SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from April 1, 2003 to June 30, 2003.
000-30011
COMMISSION FILE NUMBER
TMI
HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0309540
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11924 FOREST HILL BLVD., SUITE 22-204
WELLINGTON, FL 33414
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 202-8184
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ].
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 30, 2003, there were
7,564,671 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes [ ] No [X]
TMI
HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
----
PART I
Item 1 Consolidated Financial Statements 3
Consolidated Balance Sheet as of June 30, 2003 (unaudited) 4
Consolidated Statements of Operations for the Three Months Ended
June 30, 2003 and June 31, 2002 (unaudited) 6
Consolidated Statements of Cash Flows for the Three Months Ended 7
June 30, 2003 and June 31, 2002 (unaudited) 9
Notes to Consolidated Financial Statements (unaudited)
Item 2 Management's Discussion and Analysis of Financial 15
Condition or Plan of Operations
Item 3 Controls and Procedures 18
PART II
Item 1 Legal Proceedings 19
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults Upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Item 7 Subsequent Events 20
The accompanying notes are an integral part of these consolidated financial
statements.
2
PART I
This Quarterly Report includes forward-looking statements within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition or Plan of Operations." Forward-looking statements also include
statements in which words such as "expect," "anticipate," "intend," "plan,"
"believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
The accompanying notes are an integral part of these consolidated financial
statements.
3
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
June 30, December 29,
2003 2002
-------- --------
(Unaudited)
CURRENT ASSETS
Cash $ 2,501 $ 4,619
Prepaid expenses -- 3,222
Investment in related party joint venture 107,850 --
Construction in progress 525,866 --
Deposits 3,500 --
-------- --------
Total Current Assets 639,717 7,841
-------- --------
FIXED ASSETS, NET 3,840 --
-------- --------
TOTAL ASSETS $643,557 $ 7,841
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 29,
2003 2002
----------- -----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 64,087 $ --
Accrued expenses 311,877 98,944
Related party loans 83,224 --
Construction loans 670,000 --
Accrued interest payable 2,590 --
Notes payable 25,848 --
----------- -----------
Total Current Liabilities 1,157,626 98,944
----------- -----------
COMMITMENTS AND CONTINGENCIES
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; 500,000 and -0- issued
and outstanding, respectively 5,000 --
Common stock, $0.01 par value, 30,000,000 shares
authorized; 7,564,671 and 189,671 shares issued
and outstanding, respectively 75,647 1,897
Additional paid-in capital 6,859,239 3,850,664
Deficit accumulated during the development stage (7,456,455) (3,946,164)
----------- -----------
Total Stockholders' Equity (Deficit) (514,069) (91,103)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 643,557 $ 7,841
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
SALES, NET $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
EXPENSES
Professional Fees 2,922,772 -- 3,356,359 --
Salaries and wages 45,000 -- 75,000 --
General and administrative 15,279 50,228 54,802 88,357
----------- ----------- ----------- -----------
Total Expenses 2,983,051 50,228 3,486,161 88,357
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (2,983,051) (50,228) (3,486,161) (88,357)
----------- ----------- ----------- -----------
OTHER INCOME
(EXPENSES)
Interest income -- 24,915 -- 49,588
Interest Expense (24,130) -- (24,130) --
----------- ----------- ----------- -----------
Total Other (Income)
Expenses (24,130) 24,915 (24,130) 49,588
----------- ----------- ----------- -----------
NET LOSS $(3,007,181) $ (25,313) $(3,510,291) $ (38,769)
=========== =========== =========== ===========
BASIC LOSS PER SHARE $ (1.27) $ (0.08) $ (2.39) $ (0.12)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 2,363,560 325,555 1,469,643 316,626
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Preferred Stock, Preferred Stock,
Series "A" Series "B" Common Stock Additional
--------------------- ------------------------ ------------------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
--------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at fiscal 2001 250,000 $ 2,500 -- $ -- 304,721 $ 3,047 $ 4,499,513 $(3,322,639)
Common stock issued -- -- -- -- 41,667 417 24,583 --
Common stock retired -- -- -- -- (156,717) (1,567) (673,432) --
Net loss for fiscal 2002 -- -- -- -- -- -- -- (623,525)
--------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, fiscal 2002 250,000 2,500 -- -- 189,671 1,897 3,850,664 (3,946,164)
Series B Preferred Stock
issued in acquisition of
Kina'Ole (unaudited) -- -- 500,000 5,000 -- -- (189,776) --
Common stock issued for
professional services at
$1.50 per share
(unaudited) -- -- -- -- 250,000 2,500 372,500 --
Common stock issued in
exchange for accounts
payable at $0.07 per
share (unaudited) -- -- -- -- 1,050,000 10,500 62,000 --
Common stock issued as
incentive for debt
financing at $0.30 per
share (unaudited) -- -- -- -- 50,000 500 14,500 --
--------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 250,000 $ 2,500 500,000 $ 5,000 1,539,671 $ 15,397 $ 4,109,888 $(3,946,164)
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
7
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Continued)
Preferred Stock Preferred Stock Common Stock Additional
--------------------- ------------------------ ------------------------- Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
--------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 250,000 $ 2,500 500,000 $ 5,000 1,539,671 $ 15,397 $ 4,109,888 $(3,946,164)
Common stock issued as
incentive for debt
financing at $0.36 per
share (unaudited) -- -- -- -- 25,000 250 8,750 --
Common stock issued for
conversion of debt and
for professional services
at $0.36 per share
(unaudited) -- -- -- -- 3,000,000 30,000 1,050,000 --
Common stock issued for
conversion of debt and
for professional services
at $0.36 per share
(unaudited) -- -- -- -- 3,000,000 30,000 1,050,000 --
Warrants issued to
consultants for
professional services
rendered (unaudited) -- -- -- -- -- -- 640,601 --
Net loss for the six months
ended June 30,
2003 (unaudited) -- -- -- -- -- -- -- (3,510,291)
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2003 250,000 $ 2,500 500,000 $ 5,000 7,564,671 $ 75,647 $ 6,859,239 $(7,456,455)
========= ========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
8
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,510,291) $ (38,769)
Adjustments to reconcile net loss to net cash
used by operations:
Depreciation expense 151 --
Common stock issued for services 2,485,000 25,000
Common stock issued as incentive for financing 24,000 --
Warrants issued for services 640,601 --
Changes in assets and liabilities:
(Increase) decrease in stockholders interest receivable -- (19,761)
(Increase) decrease in escrow receivable -- 25,000
(Increase) decrease in prepaid expenses and deposits (279) 1,744
(Increase) in construction in progress (41,962) --
Increase in accounts payable 96,519 --
Increase (decrease) in accrued expenses 149,885 (20,350)
----------- -----------
Net Cash Used by Operating Activities (156,376) (27,136)
----------- -----------
CASH FLOWS FORM INVESTING ACTIVITIES
Expenditures for the purchase of equipment (1,008) --
Investment in related party joint venture (11,180) --
Preferred stock issued in acquisition of Kina Ole Development Corp. 20,000
Cash acquired in acquisition of Kina Ole Development Corp. 27,847 --
----------- -----------
Net Cash Provide by Investing Activities 35,659 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from officers 56,167 --
Repayments of related party advances (13,416) --
Proceeds from related party loans 50,000 --
Proceeds from note payable 25,848 --
----------- -----------
Net Cash Provided by Financing Activities 118,599 --
----------- -----------
NET DECREASE IN CASH (2,118) (27,136)
CASH AT BEGINNING OF PERIOD 4,619 27,799
----------- -----------
CASH AT END OF PERIOD $ 2,501 $ 663
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
9
TMI HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
June 30,
2003 2002
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
CASH PAID FOR:
Interest $ -- $ --
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for services $ 2,485,000 $ 25,000
Common stock issued as incentive for financing $ 24,000 $ --
Common stock issued for accounts payable $ 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.
10
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. 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 in accordance with such rules and regulations. The
information furnished in the interim consolidated financial statements include
normal recurring adjustments and reflects all adjustments, which, in the opinion
of management, are necessary for a fair presentation of such financial
statements. Although management believes the disclosures and information
presented are adequate to make the information not misleading, it is suggested
that these interim consolidated financial statements be read in conjunction with
the Company's most recent audited financial statements and notes thereto
included in its December 29, 2002 Annual Report on Form 10-KSB. Operating
results for the six months ended June 30, 2003 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2003.
NOTE 2 - ACQUISITION OF KINA'OLE DEVELOPMENT CORPORATION
On January 31, 2003, the Company acquired 100% of the outstanding common stock
of Kina'ole Development Corporation, a Hawaii corporation ("Kina'ole"), in
exchange for 500,000 shares of the Company's Series B Convertible Preferred
Stock. Kina'ole is located in Lihue, Hawaii, and through arrangements with
dealerships on each Hawaiian island, Kina'ole plans to sell manufactured homes
to retail customers. The Company acquired the Kina'ole shares from Michael
Sessions and John Meyers, who, at the time of the acquisition, were officers and
directors of the Company. The 500,000 shares of Series B Preferred Stock where
considered to have no value based on the fair value of the net assets of
Kina'ole at the acquisition date. The combination was accounted for as a
purchase, with the results of operations of Kina'ole included in the Company's
consolidated statement of operations from the date of acquisition.
The following unaudited condensed proforma consolidated statement of operations
has been prepared by management. This proforma statement may not be indicative
of the results that actually would have occurred if the consolidation had been
in effect on the dates indicated or which may be obtained in the future.
Kina'ole began operating during June 2002. The information below assumes the
acquisition occurred as of December 30, 2002.
11
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
Proforma Consolidated Financial
Information
For the six month period ended
June 30, 2003
Sales $ --
------------------
Gross Profit $ --
------------------
Net Loss $ (3,569,295)
------------------
Net Loss Per Common Share $ (2.43)
------------------
NOTE 3 - RELATED PARTY TRANSACTIONS
During the period ended December 29, 2002, officers of the Company's
wholly-owned subsidiary, Kina'Ole, and significant shareholders of the Company
advanced Kina'Ole $50,144 in cash and property. The advances are expected to be
repaid upon the completion and sale of certain projects under construction,
which is expected to be within the next twelve months. As the advances are
short-term in nature, no interest is being charged or accrued.
During the period ended December 29, 2002, the Company's wholly-owned
subsidiary, Kina'Ole, entered into a joint venture agreement with a close
relative of an officer and significant shareholder of the Company. The joint
venture agreement provided for the construction of one home on land that had
been contributed to the joint venture by the related party. As of June 30, 2003,
and December 29, 2002, the Company's investment in the related party joint
venture was $107,850 and -0-, respectively.
During the fourth quarter of fiscal 2002, the Company's then-majority
stockholder and CEO, Marc Douglas, entered into a Stock Purchase Agreement
pursuant to which Douglas agreed to sell, through a series of transactions, all
250,000 shares of the Company's Series A Preferred Stock owned by him. The
shares were sold to Michael Sessions and John Meyers in exchange for a $150,000
note payable. In conjunction with the sale of the Douglas Preferred Stock, the
then-current directors of the Company resigned from the Board and Michael
Sessions and John Meyers were appointed to the Board. In addition, Michael
Sessions was appointed to serve as the Company's CEO and Secretary and John
Meyers was appointed to serve as the Company's COO and Treasurer.
On January 31, 2003, the Company acquired 100% of the outstanding common stock
of Kina'ole Development Corporation, a Hawaii corporation ("Kina'ole"), in
exchange for 500,000 shares of the Company's Series B Convertible Preferred
Stock. The Company
12
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
acquired the Kina'ole shares from Michael Sessions and John Meyers, who, at the
time of the acquisition, were officers and directors of the Company.
On February 21, 2003, the Company entered into a Stock Purchase Agreement with
its then-current directors, Michael Sessions and John Meyers, and Scott Siegel,
whereby the Company agreed to issue 1,050,000 shares of common stock to Mr.
Siegel, and Michael Sessions and John Meyers transferred 250,000 personally held
shares of Series A Preferred Stock to Mr. Siegel, all in exchange for the
payment of approximately $72,500 in outstanding Company liabilities and $150,000
for outstanding personal liabilities owed by Michael Sessions and John Meyers to
Marc Douglas. On March 5, 2003, Sessions and Meyers resigned as directors of the
Company and Mr. Siegel, who was not a related party to the Company at the time
of the transaction, became a director of the Company and was appointed as CEO.
Mr. Siegel resigned from these positions on July 14, 2003.
On March 5, 2003, 250,000 shares of common stock were issued to a Richard Dwyer
for services performed pursuant to a verbal consulting agreement. Professional
services expense amounting to $375,000 was recorded in the consolidated
statement of operations for the six month period ended June 30, 2003 related to
this transaction based on the market price of the common stock on the date of
issuance. At the time time of the transaction, Mr. Dwyer was not a member of the
Board of Directors, an officer of the Company, or a significant shareholder. On
August 21, 2003, Mr. Dwyer was appointed as CEO of the Company.
On May 9, 2003, the Company borrowed $20,000 from an individual. There was no
formal note related to the borrowing. On June 17, 2003, the Company repaid the
advance through the issuance of 55,556 shares of common stock valued at the
current trading price of $0.36 per share. In addition to the repayment of the
advance, the Company also issued 2,944,444 shares of common stock to the same
individual for consulting services rendered pursuant to a verbal consulting
agreement. Professional services expense amounting to $1,060,000 was recorded in
the consolidated statement of operations for the six month period ended June 30,
2003 related to this transaction based on the market price of the common stock
on the date of issuance. As a result of these transactions, the individual owns
a significant portion of the Company's outstanding common stock, and as such, is
considered to be a related party.
On June 13, 2003, the Company borrowed $30,000 from Dr. Martin Peskin in the
form of a note payable, which bears interest at 8%per annum. Principal and
interest on the note was due and payable in one lump sum on the maturity date of
June 30, 2003. The proceeds of the note were used for working capital purposes.
On June 17, 2003, the Company repaid the note through the issuance of 83,833
shares of common stock valued at the current trading price of $0.36 per share.
In addition to the repayment of the note, TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements June 30, 2003 and December 29,
2002
13
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
the Company also issued 2,916,667 shares of common stock to the same individual
for consulting services rendered pursuant to a verbal consulting agreement.
Professional services expense amounting to $1,050,000 was recorded in the
consolidated statement of operations for the six month period ended June 30,
2003 related to this transaction based on the market price of the common stock
on the date of issuance. As a result of these transactions, the individual owns
a significant portion of the Company's outstanding common stock, and as such, is
considered to be a related party. Dr. Peskin was appointed as the Company's CEO
on July 14, 2003, and resigned from this position on August 21, 2003.
On June 19, 2003, the Company entered into consulting agreements with, Richard
Dwyer and his brother, Mathew Dwyer. The consulting agreements provide for
strategic planning services, and services relating to the identification,
evaluation, structuring, negotiation, and closing of business acquisitions, and
have a term of six months. In exchange for their services, the Company issued
warrants to purchase 2,500,000 shares of common stock. The warrants have an
exercise price of $0.03 per share and expire one year from the date of issuance.
Of the 2,500,000 warrants, 1,800,000 were exercisable immediately. The balance,
warrants to purchase 700,000 shares of common stock, will vest on October 1,
2003. Based on an exercise price of $0.03 per share, a current trading price of
$0.36 per share, volatility of 397.8%, and a risk free interest rate of 3.45%,
the warrants have a fair value of $0.36 per share, or $889,724 in total. Richard
Dwyer was appointed as CEO of the Company on August 21, 2003. As such, his
consulting agreement was terminated, and the entire value of the warrants issued
to him were expensed in the current period. Professional services expense
amounting to $640,601 was recorded in the consolidated statement of operations
for the six month period ended June 30, 2003 related to these transactions. The
balance, of $249,123 will be recorded as expense in the third quarter as the
term of Mathew Dwyer's agreement expires and his warrants fully vest. Due to
Richard Dwyer's appointment as CEO, and his relationship to Mathew Dwyer, both
are considered to be related parties.
During the six months ended June 30, 2003 officers of the Company's wholly-owned
subsidiary, Kina'Ole, and significant shareholders of the Company advanced the
Kina'Ole $52,887 in cash. The advances are expected to be repaid upon the
completion and sale of certain projects under construction, which is expected to
be within the next twelve months. As the advances are short-term in nature, no
interest is being charged or accrued.
During the six months ended June 30, 2003, the Company paid $13,416 to officers
and significant shareholders as repayment for previously advanced cash.
14
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
NOTE 4 - OTHER SIGNIFICANT EVENTS
STOCK SPLIT
Effective January 27, 2003, the Company's Board of Directors approved a 1 for 10
reverse split of the Company's issued and outstanding common stock as well as a
1 for 10 reverse split of the number of authorized shares of common stock. As a
result of the splitting of the issued and outstanding and authorized shares, the
par value of the Company's stock was inversely increased by the same ratio, from
$0.01 per share to $0.10 per share. The effect of the reverse stock split has
been retroactively reflected in the consolidated financial statements for all
periods presented.
INCREASE IN THE NUMBER OF AUTHORIZED COMMON SHARES OUTSTANDING
On May 2, 2003, the Company's Board of Directors approved an amendment to the
Company's articles of incorporation that increased the authorized number of
common shares outstanding from 1,500,000 to 30,000,000. The amendment also
decreased the par value of the Company's common stock from $0.10 to $0.01, the
pre-split and historical par value. The effect of the decrease in par value has
been retroactively reflected in the consolidated financial statements for all
periods presented.
During the second quarter, the Company determined that, due to an error in the
interpretation of the series of events as described above, including the reverse
stock split and the change in par value of the common stock, the disclosures
relating to these items had been misstated in the December 29, 2002, audited
consolidated financial statements, and in the March 30, 2003, quarterly
consolidated financial statements. The effect of these misstatements was limited
to a reclassification between the dollar value of common stock, and additional
paid-in capital in the December 29, 2002, financial statements, and a
misstatement of the number of authorized shares in the March 30, 2003, quarterly
financial statements. These amounts have been reclassified to reflect the
correct balances and figures as of June 30, 2003.
DEBT ISSUANCES
On April 29, 2003, the Company borrowed $5,000 in the form of a note payable
which bears interest at 8%. Principal and interest on the Note is due and
payable in one lump sum on the maturity date of August 15, 2003. The proceeds of
the Note are being used for working capital purposes. In connection with the
note, the Company issued 50,000 shares of its common stock to the holder as
inducement to provide financing. The shares were valued at the trading price of
the common stock as of the date of the note. Interest expense amounting to
$15,000 was recorded in the consolidated statement of operations for the six
month period ended June 30, 2003 related to this transaction.
15
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
On June 4, 2003, the Company borrowed $15,000 in the form of a note payable
which bears interest at 8%. Principal and interest on the Note is due and
payable in one lump sum on the maturity date of August 4, 2003. The proceeds of
the Note are being used for working capital purposes. In connection with the
note, the Company issued 25,000 shares of its common stock to the holder as
inducement to provide financing. The shares were valued at the trading price of
the common stock as of the date of the note. Interest expense amounting to
$9,000 was recorded in the consolidated statement of operations for the six
month period ended June 30, 2003 related to this transaction.
LETTER OF INTENT
On June 27, 2003, the Company entered into a letter of intent with Total
Identity Systems Corporation ("TISC"), whereby the Company agreed to purchase
60% ownership interest in TISC in exchange for $1,000,000 in cash. The first two
installments of $100,000, and $250,000 were scheduled to be made on July 25,
2003, and August 15, 2003, respectively. Neither of these payments have been
made, and no other consummating transactions or events have occurred, as of
September 8, 2003.
NOTE 5 - CONTINGENCIES
On June 9, 2003, the Company received notification of a potential lawsuit
against the Company, Scott Siegel, Michael Sessions, John Meyers, and Matthew
Dwyer by Mr. Marc Douglas, a former officer and director of the Company. Mr.
Dwyer is a current officer and director of the Company; Mr. Siegel, Mr.
Sessions, and Mr. Meyers are former officers and directors of the Company.
According to the written notice, Mr. Douglas is alleging that: i) the Company
wrongfully cancelled and wrote off a consulting agreement Mr. Douglas had with
the Company, causing damages to Mr. Douglas in the amount of $160,000; and ii)
that Mr. Dwyer breached his obligations under a promissory note which was
secured by the 250,000 shares of the Company's Series A Convertible Preferred
Stock, and has caused Mr. Douglas damages in excess of $157,000. The Company has
not had an opportunity to fully evaluate the merits of Mr. Douglas' claims. If
Mr. Douglas files a lawsuit, the Company intends to vigorously defend itself
against these claims. Mr. Douglas is also seeking the 250,000 shares of the
Company's Series A Convertible Preferred Stock, which is not held by the
Company, as a result of Mr. Dwyer's alleged breach of the promissory note. If
Mr. Douglas is successful in his claims, he could potentially acquire the
250,000 shares of the Company's Series A Convertible Preferred Stock, which
could result in a change of control of the Company.
On June 12, 2003, the Company received notification of a potential lawsuit
against the Company, Scott Siegel, Neil Dolgin, W. Michael Sessions, and John W.
Meyers by Richard A. Weiner and his family members ("Weiner Group"). The Weiner
Group alleges they are shareholders of the Company. According to the written
notice, the Weiner Group is alleging that: i) the Company's 1-for10 reverse
stock split, effective
16
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
NOTE 5 - CONTINGENCIES (Continued)
January 27, 2003, was not done in accordance with Florida corporate law; and ii)
there has been unlawful manipulation of the Company's stock. The Weiner Group
claims the alleged wrongful reverse stock split and the alleged manipulation of
the Company's stock have caused them damages in excess of $1,000,000. The Weiner
Group is threatening to sue the Company for these alleged wrongful acts. The
Company has not had an opportunity to fully evaluate the merits of the Weiner
Group's claims. However, if the Weiner Group elects to file a lawsuit, the
Company intends to vigorously defend itself against these claims.
NOTE 6 - GOING CONCERN
The Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation 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 ability of the
Company to continue as a going concern is dependent on the Company obtaining
adequate capital to fund operating losses until it becomes profitable. If the
Company is unable to obtain adequate capital, it could be forced to cease
operations.
The Company's current plans going forward are to divest Kina'ole and pursue the
acquisition of undervalued and/or unused manufacturing assets. The Company has
identified a number of opportunities, and is in very early discussions with
potential acquisition candidates, but has not agreed to terms or entered into a
binding letter of intent or similar agreement with any acquisition candidates.
Management believes that, based upon the current operating plan of divesting the
majority of the Company's ownership of Kina'ole and pursuing the acquisition of
undervalued and/or unused manufacturing assets, the Company's existing working
capital will not be sufficient to fund its acquisition activities and the
ongoing expenses of a reporting company through December 28, 2003. If the
Company is not successful in identifying and acquiring undervalued and/or unused
manufacturing assets which produce positive cash flows from operations, 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 ownership of the Company's then-current 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. Management cannot provide any assurances that the Company will be
successful in accomplishing any of its plans.
17
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
NOTE 7 -SUBSEQUENT EVENTS
EXERCISE OF WARRANTS BY RELATED PARTIES
On July 1, 2003, Richard Dwyer and Mathew Dwyer exercised warrants to purchase
1,600,000 shares of common stock in exchange for $48,000 in cash.
CONSULTING AGREEMENT
On August 18, 2003, the Company entered into a consulting agreement whereby the
Company agreed to pay a $15,000 cash advisory fee in exchange for consulting
services relating to the acquisition of target companies and the pursuit of
capital funding. If the consulting firm successfully negotiates a business
combination, a success fee of $75,000, or 6.0% of the transaction amount,
whichever is greater, will be payable upon the first closing. If the consulting
firm successfully negotiates a capital funding, a success fee of $75,000 or a
percentage of the raised capital (from 1.0% to 7.0% depending on the type of
financing obtained), whichever is greater, will be payable upon the first
closing.
MARKETING AGREEMENT
On August 26, 2003, the Company entered into a marketing agreement whereby the
Company agreed to pay $7,500 in cash in exchange for marketing and investor
relations services to be provided over three months.
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 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.
OVERVIEW
As a result of the sale of its business units that was completed on August 27,
2001, the Company had no subsidiaries or active business operations during the
year ended December 29, 2002 and for the period ended January 31, 2003.
Accordingly, the accompanying consolidated Statement of Operations for the three
months ended June 29, 2003 and the accompanying Statement of Operations for the
three months ended June 30, 2002 reflect none of the Company's former business
operations.
18
TMI HOLDINGS, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 2003 and December 31, 2002
On January 31, 2003, the Company acquired 100% of the outstanding stock of
Kina'ole Development Corporation, a Hawaii corporation ("Kina'ole"). Kina'ole is
located in Lihue, Hawaii, and through arrangements with dealerships on each
Hawaiian island, Kina'ole plans to sell manufactured homes to retail customers.
The Company acquired the Kina'ole shares from Sessions and Meyers, both of whom
were officers and directors of the Company at the time of the transaction. In
exchange for Kina'ole's shares, the Company issued Sessions and Meyers each
250,000 shares of the Company's Series B Convertible Preferred Stock.
Accordingly, the Company's consolidated financial statements and the following
discussion contain the results of operations of Kina'ole from January 31, 2003.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Our independent auditors have issued their report dated May 23, 2003 with an
explanatory paragraph stating that the audited financial statements of the
Company for the fiscal year ending December 29, 2002 have been prepared assuming
the Company will continue as a going concern.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States for interim period information. The preparation of these
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses
and related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, including those related to:
valuation of investments in joint ventures, valuation of construction in
process, revenue recognition, and deferred tax assets. We base our estimates on
our limited historical experience and on various other assumptions that we
believe reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We have identified the following policies as critical to our business operations
and the understanding of our results of operations.
Valuation of Investment in Related Party Joint Venture:
The Company has an investment in a related party joint venture. Management
periodically evaluates the adequacy of the underlying assets of the joint
venture. When management estimates the proceeds from the sale of such assets are
not adequate a reserve is recorded. Based on its estimates, Management has not
recorded an impairment charge related to this asset for the three months ended
June 30, 2003.
19
Valuation of Construction in Process
The Company evaluates the carrying value of its investment in construction in
process for impairment whenever there is an impairment indicator, generally
using an undiscounted cash flow methodology. During the three months ended June
30, 2003, no impairment in the carrying value of the Company's construction in
process was indicated.
Revenue Recognition
The Company has entered into certain fixed price and modified fixed-price
contracts for the construction of manufactured homes. Revenue is recognized on
these contracts using the full accrual method of accounting. Under this method,
reasonable estimates of the costs applicable to the various stages of a contract
are made. Should estimates indicate a loss is expected to be incurred under a
specific contract, cost of sales is charged with a provision for such loss in
the period in which such loss is determined.
THREE MONTHS ENDED JUNE 30, 2003
Revenues
The Company had no business operations during the fiscal year ended December 29,
2002 and there were no revenues for the three months ended June 30, 2003 and
June 30, 2002, respectively.
Expenses
General and administrative expenses decreased $34,949 from $50,228 in the second
quarter of fiscal 2002 to $15,279 in the second quarter of fiscal 2003. Total
Expenses increased from $50,228 for the three months ended June 30, 2002 to
$2,983,051 for the three months ended June 30, 2003. The Total Expenses for the
three months ended June 30, 2003 included $15,279 in general and administrative
expenses, $45,000 salaries and wages and $2,922,722 which consisted of
professional fees and other consulting costs associated with the Company's
acquisition efforts.
Net Losses
Net losses for the three-month period ended June 30, 2003 were $3,007,181 as
compared to $25,313 for the three-month period ended June 30, 2002. The higher
net loss figure for the three-months ended June 30, 2003 as compared to the same
period last year is a result of the increase in operating expenses discussed
above partially offset by $24,915 of interest income recorded during the three
months ended June 30, 2002.
20
The basic and diluted loss per share for the quarter ended June 30, 2003, based
on a weighted average number of shares of 2,363,560 was $1.27 per share,
compared with the basic and diluted loss per share of $0.08 based on a weighted
average number of shares of 325,555 for the quarter ended June 30, 2002.
SIX MONTHS ENDED JUNE 30, 2003
Revenues
The Company had no business operations during the fiscal year ended December 29,
2002 and there were no revenues for the six months ended June 30, 2003 and June
30, 2002, respectively.
Expenses
General and administrative expenses decreased $33,555 from $88,357 in the first
six months of fiscal 2002 to $54,802 in the second quarter of fiscal 2003. Total
Expenses increased from $88,357 for the six months ended June 30, 2002 to
$3,486,161 for the six months ended June 30, 2003. The Total Expenses for the
six months ended June 29, 2003 included $54,802 in operating expenses, $75,000
salaries and wages and $3,356,359 which consisted of professional fees and other
consulting costs associated with the Company's acquisition efforts.
Net Losses
Net losses for the six-month period ended June 30, 2003 were $3,510,291 as
compared to $38,769 for the six-month period ended June 30, 2002. The higher net
loss figure for the six-months ended June 30, 2003 as compared to the same
period last year is a result of the increase in general and administrative
expenses discussed above partially offset by $49,588 of interest income recorded
during the six months ended June 30, 2002.
The basic and diluted loss per share for the six months ended June 29, 2003,
based on a weighted average number of shares of 1,469,643 was $2.39 per share,
compared with the basic and diluted loss per share of $0.12 based on a weighted
average number of shares of 316,626 for the six months ended June 30, 2002.
Liquidity and Capital Requirements
As of June 30, 2003, the Company had total current assets totaling $639,717
consisting of cash and cash equivalents of $2,501, an investment in a related
party joint venture of $107,850 and construction in progress of $525,866. The
Company's total assets as of June 30, 2003 amounted to $643,557, consisting
primarily of its total current assets.
21
The Company's total liabilities were $1,157,626 as of June 30, 2003, all of
which are current, and stockholders' deficit amounted to $514,069.
As of June 30, 2003, the Company has ($517,909) of negative working capital and
is illiquid. The Company has also suffered recurring losses from operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
Management believes that, based upon the current operating plan of divesting the
majority of the Company's ownership of Kina'ole and pursuing the acquisition of
undervalued and/or unused manufacturing assets, the Company's existing working
capital will not be sufficient to fund its acquisition activities and the
ongoing expenses of a reporting company through December 31, 2003. If the
Company is not successful in identifying and acquiring undervalued and/or unused
manufacturing assets which produce positive cash flows from operations, 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 identify and acquire
undervalued and/or unused manufacturing assets which produce positive cash flows
from operations or raise any additional capital necessary to achieve its current
operating plan.
ITEM 3 CONTROLS 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-14(c) and
15d-14(c) 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.
22
PART II
ITEM 1 LEGAL PROCEEDINGS
Marc Douglas Threatened Litigation
On June 17, 2003, the Company was served with a lawsuit from Marc Douglas
against the Company, Scott Siegel, W. Michael Sessions, John W. Meyers, and
Matthew Dwyer by Mr. Marc Douglas, a former officer and director of the Company.
Mr. Siegel is a current director of the Company; Mr. Sessions and Mr. Meyers are
former officers and directors of the Company and current officers and directors
of the Company's subsidiary. According to the written notice, Mr. Douglas is
alleging that: i) the Company wrongfully cancelled and wrote off a consulting
agreement Mr. Douglas had with the Company, causing damages to Mr. Douglas in
the amount of $160,000; and ii) that Mr. Matt Dwyer, a former owner of 250,000
shares of the Company's Series A Convertible Preferred Stock, breached his
obligations under a promissory note which was secured by the 250,000 shares of
the Company's Series A Convertible Preferred Stock, and has caused Mr. Douglas
damages in excess of $157,000.
Mr. Douglas is suing the Company for damages as a result of the Company's
alleged cancellation of the consulting agreement. The Company intends to
vigorously defend itself against these claims. Mr. Douglas is also seeking the
250,000 shares of the Company's Series A Convertible Preferred Stock, which is
not held by the Company, as a result of Mr. Dwyer's alleged breach of the
promissory note.
On July 2, 2003 Marc Douglas obtained an emergency hearing to seek an Injunction
or force the Company into Receivership. The Court granted a Temporary Injunction
against the Company from issuing any additional securities, creating any new
class of securities, preventing Scott Siegel from transferring, selling, or
voting the 250,000 shares of series "A" shares or Preferred Stock. The Company
is filing the necessary documents to obtain a hearing to remove the Injunction
and believes it will be successful in having the Injunction lifted and removed
from the lawsuit all together.
Richard A. Weiner Threatened Litigation
On June 12, 2003, the Company received notification of a potential lawsuit
against the Company, Scott Siegel, Neil Dolgin, W. Michael Sessions, and John W.
Meyers by Richard A. Weiner and his family members ("Weiner Group"). The Weiner
Group alleges they are shareholders of the Company. According to the written
notice, the Weiner Group is alleging that: i) the Company's 1-for10 reverse
stock split, effective January 27, 2003, was not done in accordance with Florida
corporate law; and ii) there has been unlawful manipulation of the Company's
stock. The Weiner Group claims the alleged wrongful reverse stock split and the
alleged manipulation of the Company's stock have caused them damages in excess
of $1,000,000.
The Weiner Group is threatening to sue the Company for these alleged wrongful
acts. The Company has not had an opportunity to fully evaluate the merits of the
Weiner Group's claims. However, if the Weiner Group elects to file a lawsuit,
the Company intends to vigorously defend itself against these claims.
23
General Matters
The Company is from time to time involved in other various pending or threatened
legal actions. 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
During the second fiscal quarter, the Company issued the following securities:
(A) On March 5, 2003, 250,000 shares of common stock were issued to a
Richard Dwyer for services performed pursuant to a verbal consulting
agreement. Professional services expense amounting to $375,000 was
recorded in the consolidated statement of operations for the six month
period ended June 30, 2003 related to this transaction based on the
market price of the common stock on the date of issuance. At the time
of the transaction, Mr. Dwyer was not a member of the Board of
Directors, an officer of the Company, or a significant shareholder. On
August 21, 2003, Mr. Dwyer was appointed as CEO of the Company.
(B) On May 9, 2003, the Company borrowed $20,000 from an individual. There
was no formal note related to the borrowing. On June 17, 2003, the
Company repaid the advance through the issuance of 55,556 shares of
common stock valued at the current trading price of $0.36 per share. In
addition to the repayment of the advance, the Company also issued
2,944,444 shares of common stock to the same individual for consulting
services rendered pursuant to a verbal consulting agreement.
Professional services expense amounting to $1,060,000 was recorded in
the consolidated statement of operations for the six month period ended
June 30, 2003 related to this transaction based on the market price of
the common stock on the date of issuance. As a result of these
transactions, the individual owns a significant portion of the
Company's outstanding common stock, and as such, is considered to be a
related party.
(C) On June 13, 2003, the Company borrowed $30,000 from Dr. Martin Peskin
in the form of a note payable, which bears interest at 8%per annum.
Principal and interest on the note was due and payable in one lump sum
on the maturity date of June 30, 2003. The proceeds of the note were
used for working capital purposes. On June 17, 2003, the Company repaid
the note through the issuance of 83,833 shares of common stock valued
at the current trading price of $0.36 per share. In addition to the
repayment of the note, the Company also issued 2,916,667 shares of
common stock to the same individual for consulting services rendered
pursuant to a verbal consulting agreement. Professional services
expense amounting to $1,050,000 was recorded in the consolidated
statement of operations for the six month period ended June 30, 2003
related to this transaction based on the market
24
price of the common stock on the date of issuance. As a result of these
transactions, the individual owns a significant portion of the
Company's outstanding common stock, and as such, is considered to be a
related party. Dr. Peskin was appointed as the Company's CEO on July
14, 2003, and resigned from this position on August 21, 2003.
(D) On June 19, 2003, the Company entered into consulting agreements with,
Richard Dwyer and his brother, Mathew Dwyer. The consulting agreements
provide for strategic planning services, and services relating to the
identification, evaluation, structuring, negotiation, and closing of
business acquisitions, and have a term of six months. In exchange for
their services, the Company issued warrants to purchase 2,500,000
shares of common stock. The warrants have an exercise price of $0.03
per share and expire one year from the date of issuance. Of the
2,500,000 warrants, 1,800,000 were exercisable immediately. The
balance, warrants to purchase 700,000 shares of common stock, will vest
on October 1, 2003.
(E) On April 29, 2003, the Company borrowed $5,000 in the form of a note
payable which bears interest at 8%. Principal and interest on the Note
is due and payable in one lump sum on the maturity date of August 15,
2003. The proceeds of the Note are being used for working capital
purposes. In connection with the note, the Company issued 50,000 shares
of its common stock to the holder as inducement to provide financing.
The shares were valued at the trading price of the common stock as of
the date of the note. Interest expense amounting to $15,000 was
recorded in the consolidated statement of operations for the six month
period ended June 30, 2003 related to this transaction.
(F) On June 4, 2003, the Company borrowed $15,000 in the form of a note
payable which bears interest at 8%. Principal and interest on the Note
is due and payable in one lump sum on the maturity date of August 4,
2003. The proceeds of the Note are being used for working capital
purposes. In connection with the note, the Company issued 25,000 shares
of its common stock to the holder as inducement to provide financing.
The shares were valued at the trading price of the common stock as of
the date of the note. Interest expense amounting to $9,000 was recorded
in the consolidated statement of operations for the six month period
ended June 30, 2003 related to this transaction.
(G) The Company issued 50,000 shares to Mr. Scott Siegel representing the
balance of the shares that were to be issued to Mr. Siegel in exchange
for his subscription of $72,500, of which $41,000 has previously been
paid.
All of these transactions were exempt under Section 4(2) of the Securities Act
of 1933 based on the accredited status of the purchasers or pursuant to an
exchange exempt under Section 3(a)(9) of the Securities Act of 1933.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
There have been no events which are required to be reported under this Item.
25
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2003, the Company filed a PRE 14C Proxy Statement on May 20, 2003 the
Company filed a DEF 14C then a DEFR 14C on June 12, 2003. The Proxy notice was
for the NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 10, 2003
9:00 AM, Pacific Standard Time, at the Courtyard Marriott located at 620 North
University Drive, Coral Springs, Florida 33071, to consider and act upon the
following proposals, as described in the accompanying Information Statement:
1. To elect three (3) directors to serve until the next Annual Meeting of
Shareholders and thereafter until their successors are elected and qualified;
2. To amend the Articles of Incorporation of the Company to effectuate an
increase in the number of shares of the Company's authorized common stock to 30
million shares;
3. To adopt the Second Restated Articles of Incorporation for the purpose
of consolidating previous amendments to the Company's Articles of Incorporation;
4. To approve the TMI Holdings, Inc. 2003 Qualified Securities Plan;
5. To ratify the TMI Holdings, Inc. 2003 Non-Qualified Securities Plan;
6. To approve the Second Restated Bylaws of TMI Holdings, Inc.;
7. To ratify the appointment of Berkowitz Dick Pollack & Brant LLP,
Certified Public Accountants, as independent auditors of the Company for the
fiscal year ending December 31, 2003; and
8. To transact such other business as may properly come before the meeting
or any adjournments thereof.
All the above listed items were approved and ratified by the Board on the 17th
of June, 2003 after the shareholders meeting.
ITEM 5 OTHER INFORMATION
In July 2003, the Board appointed and elected Dr. Martin Peskin as a member of
the Board of Directors following the resignation of Mr. Scott Siegel. Mr. Siegel
remained as a member of the Board of Directors. In August 2003, Mr. Richard R.
Dwyer was elected as CEO/President of the Company.
On June 27, 2003, the Company entered into a Letter of Intent to acquire Total
Identity Group, Inc.
26
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 99.1 Certification Pursuant to 18 U.S.C., Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
(b) On June 17, 2003 the Company entered into consulting agreements with Richard
Dwyer for Marketing and with Matthew P. Dwyer for Mergers & Acquisitions. The
agreements are for a 6 months period with an option for the Company to extend
them an additional 6 months.
Reports on Form 8-K
(c) On January 9, 2003, the Company filed a Current Report on Form 8-K regarding
a series of transactions resulting in a change in control of the Company from
Mr. Marc Douglas to Mr. Michael Session and Mr. John W. Meyers.
On February 11, 2003, the Company filed a Report on Form 8-K regarding the
Company's acquisition of 100% of the outstanding stock of Kina'ole Development
Corp. In this Form 8-K the Company stated it would be filing a subsequent Report
on Form 8-K, which would include audited historical and pro forma financial
statements for Kina'ole. The Company filed the amended Form 8-K with the audited
historical and pro forma financial statement for Kina'ole on June 11, 2003.
(d) On February 21, 2003, the Company entered into a Stock Purchase Agreement
with Mr. Sessions, Mr. Meyers, and Mr. Scott Siegel, whereby the Company agreed
to issue 1,050,000 shares of common stock (1,000,000 has been issued to date) to
Mr. Siegel, and Mr. Sessions and Mr. Meyers transferred a total of 250,000
shares of Series A Preferred Stock to Mr. Siegel, all in exchange for Mr. Siegel
agreeing to pay approximately $72,500 in outstanding Company liabilities and
$150,000 for outstanding amounts owed by Mr. Sessions and Mr. Meyers to Marc
Douglas. On March 5, 2003, Mr. Sessions and Mr. Meyers resigned as directors of
the Company and Mr. Siegel, who was not a related party to the Company at the
time of the February 21, 2003 transaction, became an officer and director of the
Company on March 5, 2003.
ITEM 7 SUBSEQUENT EVENTS
(a) On July 1, 2003 the Company filed an S8 Registration for 6 million shares of
stock to be issued under Statutory and Non-Statutory Stock Option plans.
27
The Plans effective May 2, 2003, to provide us with flexibility and to conserve
our cash resources in compensating certain of our technical, administrative and
professional employees and consultants, constitute the first prospectus relating
to issuances to our employees, consultants and others of up to 2,640,000 shares
of common stock pursuant to our 2003 Qualified Securities Plan and 2003
Non-Qualified Securities Plan (the "Plans").
(b) On July 14, 2003 the Board Elected Martin Peskin as a member of the Board
and temporary CEO/President at the same Scott Siegel resigned as CEO/President
but remained a Board member.
(c) On August 19, 2003 the Company filed a Current Report on Form 8-K regarding
a change in auditors. The Company terminated its relationship with Berkowitz
Dick Pollack and Brant and retained HJ & Associates, LLP as their new auditors.
(d) On August 19, 2003 the Company entered into an investment banking agreement
with Argilus, LLC.
(e) On August 21, 2003 the Board of TMI accepted the resignation of Martin
Peskin as CEO/President and appointed Richard R. Dwyer, JR as the new
CEO/President, Mr. Peskin remains a member of the Board.
28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TMI Holdings, Inc.
Dated: September 9, 2003
By: /s/ Richard Dwyer
- --------------------------
Its: Chief Executive Officer,
Chief Financial Officer and Secretary
Dated: September 9, 2003
By: /s/ Martin Peskin
- --------------------------
Its: Director
29
CERTIFICATION
OF CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER
I, Richard Dwyer, Chief Executive Officer and Chief Financial Officer
of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TMI Holdings, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rule 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons fulfilling the equivalent
functions):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(ii) any fraud, whether or not material, that involves management or
other employees who have a significant role in the issuer's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: September 9, 2003
/s/ Richard Dwyer
-------------------------------
Chief Executive Officer and
Chief Financial Officer
30