PERIOD ENDED AS OF 30 JUNE 2011 AND 2010

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

	Notes		30.06.2011		30.06.2010

Net Sales		18	536,884		1,500,024
Cost of sales		19	(537,338	)	(984,423	)

Gross profit			(454	)	515,601

Marketing and selling expenses		20	(216,498	)	(342,760	)
General and administrative expenses		21	(74,589	)	(27,380	)

Total operating loss			(291,541	)	145,461


Other income / (expense), net		22	(11,471	)	(3,535	)
Financial expenses		23	(28,433	)	(3,408	)
Currency translation differences			(53,941	)	6,438

Loss before provision for taxation			(385,386	)	144,956

Provision for taxation			--		--
- Current
- Deferred

Net loss for the period			(385,386	)	144,956

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

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

STATEMENT OF CASH FLOWS AS OF 30 JUNE 2011 AND 2010

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

	30.06.2011		30.06.2010
Cash flow from operating activities
Net loss for the period	(385,386	)	144,956

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation	13,617		4,401
Provision(reversal) for employee termination benefit	(764	)	684

Net loss adjusted to non-cash items	(372,533	)	150,041

Changes in operating assets and liabilities:
Change in trade receivables	664,877		(391,072	)
Change in due from shareholders	538		(46,744	)
Change in due from related parties	(32,622	)
Change in inventories	(141,875	)	123,999
Change in other current assets	(1,939	)	(4,625	)
Change in other non current assets	3,364		3,444
Change in trade payables	7,317		(51,039	)
Change in due to shareholders	(7,751	)	(23,878	)
Change in due to related parties	(184,509	)	338,590
Change in other current liabilities	36,496		(64,474	)

Net cash used for operating activities	(28,637	)	34,242

Cash flows from investing activities:
Purchased of property and equipment	(15,245	)	(31,693	)

Net cash outflows from investing activities	(15,245	)	(31,693	)

Cash flows from financing activities:
Increase (decrease) in short-term borrowings	(2,351	)	(3,005	)
Increase (decrease) in long-term borrowings	--		(2,321	)

Cash outflows generated by financing activities	(2,351	)	(5,326	)

Net decrease in cash and cash equivalents	(46,233	)	(2,777	)

Cash and cash equivalents at the beginning of the period	47,282		52,641

Cash and cash equivalents at the end of the period	1,049		49,864

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

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

STATEMENT OF CHANGES IN EQUITY AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

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

	Share capital		Accumulated deficit			Net loss for the year/ period			Total Shareholders' Equity

Opening balance as of 1 January 2010		90,000		(100,028	)		(319,444	)		(329,472	)

Transfer to accumulated deficit		--		(319,444	)		319,444			--

Net profit (loss) for the year 2010		--		--			176,254			176,254

Balances at 31 December 2010		90,000		(419,472	)		176,254			(153,218	)

Transfer to accumulated deficit		--		176,254			(176,254	)		0

Net profit / (loss) for the six months period of 2011		--		--			(385,386	)		(385,386	)

Balances at 30 June 2011		90,000		(243,218	)		(385,386	)		(538,604	)

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

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 formal registration has not yet been completed.

Average number of employees of the Company as of 30 June 2011 is 11 while it was 10 as at December 31, 2010.

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.

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NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

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.

Change in Accounting Estimates;

In previous periods

·	the depreciation and shareholders marketing expenses were presented under the account of marketing & selling expense,

·	the administrative personnel wages was presented under the direct labor cost

rather than administrative expense.

The change in accounting estimates had the following impact on the opening figures;

	Administrative expense			Marketing expense			Cost of Sales
Balances as reported at 30 June 2010		96,964			269,272			988,327
Classification of personnel cost		3,904			--			(3,904	)
Classification of depreciation		1,822			(1,822	)		--
Classification of shareholders marketing expense		(75,310	)		75,310			--
Restated balance at 30 June 2010		27,380			342,760			984,423

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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.

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 Undersecretaries 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 30 June 2011 and 31 December 2010:

	30.06.2011	31.12.2010

USD	1.6302	1.5460
EURO	2.3492	2.0491
GBP	2.6111	2.3886

Average USD	1.5934	1.4991

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.

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 30 June 2011 and 31 December 2010 cash and cash equivalents comprised of the followings:

	30.06.2010	31.12.2010

Cash in hand	911	1,196
Banks	138	46,086

Total	1,049	47,282

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

6. TRADE RECEIVABLES

As of 30 June 2011 and 31 December 2010 trade receivables comprised of followings:

	30.06.2011		31.12.2010

Proformance Products	1,836		526,077
Others ( less than USD 60,000)	5,060		143,860
Doubtful receivables (-)	(1,836	)	--

Total	5,060		669,937

7. RELATED PARTY TRANSACTIONS

Due from shareholders has been presented as follows:

Due from shareholders	30.06.2011	31.12.2010

Recep Tanışman	40,165	40,743
Andrew Stuart Brabin	41	--
Total	40,206	40,743

Due from related parties has been presented as follows:

Due from related parties	30.06.2011	31.12.2010

Touchit Technologies USA LLC	32,622	--
Total	32,622	--

Due to related parties and shareholders has been presented as follows:

Due to related parties	30.06.2011	31.12.2010

Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.	339,542	417,709
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi	468,965	587,308
Kamron Inc	36,089	36,088
International RT	12,000	0

Total	856,596	1,041,105

Due to shareholders	30.06.2011	31.12.2010

Ali Rıza Tanışman	29,743	22,549
Andrew Brabian Stuart	--	14,566
Recep Tanışman	--	379

Total	29,743	37,494

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

7. RELATED PARTY TRANSACTIONS (CONTINUED)

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

Major purchases and service provided from related parties have been presented as follows:

Trade goods	30.06.2011	30.06.2010

Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.	139,908	201,119
Touch IT Educations Technologies Dış. Tic. Koll. Şirketi	152,822	55,680

Total	292,730	256,799


Services provided	30.06.2011	30.06.2010

Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.	372	40,994
International TR	36,000	1,730

Total	36,372	42,724

Major sales to related parties have been presented as follows:

	30.06.2011	30.06.2010

Touch IT Educations Technologies Dış. Tic. Koll. Şirketi	58,451	146,408
Emko Emaye ve Yazı Tahtaları ve Eğitim Gereçleri A.Ş.	271	--
Touchit Technologies USA LLC	66,622	--

	125,344	146,408

8. INVENTORIES:

As of 30 June 2011 and 31 December 2010 inventories comprised of the followings:

	30.06.2011		31.12.2010

Raw material and supplies	228,384		196,971
Finished goods	125,459		1,534
Advances given for purchases	4,912		11,232
Other inventories	6,660		2,738
Provision for damaged and slow moving stock (-)	(49,314	)	(38,249	)
Total	316,101		174,226

The Touch It Technology and Touch It Education inventories have been insured together with a single insurance policy. The insurance on the inventories as of 30 June 2011 is TL 650,000

(31 December 2010 is USD 600,000).

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

9. OTHER CURRENT ASSETS:

As of 30 June 2011 and 31 December 2010 other receivables and assets comprised of the followings:

	30.06.2011	31.12.2010

Prepaid insurance expense	1,964	--
Deposits and Guarantees given	400	400
Other	460	485

Total	2,824	885

10. PROPERTY, PLANT AND EQUIPMENT, NET

The movement of property, plant and equipment, net as of 30 June 2011 and 31 December 2010 is as follows;

	1 January 2010			Additions			31 December 2010			Additions			30 June 2011

Cost
Machinery and equipment		3,655			1,483			5,139			--			5,139
Vehicles		29,455			--			29,455			--			29,455
Furniture and fixtures		6,302			46,165			52,467			4,013			56,480


Total		39,412			47,648			87,061			4,013			91,074

Depreciation
Machinery and equipment		(1,194	)		(1,113	)		(2,308	)		(409	)		(2,717	)
Vehicles		(6,828	)		(5,883	)		(12,711	)		(3,259	)		(15,970	)
Furniture and fixtures		(1,518	)		(6,029	)		(7,547	)		(5,310	)		(12,857	)


Total		(9,540	)		(13,025	)		(22,566	)		(8,978	)		(31,544	)

Net book value		29,872						64,495						59,530

The insurance on property, plant and equipment as of 30 June 2011 is TL 60,000. (31 December 2010 is USD 10,000)

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 30 June 2011 and 31 December 2010 is as follows;

	1 January 2010		Additions			31 December 2010			Additions			30 June 2011

Cost
Rights		--		10,774			10,774			11,232			22,006
Other tangible assets		--		3,885			3,885			--			3,885

Total		--		14,659			14,659			11,232			25,891

Depreciation
Rights		--		(2,394	)		(2,394	)		(3,668	)		(6,062	)
Other tangible assets		--		(432	)		(432	)		(971	)		(1,403	)

Total		--		(2,826	)		(2,826	)		(4,639	)		(7,465	)

Net book value		--					11,833						18,426

12. OTHER NON CURRENT ASSETS:

As of 30 June 2011 and 31 December 2010 non-current assets comprised of the prepaid expenses of USD 191 and USD 3,555 respectively.

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

13. BANK LOANS

As of 30 June 2011 and 31 December 2010 bank loans comprised the followings:

	30. 06.2011	31.12.2010

Short term borrowings
TRY bank loans	--	2,351

Sub total		2,351

Long term borrowings
TRY bank loans	--	--

Sub total	--	--

Total	--	2,351

Analysis of bank loans’ repayments is as follows:

	30.06.2011	31.12.2010

Within one year	--	2,351
Between one to two years	--	--

Total	--	2,351

Bank Loans arise from purchases of two motor vehicles.

14. TRADE PAYABLES

As of 30 June 2011 and 31 December 2010, trade payables comprised the followings:

	30.06.2011	31.12.2010

Suppliers	65,467	58,150
Other trade payables	--	--

Total	65,467	58,150

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

15. OTHER CURRENT LIABILITIES

As of 30 June 2011 and 31 December 2010 other current liabilities comprised the followings:

	30.06.2011	31.12.2010

Social security premiums & withholding taxes payable	9,278	6,010
Due to personnel	8,307	7,056
Accrued expense	1,625	1,350
Advance received	42,518	10,776
Other liabilities	--	40

Total	61,728	25,232

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 30 June 2011, 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 1 January 2011 has been taken into consideration in calculation of provision from employment termination benefits (2010: TRY 2,517).

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

	30.06.2011		31.12.2010
Discount rate	10.00	%	10.00	%
Expected rates of salary / limit increases	5.1	%	5.1	%

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

17. SHARE CAPITAL

The shareholders and their participation percentages as of 30 June 2011 and 31 December 2010 are as follows:

	30.06.2011					31.12.2010
	Shareholding					Shareholding
	Amount		%			Amount		%
Ali Rıza Tanışman		2,700		3.00	%		2,700		3.00	%
Andrew Stuart Brabin		30,600		34.00	%		30,600		34.00	%
Recep Tanışman		29,700		33.00	%		29,700		33.00	%
Ronald George Murphy		26,182		29.09	%		26,182		29.09	%
Cansın Tanışman		818		0.91	%		818		0.91	%
		90,000		100.00	%		90,000		100.00	%

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

18. SALES

The composition of sales by principal operation for the period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011		30.06.2010

Clever board	337,124		433,273
Triumph board 78 inch	--		136,060
Touch it board 78 inch	119,122		429,564
Touch it board 80 inch	39,446		180,825
Triumph board 80 inch	--		52,386
Touch it board 90 inch	22,811		93,042
Touch it board 50 inch	9,639		34,484
Triumph board 50 inch	--		1,216
Electronic circuit	53,680		118,238
Others	9,949		20,936

Returns (-)	(54,886	)	--

Total	536,884		1,500,024

19. COST OF SALES

The composition of cost of sales by principal operations for the period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011		30.06.2010

Direct material cost	384,516		911,492
Direct labor cost	47,859		27,797
General production overheads	49,931		44,208
Ending inventory (trade goods)	(5,964	)	(479	)
Depreciation	5,372		1,405

Cost of Good Sold	481,714		984,423
Cost of Raw Materials Sold	55,624		--
Total Cost of Sales	537,338		984,423

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

20. MARKETING AND SELLING EXPENSES

The composition of marketing and selling expenses by principal operations for the period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011	30.06.2010

Export expenses	46,808	153,820
Sales & marketing expenses of shareholders	--	117,342
Commission expense	56,494	--
Consultancy received regarding selling and marketing activities	90,005	14,103
Cargo expenses	2,467	3,930
Software expense	2,100	32,906
Others	18,624	20,659

Total	216,498	342,760

21. GENERAL AND ADMINISTRATIVE EXPENSES

The composition of general and administrative expenses by principal operations for the period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011	30.06.2010

Consulting expenses	25,617	13,555
Personnel expense	32,892	3,904
Retirement pay liability	--	1,075
Depreciation	8,245	2,489
Tax and duties	667	684
Food expenses	5,350	488
Other	1,818	5,185

Total	74,589	27,380

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011		30.06.2010

Provision for impairment of inventory	(13,328	)	--
Provision for doubtful receivables	(1,837	)	--
Non tax deductible expenses	(3,036	)	(4,244	)
Other, net	6,730		709

Total	(11,471	)	(3,535	)

23. FINANCIAL EXPENSES

The composition of financial income / (expenses), net for the period ended at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011		30.06.2010

Interest expenses	(91	)	(1,143	)
Bank charges	(1,358	)	(2,265	)
Financial service expense charged by Trafalgar (*)	(26,984	)	--

Total	(28,433	)	(3,408	)

(*) There is an agreement between Touch It Technologies Inc. (and all its subsidiary- Touch It Technologies and Touch It Education Kollektif) and Trafalgar Capital Advisory Partners LLP (Trafalgar) dated November 3, 2010 relating to the appointment of Trafalgar as introducer/advisor. Based on the agreement Sahara and Research for Learning receivables has been assigned to Trafalgar and Trafalgar pays the amount within 15 days.

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

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.

30 June 2011	Financial assets at amortized cost		Loans and receivables		Financial liabilities at amortized cost		Carrying value		Fair value		Note

Financial assets
Cash and cash equivalents		--		1,049		--		1,049		1,049		5
Trade receivables (including related parties)		--		37,682		--		37,682		37,682		6-7

Financial liabilities
Borrowings		--		0		--		0		0		13
Trade payables (including related parties)		--		922,063		--		922,063		922,063		7-14

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)		--		1,099,255		--		1,099,255		1,099,255		7-14

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

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 30 June 2011 and for the years ended 31 December 2010 can be summarized as follows:

		30.06.2011					31.12.2010
		F/C	Foreign				Foreign
		Type	Currency		TRY		Currency			TRY
Banks	USD		17		27			45,538			70,401
	EUR		--		--			78			160
Trade receivables	USD		5,060		8,249			669,937			1,035,723
Due from shareholders	USD		--		--			31,302			48,393
Due from related parties	USD		32,622		53,180			--			--

Trade payables	USD		(65,093	)	(106,115	)		(23,829	)		(36,839	)
Due to related parties	USD		(856,596	)	(1,396,422	)		(1,039,944	)		(1,607,753	)
Due to shareholders	USD		(29,743	)	(48,487	)		(9,170	)		(14,177	)
Other current liabilities	USD		(42,518	)	(69,313	)		(10,776	)		(16,660	)

Net F/C Assets and Liabilities					(1,558,881	)					(520,752	)

TOUCH IT TECHNOLOGIES KOLLEKTİF ŞİRKETİ

RONALD GEORGE MURPHY VE ORTAKLARI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CON TINUED)

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
30 June 2011

Borrowings		--				--
Trade payables		65,467				65,467
Due to related parties		856,596				856,596

31 December 2010

Borrowings		2,351		--		2,351
Trade payables		58,150		--		58,150
Due to related parties		1,041,105		--		1,041,105

25. SUBSEQUENT EVENTS

There is no subsequent event has occurred which might affect the financial statements.

TOUCH IT EDUCATION TECHNOLOGIES

DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

FINANCIAL STATEMENTS

AS OF 30 JUNE 2011

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 reviewed 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 30 June 2011 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

Scope of Review

DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL

Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr

denge@mazarsdenge.com.t

Basis for Qualification

The accompanying financial statements have been prepared assuming that Company will continue as a going concern. Company has suffered recurring losses from operations and has net capital deficiency and negative equity balance amounting to USD 82,856 as of June 30, 2011 that raises substantial doubt about the company's ability to continue as a going concern. 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Conclusion

We would like to draw your attention to the following matters:

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 review of 2011, we have determined significant amount of such invoices under the name of consultant fee and expenses totally amounting to USD 167,978. 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.

DENGE BAĞIMSIZ DENETİM

SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Member of MAZARS

Gökhan Almacı

Partner

Istanbul, 1 August 2011

DENGE BAĞIMSIZ DENETİM SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş.

Hürriyet Mah. Dr. Cemil Bengü Cad. İş Merkezi No:2 K:1-2 Çağlayan 34403 Kağıthane/İSTANBUL

Tel: (0212) 296 51 00 (pbx) Fax: (0212) 296 51 99 Tic. Sic. No: 262368-209940 www.mazarsdenge.com.tr denge@mazarsdenge.com.tr

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

STATEMENT OF FINANCIAL POSITION AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

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

	Notes		30.06.2011	31.12.2010
ASSETS
Cash and cash equivalents		5	190	3,274
Trade receivables, net		6	--	35,288
Due from related parties		7	614,930	863,395
Due from shareholders		7	9,333	9,842
Inventories		8	255,485	191,417
Other current assets		9	1,399	221

Total current assets			881,337	1,103,437

Rights, net		10	12,572	13,312

Total non-current assets			12,572	13,312

Total assets			893,909	1,116,749

LIABILITIES AND SHAREHOLDERS' EQUITY
Trade payables	11	39,254		54,211
Due to shareholders	7	22,226		22,147
Due to related parties	7	158,550		104,887
Other current liabilities	12	6,735		48,001

Total current liabilities		226,765		229,246

Share purchase advances	1	750,000		750,000
Employee termination benefits	13	--		--

Total long-term liabilities		750,000		750,000

Shareholders' Equity:
Share capital	14	37,570		37,570
Retained Earnings		99,933		111,009
Net income / (loss) for the period		(220,359	)	(11,076	)

Total shareholders’ equity		(82,856	)	137,503

Total liabilities and shareholders’ equity		893,909		1,116,749

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

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

STATEMENTS OF INCOME FOR THE SIX MONTHS PERIOD ENDED AS OF

30 JUNE 2011 AND 2010

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

	Notes		30.06.2011		30.06.2010

Net sales		15	377,983		671,523
Cost of sales		16	(295,063	)	431,097

Gross profit			82,920		240,426

Marketing and selling expenses		17	(211,353	)	(68,318	)
General and administrative expenses		18	(48,468	)	(34,457	)

Total operating income			(176,901	)	137,651

Financial income / (expense), net			--		(1,319	)
Other income / (expense), net			(34,873	)	182
Translation loss			(8,585	)	(9,682	)

Loss before provision for taxation			(220,359	)	126,832

Provision for taxation
- Current			--		--
- Deferred			--		--

Net income for the period			(220,359	)	126,832

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

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

STATEMENT OF CASH FLOW AS OF 30 JUNE 2011 AND 2010

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

	30.06.2011		30.06.2010

Cash flow from operating activities
Net income for the period	(220,359	)	128,687

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation	740		2,121
Provision for employee termination benefit	--		(542	)

Net income adjusted to non-cash items	(219,619	)	130,266

Changes in operating assets and liabilities:
Change in trade receivables	35,288		(51,858	)
Change in due from related parties	248,466		(463,186	)
Change in due from shareholders	509		(9,662	)
Change in inventories	(64,069	)	(155,510	)
Change in other current assets	(1,178	)	158
Change in trade payables	(14,957	)	31,589
Change in due to related parties	53,663		(19,924	)
Change in due to shareholders	79		(8,082	)
Change in other current liabilities	(41,266	)	(40,246	)

Net cash provided from operating activities	(3,084	)	(586,455	)

Cash flows from investing activities:
Purchased of property and equipment	--		--
Change in share purchase agreement	--		750,000

Net cash provided from investing activities	--		750,000

Cash flows from financing activities:
Increase/(decrease) in short-term borrowings	--		--
Increase/(decrease) in long-term borrowings	--		--

Cash flows provided by financing activities	--		--

Net decrease in cash and cash equivalents	(3,084	)	163,545

Cash and cash equivalents at the beginning of the period	3,274		2,204

Cash and cash equivalents at the end of the period	190		165,749

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

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

STATEMENT OF CHANGES IN EQUITY AS OF 30 JUNE 2011 AND 31 DECEMBER 2010

(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 1 January 2010		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

Transfer to retain earnings		--		(11,076)		11,076		--

Net profit / (loss) for the six months period		--		--		(220,359)		(220,359)

Balances at 30 June 2011		37,570		99,933		(220,359)		(82,856)

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

1. OPERATIONS OF THE COMPANY:

General

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 IT Education”) was established on 27 August 2007 with a ‘‘Share Transfer of Open Company and Amendment Agreement’’. Touch IT Education primarily engages in sales and purchases of the interactive writing board and all educational equipment.

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 of100% 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, USD750,000 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 formal registration has not yet been completed

Average number of employees of the Company as of 30 June 2011 is 6 while it was 6 as at December 31, 2010.

2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

3. BASIS OF PRESENTATION

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

Related parties

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 1 November 2001 and period of validation is 15 years.

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

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.

4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign currency transactions

Following period rates are applicable as of 30 June 2011 and 31 December 2010:

	30.06.2011	31.12.2010

USD	1.6302	1.5460
EURO	2.3492	2.0491
GBP	2.6111	2.3886

Average USD	1.5934	1.4991

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

Financial Instruments

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial Instruments (continued)

Level 2

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 30 June 2011 and 31 December 2010 cash and cash equivalents comprised of the followings:

	30.06.2011	31.12.2010

Cash in hand	97	695
Banks	93	2,579

Total	190	3,274

6. TRADE RECEIVABLES

As of 30 June 2011 and 31 December 2010 trade receivables comprised of followings:

	30.06.2011		31.12.2010

Trade receivables	53,380		54,829
Provision for doubtful receivables (-)	(53,380	)	(19,541	)

Total	--		35,288

The provision has been booked for the receivables from Proformance Product and Truimphboard S.R.O.

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

7. RELATED PARTY 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	30.06.2011	31.12.2010

Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.	145,965	587,308
Touch IT Technologies Koll. Şti.. Ronald George Murphy ve Ortakları	468,965	276,087

Total	614,930	863,395

Due from shareholders	30.06.2011	31.12.2010

Andrew Stuart Brabin	--	9,842
Recep Tanışman	9,333	--

Total	9,333	9,842

Due to related parties	30.06.2011	31.12.2010

Kamron Inc	94,427	50,467
ASB Trading	64,123	54,420

Total	158,550	104,887

Due to shareholders	30.06.2011	31.12.2010

Ali Rıza Tanışman	22,226	22,147

Total	22,226	22,147

Transactions between related parties have been presented as follows:

Major purchases from related parties	30.06.2011	30.06.2010
Touch It Technologies Koll. Şti. Ronald George Murphy ve Ortakları	58,451	146,408
Total	58,451	146,408

Major sales to related parties	30.06.2011	30.06.2010
Emko Yazı Tahtaları ve Eğitim Gereçleri A.Ş.	101,918	309,034
Touch IT Technologies Koll. Şti. Ronald George Murphy ve Ortakları	152,822	55,680
Total	254,740	364,714

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

7. RELATED PARTY BALANCES AND TRANSACTIONS (COUNTINUED):

Service provided by	30.06.2011	30.06.2010

Kamron Inc.	98,991	15,807
Andrew Stuart Brabin	68,987	12,000

Total	167,978	27,807

8. INVENTORIES

As of 30 June 2011 and 31 December 2010 inventories comprised of the followings:

	30.06.2011	31.12.2010

Trade goods	118,026	109,261
Advances given for purchases(*)	137,459	82,156

Total	255,485	191,417

(*) The majority of the balance comprise of advance given to Songtian Orient Corporation (China) Limited amounting USD 122,602 (in 2010 USD 36,960) for the purchase of LCD products. According to purchase agreement, the goods would be delivered to Turkey before 21 April 2011. However Songtiang delayed the delivery. Soon after Company lawyer has sent a demanding letter regarding the prepayment but till to our date of report no response has been received no legal action has been started.

The Touch It Technology and Touch It Education inventories have been insured together with a single insurance policy. The insurance on the total inventories as of 30 June 2011 is TL 650,000.

(31 December 2010 is USD 100,000)

9.	OTHER CURRENT ASSETS:

As of 30 June 2011 and 31 December 2010 other receivables comprises of the followings;

	30.06.2011	31.12.2010

Prepaid expense	154	221
Advance given to personnel	1,245	--

Total	1,399	221

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

10. NON-CURRENT ASSETS

As of 30 June 2011 and 31 December 2010 non-current assets comprised of followings:

	30.06.2011		31.12.2010

License right	35,500		35,500
Depreciation allowance	(22,928	)	(22,188	)

Total	12,572		13,312

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.

11. TRADE PAYABLES

As of 30 June 2011 and 31 December 2010 trade payables comprised as of the followings:

	30.06.2011	31.12.2010

Trade payables	39,254	54,211

Total	39,254	54,211

12. OTHER CURRENT LIABILITIES

As of 30 June 2011 and 31 December 2010 other current liabilities comprised of the followings:

	30.06.2011	31.12.2010

Taxes and funds payable	1,093	2,471
Social security premiums and withholding taxes payable	730	1,439
Accrued expenses	1,625	1,250
Advances received	2,041	40,731
Due to personnel	1,246	2,110

Total	6,735	48,001

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

13. RESERVE FOR EMPLOYMENT TERMINATION BENEFITS

14. SHARE CAPITAL

The issued share capital of the Company is respectively for the period ended at 30 June 2011 and for the years ended 31 December 2010 comprised as follows;

	30.06.2011				31.12.2010
	Shareholding				Shareholding
	Amount		%		Amount		%

Andrew Stuart Brabin		27,050		72		27,050		72
Ali Rıza Tanışman		1,503		4		1,503		4
Recep Tanışman		7,515		20		7,515		20
Cansın Tanışman		751		2		751		2
Volkan Tanışman		751		2		751		2
		37,570		100		37,570		100

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011	30.06.2010

Electronic set	362,656	459,150
Remote Control for classroom	4,738	129,682
Touch IT board	2,540	43,410
Writing Pad	5,500	22,507
LCD	615	--
Others	1,934	25,047

Returns (-)	--	(8,273	)

Total	377,983	671,523

The composition of cost of sales by principal operations for the period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011		30.06.2010

Beginning inventory of trade goods	109,261		48,111
Purchases	303,828		534,772
Ending inventory of trade goods (-)	(118,026	)	(151,786	)

Total	295,063		431,097

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011	30.06.2010

Export expenses	5,916	17,542
Consultancy expenses (*)	201,565	35,858
Web site design expenses	--	8,908
Other expenses	3,872	6,010


Total	211,353	68,318

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

18. GENERAL AND ADMINISTRATIVE EXPENSES

The composition of general and administrative expenses by principal operations for the period ended as at 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011	30.06.2010

Audit and consultancy expenses	8,722	9,063
Personnel expenses	31,159	12,649
Rental expenses	6,600	6,192
Depreciation	740	3,976
Other expenses	1,247	2,577

Total	48,468	34,457

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

(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 30 June 2011 and 2010 can be summarized as follows:

	30.06.2011		30.06.2010

Provision for doubtful receivables	(34,511	)	--
Other expense	(362	)	--
Other income	--		182

Total	(34,873	)	182

19. 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.

30 June 2011	Financial assets at amortized cost	Loans and receivables		Financial liabilities at amortized cost	Carrying value		Fair value		Note

Financial assets
Cash and cash equivalents			190			190		190		5
Trade receivables (including related parties)			614,930			614,930		614,930		6-7

Financial liabilities
Trade payables (including related parties)			197,620			197,620		197,620		7-11

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		--		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

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

Financial risk factors

Market risk

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

19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Foreign currency risk management

		30.06.2011				31.12.2010
	F/C Type	Foreign Currency		TRY		Foreign Currency			TRY
Banks	USD	40		65			2,138			3,306
	EUR	--		--			19			38

Due from related parties	USD	614,930		1,002,459			587,308			907,979

Trade receivables	USD	--		--			34,731			53,694

Advances given	USD	122,602		199,866			72,544			112,153
(Inventories)

Trade payables	USD	(36,706	)	(59,838	)		(43,480	)		(67,220	)

Advances received	USD	(2,041	)	(3,327	)		(40,731	)		(62,970	)
(Other current liabilities)

Due to related parties	USD	(158,550	)	(258,468	)		(104,887	)		(162,155	)

Share purchase advances	USD	(750,000	)	(1,222,650	)		(750,000	)		(1,159,500	)


Net F/C Assets / (Liabilities)				(341,893	)					(374,675	)

TOUCH IT EDUCATION TECHNOLOGIES DIŞ TİCARET KOLLEKTİF ŞİRKETİ

ANDREW STUART BRABIN VE ORTAĞI

NOTES TO FINANCIAL STATEMENTS AS OF 30 JUNE 2011

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

20. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Credit risk management

Liquidity risk management

	Current		Noncurrent		Total
30 June 2011

Trade payables (including related parties)		158,734		--		158,734

31 December 2010

Trade payables (including related parties)		159,098		--		159,098

21. SUBSEQUENT EVENTS

There is no subsequent event has occurred which might affect the financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Quarterly Report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Management’s Discussion and Analysis or Plan of Operation,” “Business” and those listed in our other Securities and Exchange Commission filings. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “ongoing,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons. Accordingly, you should not unduly rely on these forward-looking statements, which speak only as of the date of this Report.

Unless required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Report.

Management cautions that these statements are qualified by their terms and/or important factors, many of which are outside of our control, and involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made, including, but not limited to, the following:

● actual or anticipated fluctuations in our quarterly and annual operating results;

● actual or anticipated product constraints;

● decreased demand for our products resulting from changes in consumer preferences;

● product and services announcements by us or our competitors;

● loss of any of our key executives;

● regulatory announcements, proceedings or changes;

● announcements in the touch technology community;

● competitive product developments;

● intellectual property and legal developments;

● mergers or strategic alliances in the touch technology industry;

● any business combination we may propose or complete;

● any financing transactions we may propose or complete; or

● broader industry and market trends unrelated to its performance.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Plan of Operation

The ability of our Company to achieve our business objectives is contingent upon our success in raising additional capital until adequate revenues are realized from operations.

We are a manufacturer of touch based visual communication products for education and corporate worldwide marketplaces. Our mission is to design and manufacture high quality technology products. We manufacture a large range of touch screen and touch board products to suite all types of application from pen input wireless tablets, to large enameled steel touch-sensitive interactive whiteboards and large interactive Liquid Crystal Displays (“LCD”). Our products stand out from our competition in terms of our design, functionality and price offering. Our customers seek our products as they provide them with a different point of entry to the market in terms of price, quality of design and margin. Currently, demand for our products is exceeding our ability to supply.

In the past three years, we have designed, manufactured, launched, developed and sold four new products as well as established the business from scratch and equipped a factory.

COMPANY OVERVIEW

We manufacture touch-based visual communication products for the education and corporate worldwide marketplaces. Our products stand out from our competition in terms of design, functionality and price offering. Our customers seek our products as they provide them a different point of entry to the market in terms of price, quality of design and margin.

In our first year of trading, we exceeded revenues of $2 million USD having designed, manufactured, launched and sold four new products as well as established the business and equipped a factory. Our second full year of trading saw 176% growth as we expanded into world-wide markets.

On January 10, 2011, we forecasted our 2011 revenue projections to be $9 million. However, having had a slow first half of this year, our ability to hit this target will depend upon whether we may obtain a large number of tender opportunities.

Our keys to success are:

1. Establish and maintain working relationships and contractual agreements with distribution and Original Equipment Manufacturer (“OEM”) customers;

2. Increase our profit margin by lowering the import and raw material costs by bulk purchasing from vendors;

3. By increasing our purchasing power, we can increase our stock holding and lowering delivery times to customers thus enabling further sales growth; and

4. Effectively communicate with our current and potential customers, through targeted efforts, our position as a differentiated provider of the highest quality of margin laden touch-based communication products.

Recent Developments

On May 7, 2010, we (which at that time was called Hotel Management Systems, Inc.), entered into a Share Exchange Agreement with TouchIT Tech KS, the stockholders of TouchIT Tech KS, TouchIT Ed, and the stockholders of Touch Ed. Both TouchIT Tech KS and TouchIT Ed are corporations formed under the laws of Turkey and are based in Istanbul, Turkey. The Closing took place on May 7, 2010.

In connection with the closing of the Share Exchange Agreement, on May 7, 2010, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain investors for the sale of up to $1,500,000 (the “Purchase Price”), which was represented by the convertible promissory notes of our Company (“Note” or “Notes”) and share purchase warrants (the “Warrants”) to purchase common shares of our Company (the “Warrant Shares”). Due to the non-provision of the second $750,000 by certain investors, we cancelled the promissory Notes for $250,000 and $500,000 including the underlying Warrant Shares.

On February 16, 2011, we borrowed Two Hundred Fifty Thousand Dollars ($250,000) (the “Advance”) from TCA Global Credit Master Fund, LP (the “Lender”) pursuant to a revolving credit facility evidenced by a Credit Agreement with an effective date of November 30, 2010 (the “Credit Agreement”).

The Credit Agreement evidences a revolving credit facility in the minimum principal amount of $250,000, which subject to Lender approval may be increased up to One Million Dollars ($1,000,000) (the “Loan”). Interest on the Advance accrues at the rate of eight percent (8%) per annum and the outstanding and accrued interest is due and payable on a bi-monthly basis. The outstanding principal amount is due on February 16, 2012.

The Loan is also evidenced by a revolving note (the “ Revolving Note”). The Credit Agreement and Revolving Note are secured by, among other things, (i) the Security Agreement made by and between our Company and the Lender pursuant to which the Borrower has granted a security interest in all of the Borrower's assets to the Lender (the "Security Agreement"), (ii) a personal guaranty and validity guaranty executed by Andrew Brabin, Chief Financial Officer of our Company, and (iii) a personal guaranty and validity guaranty executed by Recep Tanisman, the Chief Executive Officer of our Company.

Pursuant to the Credit Agreement, on February 16, 2011, our Company issued to the Lender One Hundred Thousand (100,000) common shares (the “Restricted Shares”), which have piggy back registration rights as part of any registration statement filed by our Company and full ratchet rights and anti-dilution rights during the six months following February 16, 2011. Furthermore, we also issued to Lender Twenty-Five Thousand (25,000) shares of our Company's Series A convertible preferred stock, par value of $0.001 (“Preferred Shares”), with such shares shall be converted into shares of common shares of our Company on February 16, 2012 upon the satisfaction of certain conditions (including if the value of the Restricted Shares is less than $45,000 on February 16, 2012 based on the average closing price for the 30 trading days prior thereto).

The Credit Agreement also includes customary representations and warranties and affirmative and negative covenants, including, among others, payment of certain customary fees and expenses (including commitment, monitoring and diligence fees), covenants relating to financial reporting, maintenance of property and insurance, incurrence of liens and/or other indebtedness. The Credit Agreement also contains customary provisions for events of default, remedies in circumstances of default, required notices, governing law and jurisdiction of governance.

Upon the occurrence of an event of default (as defined in the Credit Agreement), the Lender may, at its option, declare its commitments to us to be terminated and all obligations and commitments to be immediately due and payable. For all the terms and conditions of the Credit Agreement, the Security Agreement and the Revolving Note, reference is hereby made to such documents respectively filed as Exhibits 10.1, 10.2 and 10.3 as part of the Form 8-K filed with the Securities and Exchange Commission on February 23, 2011. All statements made herein concerning the foregoing document are qualified by reference to said Exhibits.

We have seen that the credit line has increased the liquidity of our business by improving cash flow and reducing the debtor days for an average of 45 down to less than 15. We expect to continue to use this credit facility for the foreseeable future. The decision to increase this line will be dependent on the increase of eligible receivables (those from the USA and UK) and management will make a decision based on sales history and forecasts from the customer base.

We have seen that the market in general this past quarter has slowed down. Management does however expect that the third and fourth quarter will be strong quarters for us. This is the usual trend in the industry.

We have shipped products this quarter to the Department of Homeland Security. We hope to work on this relationship, as we believe this could be a good account for us. We have also shipped product to the armed forces in the USA for use in the training environments within the military.

We now have around forty resellers throughout the USA that we support through our distribution network that sell TouchIT branded products to numerous vertical markets. We will continue to work with our partners and grow the sales channel.

We have shipped product this quarter directly through CSN stores. We have continued to work with DEMCO, based out of Madison, WI. DEMCO is a large educational / Library / Furniture company that sell throughout the USA into the educational library markets. They have expressed interest to sign an OEM agreement with us and we are looking to sign early next quarter.

We have entered into discussions with CDWG, one of the USA's largest resellers who have offices nationwide.

We received our first orders from Office Concepts Inc. (“OCI”) in Massachusetts. OCI’s aim is to ship our products to various pharmaceutical customers in the New England area.

We are working with Cascade, a reseller in Massachusetts, who is targeting over twenty school districts and who are building new schools that will have the ability to include the TouchIT products into their new environments. We hope that early next quarter we will begin to see some results for our efforts.

We have entered into discussions with new potential partners for Australia, South Africa and also Italy. Management hopes to conclude these agreements in the beginning of the third quarter. These markets fall into our Company’s model of targeting markets with a low penetration of Interactive products.

We will continue to expand in the Middle East as sales in that region continue to grow. Our Sales Manager for the region is actively recruiting both new channel partners as well as distribution partners. Saudi Arabia continues to be the strongest country for sales and growth in the region.

We have completed the development and customization (OEM) of the TouchIT Board for Hitachi Solutions Europe. This product will be sold into the Indian Marketplace.

We have now completed the development of the Interactive LCD products which we plan to launch in the third quarter of 2011. These products will include a 42”, a 55”, and a 65” LCD. All of these products will be full high definition and touch-based, and may include options of multiple input “multi-touch” on these models.

We will continue to look into the viability of an OEM offering of a content software that is suitable for both 7-11 and 11-16 age groups. If concluded, the software will be sold in conjunction with our existing products to strengthen the product portfolio.

Last, we have undertaken significant research and development of new products including a mobile stand with integrated projector mount, a document camera and a new wireless tablet that management hopes will be launching by the end of the year.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accompanying financial statements include the financial statements of TouchIT Tech KS and TouchIT Ed. Although not significant, it should be noted that inter-company transactions and balances do exist and have not been consolidated. TouchIT Tech KS and TouchIT Ed together are also referred to as the “Company.”

This management's discussion and analysis of our financial condition and results of operations are based on the financial statements of both TouchIT Tech KS and TouchIT Ed, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we will evaluate these estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis:

Basis of presentation financial statements:

We maintain our books of account and prepare our statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and tax legislation. The accompanying financial statements are based on the statutory records, with adjustments and reclassifications, for the purpose of fair presentation in accordance with United States generally accepted accounting principles (“US GAAP”).

There are inter-company transactions that have not been consolidated on these financial statements.

Revenue recognition:

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for customer returns, rebates, and other similar allowances.

Inventories:

Inventories are stated at the lower of cost or net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory being valued on the weighted average basis. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to deliver service.

Property, plant and equipment:

Property, plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment losses, if any. Depreciation is charged so as to write off the cost of assets, other than land and construction in progress, over their estimated useful lives, using straight line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

The ranges of estimated useful lives are as follows:

-	Machinery and equipments: 2-6 years

-	Motor vehicles: 4 years

-	Furniture, fixtures and office equipments: 4-5 years

Shipping and handling:

Shipping and handling costs related to costs of the raw material purchased is included in cost of revenues.

Research and development costs:

Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities, and have alternative future uses, either in research and development, marketing, or sales, are classified as property and equipment or depreciated over their estimated useful lives.

Company reporting year end:

We use a calendar year as our fiscal year ending December 31.

RESULTS OF OPERATIONS

TOUCHIT TECH KS AND TOUCHIT ED COMBINED STATEMENTS OF COMPREHENSIVE INCOME FOR QUARTER ENDED JUNE 30, 2011 & 2010

(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

	30/06/2011			30/06/2010

NET SALES		914,867			2,171,547
COST OF SALES		(832,401	)		(1,419,424	)
Gross profit		82,466			752,123
MARKETING AND SELLING EXPENSE		(427,851	)		(337,590	)
GENERAL AND ADMINISTRATIVE EXPENSES		(123,057	)		(131,421	)
Profit from operations		(468,442	)		283,112
OTHER INCOME AND EXPENSES, net		(46,344	)		(3,226	)
FINANCIAL INCOME AND EXPENSES, net		(28,433	)		(4,854	)
Profit Loss before taxation and currency translation gain/(loss)		(605,745	)		275,032
TAXATION CHARGE		--
Taxation current		--			--
Deferred		--			--
CURRENCY TRANSLATION GAIN/(LOSS)		--			(3,244	)
Net income/(loss) for the period		(605,745	)		271,788
OTHER COMPREHENSIVE INCOME		--			--
Total comprehensive income		(605,745	)		271,788

NET SALES (REVENUE) – For the first six months of the year, quarter ended June 30, 2011, as compared to the six months ended June 30, 2010, revenue has decreased by 58% or by $1,256,680 from $2,171,547 to $914,867. This decrease can be attributed to a slow down in the market due to uncertain budgetary commitments from certain of our customers. Management also notes that typically, the third and fourth quarters are the strongest quarters for our market. Our going forward sales activity, including the first half of the year, also reflects our management’s plan of increasing focus on the development of recurring business in existing and new markets in lieu of non-recurring tender business. Our management does anticipate that revenues will continue to grow for the balance of the year in light of the regular run rate business growth combined with our initiatives that we have recently made regarding the LCD product line which is due to be released in the third quarter. The LCD product line represents a much larger value ticket item which will drive revenues higher.

GROSS PROFIT – For the first six months of the year, quarter ended June 30, 2011, as compared to the six months ended June 30, 2010, gross profit has decreased by $669,657 from $752,123 to $82,466. This is primarily due to the decrease in sales revenue.

OPERATIONAL PROFIT – For the first six months of the year, quarter ended June 30, 2011, as compared to six months ended June 30, 2010, operational profit has decreased from $283,112 to (468,442), a decrease of $751,554. This can be attributed to the maintenance of overhead coupled with a drop in sales. The operational costs do not decrease when revenue decreases.

	30/06/2011			30/06/2010			31/12/2009

MARKETING AND SELLING EXPENSE		(427,851	)		(337,590	)		(409,386	)
As a percentage of revenue		46	%		17	%		20	%
GENERAL AND ADMINISTRATIVE EXPENSES		(123,057	)		(131,421	)		(140,121	)
As a percentage of revenue		13	%		7	%		7	%

NET INCOME FOR THE PERIOD – For the first six months of the year, quarter ended June 30, 2011, as compared to the same period in June 30, 2010, net income for the period has decreased by $877,533 from $271,788 to (605,745). This decrease can be attributed to the decrease in revenue with an increase in expenditure as we put in place the marketing mechanisms for our business to grow.

TOUCHIT TECH KS AND TOUCHIT ED COMBINED BALANCE SHEETS AT JUNE 30, 2011 & 2010

(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

CURRENT ASSETS	30/06/2011			30/06/2010

Cash and cash equivalents		1,239			215,613
Trade receivables, net		5,060			709,121
Due from related parties		655,135			602,391
Due from Shareholders		41,955			56,406
Inventories		571,586			291,394
Other current assets		4,223			5,249

Total current assets		1,279,198			1,880,174

NON CURRENT ASSETS

Property, plant and equipment, net		59,530			53,387
Intangible assets, net		18,426			3,777
Rights		-			11,000
Other non current assets		12,763			280

Total non current assets		90,719			68,444


TOTAL ASSETS		1,369,917			1,948,618


CURRENT LIABILITIES
Borrowings		-			8,277
Trade payables		104,721			51,169
Due to shareholders		188,293			52,516
Due to related parties		878,822			980,750
Other current liabilities		68,463			15,898

Total current liabilities		1,240,299			1,108,610


NON CURRENT LIABILITIES
Borrowings		-			-
Employee termination benefits		-			1,183
Reserve for retirement pay		-
Share purchase advances		750,000			750,000

Total non current liabilities		751,078			751,183


COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Share capital		127,570			125,500
Retained earnings		(143,285	)		(308,463	)
Net income / (loss) for the period		(605,745	)		271,788

Total shareholders’ equity		(621,460	)		88,825

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY		1,369,917			1,948,618

CURRENT ASSETS – For the first six months of the year, quarter ended June 30, 2011, as compared to the six months ended June 30, 2010, total current assets have decreased $600,976. This decrease is due to an decrease in sales revenue resulting in a decrease in trade receivables, which decreased from $709,121 on June 30, 2010 to $5060 on June 30, 2011.

NON-CURRENT ASSETS – For the first six months of the year, quarter ended June 30, 2011 as compared to the six months ended June 30, 2011, total non-current assets have increased by 32% or $22,275. This is mainly due to an increase in intangible assets which relates to the Freeport Licenses that our Company holds.

TOTAL ASSETS – For the first six months of the year, quarter ended June 30, 2011, as compared to the six months ended June 30, 2010, total assets have decreased by 30% or $578,701 from $1,948,618 to $1,369,917. The reason for the decrease in assets can be attributed to the decrease in Trade Receivables which is directly related to the drop in revenue.

CURRENT LIABILITIES – For the first six months of the year, quarter ended June 30, 2011, as compared to the six months ended June 30, 2010, total current liabilities have increased by 12% or $131,689 from $1,108,610 to $1,240,299. Trade payables have increased $53,552, which can be attributed to an increase in inventory. Our management made the decision to take on an increased inventory holding to fulfill a growing pipeline for subsequent quarters. Monies due to related parties has decreased by $101,928 when comparing quarter ended June 30, 2011 with quarter ended June 30, 2010.

TOUCHIT TECH KS AND TOUCHIT ED COMBINED STATEMENTS OF CASH FLOW FOR QUARTERS ENDED

JUNE 30, 2011 & 2010

(Amounts expressed in US Dollars (USD) in full unless otherwise indicated)

	30/06/2011			30/06/2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		(605,745	)		271,788
Adjustments to reconcile net income to net cash provided					--
By operating activities:					--
Depreciation and amortisation		14,357			3,859
Provision for employee benefit		(764	)		684


Changes in operating assets and liabilities
Trade receivables, net		700,165			(434,319	)
Due from shareholders		1,047			(56,406	)
Due from related parties		215,844			(471,797	)
Inventories		(205,944	)		(31,511	)
Other current assets		(3,117	)		(4,467	)
Other non current assets		(3,117	)		3444
Trade payables		(7,640	)		(19,450	)
Due to shareholders		45,912			(31,960	)
Due to related parties		(184,430	)		318,666
Other current liabilities		(4,770	)		(104,720	)
Share Purchase Advances

Net cash generated from (used for) operating activities		(31,721	)		(552,213	)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in short-term borrowings		(2,351	)		(3,005	)
Increase/(decrease) in long-term borrowings		--			(2,321	)
Dividends paid		--			--

Net cash (used for) provided from financing activities		(2,351	)		(5,326	)


CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment and intangible assets		(15,245	)		(31,693	)
Share capital increase		--

Net cash used for investing activities		(15,245	)		(31,693	)

NET INCREASE / (DECREASE) IN CASH AND BANKS		(49,317	)		160,768

CASH AND BANKS AT BEGINNING OF THE YEAR		50,556			54,845

CASH AND BANKS AT END OF THE PERIOD		1,239			215,613

NET CASH USED FOR OPERATING ACTIVITIES – For the first six months of the year, quarter ended June 30, 2011, as compared to the six months ended June 30, 2011, net cash used for operating activities was $(31,721) compared to $(552,213) which is a decrease of $520,492. This can be attributed to the reduction of financing customer credit.

Cash flow in general has improved as we make use of the Credit Facility from our Lender. This has reduced the debtor days from an average of 45 to 15 or less on eligible accounts from the UK and USA. However, with sales being down, we have not been able to make full use of this facility. Our management expects to utilize the facility as our business grow in the UK and USA.

CASH FLOW FROM FINANCING ACTIVITES – For the first six months of the year, quarter ended June 30, 2011, cash flow from financing activities was $(2,351) compared to $(5,326) at June 30, 2010.

CASH POSITION. There was a net decrease in the cash and cash equivalents of $49,317 from the beginning of the period through June 30, 2011. This change in cash position can be attributed to the increase in “services” and “consulting work” which we have enlisted to ensure our continued growth. Generally, invoices are paid within 30 days. We continue to use the services of our Sales Consultant for the Middle East region, as well as the services of Buyers Bridge for supply chain management from the Far East and Cooper Global Communications for both public and investor relations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a “smaller reporting company” (as defined by Rule 12b-2 of the Exchange Act) and are not required to provide the information required under this item.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934 require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2011, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following three material weaknesses in our disclosure controls and procedures:

1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

3. We do not have review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically feasible. Management evaluated the impact of our significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

(b) Changes in internal control over financial reporting

During the three months ended June 30, 2011, our Company has not made any changes to internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On May 7, 2010, we entered into a Share Exchange Agreement with TouchIT Tech KS, the stockholders of TouchIT Tech KS, TouchIT, and the stockholders of Touch Ed, pursuant to which we issued 48,330,000 shares of our Common Stock to the shareholders of TouchIT Tech KS and TouchIT Ed in exchange for all shares held by these shareholders in TouchIT Tech KS and TouchIT Ed. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933. The terms of the Share Exchange Agreement are discussed more fully in Item 1.01 and 2.01 on Form 8-K, filed with the SEC on May 12, 2010.

In connection with the closing of the Share Exchange Agreement, on May 7, 2010, we entered into a Subscription Agreement with certain investors for the sale of up to $1,500,000 of principal amount convertible promissory notes of the Company convertible into up to 6,000,000 shares of our Common Stock and share purchase warrants to purchase up to 6,000,000 shares of our Common Stock. The terms of the Subscription Agreement, Notes and Warrants (including the terms of conversion and/or exercise of the Notes and Warrants) are discussed more fully in Item 1.01 and 2.01 on Form 8-K, filed with the SEC on May 12, 2010. The issuance of these securities was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

On February 16, 2011, pursuant to the Credit Agreement, as mentioned in the section titled “Recent Developments,” we issued to the Lender One Hundred Thousand (100,000) Restricted Shares, which have piggy back registration rights as part of any registration statement filed by our Company and full ratchet rights and anti-dilution rights during the six months following February 16, 2011. Furthermore, we also issued to Lender Twenty-Five Thousand (25,000) Series A Preferred Shares, with such shares shall be converted into shares of common shares of our Company on February 16, 2012 upon the satisfaction of certain conditions (including if the value of the Restricted Shares is less than $45,000 on February 16, 2012 based on the average closing price for the 30 trading days prior thereto). The issuance of these securities was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

In April 2011, there was a miscalculation on the borrowing base certificate by the Lender that resulted in the subsequent over lending to our Company in the amount of $24,000, comprising of a principal of $14,273.74 plus fees and interest. In order to remedy the matter and increase our cash flow during a difficult period in our sales cycle, we agreed to increase the amount the Lender could receive upon conversion of the Preferred Shares previously issued to the Lender under the Credit Agreement from $45,000 to $65,000 and decreased the holding period of those Preferred Shares from 12 months to six months to enable earlier conversion. We also agreed to issue 1,000,000 shares of our common shares to be held by the Lender as a safe guard against any future similar events. The 1,000,000 common shares issued to the Lender will be returned to us in the event they are not required. The issuance of these securities was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

Item 6. Exhibits.

(a) Exhibits

Exhibit
Number	Description of Exhibit


31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive Officer).

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial and Accounting Officer).

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Labels Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements 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.

	By:	/s/ Andrew Brabin
		Andrew Brabin Chief Financial Officer Dated: August 22, 2011