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 SEPTEMBER 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from July 1, 2003 to September 30, 2003.
000-30011
COMMISSION FILE NUMBER
TOTAL IDENTITY CORP.
(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 September 30, 2003, there were
9,164,671 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes [ ] No [X]
TMI
HOLDINGS, INC.
TABLE OF CONTENTS
PART I
Item 1 Consolidated Financial Statements 3
Consolidated Balance Sheet as of September 30, 2003 (unaudited) 3
Consolidated Statements of Operations for the Three Months Ended
September 30, 2003 and September 30, 2002 (unaudited) 5
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 2003 and September 30, 2002 (unaudited) 9
Notes to Consolidated Financial Statements (unaudited) 11
Item 2 Management's Discussion and Analysis of Financial 21
Condition or Plan of Operations
Item 3 Controls and Procedures 24
PART II
Item 1 Legal Proceedings 24
Item 2 Changes in Securities and Use of Proceeds 25
Item 3 Defaults Upon Senior Securities 26
Item 4 Submission of Matters to a Vote of Security Holders 26
Item 5 Other Information 27
Item 6 Exhibits and Reports on Form 8-K 27
Item 7 Subsequent Events 28
The accompanying notes are an integral part of these consolidated financial
statements.
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.
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Balance Sheets
ASSETS
September 30, December 29,
2003 2002
------------ --------
(Unaudited)
CURRENT ASSETS
Cash $ -- $ 4,619
Prepaid expenses -- 3,222
------------ --------
Total Current Assets -- 7,841
------------ --------
TOTAL ASSETS $ -- $ 7,841
============ ========
The accompanying notes are an integral part of these consolidated
financial statements.
3
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 29,
2003 2002
----------- -----------
(Unaudited)
CURRENT LIABILITIES
Bank overdraft $ 11,789 $ --
Accounts payable 72,344 --
Accrued expenses 498,472 98,944
Accrued settlement payable 165,000
Related party loans 35,106 --
Accrued interest payable 130 --
Notes payable 4,715 --
----------- -----------
Total Current Liabilities 787,556 98,944
----------- -----------
Total Liabilities 787,556 98,944
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, Series "A" $0.01 par value,
1,500,000 shares authorized; 250,000 shares
issued and outstanding 2,500 2,500
Preferred stock, Series "B" $0.01 par value,
500,000 shares authorized; -0- issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized; 9,164,671 and 189,671 shares issued
and outstanding, respectively 91,647 1,897
Additional paid-in capital 7,457,652 3,850,664
Accumulated deficit (8,339,355) (3,946,164)
----------- -----------
Total Stockholders' Equity (Deficit) (787,556) (91,103)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ -- $ 7,841
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
3
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Statement of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
SALES, NET $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
EXPENSES
Professional Fees 505,033 -- 3,861,392 --
Settlement expense 185,000 -- 185,000 --
General and administrative 85,654 45,585 140,455 133,942
----------- ----------- ----------- -----------
Total Expenses 775,687 45,585 4,186,847 133,942
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (775,687) (45,585) (4,186,847) (133,942)
----------- ----------- ----------- -----------
OTHER INCOME
(EXPENSES)
Interest income -- 24,664 -- 74,251
Interest Expense -- -- (24,130) --
----------- ----------- ----------- -----------
Total Other Income
(Expenses) -- 24,664 (24,130) 74,251
----------- ----------- ----------- -----------
LOSS BEFORE
DISCONTINUED
OPERATIONS (775,687) (20,921) (4,210,977) (59,691)
DISCONTINUED
OPERATIONS (65,101) -- (182,214) --
----------- ----------- ----------- -----------
NET LOSS $ (840,788) $ (20,921) $(4,393,191) $ (59,691)
=========== =========== =========== ===========
BASIC LOSS PER SHARE $ (0.09) $ (0.06) $ (1.09) $ (0.18)
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 9,164,671 346,388 4,032,308 325,554
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
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.
5
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Statements of Stockholders' Equity (Continued)
Preferred Stock, Preferred Stock,
Series "A" Series "B" 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
extinguishment of debt and
for professional services
at $0.36 per share
(unaudited) -- -- -- -- 3,000,000 30,000 1,050,000 --
Common stock issued for
extinguishment of debt and
for professional services
at $0.36 per share
(unaudited) -- -- -- -- 3,000,000 30,000 1,050,000 --
Warrants issued to
Related parties for
professional services
rendered (unaudited) -- -- -- -- -- -- 640,601 --
Common stock issued to
related parties for
conversion of warrants
at $0.03 per share
(unaudited) -- -- -- -- 1,600,000 16,000 32,000 --
Sale of subsidiary (Kina'Ole
Development Corporation)
(unaudited) -- -- (500,000) (5,000) -- -- 317,290 --
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 250,000 $ 2,500 -- $ -- 9,164,671 $ 91,647 $ 7,208,529 $(3,946,164)
---------- ---------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
6
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Statements of Stockholders' Equity (Continued)
Preferred Stock, Preferred Stock,
Series "A" Series "B" Common Stock
---------------------- ---------------------- ------------------------- Additional
Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
Balance Forward 250,000 $ 2,500 -- $ -- 9,164,671 $ 91,647 $ 7,208,529 $(3,946,164)
Warrants issued to
Related parties for
professional services
rendered (unaudited) -- -- -- -- -- -- 249,123 --
Net loss for the nine months
ended September 30, 2003--
(unaudited) -- -- -- -- -- -- -- (4,393,191)
--------- ---------- --------- -------- - ---------- ----------- ----------- -----------
Balance, September 30,
2003 (unaudited) 250,000 $ 2,500 -- $ -- 9,164,671 $ 91,647 $ 7,457,652 $(8,339,355)
========== ========== ========= ======== ========= =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
7
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,393,191) $ (59,691)
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 889,724 --
Changes in assets and liabilities:
Decrease in interest receivable -- 29,778
Decrease in escrow receivable -- 25,000
Decrease in prepaid expenses and deposits 1,217 1,745
(Increase) in construction in progress (48,036) --
Increase in accounts payable 177,364 --
Increase (decrease) in accrued expenses 569,885 (29,861)
----------- -----------
Net Cash Used by Operating Activities (293,886) (8,029)
----------- -----------
CASH FLOWS FORM INVESTING ACTIVITIES
Expenditures for the purchase of equipment (1,008) --
Investment in related party joint venture (13,105) --
Preferred stock issued in acquisition of Kina Ole Development Corp. 20,000 --
Cash disposed in sale of Kina Ole Development Corp. (3,618) --
Cash acquired in acquisition of Kina Ole Development Corp. 27,847 --
----------- -----------
Net Cash Provided by Investing Activities 30,116 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 11,789
Proceeds from related party loans 202,215 --
Repayments of related party advances (13,416) --
Proceeds from the conversion of warrants 48,000 --
Repayment of notes payable (15,285) --
Proceeds from notes payable 25,848 --
----------- -----------
Net Cash Provided by Financing Activities 259,151 --
----------- -----------
NET DECREASE IN CASH (4,619) (8,029)
CASH AT BEGINNING OF PERIOD 4,619 27,799
----------- -----------
CASH AT END OF PERIOD $ -- $ 19,770
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
8
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended
September 30,
2003 2002
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
CASH PAID FOR:
Interest $ 285 $ --
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 $ 889,724 $ --
In connection with the acquisition of Kina'Ole Development Corp.,
assets acquired and liabilities assumed are as follows:
Assets acquired, including cash acquired of $27,847 $ 972,673
Liabilities assumed (1,177,449)
-----------
$ (204,776)
In connection with the sale of Kina'Ole Development Corp.,
assets disposed and liabilities transferred are as follows:
Assets disposed, including cash disposed of $3,618 $ (651,327)
Liabilities transferred 1,038,317
Transaction costs (69,700)
-----------
$ 317,290
===========
The accompanying notes are an integral part of these
consolidated financial statements.
9
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 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 nine
months ended September 30, 2003 are not necessarily indicative of
the results that may be expected for the year ending December 31,
2003.
NOTE 2 - RELATED PARTY TRANSACTIONS
During the period ended December 29, 2002, officers of the
Company's subsequently wholly-owned subsidiary, Kina'Ole, and
significant shareholders of the Company advanced Kina'Ole $50,144
in cash and property. The advances were expected to be repaid upon
the completion and sale of certain projects under construction,
which were expected to be within the next twelve months. As the
advances were short-term in nature, no interest was being charged
or accrued. This obligation was transferred to the buyers of
Kina'Ole on September 30, 2003. See Note 7.
During the period ended December 29, 2002, the Company's
subsequently 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 September 30, 2003, and December 29, 2002, the Company's
investment in the related party joint venture was $109,775 and
$-0-, respectively. This investment was transferred to the buyers
of Kina'Ole on September 30, 2003. See Note 7.
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.
10
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 2 - RELATED PARTY TRANSACTIONS (Continued)
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
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 nine month period ended September 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.
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 pursuant to a verbal
consulting agreement. Professional services expense of $1,060,000
was recorded in the consolidated statement of operations for the
nine month period ended September 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, 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.
11
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 2 - RELATED PARTY TRANSACTIONS (Continued)
Professional services expense amounting to $1,050,000 was recorded
in the consolidated statement of operations for the nine month
period ended September 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 was recorded as expense during the three months ended
September 30, 2003, as the term of Mathew Dwyer's agreement has
expired and as his warrants have fully vested. Due to Richard
Dwyer's appointment as CEO, and his relationship to Mathew Dwyer,
both are considered to be related parties.
During the nine months ended September 30, 2003, shareholders and
board members have advanced the Company $48,522 in cash for
operating expenses. The advances are considered to be short-term
in nature and are not accruing interest. As of September 30, 2003,
the Company has repaid $13,416 of the advances, leaving a related
party loan balance of $35,106.
During the nine months ended September 30, 2003 officers of the
Company's wholly-owned subsidiary, Kina'Ole, and significant
shareholders of the Company advanced the Kina'Ole $57,109 in cash.
The advances were expected to be repaid upon the completion and
sale of certain projects under construction, which was expected to
be within the next twelve months. As the advances were short-term
in nature, no interest was being charged or accrued. This
obligation was transferred to the buyers of Kina'Ole on September
30, 2003. See Note 7.
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.
12
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 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 September 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 nine month period
ended September 30, 2003 related to this transaction.
13
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 4 - OTHER SIGNIFICANT EVENTS (Continued)
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 nine month period
ended September 30, 2003 related to this transaction. The note was
paid in full as of September 30, 2003.
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.
Settlement of Lawsuit
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.
This lawsuit was settled on October 2, 2003, for a series of
payments totaling $185,000. As of September 30, 2003, $20,000 of
this settlement has been paid, with the remaining payments, of
$165,000 to be paid in monthly installments over six months. The
full amount of this obligation has been included in accrued
liabilities.
14
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 5 - CONTINGENCIES
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.
NOTE 6 - 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.
NOTE 7 - SALE OF KINA'OLE DEVELOPMENT CORPORATION
On September 30, 2003 the Company entered into an agreement with
two shareholders to exchange the 500,000 outstanding shares of
Series B Preferred Stock, held by the two shareholders, for all of
the shares held by the Company of the wholly-owned subsidiary
Kina'ole Development Corporation. In addition, upon settlement of
a pending lawsuit (See Note 4) the Company agreed to issue 120,000
additional shares of Common Stock to the two shareholders. Also,
the Company agreed to pay certain obligations to the two
shareholders in the amount of $13,500. All operating results of
Kina'ole have been included in discontinued operations as of
September 30, 2003. No tax benefit has been attributed to the
discontinued operations.
15
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 7 - SALE OF KINA'OLE DEVELOPMENT CORPORATION (Continued)
The following is a summary of the loss from discontinued
operations resulting from the sale of Kina'ole:
For the For the
Three Months Nine Months
Ended Ended
September 30, September 30,
2003 2003
------------------ ------------------
SALES, NET $ - $ -
------------------ ------------------
EXPENSES
Salaries and wages 45,000 135,000
General and administrative expense 20,101 47,214
------------------ ------------------
Total Expenses 65,101 182,214
------------------ ------------------
LOSS FROM OPERATIONS (65,101) (182,214)
------------------ ------------------
OTHER INCOME (EXPENSE) - -
------------------ ------------------
NET LOSS FROM DISCONTINUED
OPERATIONS $ (65,101) $ (182,214)
================== ==================
NOTE 8 - 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 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
16
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 8 - GOING CONCERN (Continued)
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.
NOTE 9 - SUBSEQUENT EVENTS
Consulting Agreement Extension
On October 2, 2003, the Company entered into a consulting services
contract extension with Mathew Dwyer whereby his previous
consulting agreement was extended for an additional six months. In
exchange the Company granted Mr. Dwyer warrants to purchase an
additional 750,000 shares of common stock at an exercise price of
$0.03 per share.
Consulting Agreement
On October 8, 2003, the Company entered into a one-year consulting
agreement whereby the consulting group agreed to provide
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. In addition, the
Company has also agreed to pay 1,000,000 shares of common stock
and warrants to purchase 1% of the Company's total outstanding
common stock upon the successful completion of the private
placement.
Exercise of Warrants by Related Parties
On October 9, 2003, Richard Dwyer, CEO, exercised warrants to
purchase 100,000 shares of common stock in exchange for $3,000 in
cash.
On October 9, 2003 Mathew Dwyer exercised warrants to purchase
900,000 shares of common stock in exchange for $27,000 in cash.
17
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 9 - SUBSEQUENT EVENTS (Continued)
Stock Issuances
On October 9, 2003, the Company issued 500,000 shares of common
stock to a member of the Company's Board of Directors for services
rendered. The shares were valued at $0.51 per share, which
represents the trading price of the Company's common stock as of
September 30, 2003. The Company has accrued $255,000 of
professional fees related to these services as of September 30,
2003.
On October 9, 2003, the Company issued 125,000 shares of common
stock to Mathew Dwyer, CEO, for services rendered during the first
week of October 2003 relating to the execution of the asset
purchase agreement(See below).
On October 9, 2003, the Company issued 250,000 shares of common
stock in conjunction with the asset purchase agreement (See
below).
On October 9, 2003, the Company issued 120,000 shares of common
stock in conjunction with the sale of Kina'ole Development
Corporation. See Note 7.
Asset Purchase Agreement
On October 13, 2003, the Company finalized an Asset Purchase
Agreement with a corporation out of Florida for all of the rights
and ownership of its technology, software, firmware accounts,
marketing material used in its Factory/Automation Division. In
exchange for the above assets the Company would issue 250,000
restricted shares of common stock. The agreement carries a
non-performance clause which if not obtained may cost the Company
an additional $100,000.
Acquisition of Total Identity Systems Corporation
Effective on October 13, 2003, the Company completed an
acquisition of all of the issued and outstanding shares of Total
Identity Systems Corp., a New York corporation. Total Identity
Systems is a privately held, Rochester, New York-based custom sign
manufacturer servicing local, regional and national accounts.
Initially, the Company purchased newly issued shares of Total
Identity Systems in an amount equal to 60% of the issued and
outstanding shares of Total Identity Systems. The purchase price
for those shares was $1,000,000, of which $150,000 was paid at the
closing and the balance is payable in three installments prior to
December 31, 2003.
Immediately following the acquisition, the Company purchased the
remaining 40% interest in Total Identity Systems from Robert
David, former CEO of Total Identity Systems. The purchase price
for the 40% interest was $800,000, which is payable in monthly
installments over a period of three years commencing in April
2004. The $800,000 promissory note evidencing the purchase price
has been guaranteed by Total Identity Systems. All of the shares
purchased by the Company have been pledged to Mr. David as
security for the Company's obligations under both stock purchase
agreements. If the Company defaults in the payment of its
obligations under either of
18
TOTAL IDENTITY CORP. AND SUBSIDIARIES
(Formerly TMI HOLDINGS, INC.)
Notes to the Consolidated Financial Statements
September 30, 2003 and December 31, 2002
NOTE 9 - SUBSEQUENT EVENTS (Continued)
Acquisition of Total Identity Systems Corporation (Continued)
the stock purchase agreements, Robert David may reacquire the
Total Identity Systems Corp. shares purchased by the Company.
In connection with the acquisition, (a) Total Identity Systems
entered into a three-year employment agreement with Charles Finzer
to serve as the President of Total Identity Systems, and (b) the
Company entered into a three-year employment agreement with Robert
David to serve as a vice president of the Company. Total Identity
Systems also entered into a ten-year lease with 2340 Townline Road
Corporation, a company wholly owned by Robert David, covering the
Rochester, New York facilities where Total Identity Systems
currently operates. The lease has been guaranteed by the Company.
The Company paid the $150,000 downpayment against the purchase
price for the shares acquired from Total Identity Systems through
a 12% convertible debenture in the principal amount of $150,000
sold by the Company to Argilus Capital, LLC. The principal amount
of the debenture is to be repaid on January 10, 2004 from the
proceeds of a financing proposed to be placed by Argilus Capital;
provided, that if the financing is not completed by January 10,
2004, Argilus Capital's sole recourse for repayment of the
debenture shall be from the proceeds of sale of 400,000 shares of
the Company's common stock provided as additional consideration to
Argilus Capital by a shareholder of the Company. Interest on the
debenture is payable monthly, at the rate of 12% per annum,
commencing November 1, 2003. Repayment of the debenture has been
guaranteed by Richard R. Dwyer, President of the Company
As a result of, and in anticipation of this transaction, the
Company, on September 9, 2003, amended its articles of
incorporation to formally change its name to Total Identity Corp.
Resignation of Chief Executive Officer
On November 14, 2003, Richard Dwyer submitted his resignation as
President and CEO. The Company's Board of Directors then appointed
Mr. Philip Mistretta as the new President, CEO, and Chairman of
the Board. Mr. Jeffery Hoffman was appointed as the new CFO and
Secretary of the Company. Mr. Dwyer was then appointed to serve as
the Company's Executive Vice President.
19
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 September 30, 2003 and the accompanying Statement of Operations for
the three months ended September 30, 2002 reflect none of the Company's former
business operations.
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.
On September 30, 2003 the Company entered into an agreement with two
shareholders to exchange the 500,000 outstanding shares of Series B Preferred
Stock, held by the two shareholders, for all of the shares held by the Company
of the wholly-owned subsidiary Kina'ole Development Corporation. All operating
results of Kina'ole have been included in discontinued operations as of
September 30, 2003. No tax benefit has been attributed to the discontinued
operations.
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
None
Three Months Ended September 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 September 30, 2003
and September 30, 2002, respectively.
Expenses
Total expenses increased $730,102 from $(45,585) for the three months of fiscal
2002 to $(775,687) for the three months of fiscal 2003. The $730,102 in total
expenses for the three months ended September 30, 2003, consisted of $505,033
for professional fees, $185,000 for Settlement expenses and $85,654 for general
and administration expenses and other costs associated with the Company's
ongoing Securities and Exchange Commission reporting obligations.
Net Losses
Net losses for the three-month period ended September 30, 2003 were $840,788 as
compared to $20,921 for the three-month period ended September 30, 2002. The
higher net loss figure for the three-months ended September 30, 2003 as compared
to the same period last year is a result of the increase in professional fees,
the Settlement expenses and the increase in general and administration expenses
discussed above partially offset by $24,664 of interest income recorded during
the three months ended September 30, 2002.
The basic and diluted loss per share for the quarter ended September 30, 2003,
based on a weighted average number of shares of 9,164,671 was $(.09) per share,
compared with the basic and diluted loss per share of $ (0.06) based on a
weighted average number of shares of 346,388 for the quarter ended September 30,
2002.
Nine Months Ended September 30, 2003
Revenues
The Company had no business operations during the fiscal year ended December 29,
2002 and there were no revenues for the nine months ended September 30, 2003 and
September 30, 2002, respectively.
Expenses
Total expenses increased $4,052,905 from $(133,942) for the nine months of
fiscal 2002 to $(4,186,847) for the nine months of fiscal 2003. The $4,186,847
in total expenses for the nine months ended September 30, 2003, consisted of
$3,861,392 for professional fees, $185,000 for Settlement expenses and $140,455
for general and administration expenses and other costs associated with the
Company's ongoing Securities and Exchange Commission reporting obligations.
Net Losses
Net losses for the nine-month period ended September 30, 2003 were $4,393,191 as
compared to $59,691 for the nine-month period ended September 30, 2002. The
higher net loss figure for the three-months ended September 30, 2003 as compared
to the same period last year is a result of the increase in professional fees,
the Settlement expenses and the increase in general and administration expenses
discussed above partially offset by $74,251 of interest income recorded during
the nine months ended September 30, 2002.
The basic and diluted loss per share for the nine months ended September 30,
2003, based on a weighted average number of shares of 4,032,308 was $1.09 per
share, compared with the basic and diluted loss per share of $0.18 based on a
weighted average number of shares of 325,554 for the nine months ended September
30, 2002.
Liquidity and Capital Requirements
As of September 30, 2003, the Company had total current assets totaling $ 0. The
Company's total assets as of September 30, 2003 amounted to $ 0.
The Company's total liabilities were $787,556 as of September 30, 2003, all of
which are current, and stockholders' deficit amounted to $787,556.
As of September 30, 2003, the Company has $0 of 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, by divesting
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.
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.
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.
This lawsuit was settled on October 2, 2003, for a series of payments totaling
$185,000. As of September 30, 2003, $20,000 of this settlement has been paid,
with the remaining payments, of $165,000 to be paid in monthly installments over
six months. The full amount of this obligation has been included in accrued
liabilities. The Injunction that had been in effect against the Company was
removed on October 7, 2003.
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 has threatened 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.
GeneralMatters
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
On February 21, 2003, the Company entered into a Stock Purchase Agreement with
its then-current directors, Mr. W. Michael Sessions and John W. Meyers, and Mr.
Scott Siegel, whereby the Company agreed to issue 1,050,000 shares of common
stock (1,050,000 has been issued to date), restricted in accordance with Rule
144, to Mr. Siegel, and Mr. Sessions and Mr. Meyers transferred 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 transaction, became an officer and director of the Company on March
5, 2003. The issuance was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 as it was a transaction not involving a public
offering.
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.
On September 30, 2003 the Company entered into an agreement with two
shareholders to exchange the 500,000 outstanding shares of Series B Preferred
Stock, held by the two shareholders, for all of the shares held by the Company
of the wholly-owned subsidiary Kina'ole Development Corporation. In addition,
the Company agreed to issue 120,000 additional shares of Common Stock to the two
shareholders. These shares were subsequently issued on October 9, 2003.
ITEM 3 Defaults Upon Senior Securities
There have been no events which are required to be reported under this Item.
ITEM 4 Submission of Matters to a Vote of Security Holders
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
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.
(e) 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.
(f) On October 28, 2003 the Company filed a Report on Form 8-K regarding the
Company's acquisition of 100% of the outstanding stock of Total Identity
Systems, Inc. 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 Total Identity Systems.
ITEM 7 Subsequent Events
(a) On October 2, 2003 the Company entered into an agreement with Mr. Douglas
to settle the action brought against the Company. On October 7, 2003 a
Joint Stipulation for Settlement was filed in the Circuit Court of the
17th Judicial Circuit in Broward County Florida.
(b) On October 13, 2003 the Company completed an acquisition agreement to
acquire Total Identity Systems, Inc.
(c) On October 13, 2003, the Company completed an Asset Purchase of the
Factory Automation Division of Hi*Tech Electronics Displays, Inc.
(d) On November 14, 2003 Richard Dwyer stepped down as CEO, President, but
stayed on with the company as Executive Vice President. Through a Board
meeting held via conference call Mr. Philip Misttreta was elected CEO,
President and Chairman of the Board. Mr. Jeffery Hoffman was elected as
CFO and Secretary of the Company.
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
(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 their 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: November 13, 2003
/s/ Richard Dwyer
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Chief Executive Officer and
Chief Financial Officer