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 September 30, 2013
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 000-53878
TECHNOLOGY APPLICATIONS INTERNATIONAL CORPORATION
(Name of small business issuer in its charter)
| Florida |
| 27-1116025 |
| (State of incorporation) |
| (I.R.S. Employer Identification No.) |
18851 N.E. 29th Avenue, Suite 700, Adventura, Florida 33180
(Address of principal executive offices)
(786) 787-0402
(Registrant’s telephone number)
Copy of all Communications to:
Law Office of Andrew Coldicutt
1220 Rosecrans Street, PMB 258
San Diego, CA 92106
Phone: 619-228-4970
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 [ ]
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 [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [ ]. (Do not check if a smaller reporting company) | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 10, 2013, there were 117,448,000 shares of the registrant’s $0.001 par value common stock issued and outstanding.
TECHONOLOGY APPLICATIONS INTERNATIONAL CORPORATION*
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION |
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| ITEM 1. | FINANCIAL STATEMENTS | 3 |
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 4 |
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 8 |
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| ITEM 4. | CONTROLS AND PROCEDURES | 8 |
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| PART II. OTHER INFORMATION |
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| ITEM 1. | LEGAL PROCEEDINGS | 9 |
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| ITEM 1A. | RISK FACTORS | 9 |
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| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 9 |
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| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 9 |
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| ITEM 4. | MINE SAFETY DISCLOSURES | 9 |
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| ITEM 5. | OTHER INFORMATION | 9 |
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| ITEM 6. | EXHIBITS | 10 |
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Technology Applications International Corporation (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we,"”TAIC,” "our," "us," the "Company," refers to Technology Applications International Corporation.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TECHNOLOGY APPLICATIONS INTERNATIONAL CORPORATION
(A Development Stage Company)
Condensed Consolidated Financial Statements
(Expressed in US dollars)
September 30, 2013 (unaudited)
Financial Statement Index
| Condensed Consolidated Balance Sheets (unaudited) | F-1 |
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| Condensed Consolidated Statements of Operations (unaudited) | F-3 |
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| Condensed Consolidated Statements of Cash Flows (unaudited) | F-4 |
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| Notes to the Condensed Consolidated Financial Statements (unaudited) | F-6 |
3
| TECHNOLOGY APPLICATIONS INTERNATIONAL CORPORATION AND SUBSIDIARIES | |||||
| (A DEVELOPMENT STAGE COMPANY) | |||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
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| September, 30 |
| December 31, |
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| 2013 |
| 2012 |
| ASSETS |
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| (Audited) |
| Current assets |
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| Cash and cash equivalents |
| $ | 4,580 | $ | 120,697 |
| Accounts receivable |
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| - |
| - |
| Inventories |
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| 121,490 |
| 125,408 |
| Deposits |
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| 60,000 |
| 50,000 |
| Other current assets |
| 1,909 |
| 3,814 | |
| Total current assets |
| 187,979 |
| 299,919 | |
| Trademarks, net |
| 1,968 |
| 2,049 | |
| Machinery and equipment, net |
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| 10,483 |
| 13,462 |
| Total assets | $ | 200,430 | $ | 315,430 | |
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| LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |
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| Liabilities |
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| Accounts payable and accrued expenses |
| $ | 313,209 | $ | 193,894 |
| Advances from affiliate |
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| 163,159 |
| 157,843 |
| Loan from affiliate |
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| 77,401 |
| 88,880 |
| Convertible debentures (net of debt discount of $168,973 and $134,292, respectively) | 150,027 |
| 65,708 | ||
| Derivative liability |
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| 440,494 |
| 276,000 |
| Short-term advance |
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| 5,000 |
| - |
| Total current liabilities |
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| 1,149,290 |
| 782,325 |
| Total liabilities |
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| 1,149,290 |
| 782,325 |
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| Shareholders' equity (deficit) |
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| Preferred stock, par value, $0.001 per share, 50,000,000 shares |
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| authorized, none issued or outstanding |
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| - |
| - |
| Common stock, par value $0.001 par value, 300,000,000 shares authorized, |
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| 117,248,000 and 117,248,000 shares issued and outstanding at |
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| September 30, 2013 and December 31, 2012, respectively. |
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| 117,248 |
| 117,248 |
| Additional paid in capital |
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| 505,220 |
| 505,220 |
| Accumulated deficit |
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| (1,571,328) |
| (1,089,363) |
| Total shareholders' deficit |
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| (948,860) |
| (466,895) |
| Total liabilities and shareholders' deficit |
| $ | 200,430 | $ | 315,430 |
The accompanying notes are an integral part of these condensed consolidated financial statements
F-1
| TECHNOLOGY APPLICATIONS INTERNATIONAL CORPORATION AND SUBSIDIARIES | |||||||||||||||||||
| (A DEVELOPMENT STAGE COMPANY) | |||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) | |||||||||||||||||||
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| Three Months and Nine Months Ended September 30, 2013 and 2012 and Period from October 14, 2009 | |||||||||||||||||||
| (Inception of Development Stage) through September 30, 2013 | |||||||||||||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Period from October 14, 2009 (inception of development stage) through September 30, | |||||||||||||
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| 2012 |
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| Revenues |
| $ 4,313 |
| $ 1,837 |
| $ 35,841 |
| $ 3,287 |
| $ 45,320 | |||||||||
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| Cost of revenues |
| (1,219) |
| 827 |
| 6,039 |
| 1,148 |
| $ 10,533 | |||||||||
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| Gross profit |
| 5,532 |
| 1,010 |
| 29,802 |
| 2,139 |
| 34,787 | |||||||||
| Expenses |
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| General and administrative |
| 77,635 |
| 165,045 |
| 365,336 |
| 563,294 |
| 1,303,370 | |||||||||
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| Loss From Operation |
| (72,103) |
| (164,035) |
| (335,534) |
| (561,155) |
| (1,268,583) | |||||||||
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| Other income (expense) |
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| Gain (loss) on derivative valuation |
| (8,250) |
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| 85,150 |
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| 162,350 | |||||||||
| Interest expense |
| (74,050) |
| - |
| (231,581) |
| - |
| (465,095) | |||||||||
| Total other income (expense) |
| (82,300) |
| - |
| (146,431) |
| - |
| (302,745) | |||||||||
| Net loss |
| $ (154,403) |
| $ (164,035) |
| $ (481,965) |
| $ (561,155) |
| $ (1,571,328) | |||||||||
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| Loss per share |
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| Basic and diluted |
| ($0.00) |
| ($0.00) |
| ($0.00) |
| ($0.00) |
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| Weighted average number of shares |
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| Basic and diluted |
| 117,248,000 |
| 117,248,000 |
| 117,248,000 |
| 117,204,686 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
F-2
The accompanying notes are an integral part of these condensed consolidated financial statements
F-3
| TECHNOLOGY APPLICATIONS INTERNATIONAL CORPORATION AND SUBSIDIARIES | ||||||||
| (A DEVELOPMENT STAGE COMPANY) | ||||||||
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| (Notes to the Condensed Consolidated Financial Statements (Unaudited) | ||||||||
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1.
Nature of Operations and Basis of Presentation
Nature of Operations
Technology Applications International Corporation (“Technology”) was incorporated on October 14, 2009 under the laws of Florida. Renuell Int’l, Inc. and NueEarth, Inc., Technology’s wholly owned subsidiaries and Technology, collectively, are referred to here-in as the “Company”, a development stage company. The Company is engaged in developing market entry technology products and services into early and mainstream technology products and services. Through our subsidiaries, we are focused on developing and manufacturing a line of technologically advanced skin care products and providing environmental management solutions that use electron particle accelerator technology.
Principles of Consolidation
The consolidated financial statements include the accounts of Technology Applications International Corporation and its wholly owned subsidiaries, Renuell Int’l, Inc. and NueEarth, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.
Basis of Presentation and Going Concern Considerations
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
The accompanying financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs. The Company’s ability to continue as a going concern is highly dependent upon management’s ability to increase near-term operating cash flows and obtain additional working capital through the issuance of debt and or equity. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
These consolidated financial statements present the financial condition, and results of operations and cash flows of the operating companies.
Development Stage Risk
Since its inception, the Company has been dependent upon the receipt of capital investment to fund its operating activities. In addition to the normal risks associated with a new business venture, there can be no assurance that the Company’s business plans will be successfully executed. The Company’s ability to execute its business plans is dependent on its ability to obtain additional debt and equity financing and achieving a profitable level of operations.
F-4
1.
Nature of Operations and Basis of Presentation – (Continued)
There can be no assurance that sufficient financing will be obtained or that we will achieve a profitable level of operations.
The Company has minimal revenues generated from operations due to the sale of sample products. Accordingly, the Company’s activities have been accounted for as those of a “Development Stage Enterprise” as set forth in Accounting Standards Codification (“ASC”) 915 “Development Stage Entities”. Among the disclosures required are that the Company’s financial statements be identified as those of a development stage company and that the statements of operations, shareholders’ equity / (deficit) and cash flows disclose activity since the date of the Company’s inception.
2.
Inventories
Inventories are stated at the lower of cost or market value. The Company reduces the value of its inventories to market value when the value is believed to be less than the cost of the item.
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| September 30, 2013 |
| December 31, 2012 |
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Raw materials | $ - |
| $ - |
| Work-in-process | - |
| - |
Finished goods | 121,490 |
| 125,408 |
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Total Inventories | $ 121,490 |
| $ 125,408 |
No reserves for inventory have been deemed necessary at September 30, 2013.
3.
Machinery and Equipment
Machinery and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to earnings as incurred whereas additions, renewals and betterments are capitalized. When machinery and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of machinery and equipment is provided using the straight-line method over the assets estimated useful lives of approximately 5 to 7 years. Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.
Machinery and equipment, as of September 30, 2013 and December 31, 2012, consisted of the following:
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| Estimated Useful Lives | September 30, 2013 |
| December 31, 2012 |
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| Computer Equipment | 3 Years | $ 4,162 |
| $ 4,162 |
Machinery and equipment | 5 Years | 3,418 |
| 3,418 |
| Furniture and fixtures | 7 Years | 14,073 |
| 14,073 |
Accumulated depreciation |
| (11,170) |
| (8,191) |
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| $ 10,483 |
| $ 13,462 |
Depreciation expense for the nine-month periods ended September 30, 2013 and 2012 were $2,979 and $3,061, respectively. Depreciation expense for the three-month periods ended September 30, 2013 and 2012 were $993 and $1,020, respectively.
F-5
4.
Convertible Debenture
During December 2011, the Company received $100,000 as a deposit for entering into a distribution agreement. On March 22, 2012, the Company converted the $100,000 deposit into a convertible debenture. The convertible debenture bears interest at a rate of five-percent (5%) per annum and is payable March 21, 2014. At the Holder’s option, principle and unpaid accrued interest shall be convertible into common stock at a rate of $0.50 per share. In
addition to the common stock, the Holder shall receive warrants to purchase an equal number of shares of common stock exercisable at $1.00 per share. These warrants expire at the earlier of 180 days after the common stock commences quotation on the OTC Bulletin Board or one-year from exercise.
On September 25, 2012, the Company issued a $100,000 convertible debenture. The convertible debenture bears interest at a rate of five-percent (5%) per annum and is payable September 20, 2013. At the Holder’s option, principle and unpaid accrued interest shall be convertible into common stock at a rate of $0.50 per share. In addition to the common stock, the Holder shall receive warrants to purchase an equal number of shares of common stock exercisable at $1.00 per share. These warrants expire at the earlier of 180 days after the common stock commences quotation on the OTC Bulletin Board or one-year from exercise. This convertible debenture extended 360 days on September 21, 2013
On May 23, May 31, June 10, July 29, August 14, and September 25, 2013, the Company issued a $10,000, $10,000, $25,000, $4,000, $50,000 and $20,000 convertible debentures, respectively. The convertible debentures bear interest at a rate of ten-percent (10%) per annum and is payable May 18, May 26, June 5, 2014, July 24, august 9, September 20, 2014, respectively. At the Holder’s option, principle and unpaid accrued interest shall be convertible into common stock at a rate of $0.50 per share. In addition to the common stock, the Holder shall receive warrants to purchase an equal number of shares of common stock exercisable at $1.00 per share. These warrants expire at the earlier of 180 days after the common stock commences quotation on the OTC Bulletin Board or one-year from exercise.
The Compound derivative comprises certain derivative features embedded in the host convertible debenture contracts including the conversion feature and warrants both of which contain anti-dilution protections. These instruments were combined into one compound derivative and bifurcated from the host instrument at fair value. The Company applied the Black-Scholes Merton valuation technique to fair value these derivatives because this technique embodies all of the assumptions necessary to fair value these compound derivative instruments.
Since the derivative financial instruments are required to be recorded, both initially, and subsequently, at fair value, there were insufficient proceeds to allocate any amount to the convertible debentures and, accordingly, it has no carrying value on the date of inception. Additionally, proceeds were insufficient to record the fair values of the derivative financial instruments, resulting in initial interest expense of $283,844. It should be noted that the derivative instruments will be adjusted to fair value at each reporting date. As the Company does not have historical volatility data for its own stock, the expected volatility was based upon the Company’s peer group in the industry in which it does business. Fair values are highly influenced by the trading stock price and volatility of the peer group, changes in our credit risk and market interest rates.
The company amortizes the discount on the convertible debentures resulting from the initial allocation over the term of the convertible debt instruments using the effective method. Amortization expense arising from this method for the nine months ended September 30, 2013 and 2012 was approximately $214,963 and $0, respectively. These amounts have been included as a component of interest expense.
5.
Capital Stock
Common Stock
On August 26, 2010, the Company issued 100,000 shares of its common stock to purchase equipment.
On October 20, 2011, the Company issued 101,800,000 shares of its common stock as payment for cancellation of debt for part of the amount due to its related party.
On October 28, 2011, the Company issued 5,727,000 shares of its common stock to a consultant as payment for services rendered.
F-6
5.
Capital Stock – (Continued)
On November 8, 2011, the Company issued 5,591,000 shares of its common stock to a consultant as payment for services rendered.
During November and December 2011, the Company issued 236,000 shares of its common stock through a private
placement to several investors for total cash consideration of $118,000.
During January and February 2012, the Company issued 794,000 shares of its common stock through a private placement for total cash consideration of $397,000.
Stock Purchase Warrants
In conjunction with the Private Placement Memorandum dated October 28, 2011, the Company is offering up to 10,000 Units. Each Unit consists of 1,000 shares of common stock priced at $0.50 per share and one Class A Warrant to purchase 1,000 shares of common stock with an exercise price of $1.00 per share. These warrants expire on the earlier of (i) 180 days after the common stock commences quotation on the OTC Bulletin Board or (ii) one year after the date of issuance.
Warrants to purchase up to 1,030,000 shares of common stock were issued in accordance with the Private Placement Memorandum stated above. As these warrants were issued as part of a unit sold, there has been no value assigned to them. As of September 30, 2013, each of these warrants has expired.
In conjunction with the Private Placement Memorandum dated February 13, 2013, the Company is offering up to 3,000,000 units. Each unit consists of 1 share of common stock priced at $1.00 and one Class A Warrant to purchase 1 share of common stock with an exercise price of $1.50 per share. These warrants expire on the earlier of (i) 180 days after the common stock commences quotation on the OTC Bulletin Board or (ii) one year after the date of issuance. No issuances have been sold from this offering as of September 30, 2013.
6.
Fair Value Measurements
On a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s liabilities measured at fair value as of September 30, 2013 and December 31, 2012:
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| Level 2 |
| Level 3 |
| Fair Value at September 30, 2013 |
| Liabilities |
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Derivative Liability |
| - |
| - |
| $ 440,494 |
| $ 440,494 |
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| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value at December 31, 2012 |
| Liabilities |
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Derivative Liability |
| - |
| - |
| $ 276,000 |
| $ 276,000 |
The fair value changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), relate solely to the derivative liability as follows:
Balance as of December 31, 2011 |
| $ - |
| Derivative liability recorded |
| 353,200 |
Fair value adjustment |
| (77,200) |
| Balance at December 31, 2012 |
| 276,000 |
Derivative liability recorded |
| 399,244 |
| Fair value adjustment |
| (234,750) |
Balance at September 30, 2013 |
| $ 440,949 |
F-7
7.
Related Parties
An affiliate of the Company, an entity owned by the Company’s president, has been funding operations of the Company by making payments directly to third parties or advancing monies to the Company. These amounts bear no interest and are payable on demand. Amounts due to the affiliate at September 30, 2013 and 2012 are approximately $163,000 and $158,000, respectively.
During September 2012, the Company borrowed $125,000 from an affiliate. The loan bears interest at 10% per annum and is unsecured and payable upon demand. The Company has paid $47,600 towards the loan amount. The outstanding balance at September 30, 2013 and December 31, 2012 is $77,401 and $88,880, respectively.
8.
Significant Agreement
On September 30, 2013, the Company and its wholly-owned subsidiary Renuell Int’l, Inc., Florida corporations (the “Company”) entered into a partially exclusive Co-License Agreement (the “License Agreement”) by and amongst the National Aeronautics and Space Administration, an agency of the United States (“N.A.S.A.”) and the Administrators of the Tulane Educational Fund (“Tulane University”) for the use of U.S. Patent No. 6,730,498 B1, an invention entitled “Production of Functional Proteins: Balance of Shear Stress and Gravity,” which was issued on May 4, 2004 (the “Patent”). The company currently uses the Patent process to develop our anti-aging skin creams and shampoos. The License Agreement permits the Company to use the Patent as well as the name N.A.S.A., with its products, as per the terms of the License Agreement.
In consideration of the grant of the License Agreement, the Company will pay a 2% royalty to both N.A.S.A. and Tulane University on the gross sales of any royalty-base products, for a total of a 4% royalty. The License agreement further requires the Company to remit to N.A.S.A. and Tulane University a non-refundable license fee in the amount of Five Thousand Dollars ($5,000) each (for a total of $10,000) upon the execution of the License Agreement. The Company also agrees to pay N.A.S.A. and Tulane University a minimum royalty of Five Thousand Dollars ($5,000) each (for a total of $10,000), at the end of each accounting period (“Accounting Period”). The Accounting Period shall begin on the date of the License Agreement and end on December 31, the first Accounting Period payment will be prorated. Subsequent Accounting Periods begin on January 1, and end on December 31, of each calendar year.
The License Agreement requires that the Company achieve a practical application of the Patent within three months from the commencement date of the License Agreement. Once a practical application is achieved the term of the agreement shall be equal to the unexpired term of the last patent to be in effect of the patent(s) encompassed under the Patent. The Company further agrees that any products using the Patent process shall be substantially manufactured in the United States.
9.
Subsequent Events
Pursuant to Accounting Standards Codification 855-10, the Company has evaluated all events or transactions that have occurred from July 1, 2013 through the filing with the SEC.
On October 2, 2013, the holders of convertible notes converted a total of $50,000 of principal and interest into 100,000 shares of our common stock.
On October 4, 2013, the Company terminated its distribution agreement (“Distribution Agreement”) by and between the Company and Regenetech, Inc., a Texas corporation, pursuant to the termination clauses contained within the Distribution Agreement. Regenetech, Inc., was in a material breach of contract of the Distribution Agreement, because Regenetech, Inc., failed to upkeep its license requirements with N.A.S.A. and the Tulane University in order to maintain the license in good standing. Due to the material breach of contract by Regenetech, Inc., the termination of the Distribution Agreement does not contain any early termination penalties to the Company.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Working Capital
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| September 30, 2013 $ | December 31, 2012 $ |
Current Assets | 187,979 | 299,919 |
| Current Liabilities | 1,149,290 | 782,325 |
Working Capital Deficit | (961,311) | (482,406) |
Cash Flows
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| September 30, 2013 $ | September 30, 2012 $ |
Cash Flows used in Operating Activities | (233,954) | (576,116) |
| Cash Flows provided by Financing Activities | 112,837 | 515,549 |
Cash Flows used in Investing Activities | - | (470) |
Net decrease in Cash During Period | (117,837) | (515,549) |
Results for the Quarter ended September 30, 2013, Compared to the Quarter ended September 30, 2012
Operating Revenues
During the period ended September 30, 2013, the Company earned revenues of $4,313 compared with revenues of $1,837 for the period ended September 30, 2012.
Gross Profit
For the three months ended September 30, 2013, the Company’s gross profit increased to $5,532 compared with the gross profit of $1,010 for the same period in 2012.
Operating Expenses
During the three months ended September 30, 2013, the Company recorded operating expenses of $72,103 compared with operating expenses of $164,035 for the three months ended September 30, 2012. The decrease in operating expenses was attributed to the fact that the Company relied less, on outside consultants during the quarter.
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Net Loss
Net loss for the three months ended September 30, 2013 was $154,403 compared with a net loss of $164,035 for the three months ended September 30, 2012.
Results for the Nine month period ended September 30, 2013 Compared to the Nine month period ended September 30, 2012
Operating Revenues
The Company’s revenues were $35,841 for the nine months ended September 30, 2013 compared to $3,287 for the same period in 2012. This represents an increase of $32,554, which is directly attributable to the Company’s marketing efforts.
Cost of Revenues
The Company’s cost of revenues was $6,039 for the nine months ended September 30, 2013 compared to $1,148 for the same period in 2012. This represents an increase of $4,891, which is directly attributable to the increase in sales.
Gross Profit
For the nine months ended September 30, 2013, the Company’s gross profit increased by $29,802 from $2,139 for the same period in 2012. As a percentage of sales, gross profit was 83%.
General and Administrative Expenses
General and administrative expenses consisted primarily of consulting fees, professional fees, travel and meals and entertainment relating to being a public company. For the nine months ended September 30, 2013 and September 30, 2012, general and administrative expenses decreased to $365,336 from $563,294 for the same period in 2012 representing a decrease of $197,958 or 35%. The change is primarily attributable to the decrease in the use of outside consulting firms, and lower office rent, respectively.
Other Income (Expense)
Other income (expense) consisted of a gain on derivative valuation and interest expense. The gain on derivative valuation is directly attributable to the change in fair value of the derivative liability from December 31, 2012 through September 30, 2013. Interest expense of $231,581 is primarily attributable to the accretion of the convertible debentures for the nine months ended September 30, 2013. There was an $85,150 gain (loss) on derivative valuation during the nine months ended September 30, 2013.
Net Loss
Our net loss for the nine months ended September 30, 2013 was $481,965 compared with a net loss of $561,155 for the nine months ended September 30, 2012, a decrease of $79,190 or 14%. The net loss is influenced by the matters discussed in the other sections of the MD&A.
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing of funds.
5
At September 30, 2013, the Company had total current assets of $187,979 compared to $299,919 at December 31, 2012. Current assets consisted primarily of inventories and deposits and decreased due to cash being utilized to pay general and administrative expenses for operations.
At September 30, 2013, the Company had total current liabilities of $1,149,290 compared to $782,325 at December 31, 2012. Current liabilities consisted primarily of accounts payable and accrued expenses, a loan and advances from a related party and convertible debentures.
We had negative working capital of $961,311 as of September 30, 2013, compared to $482,406 as of December 31, 2012, an increase of $478,905.
Cashflow from Operating Activities
During the nine months, ended September 30, 2013, cash used in operating activities was $233,954 compared to $576,116 for the nine months ended September 30, 2012. The decrease in the amounts of cash used for operating activities was primarily due to the lower amounts of skin care products being purchased for inventory and a related decrease in accounts payable and accrued expenses.
Cashflow from Investing Activities
During the nine months, ended September 30, 2013 cash used in investing activities was $0 compared to $470 for the nine months ended September 30, 2012.
Cashflow from Financing Activities
During the nine months, ended September 30, 2013, cash provided in financing activity was $117,837 compared to $515,549 being provided during the nine months ended September 30, 2012. The decrease in cash provided by financing activities is due to the Company repaying advances from affiliates and not incurring any additional debt or completing any stock sales during the period ended September 30, 2013.
Quarterly Events
Entry into a Material Definitive Agreement
On September 30, 2013, the Company entered into a partially exclusive Co-License Agreement (the “License Agreement”) by and amongst the National Aeronautics and Space Administration, an agency of the United States (“N.A.S.A.”) and the Administrators of the Tulane Educational Fund (“Tulane University”) for the use of U.S. Patent No. 6,730,498 B1, an invention entitled “Production of Functional Proteins: Balance of Shear Stress and Gravity,” which was issued on May 4, 2004 (the “Patent”). We currently use the Patent process to develop our anti-aging skin creams and shampoos. The License Agreement permits the Company to use the Patent as well as the name N.A.S.A., with its products, as per the terms of the License Agreement.
In consideration of the grant of the License Agreement, the Company will pay a 2% royalty to both N.A.S.A. and Tulane University on the gross sales of any royalty-base products, for a total of a 4% royalty. The License agreement further requires the Company to remit to N.A.S.A. and Tulane University a non-refundable license fee in the amount of Five Thousand Dollars ($5,000) each (for a total of $10,000) upon the execution of the License Agreement. The Company also agrees to pay N.A.S.A. and Tulane University a minimum royalty of Five Thousand Dollars ($5,000) each (for a total of $10,000), at the end of each accounting period (“Accounting Period”). The Accounting Period shall begin on the date of the License Agreement and end on December 31, the first Accounting Period payment will be prorated. Subsequent Accounting Periods begin on January 1, and end on December 31, of each calendar year.
The License Agreement requires that the Company achieve a practical application of the Patent within three months from the commencement date of the License Agreement. Once a practical application is achieved the term of the agreement shall be equal to the unexpired term of the last patent to be in effect of the patent(s) encompassed under the Patent. The Company further agrees that any products using the Patent process shall be substantially manufactured in the United States.
6
The foregoing summary description of the License Agreement is not complete and is qualified in its entirety by reference to the full text of the License Agreement. The License Agreement also contains customary events of default. For further information regarding the terms and conditions of the License Agreement, this reference is made to such agreement, which the Company has filed as an exhibit to our Current Report on Form 8-K that we filed with the SEC on October 4, 2013.
Subsequent Events
Termination of a Material Definitive Agreement
On October 3, 2013, the Company terminated its distribution agreement (“Distribution Agreement”) by and between the Company and Regenetech, Inc., a Texas corporation, pursuant to the termination clauses contained within the Distribution Agreement as filed as Exhibit 10.7 as part of our Form S-1 Registration statement on December 27, 2012. Regenetech, Inc., was in a material breach of contract of the Distribution Agreement, because Regenetech, Inc., failed to upkeep its license requirements with N.A.S.A. and the Tulane University in order to maintain the license in good standing. Due to the material breach of contract by Regenetech, Inc., the termination of the Distribution Agreement does not contain any early termination penalties to the Company.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that there is substantial doubt about our ability to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management who also serves as the Chief Executive Officer/Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective at the end of this period covered by this report to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to us, and was accumulated and communicated to our management, including our CEO/CFO, as appropriate, to allow timely decisions regarding required disclosure.
As discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and filed with the SEC on April 22, 2013, the Company’s management identified certain material weaknesses and other deficiencies in the Company’s disclosure controls and procedures and the Company has initiated, or plans to initiate, a series of certain measures to address these material weaknesses. The Company is working as quickly as possible to implement these initiatives; however, the lack of adequate working capital and positive cash flow from operations will likely slow this implementation.
Changes in Internal Control over Financial Reporting
There has been no change to our internal control over financial reporting during the three months ended September 30, 2013, that has materially affected, or is likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
1.Quarterly Issuances:
During the quarter, we did not issue any unregistered securities other than as previously disclosed.
2. Subsequent Issuances:
Subsequent to the quarter, the holders of convertible notes converted a total of $50,000 of principal and interest into 100,000 shares of our common stock.
8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
9
ITEM 6. EXHIBITS
Exhibit Number | Description of Exhibit | Filing |
3.1 | Articles of Incorporation | Filed with the SEC on January 19, 2010 as part of the Company’s Registration of Securities on Form 10-12G. |
| 3.1(a) | Restated Articles of Incorporation | Filed with the SEC on April 18, 2011 as part of the Company’s Current Report on Form 8-K. |
3.2 | Bylaws | Filed with the SEC on January 19, 2010 as part of the Company’s Registration of Securities on Form 10-12G. |
| 3.2(a) | Amended Bylaws | Filed with the SEC on April 18, 2011 as part of the Company’s Current Report on Form 8-K. |
10.1 | Lease between Brickell Bay Tower Ltd., Inc. and Raj Ventures, Inc. dated October 18, 2010 | Filed with the SEC on March 28, 2010 as part of the Company’s Annual Report on Form 10-K. |
| 10.2 | Share Purchase Agreement by and among Raj Ventures, Inc., Willowhuasca Wellness, Inc., and Raj Ventures Funding, Inc., dated April 12, 2010 | Filed with the SEC on April 12, 2010 as part of the Company’s Current Report on Form 8-K. |
10.3 | Bill of Sale and Assignment between Raj Ventures, Inc., and High Voltage Environmental Applications, Inc., dated as of August 26, 2010 | Filed with the SEC on September 1, 2010 as part of the Company’s Current Report on Form 8-K. |
| 10.4 | Promissory Note between the Company and Joe-Val, Inc., dated March 27, 2012 | Filed with the SEC on March 27, 2012 as part of the Company’s Current Report on Form 8-K. |
10.5 | Promissory Note between the Company and Coast To Coast Equity Group, Inc., dated June 25, 2012 | Filed with the SEC on August 20, 2012 as part of the Company’s Quarterly Report on Form 10-Q |
| 10.6 | Convertible debenture between the Company and Shane Case, dated September 26, 2012 | Filed with the SEC on November 19, 2012 as part of the Company’s Quarterly Report on Form 10-Q |
10.7 | Distribution Agreement between Regenetech, Inc. and Renuéll Int’l, Inc., dated December 29, 2011 and Amended on December 13, 2012. | Filed with the SEC on January 17, 2013 as part of the Company’s S-1/A. |
| 10.8 | Form of Subscription Agreement | Filed with the SEC on November 29, 2012 as part of the Company’s S-1/A. |
10.9 | Consulting Agreement between the Company and John Stickler | Filed with the SEC on December, 27, 2012 as part of the Company’s S-1/A. |
| 10.10 | Co-License Agreement by and between Technology Applications International Corporation and the National Aeronautics and Space Administration, dated September 30, 2013. | Filed with the SEC on October 4, 2013, as part of our Current Report on Form 8-K. |
16.1 | Letter from Lake and Associates CPA’s LLC, dated March 12, 2013 | Filed with the SEC on March 14, 2013 as part of the Company’s Current Report on Form 8-K. |
| 21.1 | List of Subsidiaries | Filed with the SEC on April 16, 2012 as part of the Company’s Annual Report on Form 10-K. |
31.01 | Certification of Principal Executive Officer Pursuant to Rule 13a-14 | Filed herewith. |
| 31.02 | Certification of Principal Financial Officer Pursuant to Rule 13a-14 | Filed herewith. |
32.01 | Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed herewith. |
| 101.INS* | XBRL Instance Document | Furnished herewith. |
101.SCH* | XBRL Taxonomy Extension Schema Document | Furnished herewith. |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | Furnished herewith. |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | Furnished herewith. |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | Furnished herewith. |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | Furnished herewith. |
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| *Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. | ||
10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY APPLICATIONS INTERNATIONAL CORPORATION
Dated: November 19, 2013
/s/ Charles J. Scimeca
By: Charles J. Scimeca
Its: President, Principal Executive Officer & Principal Financial Officer (Principal Accounting Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
Dated: November 19, 2013
/s/ Charles J. Scimeca
Charles J. Scimeca – Director
Dated: November 19 2013
/s/ John Stickler
John Stickler – Director
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Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14
I, Charles J. Scimeca, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Technology Applications International Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Charles J. Scimeca
By: Charles J. Scimeca
Its: Principal Executive Officer
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
I, Charles J. Scimeca, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Technology Applications International Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 19, 2013
/s/ Charles J. Scimeca
By: Charles J. Scimeca
Its: Principal Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Technology Applications International Corporation (the “Company”) on Form 10-Q for the quarter ending September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles J. Scimeca, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Charles J. Scimeca
By: Charles J. Scimeca
Principal Executive Officer and Principal Financial Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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3. Machinery and Equipment (Tables)
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Sep. 30, 2013
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| Machinery and equipment |
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