Baron Capital Enterprise (BCAP) 10QSB/A 2004 Q2 Quarterly report (small business) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-QSB/A

(Mark One)

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

For the quarterly period ended June 30, 2004

OR

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

For the transition period from _______ to __________

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 September 20, 2004, there were 15,859,675 shares of common stock issued and outstanding.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT

(check one):

Yes [ ] No [X]

Total Identity Corp.

INDEX TO FORM 10-QSB

QUARTER ENDED June 30, 2004

PART I - FINANCIAL INFORMATION		Page
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheet as of June 30, 2004 and December 31, 2003(unaudited)	F2
	Consolidated Statements of Operations for the Six Months Ended	F4
	June 30, 2004 and June 30, 2003 (unaudited)
	Consolidated Statements of Cash Flows for Six Months Ended	F5
	June 30, 2004 and June 30, 2003 (unaudited)
	Notes to Consolidated Financial Statements	F7
Item 2. Management's Discussion and Analysis or Plan of Operation		10
Item 3.Controls and Procedures		13
PART II - OTHER INFORMATION		14
Item 1. Legal Proceedings		14
Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds		16
Item 3.Defaults Upon Senior Securities		16
Item 4.Submission of Matters to a Vote of Security Holders		16
Item 5.Other Information		17
Item 6. Exhibits and Reports on Form 8-K		18
SIGNATURES		19

TOTAL IDENTITY CORP. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004and December 31, 2003

TOTAL IDENTITY CORP. AND SUBSIDIARY

Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

ASSETS

	June 30, 2004 (Unaudited)		December 31, 2003
CURRENT ASSETS
Cash	$	166,686	$	-
Accounts receivable, net		1,682,623		1,293,096
Inventory		573,858		622,243
Prepaid expenses		33,581		33,581
Total Current Assets		2,456,748		1,948,920
PROPERTY AND EQUIPMENT, NET		899,297		932,869
OTHER ASSETS
Deferred tax asset		352,379		352,379
Deposits		42,542		90,000
Intangibles, net		1,021,934		1,130,841
Total Other Assets		1,416,855		1,573,220
TOTAL ASSETS	$	4,772,900	$	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)

June 30, 2004 and December 31, 2003

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

	June 30, 2004 (Unaudited)			December 31, 2003
CURRENT LIABILITIES
Customer deposits	$	540,901		$	242,206
Bank overdraft		-			12,074
Accounts payable		1,356,602			1,303,487
Accounts payable– related party		294,031			180,937
Accrued expenses		299,754			81,114
Accrued warranty expense		45,000			45,000
Subscription payable		400,000			500,000
Notes payable		2,048,405			2,181,061
Total Current Liabilities		4,984,693			4,545,879
LONG-TERM DEBT
Notes payable		684,752			744,309
Total Long-Term Debt		684,752			744,309
Total Liabilities		5,669,445			5,290,188
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, Series 1 $0.01 par value,
1,250,000 shares authorized; -0- shares
issued and outstanding		-			-
Preferred stock, Series A $0.01 par value
250,000 shares issued and outstanding		-			2,500
Common stock, $0.01 par value, 30,000,000 shares
authorized; 17,672,171 and 12,459,071 shares issued
and outstanding, respectively		176,721			124,596
Deferred consulting		(137,500	)		-
Additional paid-in capital		9,565,227			8,770,102
Accumulated deficit		(10,500,993	)		(9,732,377	)
Total Stockholders’ Equity (Deficit)		(896,545	)		(835,179	)
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)	$	4,772,900		$	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

June 30, 2004 and 2003

(Unaudited)

	For the Three Months Ended June 30,						For the six Months Ended June 30,
	2004			2003			2004			2003
REVENUE	$	2,829,573			-		$	5,533,088		$	-
COST OF SALES		2,093,660			-			3,313,627			-
GROSS MARGIN		735,913			-			2,219,461			-
EXPENSES
Professional Fees		18,000			2,922,772			36,000			3,356,359
Salaries and wages		1,446,029			45,000			2,649,052			75,000
General and administrative		54,454			15,279			108,908			54,802
Total Expenses		1,518,483			2,983,051			2,793,960			3,486,161
(LOSS) FROM OPERATIONS		(782,570	)		(2,983,051	)		(574,499	)		(3,486,161	)
OTHER INCOME
(EXPENSES)
Other		57,645			-			18,257			-
Interest expense		(42,890	)		(24,130	)		(212,374	)		(24,130	)
Total Other (Income)
Expenses		14,755			(24,130	)		(194,117	)		(24,130	)
NET LOSS	$	(767,815	)	$	(3,007,181	)	$	(768,616	)	$	(3,510,291	)
BASIC LOSS PER SHARE	$	(.05	)	$	(1.27	)	$	(.05	)	$	(2.39	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		16,606,754			2,363,560			15,840,576			1,469,643

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

F4

TOTAL IDENTITY CORP.AND SUBSIDIARY

Consolidated Statements of Cash Flows

June 30, 2004 and 2003

(Unaudited)

	For the Three Months Ended June 30,
	2004,			2003,
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(768,616	)	$	(3,510,291	)
Adjustments to reconcile net loss to net
Cash provided (used) by operating activities:
Depreciation and amortization		126,908			151
Stock issued for services		484,750			2,485,000
Common stock issued for incentive financing		-			24,000
Warrants issued for incentive financing		-			640,601
Gain on disposal of assets		15,572			-
Changes in assets and liabilities:
(Increase) Decrease in receivables		(264,568	)		-
(Decrease) in inventory		48,385			-
(Increase) Decrease in prepaids		47,458			(279	)
Construction in progress		-			(41,962	)
Increase in accounts payable and accounts
payable – related parties		163,709			96,519
Increase (Decrease) in customer deposit payable		298,695			-
Increase in accrued expenses		218,640			149,885
Net Cash Provided (Used) by Operating Activities		370,973			(156,376	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment		-			(11,180	)
Acquisition of subsidiary		-			20,000
Purchase of property and equipment		-			(1,008	)
Cash acquired in acquisition		-			27,847
Net Cash Provided (Used) by Financing Activities		-		$	35,659

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

F5

TOTAL IDENTITY CORP.AND SUBSIDIARY

Consolidated Statements of Cash Flows (Continued)

June 30, 2004 and 2003

(Unaudited)

	For the Three Months Ended June 30,
	2004			2003
CASH FLOWS FROM FINANCING ACTIVITIES
Advance from officers	$	-		$	56,167
Repayment of related party advances		-			(13,416	)
Proceeds (payment) from bank overdraft		(12,074	)		-
Proceeds from related parties		-			50,000
Proceeds from notes payable		-			25,848
Payment of notes payable		(192,213	)		-
Net Cash Provided (Used) by Financing Activities		(204,287	)		118,599
INCREASE (DECREASE) IN CASH		166,686			(2,118	)
CASH AT BEGINNING OF PERIOD		-			4,619
CASH AT END OF PERIOD	$	166,686		$	$2,501
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID FOR:
Interest	$	56,412		$	-
Income taxes	$	-		$	-
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services	$	484,750		$	2,485,000
Common stock issued as incentive for financing	$	-		$	24,000
Common stock issued for accounts payable	$	100,000		$	$72,500
Preferred stock issued for acquisition of Kina`Ole
Development Corp	$	-		$	20,000
Warrants issued for services	$	-		$	640,601
In connection with the acquisition of Kina’Ole Development Corp., Assets acquired and liabilities assumed are as follows
Assets including cash acquired of $111,477	$	-		$	972,673
Liabilities		-			(1,177,449	)
Deficit	$	-		$	(204,776	)

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

F6

TOTAL IDENTITY CORP. AND SUBSIDIARY

Notes to the Consolidated Financial Statements

June 30, 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 June 30, 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 June 30, 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 Drywer and $192,151 from Matthew Drywer 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.

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

F7

TOTAL IDENTITY CORP. AND SUBSIDIARY

Notes to the Consolidated Financial Statements

June 30, 2004 and 2003

NOTE 3 –SIGNIFICANT EVENTS (Continued)

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 on 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. During the second quarter 562,500 shares were issued under the option agreements. 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. In addition, the CEO, received 225,000 shares to cover the second quarter compensation due the officer. In August, the CEO elected not to receive shares of stock as payment for his services to the Company.

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 plaintiff has moved for a default judgment, although the Company contests the merits of the plaintiff’s underlying claims.

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 P. 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. The agreement stipulated that the former officer would purchase 250,000 shares of the Company’s common stock at three cents per share; would return to the Company the 250,000 Series A Preferred Shares and the 800,000 shares of common stock. The

F8

TOTAL IDENTITY CORP. AND SUBSIDIARY

Notes to the Consolidated Financial Statements

June 30, 2004 and 2003

NOTE 3 –SIGNIFICANT EVENTS (Continued)

Company would pay the officer $35,265 for past expenses paid by the officer. As of June 30, 2004 the shares have not been cancelled.

During the quarter the Company changed its denomination of preferred shares. The Board of Directors approved the cancellation of the Series “A” and “B” shares and authorized the denomination of Series “1” shares. The Board authorized 1,250,000 shares of Series “1” preferred stock with a par value of $0.01.

NOTE 4 -SUBSEQUENT EVENTS

On July 22, 2004, Total Identity Corp. terminated its consulting agreement with Robert David on the grounds that Mr. David had breached the consulting agreement, as well as his fiduciary duties to the Company by improperly attempting to dispose of Company assets.

On or about July 26, 2004, Robert David commenced two arbitrations against the Company and TISC with the American Arbitration Association, alleging that (a) the Company had improperly terminated his consulting agreement and (b) the Company was in default of certain payment obligations under the Acquisition Agreements.

On or about August 4, 2004, the Company responded to Mr. David’s demands for arbitration, and denied that it had improperly terminated Mr. David’s consulting agreement. The Company also denied that it had defaulted under the Acquisition Agreements and asserted affirmative defenses and counterclaims for fraudulent inducement, fraud, failure to disclose material information, improper use of Company assets and breach of contract, including breach of Mr. David’s covenant not to interfere with the Company’s ability to repay indebtedness to various institutional lenders including M&T Bank.

The outcome of the various claims of the parties is uncertain. In the event that the Company is unsuccessful in its claims, Mr. David could reacquire ownership of TISC, leaving the Company without business operations, in which case the Company will be required to seek other business opportunities. The Company could also be subject to damages to Mr. David. Damages could include losses that may be sustained by Mr. David in the event M&T Bank forecloses upon collateral posted by Mr. David to secure TISC’s obligations to the bank.

 

F9

ITEM 2 Management’s Discussion and Analysis or Plan of Operation

The following discussion contains certain forward-looking statements that are subject to business 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.

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 hopes to add 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, potentially generating annual revenues of $50 million. To achieve these goals, the Company will need to increase its sales force and complete other

 10

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 has been negotiating to raise money to fund the purchase of Total Identity Systems, Corp. (“TISC”) although the Company has received term sheets for funding, but there are no guarantees the funds will be received or another funding source will be obtained to complete the financing of the purchase. Funding for operations of TISC have been coming from cash flow.

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

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Revenues

The Company had revenues of $5,533,088 for the six months ended June 30, 2004. There were no revenues for the corresponding three months during 2003.

Expenses

General and administrative expenses increased $54,106 from $54,802 in the second quarter of fiscal 2003 to $108,908 in the second quarter of fiscal 2004. Other operating expenses of $2,685,052 for the six months ended June 30, 2004, consisted of salaries, wages and professional fees and other costs associated with the Company's ongoing Securities and Exchange Commission reporting obligations.

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Net Losses

Net losses for the six month period ended June 30, 2004 were $768,616 as compared to $3,510,291 for the six month period ended June 30, 2003. The lower net loss figure for the six months ended June 30, 2004 as compared to the same period last year is a result of the increased sales from the acquisition made last year.

The basic and diluted loss per share for the quarter ended June 30, 2004, based on a weighted average number of shares of 9,469,026 was $0.08 per share, compared with the basic and diluted loss per share of $2.39 based on a weighted average number of shares of 1,469,643 for the quarter ended June 30, 2003.

Liquidity and Capital Requirements

As of June 30, 2004, the Company had total current assets totaling $2,456,748 consisting of cash and cash equivalents of $166,686.  The Company’s total assets as of June 30, 2004 amounted to $4,772,900.

The Company's total liabilities were $5,668,445 as of June 30, 2004, and stockholders' deficit amounted to $(896,545).

As of June 30, 2004, the Company has (2,527,945) of working capital and.

Management believes that, based upon the current operating plan, the Company's existing working capital may not be sufficient to fund the ongoing expenses of a reporting company through December 31, 2004., unless the Company is successful in raising additional financing or renegotiating initial debt. The Company is working with several funding prospects to replace the current loan with M&T Bank that is in default. The Company cannot give any assurances that it will be successful in replacing existing credit facilities, but continues to pursue a mutually agreeable solution with M&T Bank to either replace of payoff the existing loan prior to the end of fiscal 2004. The Company is also a party to a pending arbitration proceeding with the former principal of Total Identity Systems Corp. and cannot predict the outcome of the arbitration. The Company may be forced to raise additional equity or debt financing to replace the current debt, including the debt in default. 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 prevail in arbitration or successfully raise any additional capital necessary to replace outstanding debt of its wholly owned subsidiary.

Off Balance Sheet Arrangements

The Company has no 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 is material to investors, except that in connection with the Company’s stock

 12

purchase agreement with Robert David, the Company has agreed, under certain circumstances, to guaranty a $1.00 price per share covering a total of 100,000 shares of the Company’s common stock issued to Robert David under the stock purchase agreement. The agreements pursuant to which the shares were issued to Mr. David are the subject of a pending arbitration proceeding (see Part II, Item 1, below).

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.

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.

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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

Marc Douglas v. Matthew P. Dwyer, William Michael Sessions, John W. Meyers, Scott Siegel, Neil Dolgin and TMI Holdings, Inc. – Case No. 03-10440.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. . 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.

The Lebrecht Group, APC v. Total Identity Corp. – Case No. 03CC12717. Total Identity Corp. was named in a lawsuit filed in the Superior Court for Orange County, California (. 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.

Linda Cockfield v. Total Identity Corp., a Florida corporation, Total Identity Systems Corporations., a New York corporation Case No. 05-2004-CA-010331.Total Identity Corp. and its wholly owned subsidiary Total Identity Systems Corp. were named in a lawsuit filed in the 18th Judicial Circuit Brevard County. On or about June 29, 2004, Plaintiff Linda Cockfield, a resident of Georgetown County, South Carolina, caused to be filed a complaint against Total Identity Corporation and Total Identity Systems Corporation. The complaint seeks to state a cause of action in negligence and a claim for damages in excess of $15,000. However, we have filed challenging the sufficiency of the Plaintiff’s allegations and seeking the dismissal of the complaint in its entirety.

American Arbitration Association Case No. 1516859104 Robert David v. Total Identity Corp and Total Identity Systems Corp. On July 22, 2004, Total Identity Corp. terminated its consulting agreement with Robert David on the grounds that Mr. David had breached the consulting agreement, as well as his fiduciary duties to the Company by improperly attempting to dispose of Company assets. Mr. David had been engaged as a consultant to the Company at the time of and in connection with February 2004 amendments to the agreements by which the Company acquired all the capital stock of Total Identity Systems Corp. (“TISC”), the Company’s wholly owned subsidiary (the “Acquisition Agreements”). Mr. David was formerly employed by the Company and served as a Vice President from October 2003, when the original acquisition of TI SC took place, until February 2004, when the Acquisition Agreements were amended.

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On or about July 26, 2004, Robert David commenced two arbitrations against the Company and TISC with the American Arbitration Association, alleging that (a) the Company had improperly terminated his consulting agreement and (b) the Company was in default of certain payment obligations under the Acquisition Agreements. The shares acquired by the Company are being held in escrow pending payment of the purchase price, and Mr. David has notified the escrow agent of the alleged default and his claim for release of the stock to him. In his notice of default, Mr. David demands that the Company’s promissory note in the amount of $400,000 be immediately due and payable. In his demands for arbitration, Mr. David seeks $95,000 that is allegedly due and owning under the consulting agreement, and damages of in excess of $150,000 arising out of the Company’s alleged defaults und er the Acquisition Agreements. Mr. David also seeks release of the pledged shares to him.

By letter dated July 28, 2004, the Company notified the escrow agent that it was contesting Mr. David’s allegation that the Company had defaulted under the Acquisition Agreements, and advised the escrow agent that, in accordance with the terms of the escrow agreement, the escrow agent could either deposit the shares into court pending resolution of the various claims between the parties or await a final, non-appealable court order directing disposition of the shares.

On or about August 4, 2004, the Company responded to Mr. David’s demands for arbitration, and denied that it had improperly terminated Mr. David’s consulting agreement. The Company also denied that it had defaulted under the Acquisition Agreements and asserted affirmative defenses and counterclaims for fraudulent inducement, fraud, failure to disclose material information, improper use of Company assets and breach of contract, including breach of Mr. David’s covenant not to interfere with the Company’s ability to repay indebtedness to various institutional lenders including M&T Bank. The Company alleges that Mr. David, through improprieties as a consultant and a former officer of the Company, and as a participant in a conspiracy with others, improperly interfered with the Company’s ability to secure funding and otherwise meet its obligations to M &T Bank. Among the improper activities alleged against Mr. David were his unauthorized discussions with M&T Bank relating to TISC’s indebtedness and Mr. David’s guarantees of those debts. M&T Bank had noticed a default against TISC under its loan agreements, but the bank has been engaged in on-going discussions with TISC and the Company to address repayment of TISC’s borrowings. In its counterclaims, the Company seeks damages from Mr. David of in excess of $400,000. The Company also seeks a determination that the termination of the consulting agreement was proper and that the Company is entitled to retain ownership of the TISC stock.

The outcome of the various claims of the parties is uncertain. In the event that the Company is unsuccessful in its claims, Mr. David could reacquire ownership of TISC, leaving the Company without business operations, in which case the Company will be required to seek other business opportunities. The Company could also be subject to damages to Mr. David. Damages could include losses that may be sustained by Mr. David in the event M&T Bank forecloses upon collateral posted by Mr. David to secure TISC’s obligations to the bank.

American Arbitration Association Case No. 154590070504 Total Identity Corp. v. Argilus, LLC. On August 24, 2004 the Company commenced an arbitration before the

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American Arbitration Association, seeking relief from direct, consequential, and foreseeable damages incurred as a result of the company’s reasonable reliance on Argilus LLC’s fraudulent misrepresentations. Pursuant to as agreement between the Company and Argilus, Argilus agreed to raise capital or financing on behalf of the Company for the purpose of purchasing the capital stock of TISC. The Company contends that Argilus made multiple fraudulent representations that it had complied with the terms of the agreement and had located ready, willing and able capital and/or financing for the purchase of the TISC stock. The Company and TISC reasonably relied on these misrepresentations and have suffered damages as a result. These fraudulent misrepresentations included Argilus’s exercise of its influence over the Company to settle the Company’s valid claim for da mages as against the sellers of TISC stock. In addition, Argilus had maintained that a settlement was necessary in order to conclude funding by the source it had discovered; however, the Company contends that Argilus knew, at the time it made these representations, that it had not identified a source to provide funding to the Company under the terms represented by Argilus.

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.

ITEM 2 Changes in Securities and Use of Proceeds

On June 15, 2004 the Company issued 300,000 options at $.03 to Richard Dwyer under his consulting entered into with the Company in January of 2004. The Company has elected to extend Mr. Dwyer’s contract for an additional one year period and as consideration, granted him a three year option to purchase 750,000 shares exersiable at $.03 per shares.

On June 15, 2004 the Company issued 225,000 shares of common to Matthew P. Dwyer the Company’s CEO in payment of $45,000 in salary for the three months ended June 2004.

On August 11, 2004 Mr. Dwyer gave notice to the Board that he was exercising 200,000 stock options at $.03 per share, which were deducted from the 2003 Qualified Securities Plan. The options where granted to him under his employment agreement for the period of July 1, 2004 to September 30, 2004.

ITEM 3 Defaults Upon Senior Securities

None.

ITEM 4 Submission of Matters to a Vote of Security Holders

None.

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ITEM 5 Other Information

On July 13, 2004 the Company and its subsidiary was served with a lawsuit from a woman who claims she was hit by an awning in January of 2002.

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 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.

On June 24, 2004 the Company canceled one million shares of its issued and outstanding common stock issued to Argilus, LLC and canceled a warrant to purchase one million shares of the Company’s common stock for $.20 per share. The shares and warrant were canceled for lack of performance by Argilus, and their failure to provide the Company with the financing required to earn the shares and the warrant.

On June 30, 2004, following authorization by the Board of Directors, the Company amended its Articles of Incorporation to eliminate its previously authorized series A and B preferred stock. No shares of series A or series B preferred stock were outstanding at the time of the elimination.

On July 1, 2004, following authorization by the Board of Directors, the Company amended its Articles of Incorporation to establish a series consisting of 1,250,000 shares of Series 1 preferred stock. The series 1 preferred stock provides for a liquidation preference of $1.00 per share, prior to any liquidation distributions to holders of common stock. The series 1 preferred stock accrues dividends at the rate of 12%, payable in arrears, in cash or by the issuance of shares of series 1 preferred stock, Each share of series 1 preferred stock is entitled to one vote per share, and votes along with common stockholders on all matters submitted to a vote of common stockholders. Each share of series 1 preferred stock may be redeemed by the Company at a price of $1.00 per share, on ten days prior written notice. No shares of series 1 preferred stock have been issued.

On June 28, 2004 the Company entered into an employment agreement with Jeffrey Hoffman to act as the CFO and COO for the Company and it’s wholly owned subsidiary. Mr. Hoffman will receive a base salary of $120,000 plus a car allowance of $500 per

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month. Mr. Hoffman is guaranteed to receive a $10,000 bonus for fiscal year 2004 payable by February 15, 2005. He is also entitled to receive such other bonuses as may be authorized by the Board of Directors.

On August 11, 2004 the Board amended Mr. Dwyer’s employment agreement to allow him to receive cash for future services to the Company instead of issuing him stock. The Board also amended Mr. Dwyer’s quarterly stock options granted to him at the beginning of each quarter. Mr. Dwyer’s quarterly stock options will be exercisable at fair market value on the 1^st day of each new quarter.

ITEM 6 Exhibits and Reports on Form 8-K

(a) Exhibits

3.1Articles of Amendment filed June 30, 2004.

3.2Articles of Amendment filed July 1, 2004

101.Employment Agreement with Jeffrey Hoffman

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 that on May 13, 2004, we filed a Current Report on Form 8-K/A stating that Total Identity Corp. (the “Company”) and Scott Siegel, one of its director, entered into an agreement (the “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 (the “Preferred Shares”) that were the subject of a stock purchase agreement dated February 21, 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.

September 28, 2004

Total Identity Corp.

By:/s/ Matthew P. Dwyer

Chairman, Principal Executive Officer

By:/s/ Jeffrey Hoffman

Principal Accounting Officer

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