Baron Capital Enterprise (BCAP) 10QSB 2004 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from 

Commission file number

_________0-30011_____________

Total Identity Corp.

(Exact name of registrant as specified in its charter)

______________________

Florida	65-0309540
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
2340 Brighton-Henrietta Town Line Road
Rochester, New York	14623
(Address of principal executive offices)	(Zip Code)

Registrants' telephone number, including area code:(585) 427-9050

_______________________

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 proceeding 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. YesXNo _____

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ].

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of June 4, 2004, there were 16,134,675 shares of common stock issued and outstanding.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT

(check one):

Yes [ ] No [X]

Total Identity Corp.

INDEX TO FORM 10-Q

QUARTER ENDED March 31, 2004

PART I - FINANCIAL INFORMATION		Page
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheet	F2
	March 31, 2004 and December 31, 2003
	Consolidated Statements of Operations	F4
	March 31, 2004 and December 31, 2003
	Consolidated Statements of Stockholders’ Equity (Deficit)	F5
	March 31, 2004 and December 31, 2003
	Consolidated Statements of Cash Flows	F7
	March 31, 2004 and December 31, 2003
		F8
	Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operations		11
Item 3.Controls and Procedures		16
PART II - OTHER INFORMATION		16
Item 1. Legal Proceedings		16
Item 2.Change in Securities and Use of Proceeds		17
Item 3.Defaults Upon Senior Securities		17
Item 4.Submission of Matters to a Vote of Security Holders		17
Item 5.Other Information		17
Item 6. Exhibits and Reports on Form 8-K		18
Item 7.Signature		20

TOTAL IDENTITY CORP. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004and December 31, 2003

TOTAL IDENTITY CORP. AND SUBSIDIARY

Consolidated Balance Sheets

March 31, 2004 and December 31, 2003

ASSETS

	March 31, 2004		December 31, 2003
	(Unaudited)
CURRENT ASSETS
Cash	$	183,533	$	-
Accounts receivable, net		1,789,150		1,293,096
Inventory		680,136		622,243
Prepaid expenses		33,581		33,581
Total Current Assets		2,686,400		1,948,920
PROPERTY AND EQUIPMENT, NET		916,669		932,869
OTHER ASSETS
Deferred tax asset		352,379		352,379
Deposits		42,542		90,000
Intangibles, net		1,076,388		1,130,841
Total Other Assets		1,471,309		1,573,220
TOTAL ASSETS	$	5,074,378	$	4,455,009

The accompanying notes are an integral part of these consolidated financial statements.

F2

TOTAL IDENTITY CORP. AND SUBSIDIARY

Consolidated Balance Sheets (Continued)

March 31, 2004 and December 31, 2003

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

	March 31, 2004 (Unaudited)			December 31, 2003
CURRENT LIABILITIES
Customer deposits	$	763,939		$	242,206
Bank overdraft		-			12,074
Accounts payable		1,101,186			1,303,487
Accounts payable– related party		245,367			180,937
Accrued expenses		32,900			81,114
Accrued warranty expense		45,000			45,000
Subscription payable		400,000			500,000
Notes payable		2,092,214			2,181,061
Total Current Liabilities		4,680,606			4,545,879
LONG-TERM DEBT
Notes payable		684,752			744,309
Total Long-Term Debt		684,752			744,309
Total Liabilities		5,365,358			5,290,188
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, Series “A” $0.01 par value,
1,500,000 shares authorized; 250,000 shares
issued and outstanding		2,500			2,500
Preferred stock, Series “B” $0.01 par value,
500,000 shares authorized; -0- issued and outstanding		-			-
Common stock, $0.01 par value, 30,000,000 shares
authorized; 16,134,671 shares issued
and outstanding		161,346			124,596
Additional paid-in capital		9,278,352			8,770,102
Accumulated deficit		(9,733,178	)		(9,732,377	)
Total Stockholders’ Equity (Deficit)		(290,980	)		(835,179	)
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)	$	5,074,378		$	4,455,009

The accompanying notes are an integral part of these consolidated financial statements.

F3

TOTAL IDENTITY CORP. AND SUBSIDIARY

Consolidated Statements of Operations

March 31, 2004 and 2003

(Unaudited)

	For Three Months Ended
	March 31
	2004			2003
REVENUE	$	2,703,515		$	-
COST OF SALES		1,219,967			-
GROSS MARGIN		1,483,548			-
EXPENSES
Depreciation		18,000			-
Selling, general and administrative		1,203,023			503,110
Amortization of intangibles		54,454			-
Total Expenses		1,275,477			503,110
INCOME (LOSS) FROM OPERATIONS		208,071			(503,110	)
OTHER (EXPENSE)
Other expenses		(39,388	)		-
Interest expense		(169,484	)		-
Total Other (Expense)		(208,872	)		-
LOSS BEFORE TAXES		(801	)		(503,110	)
INCOME TAX		-			-
NET LOSS	$	(801	)	$	(503,110	)
BASIC LOSS PER SHARE
Net loss	$	(0.00	)	$	(0.89	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		7,867,642			564,671

The accompanying notes are an integral part of these consolidated financial statements.

F4

TOTAL IDENTITY CORP. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity (Deficit)

March 31, 2004 and December 31, 2003

											Additional Paid-in Capital
	Preferred Stock						Common Stock							Accumulated Deficit
	Shares			Amount			Shares		Amount
Balance, fiscal 2002		250,000		$	2,500			189,671	$	1,896	$	3,850,664		$	(3,946,163	)
Series B preferred stock
issued in acquisition of		500,000			5,000			-		-		(189,777	)		-
Kina ‘Ole
Common stock issued for
for consulting services		-			-			2,995,000		29,950		1,482,800			-
Common stock issued as
incentive for loan to
Company		-			-			50,000		500		17,500			-
Common stock issued as
incentive for loan to
Company		-			-			25,000		250		8,750			-
Common stock issued for
debt		-			-			6,050,000		60,500		2,001,000			-
Warrants issued to consultants
for services rendered		-			-			-		-		1,227,875			-
Common stock issued for
conversion of warrants		-			-			2,900,000		29,000		54,000			-
Spin-off of Kina ‘Ole
Development Corporation		(500,000	)		(5,000	)		-		-		317,290			-
Stock issued for acquisition		-			-			250,000		2,500		-			-
Consolidated net loss for
the year ended December
31, 2003		-			-			-		-		-			(5,786,214	)
Balance, December 31, 2003		250,000			2,500			12,459,671		124,596		8,770,102			(9,732,377	)
Stock issued for services (unaudited)		-			-			800,000		8,000		16,000			-
Stock issued for services (unaudited)		-			-			1,250,000		12,500		-			-
Stock issued as inducement
for debt (unaudited)		-			-			250,000		2,500		-			-
Balance Forward		250,000		$	2,500			14,759,671	$	147,596	$	8,786,102		$	(9,732,377	)

The accompanying notes are an integral part of these consolidated financial statements.

F5

TOTAL IDENTITY CORP. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity (Deficit) (Continued)

March 31, 2004 and December 31, 2003

									Additional Paid-in Capital		Accumulated Deficit
	Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount
Balance Forward		250,000	$	2,500	$	14,759,671	$	147,596	$	8,786,102	$	(9,732,377	)
Common stock issued for
Payment on subsidiary(unaudited)		-		-		200,000		2,000		113,000		-
Stock issued for barter equity (unaudited)		-		-		625,000		6,250		118,750		-
Stock issued for services (unaudited)		-		-		150,000		1,500		22,500		-
Stock issued for payment for
stock loaned to company (unaudited)		-		-		400,000		4,000		72,000		-
Net loss for the three months
ended March 31, 2004 (unaudited)		-		-		-		-		-		(801	)
Balance, March 31, 2004 (unaudited)		250,000	$	2,500		16,134,671	$	161,347	$	9,278,352	$	(9,733,179

The accompanying notes are an integral part of these consolidated financial statements.

F6

TOTAL IDENTITY CORP.AND SUBSIDIARY

Consolidated Statements of Cash Flows

March 31, 2004 and 2003

(Unaudited)

	For the Three Months Ended
	March 31
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(801	)	$	(503,110	)
Adjustments to reconcile net loss to net
Cash provided (used) by operating activities:
Depreciation and amortization		72,454			-
Stock issued for services		320,000			375,000
Changes in assets and liabilities:
Restricted Cash		-			42,666
(Increase) Decrease in receivables		(371,055	)		(15,260	)
(Increase) in inventory		(57,893	)		-
(Increase) in prepaids		-			-
Decrease in prepaid expenses		-			3,222
Other assets		47,458			-
Construction in progress		-			(39,771	)
Increase in accounts payable and accounts
payable – related parties		(137,870	)		29,287
Increase (Decrease) in customer deposit payable		521,733			(3,000	)
Payable to joint venture		-			(27,667	)
(Decrease) in accrued expenses and accrued
expenses – related		(48,214	)		35,020
Net Cash Provided (Used) by Operating Activities		345,812			(103,613	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment		-			(12,518	)
Acquisition of subsidiary		(1,800	)		27,847
Purchase of property and equipment		-			(1,008	)
Net Cash Provided (Used) by Financing Activities	$	(1,800	)	$	14,321

The accompanying notes are an integral part of these consolidated financial statements.

F7

TOTAL IDENTITY CORP.AND SUBSIDIARY

Consolidated Statements of Cash Flows (Continued)

March 31, 2004 and 2003

(Unaudited)

	For the Three Months Ended
	March 31
	2004			2003
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock	$	12,750		$	40,500
Proceeds (payment) from bank overdraft		(12,074	)		-
Proceeds from related parties		-			30,275
Proceeds from notes payable		127,038			5,848
Payment of notes payable		(148,405	)		-
Capital contributions		-			15,000
Net Cash Provided (Used) by Financing Activities		(160,479	)		91,623
INCREASE (DECREASE) IN CASH		183,533			2,331
CASH AT BEGINNING OF PERIOD		-			4,619
CASH AT END OF PERIOD	$	183,533		$	6,950
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID FOR:
Interest	$	35,400		$	-
Income taxes	$	-		$	-
SCHEDULE NON-CASH FINANCING ACTIVITIES:
Stock issued for services	$	320,000		$	375,000
Stock issued for debt	$	100,000		$	-

The accompanying notes are an integral part of these consolidated financial statements.

F8

TOTAL IDENTITY CORP. AND SUBSIDIARY

Notes to the Consolidated Financial Statements

March 31, 2004 and 2003

NOTE 1 -BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2004 and 2003 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2003 audited financial statements. The results of operations for the periods ended March 31, 2004 are not necessarily indicative of the operating results for the full year.

NOTE 2 -RELATED PARTY TRANSACTIONS

On January 16, 2004, the Company borrowed $50,000 from Cindy Dolgin, wife of Neil Dolgin, to pay for company expenses. The loan is to be paid back when funds are available. As an inducement for Cindy Dolgin to loan the Company money, 250,000 shares of common stock were issued to her on March 1, 2004.

On March 1, 2004, common stock of 550,000, 800,000, and 1,250,000 were issued as compensation for services to Matt Dwyer, Richard Dwyer, and Richard Houraney, respectively.

On March 24, 2004, the Company borrowed $25,000 from Dr. Martin Peskin to pay for company expenses. Interest associated with this loan amounted to $10,187. The total amount is recorded as a loan payable to Martin Peskin.

During the three months ended March 31, 2004, the Company borrowed $3,215 from Richard Dwyer and $192,151 from Matthew Dwyer for various company expenses. These amounts are recorded as loans payable.

NOTE 3 –SIGNIFICANT EVENTS

On January 13, 2004, the Company entered into a consulting agreement with a Florida business to provide consulting on multi media kits for the Company. For consideration of these services the Florida business is entitled to receive $250,000 in cash and/or free trading share of the Company’s common stock at $0.20 per share or 1,250,000 shares.

On February 2, 2004, the Company entered into a consulting agreement with a former officer and director to provide consulting on corporate development. For consideration of these services the individual is entitled to receive warrants to acquire 1,100,000 shares of the Company’s common stock at an exercise price of $0.03 per share. 800,000 of the warrants would be immediately exercisable and 300,000 would not vest until August 1, 2004.

9

TOTAL IDENTITY CORP. AND SUBSIDIARY

Notes to the Consolidated Financial Statements

March 31, 2004 and 2003

NOTE 3 –SIGNIFICANT EVENTS (Continued)

On February 13, 2004, the Company authorized the issuance of 625,000 shares of restricted common stock for $125,000 in barter equity.

On February 13, 2004, the Company authorized the issuance of a $125,000 convertible debenture at 9% that may be converted into restricted common stock at $0.20 per share, or 625,000 shares of common stock, upon conversion.  There is no beneficial conversion feature associated with these debentures

The Company has not complied with the payment schedule as part of a settlement agreement with a former officer of the Company associated with the purchase of TIS by the Company. The revised settlement agreements stated the Company would pay $500,000, of which $100,000 was issued as 100,000 shares of common stock, along with another 100,000 shares of common stock. This stock was issued on February 19, 2004.  Payments under the agreement have been delayed pending the outcome of an agreement with a third party funding source.  The Company cannot determine whether it will be able to resolve the issue, but is optimistic that a satisfactory resolution will be reached. 

On February 23, 2004, the Company entered into two employee agreements with individuals to provide services as the CEO and Vice-President of the Company. The terms of the agreements are for three years. As part of the compensation the individuals are entitled to receive options to acquire shares of the Company’s common stock at $0.03 per share. The total shares that would be received during the term of the contracts would be 2,500,000 shares. In addition, each employee would receive 1% of the Company’s post tax profit in excess of $1,000,000 for each of the next three years.

On March 9, 2004, a judgment was set against the Company, a former officer of the Company, and a director of the Company for defaulting on required payments under a settlement agreement. The judgment is for $75,000, bearing interest of 7% per annum, and reimbursement of attorneys’ fees, costs and expenses incurred by the plaintiff in pursuing collection of amounts owed to the plaintiff. The Company paid the judgment and related interest, costs and expenses in April 2004.

The Company was named in a lawsuit which seeks collection of attorney's fees and costs plus accrued interest.  The Company has been advised that the paintiff has moved for a default judgment, athough the Company contests the merits of the plaintiffs underlying claims.

NOTE 4 -SUBSEQUENT EVENTS

Resignation of Chief Executive Officer

On April 19, 2004, Philip C. Mistretta submitted his resignation as Chairman, President and CEO of Total Identity Corporation and as Chairman and CEO of Total Identity Corporation of New York. The Company’s Board of Directors then appointed Mr. Matthew Dwyer as the new President, CEO, CFO, and Chairman of the Board.

On May 4, 2004, the Company amended the employment agreement of Matthew Dwyer in recognition of the increased responsibilities undertaken by Mr. Dwyer due to his appointment as CEO and CFO. Under the amended agreement, Mr. Dwyer’s salary was increased from $120,000 per year to $180,000 per year and his stock options were increased from 62,500 per quarter to 200,000 per quarter.

On May 13, 2004, the Company and a former director and officer, entered into an agreement resolving certain disputes that had arisen relating to the ownership of 1,050,000 shares of the Company’s common stock and 250,000 shares of its Series A preferred stock that were the subject of a stock purchase agreement dated February 21, 2003. Each share of preferred stock entitles the holder ten votes per share.

10

ITEM 2 Management’s Discussion and Analysis of Financial Condition or Plan of Operations

The following discussion contains certain forward-looking statements that are subject tobusiness and economic risks and uncertainties, and our actual results could differ materially from those forward-looking statements. The following discussion regarding our financial statements should be read in conjunction with the financial statements and notes thereto.

Caution Regarding Forward-Looking Information

Certain statements contained in this annual filing, including, without limitation, statements containing the words "believes", "anticipates", "expects" and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, among others, the following: international, national and local general economic and market conditions; demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

Given these uncertainties, readers of this Form 10-QSB and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Overview

We have in the past and intend to continue to acquire assets and/or businesses that we believe are undervalued, and to operate those assets and businesses until such time as management determines that disposition is in our best interests. Currently, our only business operations consist of the manufacture and sale of custom-made signs through Total Identity Systems, Inc., our wholly owned subsidiary. We are currently seeking other possible acquisition candidates.

 11

Currently the Company’s wholly owned subsidiary, Total Identity Systems, operates an 85,000 square foot facility located in Rochester New York. The Company plans to use this facility for the foreseeable future and adding to its capacity. Currently only one shift is operated at the plant which the Company desires to grow and utilize the facility’s full capacity of 3 shifts and potentially generating annual revenues of $50 million. To achieve these goals the Company will need to increase its sales force and complete other acquisitions that will help drive sales orders to the factory The Company will need to raise cash to achieve these goals which will cause further dilution to the shareholders. The Company will seek to use its best efforts to raise cash with as little dilution possible to the current shareholders.

The Company has been negotiating to raise money to fund the purchase of Total Identity Systems, Corp. (“TIS”) although the Company has received commitments for the funds they have not been released due to certain parameters set by the funding source.  Meetings have been held with the former principal of TIS to see if they can work out a solution that would enable the funds to be released. There are no guarantees this will be done or another funding source will be obtained to complete the financing of the purchase. Funding for operations of the Company have, been coming from its Officers and Directors.

On February 2, 2004, we entered into a consulting agreement with Richard R. Dwyer, our former Chief Executive Officer. The agreement is for an initial term of one year, subject to a six-month renewal term. Mr. Dwyer will provide consulting services to us in the areas of corporate development, acquisitions and strategic planning.

On February 23, 2004, we entered into a series of agreements with Robert David that (a) amended the stock purchase agreements and related documents dated October 13, 2003, relating to our acquisition of Total Identity Systems and (b) settled certain disputes that had arisen in connection with the October 13, 2003 agreements, including an arbitration initiated by the Company to resolve those disputes. In accordance with the amended agreements:

1. The purchase price for the capital stock purchased from Total Identity Systems was reduced to $700,000, of which, $150,000 had previously been paid and $75,000 was credited to us as reimbursement for certain expenses incurred on behalf of Total Identity Systems. The $475,000 balance of the purchase price balance is payable in five monthly installments of $95,000 each, commencing March 8, 2004.
2. The purchase price for the capital stock purchased from Mr. David was reduced to $500,000, payable $400,000 in eight quarterly payments of $50,000 each, commencing in January 2005, and balance by the issuance of 200,000 shares of our common stock. Our shares are restricted from transfer for one year and, under certain circumstances, Mr. David has the right to put 100,000 of the shares to us for $1.00 per share.
3. All of the purchased shares secure payment of the purchase price and such shares are being held in escrow by counsel to Mr. David until the purchase price has been paid in full.
4. Our employment agreement with Mr. David was terminated and a consulting agreement was entered into with Mr. David for a period of 32 months, providing for a monthly consulting fee of $8,500.
5. We agreed to cause certain institutional indebtedness of Total Identity Systems to be repaid prior to the end of Mr. David’s consulting agreement, subject to acceleration in certain events.

 12

1. The lease with an affiliate of Mr. David covering Total Identity Systems’ Rochester, New York facility will remain in place for a period of ten years, and we will have the right but not the obligation to purchase the property after five years at a price to be determined by three independent appraisers.

The Company has not complied with certian of its payment obligations to Bob David under the February 23, 2004 amendments to the October 13, 2003 agreements. Payments under the agreements have been delayed pending the outcome of continuing efforts by the Company to coordinate modifications to the stock purchase agreement requested by a third party funding source. The Company’s investment bankers have been negotiating on behalf of the Company and the funding source to resolve this matter; however, the Company cannot determine at this time whether it will be able to resolve the issue with Mr. David in a manner that will be satisfactory to all interested parties. The Company has not received a default notice from Mr. David and is optimistic that a mutually satisfactory resolution with Mr. David and the funding source will be reached.

On February 23, 2004, we entered into an Employment Agreement with Philip Mistretta covering Mr. Mistretta’s services to us as our Chief Executive Officer and President, and on April 19, 2004, we received the resignation of Philip C. Mistretta. On April 22, 2004, our Board of Directors appointed Matthew P. Dwyer to serve as our Chief Executive Officer and Chief Financial Officer.

On February 23, 2004, we entered into an Employment Agreement with Matthew P. Dwyer covering Mr. Dwyer’s services to us as our Vice President.On May 4, 2004 the Company amended its employment agreement with Matthew P. Dwyer to recognize his increased responsibilities as our Chief Executive Officer and Chief Financial Officer.

On February 27, 2004 the Company rescinded its agreement with Hi*Tech Electronic Displays, Inc. The rescission was mutually agreed to by the parties, with no penalty on either side. The Company has returned the assets it received and will be canceling the 250,000 shares of common stock it issued to Hi*Tech as payment for the purchased assets.

On March 9, 2004, a judgment was entered against the Company, a former officer of the Company, and a director of the Company for defaulting on required payments under a settlement agreement. The judgment is for $75,000, bearing interest of 7% per annum, and reimbursement of attorneys’ fees, costs and expenses incurred by the plaintiff in pursuing collection of amounts owed to the plaintiff. The Company subsequently paid the entire judgment.

Report of Independent Certified Public Accountants

None

 13

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. To the extent there are material differences between these estimates and judgments and actual results our financial statements will be affected.

Deferred Tax Assets

The Company had approximately $950,000 of net deferred tax assets related principally to certain unused tax credits and loss carry forwards as of March 31, 2004. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment

Three Months Ended March 31, 2004

Revenues

The Company had revenues of $2,703,515 for the three months ended March 31, 2004. There were no revenues for the corresponding three months during 2003.

Selling, General and Administrative 

The selling, general and administrative expenses increased $699,913 from $503,110 in the first quarter of fiscal 2003 to $1,203,023 in the first quarter of fiscal 2004. These expenses consisted of professional feesand others associated with the Company's ongoing Securities and Exchange Commission reporting.  The significant increase is selling, general and administative expenses is due to Company's acquisition last year.

 14

Net Losses

Net losses for the three-month period ended March 31, 2004 were $801 as compared to $503,110 for the three-month period ended March 31, 2003. The reduction in the net loss figure for the three-months ended March 31, 2004 as compared to the same period last year is a result of the increased revenues and earning from acquisition made last year.

The basic and diluted loss per share for the quarter ended March 31, 2004, based on a weighted average number of shares of 7,867,642 was $0.00 per share, compared with the basic and diluted loss per share of $0.89 based on a weighted average number of shares of 564,674 for the quarter ended March 31, 2003.

Liquidity and Capital Requirements

As of March 31, 2004, the Company had total current assets totaling $2,686,400 consisting of cash and cash equivalents of $183,533, accounts receivables of $1,789,150, inventory of $680,136,and prepaid expenses of $33,581. The Company’s total assets as of March 31, 2004 amounted to $5,074,378 consisting primarily of its total current assets.

The Company's total liabilities were $5,365,358 as of March 31, 2004, which consist of current liabilities of $4,680,606 and long term debt of $684,752.  The stockholders' deficit amounted to $(290,980).

Management believes that, based upon the current operating plan, the parent Company's existing working capital may not be sufficient to fund the ongoing expenses of a reporting company through December 31, 2004.  If the Company is not successful in negotiations with former principal of Total Identity Systems Corp (TIS) or restructuring the parameters set by the funding source, the Company may be forced to raise additional equity or debt financing to fund its ongoing obligations, seek protection under existing bankruptcy laws or cease doing business. If additional funds are raised through the issuance of equity securities, the percentage of ownership of the Company's then common stockholders would be diluted. If additional funds are raised through the issuance of debt securities, the Company will incur interest charges until the related debt is paid off.

There can be no assurance that the Company will be able to come to a satisfactory outcome with either former principal of TIS or the funding source or raise any additional capital necessary to achieve its current operating plan.

Primary Risks

Among the risks of an investment in Total Identity Corp., and among the uncertainties that could cause our results of operations to be different from what we anticipate, are the following:

• We may be unable to obtain sufficient financing to fund the payment of the purchase price for the shares of Total Identity Systems we acquired in October 2003, in which event the former owner may foreclose on its collateral and reacquire the Total Identity Systems shares.
• We may be unable to secure the funding necessary in order to consummate additional acquisitions to grow our business.
• The electronic sign industry in which Total Identity Systems operates is significantly affected by many factors out of our control.
• Since we have not voluntarily adopted corporate governance measures that have been implemented by other companies, our shareholders may not benefit by some of the protections they might otherwise receive.
• We do not expect to pay dividends in the foreseeable future.
• Our management may be unable to effectively integrate future acquisitions and manage our growth, as a result of which we may not realize the potential benefits of any anticipated synergies.
• We may be unable to successfully acquire other business operations or operate any such acquisitions on a profitable basis.
• Unless an active market develops for our common stock, investors may have difficulty selling their shares.
• The sale of our shares in the future, under Rule 144 or otherwise, sale could have a depressive effect on the market price for our common stock.

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ITEM 3Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under

the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.

PART II

ITEM 1Legal Proceedings

Total Identity Corp. and our former Chief Executive Officer, Scott Siegel, were named in a lawsuit filed in the Circuit Court for Broward County, Florida (Marc Douglas v. Matthew P. Dwyer, William Michael Sessions, John W. Meyers, Scott Siegel, Neil Dolgin and TMI Holdings, Inc. – Case No. 03-10440). The suit sought injunctive relief, damages and recovery of securities previously transferred to various parties in connection with the prior transfer of control of Total Identity Corp. by the plaintiff. Effective October 1, 2003 the parties entered into settlement documents requiring, among other things, that we pay $180,000 to the plaintiff on or before March 1, 2004, of which $105,000 was paid. Due to our failure to complete timely payments under the settlement agreement, on March 9, 2004, the plaintiff secured a judgment against us and the other defendants in the aggregate amount of $75,000, plus interest at the rate of 7% per annum. In April 2004, the Company satisfied the judgment through the payment of $75,000 plus $7,868.51 in interest and fees.

Total Identity Corp. was named in a lawsuit filed in the Superior Court for Orange County, California (The Lebrecht Group, APC v. Total Identity Corp. – Case No. 03CC12717. The suit seeks to collection allegedly owned attorneys fees and costs totaling $46, 285.62 plus accrued interest. The Company has been advised that the plaintiff has moved for a default judgment, although the Company does not believe that it has received proper notice of the plaintiff’s motion and it contests the merits of the plaintiff’s underlying claims. At this time the Company cannot predict a favorable or unfavorable outcome to this matter.

General Matters

The Company is from time to time involved in other various pending or threatened legalactions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon the financial condition and/or results of operations of the Company. However, in the opinion of the Company’s management, matters currently pending or threatened against the Company are not expected to have a material adverse effect on the financial position or results of operations of the Company.

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ITEM 2 Changes in Securities and Use of Proceeds

There have been no events which are required to be reported under this Item.

ITEM 3 Defaults Upon Senior Securities

There have been no events which are required to be reported under this Item.

ITEM 4 Submission of Matters to a Vote of Security Holders

There have been no events which are required to be reported under this Item.

ITEM 5 Other Information

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In addition to the information otherwise disclosed in this Report:

On April 19, 2004, we received the resignation of Philip C. Mistretta as our President, Chief Executive Officer and Chief Financial Officer. On April 22, 2004, our Board of Directors appointed Matthew P. Dwyer to serve as our Chief Executive Officer and Chief Financial Officer.

On April 30, 2004 we received a notice stating the Company had satisfied the $75,000 judgment described in Part II, Item 2, above.

On May 4, 2004 the Company amended the employment agreement of Matthew P. Dwyer in recognition of the increased responsibilities undertaken by Mr. Dwyer due to his appointment as Chief Executive Officer and Chief Financial Officer. Under the amended agreement, Mr. Dwyer’s salary was increased from $120,000 per year to $180,000 per year and his stock options were increased from 62,500 per quarter to 200,000 per quarter. The Board approved these changes, with Mr. Dwyer abstaining from voting.

On May 13, 2004 the Company and Scott Siegel, a former director and officer, entered into an agreement resolving certain disputes that had arisen relating to the ownership of 1,050,000 shares of the Company’s common stock and 250,000 shares of its Series A preferred stock that were the subject of a stock purchase agreement dated February 21, 2003. Each share of preferred stock entitles the holder to ten votes per share. Mr. Siegel also resigned as a member of the Board.

ITEM 6 Exhibits and Reports on Form 8-K

(a) Exhibits

31.1CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1CEO and CFO Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

We filed no reports on Form 8-K during the period covered by this Report, except as follows:

(a)On February 9, 2004, we filed a Current Report on Form 8-K/A to include financial statements and financial information in connection with our October 13, 2003 acquisition of the outstanding capital stock of Total Identity Systems Corp.; and

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(b)On February 25, 2004, we filed a Current Report on Form 8-K to report that we had entered into settlement agreements relating to disputes that had arisen in connection with our acquisition of all of the capital stock of Total Identity Systems Corp. on October 28, 2003

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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.

June 15, 2004

Total Identity Corp.

By:/s/ Matthew P. Dwyer

Chairman, Principal Executive Officer

and Principal Accounting Officer

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