8-K/A 1 form8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K/A ---------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. October 13, 2003 0-30011 -------------------------------------------------------------- ------------------------------------------------ Date of Report (Date of earliest event reported) Commission File Number TOTAL IDENTITY CORP. (Exact name of registrant as specified in its charter) Florida 65-0309540 -------------------------------------------------------------- ------------------------------------------------ (State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number) organization)
2340 Brighton-Henrietta Town Line Road Rochester, NY 14623 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (585) 427-9050 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 11924 Forest Hill Blvd., Suite 22-204 Wellington, Florida 33414 (561) 202-8184 -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets Effective on October 13, 2003, Total Identity Corp., consummated its acquisition of all of the capital stock of Total Identity Systems Corp., and on October 28, 2003, filed a Current Report on Form 8-K to disclose completion of that acquisition. The purpose of this filing is to amend the Current Report on Form 8-K by filing certain financial statements and financial information required by Regulation S-X and identified in Item 7 below. Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits (a) The following financial statements of the business acquired, for the periods specified in Rule 3-05(b) of Regulation S-K, are filed herewith: o Independent Auditor's Report o Consolidated Balance Sheets of Total Identity Systems Corporation as of January 31, 2003 and 2002 o Consolidated Statements of Operations of Total Identity Systems Corporation for the years ended January 31, 2003 and 2002 o Consolidated Statements of Stockholders' Equity (Deficit) of Total Identity Systems Corporation for the years ended January 31, 2003 and 2002 o Consolidated Statements of Cash Flows of Total Identity Systems Corporation for the years ended January 31, 2003 and 2002 o Notes to Consolidated Financial Statements (b) The following pro forma financial information required by Article 11 of Regulation S-X is filed herewith: o Introduction to Unaudited Condensed Combined Pro Forma Financial Statements o Unaudited Condensed Combined Pro Forma Balance Sheet at January 31, 2003 o Unaudited Condensed Combined Pro Forma Statement of Operations for the Year Ended January 31, 2003 and 2002 o Unaudited Condensed Combined Pro Forma Statement of Operations for the Nine Months Ended September 30, 2003 (c) Exhibits. 10.1 Stock Purchase Agreement dated October 13, 2003 by and between Total Identity Corp. and Total Identity Systems Corp. 10.2 Stock Purchase Agreement dated October 13, 2003 by and between Total Identity Corp. and Robert David. 10.3 Employment Agreement dated October 13, 2003 by and between Charles Finzer and Total Identity Systems Corp. 10.4 Employment Agreement dated October 13, 2003 by and between Robert David and Total Identity Corp. 10.5 Promissory Note dated October 13, 2003 from Total Identity Systems Corp. to Robert David. 10.6 Pledge Agreement dated October 13, 2003 by and between Total Identity Corp. and Robert David. 10.7 Lease dated October 13, 2003 by and between Total Identity Systems Corp. and 2340 Townline Road Corporation. --------------------------------- (1) Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 28, 2003. (2) Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed October 28, 2003. (3 Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed October 28, 2003. (4) Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed October 28, 2003. (5) Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed October 28, 2003. (6) Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed October 28, 2003. (7) Incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K filed October 28, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: February 6, 2004 TOTAL IDENTITY CORP. By: /s/ Philip C. Mistretta ------------------------------------- Philip C. Mistretta President and Chief Executive Officer TOTAL IDENTITY SYSTEMS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS January 31, 2003 and 2002 C O N T E N T S Independent Auditors' Report................................................. 3 Consolidated Balance Sheets.................................................. 4 Consolidated Statements of Operations........................................ 6 Consolidated Statements of Stockholders' Equity (Deficit).................... 8 Consolidated Statements of Cash Flows........................................ 9 Notes to the Consolidated Financial Statements.............................. 10 INDEPENDENT AUDITORS' REPORT Board of Directors Total Identity Systems Corporation Rochester, New York We have audited the accompanying consolidated balance sheets of Total Identity Systems Corporation as of January 31, 2003 and 2002 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended January 31, 2003 and 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Total Identity Systems Corporation as of January 31, 2003 and 2002 and the results of their operations and their cash flows for the years ended January 31, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America. HJ & Associates, LLC Salt Lake City, Utah January 26, 2004 3 TOTAL IDENTITY SYSTEMS CORPORATION Consolidated Balance Sheets
ASSETS January 31, January 31, 2003 2002 ---------------------------------------------------------------------------------------------- ----------------- CURRENT ASSETS Cash $ 41,058 $ 10,673 Accounts receivable, net 1,765,221 1,808,694 Other receivable - employee 6,682 4,952 Tax refund - 529,267 Inventory (Note 2) 571,908 517,016 Prepaid expenses - 4,409 Deferred expenses - 14,663 Loans receivable - subsidiaries (Note 1) 152,734 - ------------------ ----------------- Total Current Assets 2,537,603 2,889,674 ------------------ ----------------- PROPERTY AND EQUIPMENT, NET (NOTE 3) 963,313 1,078,255 ------------------ ----------------- OTHER ASSETS Deferred tax asset 352,379 1,172 Deposits 2,425 9,307 Earned income in excess of cost 86,989 - Goodwill 85,259 85,593 Intangibles, net - 46,583 ------------------ ----------------- Total Other Assets 527,052 142,655 ------------------ ----------------- TOTAL ASSETS $ 4,027,968 $ 4,110,584 ================== =================
The accompanying notes are an integral part of these consolidated financial statements. 4 TOTAL IDENTITY SYSTEMS CORPORATION Consolidated Balance Sheets (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
January 31, January 31, 2003 2002 ---------------------------------------------------------------------------------------------- ----------------- CURRENT LIABILITIES Accounts payable-subsidiary (Note 1) $ - $ 10,277 Customer deposits 359,316 385,339 Accounts payable 1,054,602 824,244 Bank overdraft 127,061 166,061 Accrued expenses (Note 4) 70,164 184,501 Accrued warranty expense 45,000 45,000 Accrued interest 25,190 11,968 Notes payable (Note 11) 1,496,963 1,713,016 Notes payable and accrued interest - related party (Note 6) 629,046 414,280 ------------------ ----------------- Total Current Liabilities 3,807,342 3,754,686 ------------------ ----------------- LONG-TERM DEBT Notes payable (Note 11) 1,154,743 751,810 ------------------ ----------------- Total Long-Term Debt 1,154,743 751,810 ------------------ ----------------- Total Liabilities 4,962,085 4,506,496 ------------------ ----------------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock: no par value; 200 shares authorized, 80 shares issued and outstanding 100 100 Retained earnings (deficit) (934,217) (396,012) ------------------ ----------------- Total Stockholders' Equity (Deficit) (934,117) (395,912) ------------------ ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,027,968 $ 4,110,584 ================== =================
The accompanying notes are an integral part of these consolidated financial statements. 5 TOTAL IDENTITY SYSTEMS CORPORATION Consolidated Statements of Operations
For the Years Ended January 31, --------------------------------- 2003 2002 ------------ ------------ REVENUE $ 10,342,397 $ 7,100,241 COST OF SALES 6,846,729 4,170,898 ------------ ------------ GROSS MARGIN 3,495,668 2,929,343 ------------ ------------ EXPENSES Rent 205,131 442,076 Payroll 1,299,393 2,189,851 Depreciation 90,013 103,442 General and administrative 193,465 752,041 Bad debt 99,954 235,442 Commissions 866,415 462,290 Insurance 420,223 533,446 Professional fees 182,591 98,504 ------------ ------------ Total Expenses 3,357,185 4,817,092 ------------ ------------ INCOME (LOSS) FROM OPERATIONS 138,483 (1,887,749) ------------ ------------ OTHER INCOME (EXPENSE) Other income 20,242 221,985 Interest income 20 11 Interest expense (175,465) (80,916) ------------ ------------ Total Other Income (Expense) (155,203) 141,080 ------------ ------------ LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATION (16,720) (1,746,669) INCOME TAX BENEFIT (6,520) (288,074) ------------ ------------ NET LOSS BEFORE DISCONTINUED OPERATIONS (10,200) (1,458,595) Loss from discontinued operations (Note 9) NET OF TAX (528,005) (395,438) ------------ ------------ NET LOSS $ (538,205) $ (1,854,033) ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 6 TOTAL IDENTITY SYSTEMS CORPORATION Consolidated Statements of Operations (Continued) For the Years Ended January 31, -------------------------- 2003 2002 ---------- ---------- BASIC LOSS PER SHARE Loss before discontinued operations $ (127.50) $(18,232.44) Loss from discontinued operations (6,600.06) (4,942.97) ---------- ---------- Total loss per share $(6,727.56) $(23,175.41) WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 80 80 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 7 TOTAL IDENTITY SYSTEMS CORPORATION Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock ---------------------------- Retained Shares Amount (Deficit) ----------- ----------- ----------- Balance, January 31, 2001 80 $ 100 $ 1,458,021 Net loss for the year ended January 1, 2002 -- -- (1,854,033) ----------- ----------- ----------- Balance, January 31, 2002 80 100 (396,012) Net loss for the year ended January 31, 2003 -- -- (538,205) ----------- ----------- ----------- Balance, January 31, 2003 80 $ 100 $ (934,217) =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 8 TOTAL IDENTITY SYSTEMS CORPORATION Consolidated Statements of Cash Flows
For the Years Ended January 31, ----------------------------- 2003 2002 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (538,205) $(1,854,559) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 161,679 168,366 Bad Debt Expense 99,954 235,442 Changes in assets and liabilities: (Increase) decrease in earned income in excess of cost (86,989) -- (Increase) in receivables (58,211) 51,290 (Increase) decrease in inventory (54,892) 231,796 (Increase) decrease in tax refund 529,267 (529,267) (Increase) decrease in deferred tax asset (351,207) (1,172) (Increase) decrease in other assets 72,871 (35,911) Increase (decrease) in accounts payable and accounts payable - subsidiary 220,081 148,243 Increase in accrued expenses and accrued expenses - related (90,470) (197,751) ----------- ----------- Net Cash Used by Operating Activities (96,122) (1,783,523) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (37,787) (14,855) ----------- ----------- Net Cash Used by Financing Activities (37,787) (14,855) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (payment) from bank overdraft (39,000) 31,103 Proceeds from notes payable and notes payable - related 2,185,124 2,495,446 Payment of notes payable and notes payable - related (1,981,830) (722,915) ----------- ----------- Net Cash Provided by Financing Activities 164,294 1,803,634 ----------- ----------- INCREASE IN CASH 30,385 5,256 CASH AT BEGINNING OF PERIOD 10,673 5,417 ----------- ----------- CASH AT END OF PERIOD $ 41,058 $ 10,673 =========== =========== CASH PAID FOR: Interest $ -- $ -- Income taxes $ -- $ -- SCHEDULE NON-CASH FINANCING ACTIVITIES: $ -- $ --
The accompanying notes are an integral part of these consolidated financial statements. 9 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Organization The Company was incorporated on February 16, 1982 in the state of New York, under the name of Total Energy Services Corporation. On August 23, 1996, the Company changed its name to Total Identity Systems Corporation. On October 20, 1999, the Company began also operating under the name of Empire/Forster Sign & Awning. The Company designs, manufactures, and installs custom awnings and signs. b. Basis of Presentation The Company uses the accrual method of accounting for financial purposes and has elected January 31 as its year-end. c. Principles of Consolidation The consolidated financial statements as of January 31, 2003 include those of Total Identity Systems Corporation(TIS) and its wholly-owned subsidiaries, the Markham Company, LLC (Markham) and Awnex, LLC (Awnex). All significant intercompany accounts and transactions have been eliminated. During 2002, Markham and Awnex discontinued all operations and ceased doing business. Because Markham and Awnex have a year-end of December 31, certain amounts on the balance sheet have not been eliminated. These amounts are reported as Loans Receivable - Subsidiaries and Accounts Payable - Subsidiary. d. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosers. Accordingly, actual results could differ from those estimates. e. Trade Receivables Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a regular basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Amounts pertaining to claims or retainages pursuant to long-term contracts are insignificant. f. Inventory Inventories are valued generally at the lower of cost (first-in, first-out method) or market. 10 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) g. Fixed Assets Fixed assets are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the IRS tax code MACRS method over the expected useful lives of the assets as follows: Description Useful lives ----------- ------------ Equipment 5 years Computers and equipment 3 years Leasehold improvements 39 years Building renovations 15-39 years Furniture and fixtures 5 years Vehicles 5 years Computer software 5 years The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as gain or loss on sale of equipment. h. Long-Lived Assets In accordance with SFAS No. 142, "Goodwill and other intangible assets", long -lived assets, including goodwill associated with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The amount of any impairment considered necessary would be determined by comparing the book value of the net assets in applicable line of business to fair value using methods such as the present-value of estimated future cash flows, sale value or other valuation methodologies available at the time, depending on the stage of development of the line of business and the Company's intentions at the time an impairment adjustment were considered necessary. i. Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments, including cash, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. j. Revenue The Company records revenue on the accrual basis when all goods and services have been performed and delivered, the amounts are readily determinable, and collection is reasonably assured. 11 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) k. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense for the years ended January 31, 2003 and 2002 was $44,506 and $129,673, respectively. l. New Accounting Pronouncements The Company adopted the provisions of FASB Statement No. 139 "Rescission of FASB Statement No. 53 and amendments to FASB Statements No. 63, 89, and 121," FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of FASB Statement No. 125.), FASB Statement No. 141, "Business Combinations", FASB Statement No. 142, "Goodwill and Other Intangible Assets", FASB Statement No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets", FASB Statement No. 145 "Rescission of FASB Statement No. 4, 44, and 62, Amendment of FASB Statement No. 13 and technical corrections, and FASB Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", FASB Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123 (SFAS 148)", and FIN 44 Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25.)" and SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, SFAS 150, "Accounting for certain financial instruments with characteristics of both liabilities and equity." m. Basic Loss Per Share The computation of basic loss per share of common stock is based on the weighted average number of shares outstanding during the period of the consolidated financial statements as follows:
For the Years Ended January 31, ---------------------------------------- 2003 2002 ------------------- ------------------ Loss from operations $ (127.50) $ (18,232.44) Loss from discontinued operations (6,600.06) (4,942.97) ------------------- ------------------ Total loss per share $ (6,727.56) $ (23,175.41) =================== ================== Weighted average number of shares outstanding 80 80 =================== ==================
n. Provision for Taxes Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. 12 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) n. Provision for Taxes (Continued) Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Net deferred tax assets consist of the following components as of January 31, 2003 and 2002: 2003 2002 --------------- ---------------- Deferred tax assets: NOL Carryover $ 351,500 $ 588,540 Deferred tax liabilities: - - NOL Utlization (588,382) --------------- ---------------- Net deferred tax asset $ 351,500 $ 158 =============== ================ The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the years ended January 31, 2003 and 2002 due to the following: 2003 2002 ------------------ ------------------ Book income (loss) $ 102,140 $ (462,170) Other (453,613) (126,370) ------------------ ------------------ $ (351,473) $ (588,540) ================== ================== At January 31, 2003, the Company had net operating loss carryforwards of approximately $924,000 that may be offset against future taxable income from the year 2002 through 2022. No tax benefit has been reported in the January 31, 2003 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. 13 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 2 - INVENTORY Inventories at January 31, 2003 and 2002 were composed of the following: January 31, ---------------------------------------- 2003 2002 ------------------ ------------------ Raw materials $ 355,951 $ 243,012 Work-in-process 215,957 274,004 ------------------ ------------------ $ 571,908 $ 517,016 ================== ================== NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at January 31, 2003 and 2002: January 31, ---------------------------------------- 2003 2002 ------------------ ------------------ Leasehold improvements $ 37,787 $ - Building renovation 842,329 842,330 Vehicles 163,329 205,194 Equipment 837,591 912,886 Furniture and fixtures 23,214 23,214 Computer software 123,924 123,924 Accumulated depreciation (1,064,861) (1,029,293) ------------------ ------------------ $ 963,313 $ 1,078,255 ================== ================== During the years ended January 31, 2003 and 2002, the Company recorded depreciation expense of $90,013 and $103,442, respectively. NOTE 4 - ACCRUED EXPENSES As of January 31, 2003 and 2002, accrued expenses consist of the following: January 31, ---------------------------------------- 2003 2002 ------------------ ------------------ Other accrued $ 3,673 $ 6,246 Accrued taxes 25,147 30,719 Accrued payroll 41,344 147,536 ------------------ ------------------ $ 70,164 $ 184,501 ================== ================== NOTE 6 - RELATED PARTY TRANSACTIONS Facility and Equipment Leases The Company leases office space and equipment from a related party pursuant to month-to-month verbal agreements. (See Note 8). 14 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 6 - RELATED PARTY TRANSACTIONS (Continued) Notes Payable The Company owes a related party $591,783 as of January 31, 2003 and $413,685 as of January 31, 2002 for amounts loaned to the Company. This loan is under a verbal agreement and is due on demand. The Company accrues interest on this loan at an imputed rate of 7%. As of January 31, 2003 and 2002, there is $37,263 and $595, respectively, of accrued interest related to this loan. NOTE 7 - MAJOR CUSTOMERS Net sales for the year ended January 31, 2003 include sales to the following major customers, together with the receivables due from those customers. There were no major customers during the year ended January 31, 2002. Because of the nature of the Company's business, the major customers may vary between years.
Amount of Net Sales Trade Receivables Customer Year Ended January 31, 2003 Balance as of January 31, 2003 ------------------------------------------------ --------------------------------- ------------------------------------ Customer 1 $ 1,348,211 $ 108,579 Customer 2 1,191,649 - ---------------------------------- ------------------------------------ $ 2,539,860 $ 108,579 ================================== ====================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES Litigation During the year ended January 31, 2002, the Company was the defendant in two lawsuits. One of the lawsuits was settled and paid to the plaintiff in July 2001 for $5,000. The other lawsuit was settled in June 2003 for $15,000 and paid to the plaintiff in two installments in May 2003 and June 2003. The balances owed as of January 31, 2003 and 2002 are recorded in accounts payable. During the year ended January 31, 2003, the Company was the defendant in two lawsuits. The first lawsuit was settled for $12,650 and paid to the plaintiff in November 2003. The second lawsuit was settled and paid in July 2003 for $8,500. The balances owed as of January 31, 2003 and 2002 are recorded in accounts payable. During December 2003, the Company settled a lawsuit for $85,000 relating to work performed in May 2002. The Company recorded this settlement in accounts payable during the year ended January 31, 2003. During January 2004, the Company paid $20,000 of the balance owed. The remainder is currently outstanding. Purchase Commitments The Company is committed under several purchase orders totaling $328,635 and $68,138 as of January 31, 2003 and 2002, respectively. 15 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued) Facility and Equipment Leases The Company leases office space and equipment from a related party pursuant to month-to-month verbal agreements. Rent expense under the facility lease amounted to $122,650 and $272,400 for the years ended January 31, 2003 and 2002, respectively. Rent expense under the equipment lease amounted to $40,000 and $109,000 for the years ended January 31, 2003 and 2002, respectively. NOTE 9- DISCONTINUED OPERATIONS During the year ended January 31, 2003, the Company determined that the operations of its two wholly-owned subsidiaries, The Markham Company, LLC (Markhkam) and Awnex, LLC (Awnex) were not viable. Accordingly, the Company discontinued operations of the two subsidiaries during the year ended January 31, 2003. The results of operations for the two wholly-owned subsidiaries for the periods presented are shown below:
For the Years Ended January 31, 2003 2002 ------------------ ------------------ REVENUES $ 2,252,427 $ 2,561,206 COST OF SALES 1,509,816 1,773,205 ------------------ ------------------ Gross Margin 742,611 788,001 ------------------ ------------------ EXPENSES Depreciation 71,666 68,095 General and administrative 1,566,134 1,313,014 ------------------ ------------------ Total Expenses 1,637,800 1,381,109 ------------------ ------------------ Loss From Operations (895,189) (593,108) ------------------ ------------------ OTHER INCOME (EXPENSE) Interest income 21 125 Interest expense (39,095) (44,820) ------------------ ------------------ Total Other Income (Expense) (39,074) (44,695) ------------------ ------------------ NET LOSS FROM DISCONTINUED OPERATIONS BEFORE TAX BENEFIT (934,263) (637,803) ------------------ ------------------ INCOME TAX BENEFIT (406,258) (242,365) ------------------ ------------------ NET LOSS FROM DISCONTINUED OPERATIONS NET OF TAX $ (528,005) $ (395,438) ================== ==================
16 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 10- SUBSEQUENT EVENTS Stock Purchase Agreement On October 13, 2003, the Company entered into a Stock Purchase Agreement. Whereby Total Identity Corporation (TIC) desires to purchase 60% of the Company or 72 shares of common stock and Robert David will hold 40% or 48 shares of common stock of the Company. The purchase price shall be $1,000,000. The Stock Purchase Agreement is currently in the process of being re-negotiated with the assistance of an arbitrator. Litigation The Company is the defendant in a pending lawsuit. The Company is aggressively defending this pending action and the final outcome is uncertain. Whenever it is probable that a loss will result from a lawsuit and the amount of the loss is reasonably estimable, the Company accrues a related expense. As of January 31, 2003, the Company has not accrued an expense for this lawsuit because of the uncertain outcome of this action. The Company filed a motion to dismiss the complaint and was granted the request. The plaintiff filed an amended complaint for which the Company filed another motion to dismiss. Subsequent to January 31, 2003, the Company settled several lawsuits. See Note 8 for a summary of these settlements. Note Payable During April 2003, the Company increased its note payable to the Small Business Administration to $701,800. Other Events Subsequent to January 31, 2003, the Company proposed a capital budget items proposal of $325,000 for 2004. Subsequent to January 31, 2003, the Company proposed a wage increase of 4% for 2004. 17 TOTAL IDENTITY SYSTEMS CORPORATION Notes to the Consolidated Financial Statements January 31, 2003 and 2002 NOTE 11 - NOTES PAYABLE Notes payable consist of the following amounts:
January 31, ----------------------------- 2003 2002 ----------- ----------- Note payable, line of credit, to financial institution, interest at .5% plus prime, $ 995,000 $ 1,490,000 Note payable to two corporations, due on demand, unsecured 10,048 -- Note payable to an individual, principal and interest due monthly, at 6% interest 70,845 106,334 Note payable to financial institution; principal and interest due monthly; secured by automobiles 61,851 99,592 Note payable to a small business administration secured by fixed assets, principal and interest due monthly; interest at 4% 470,000 -- Note payable to financial institution, at prime plus 0.5% secured by assets; 360,000 -- Note payable to financial institution, interest and principal due monthly 683,962 768,900 ----------- ----------- Total Notes payable 2,651,706 2,464,826 Less current portion of long-term debt (1,496,963) (1,713,016) ----------- ----------- Total long-term debt $ 1,154,743 $ 751,810 =========== ===========
The aggregate principal maturities of notes payable are as follows: Year Amount ---- ------------------ 2004 $ 1,496,963 2005 501,347 2006 202,514 2007 96,668 All other years 354,214 ------------------ Total $ 2,651,706 ================== 18 UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS The following unaudited condensed combined pro forma financial statements ("the pro forma financial statements") and explanatory notes have been prepared and give effect to the acquisition by Total Identity Corporation (formerly TMI Holdings, Inc) (TIC) with Total Identity Systems Corporation (Total) with TIC as the acquirer (acquisition). The historical financial statements prior to the effective date of acquisition will be those of TIC. In accordance with Article 11 of Regulation S-X under the Securities Act, an unaudited condensed combined pro forma balance sheet (the "pro forma balance sheet") as of January 31, 2003, and unaudited condensed combined pro forma statement of income for the nine months ended September 30, 2003, and the unaudited condensed combined pro forma statement of income for the year ended January 31, 2003 & 2002 (the "pro forma statements of income"), have been prepared to reflect, for accounting purposes, the acquisition by TIC. The following pro forma financial statements have been prepared based upon the historical financial statements of TIC and Total. The pro forma financial statements should be read in conjunction with (a) the historical financial statements and related notes thereto of TIC as of December 31, 2002, and Total as of January 31, 2003. The September 30, 2003, pro forma income statement assumes that the acquisition was completed on February 1, 2003. The January 31, 2003, pro forma balance sheet includes the historical balance sheet data of TIC as of December 31, 2002, and the historical balance sheet data of Total as of January 31, 2003. TIC and Total have no intercompany activity that would require elimination in preparing the pro forma financial statements. The pro forma statement of income for the year ended January 31, 2003, assumes that the acquisition occurred on February 1, 2002, and includes the unaudited historical statement of income data of Total for the year ended January 31, 2003, and the unaudited historical statement of income data of TIC for the year ended December 31, 2002. The pro forma statement of income for the year ended January 31, 2002, assumes that the acquisition occurred on February 1, 2001, and includes the unaudited historical statement of income data of TIC for the year ended December 31, 2001, and the unaudited historical statement of income data of Total for the year ended January 31, 2002. The pro forma financial statements are provided for illustrative purposes only, and are not necessarily indicative of the operating results or financial position that would have occurred if the mergers had been consummated at the beginning of the periods or on the dates indicated, nor are they necessarily indicative of any future operating results or financial position. The pro forma financial statements do not include any adjustments related to any restructuring charges or one-time charges which may result from the mergers or the final result of valuations of inventories, property, plant and equipment, intangible assets, debt, and other obligations. TOTAL IDENTITY CORPORATION UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
Pro Forma TIC Total Combined as of as of Combined TIC and Total 31-Dec 31-Jan Historical Pro Forma January 31, 2002 2003 TIC and Total Adjustments 2003 ------------- ------------- ------------- -------------- ------------- ASSETS Current Assets: Cash $ 4,619 $ 41,058 $ 45,677 $ 1,000,000 (1) $ 1,045,677 (1,000,000) (2) 1,000,000 (3) Accounts Receivable 1,765,221 1,765,221 Inventory 571,908 571,908 Other current assets 3,222 159,416 162,638 ------------- ------------- ------------- -------------- ------------- Total Current Assets 7,841 2,537,603 2,545,444 1,000,000 3,545,444 ------------- ------------- ------------- -------------- ------------- Property & Equipment 963,313 963,313 600,000 (5) 1,330,633 (232,680) (6) Other Assets: Other assets 174,673 174,673 174,673 Intangible Assets 1,134,117 (5) 907,293 (226,824) (6) Investment in Total 1,000,000 (2) - 800,000 (4) (1,800,000) (5) Deferred assets - 352,379 352,379 - 352,379 ------------- ------------- ------------- -------------- ------------- Total Other Assets - 527,052 527,052 907,293 1,434,345 ------------- ------------- ------------- -------------- ------------- TOTAL ASSETS $ 7,841 $ 4,027,968 $ 4,035,809 $ 2,274,613 $ 6,310,422 ============= ============= ============= ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: ` Accounts payable $ - $ 1,054,602 $ 1,054,602 $ - $ 1,054,602 Accrued liabilities 98,944 626,731 725,675 - 725,675 Notes payable - 1,496,963 1,496,963 1,496,963 Notes payable - related - 629,046 629,046 - 629,046 ------------- ------------- ------------- -------------- ------------- Total Current Liabilities 98,944 3,807,342 3,906,286 - 3,906,286 ------------- ------------- ------------- -------------- ------------- Note Payable - Long Term 1,154,743 1,154,743 800,000 (2) 2,954,743 1,000,000 (1) Total Liabilities 98,944 4,962,085 5,061,029 1,800,000 6,861,029 ------------- ------------- ------------- -------------- ------------- Stockholders' Equity: Preferred stock 2,500 - 2,500 - 2,500 Common stock 18,967 100 19,067 (1,000,100) (5) 18,967 1,000,000 (3) Additional paid-in capital 3,833,593 - 3,833,593 3,833,593 (459,504) (6) Accumulated deficit (3,946,163) (934,217) (4,880,380) 934,217 (5) (4,405,667) ------------- ------------- ------------- -------------- ------------- Total Stockholders' Equity (91,103) (934,117) (1,025,220) 474,613 (550,607) ------------- ------------- ------------- -------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 7,841 $ 4,027,968 $ 4,035,809 $ 2,274,613 $ 6,310,422 ============= ============= ============= ============== =============
(1) Funds raised by TIC to acquire Total (2) TIC acquires 120 newly issued shares of Total for $1,000,000 (3) Total sells 120 newly issued shares of stock to TIC for $1,000,000 (4) TIC acquires the remaining 80 shares of stock of Total for $800,000. TIC now owns 100% of the outstanding shares of Total's outstanding stock. (5) Upon consolidation the investment in sub held by TIC is eliminated. (6) To reflect the depreciation and amortization for the periods presented. TOTAL IDENTITY CORPORATE UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Combined TIC Total TIC & Total For the Year For the Year For the Year Ended Ended Ended December 31, 31-Jan Combined Pro Forma January 31, 2002 2003 TIC & Total Adjustments 2003 -------------- -------------- --------------- -------------- -------------- Sales $ - $ 10,342,397 $ 10,342,397 $ - $ 10,342,397 Cost of goods - 6,846,729 6,846,729 - 6,846,729 -------------- -------------- --------------- -------------- -------------- Gross Margin - 3,495,668 3,495,668 - 3,495,668 General and administrative expenses 718,442 3,357,185 4,075,627 260,352 (6) 4,335,979 -------------- -------------- --------------- -------------- -------------- Income (Loss) from operations (718,442) 138,483 (579,959) (260,352) (840,311) -------------- -------------- --------------- -------------- -------------- Other income (expense) Other income 94,917 20,262 115,179 Interest expense - (175,465) (175,465) - (175,465) -------------- -------------- --------------- -------------- -------------- Total other expenses 94,917 (155,203) (60,286) - (60,286) -------------- -------------- --------------- -------------- -------------- Net loss before tax benefit (623,525) (16,720) (640,245) (260,352) (900,597) Income tax benefit - (6,520) (6,520) (6,520) -------------- -------------- --------------- -------------- -------------- Net loss before discontinued (623,525) (10,200) (633,725) (260,352) (894,077) -------------------------------------------------------------------------------------- Discontinued Operations (Net) - (528,005) (528,005) -------------- -------------- --------------- -------------- -------------- $ (623,525) $ (538,205) $ (1,161,730) $ (260,352) $ (894,077) ============== ============== =============== ============== ============== Basic loss per share (1.96) (209.00) (2.01) - (2.83) ============== ============== =============== ============== ============== Weighted average shares outstanding 317,844 80 317,924 - 317,924 ============== ============== =============== ============== ==============
---------------- TOTAL IDENTITY CORPORATION UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Combined TIC Total TIC & Total For The For The Combined Pro Forma For The Year Ended Year Ended Year Ended Dec. 31, 2001 Jan. 31, 2002 TIC & Total Adjustments 31-Jan-02 -------------- -------------- --------------- -------------- -------------- Sales $ 6,199,675 $ 7,100,241 $ 13,299,916 $ - $ 13,299,916 Cost of goods 3,597,942 4,170,898 6,846,729 - 6,846,729 -------------- -------------- --------------- -------------- -------------- Gross Margin 2,601,733 2,929,343 6,453,187 - 6,453,187 General and administrative expenses 2,909,049 4,817,092 7,726,141 199,152 (6) 7,925,293 -------------- -------------- --------------- -------------- -------------- Income (Loss) from operations (307,316) (1,887,749) (2,195,065) (199,152) (2,394,217) -------------- -------------- --------------- -------------- -------------- Other income (expense) Other income (loss) (86,388) 221,996 135,608 135,608 Interest expense (27,092) (80,916) (108,008) - (108,008) -------------- -------------- --------------- -------------- -------------- Total other expenses (113,480) 141,080 27,600 - 27,600 -------------- -------------- --------------- -------------- -------------- Net loss before tax benefit (420,796) (1,746,669) (2,167,465) (199,152) (2,366,617) Income tax benefit 89,000 (288,074) (199,074) (199,074) -------------- -------------- --------------- -------------- -------------- Net loss before discontinued (509,796) (1,458,595) (1,968,391) (199,152) (2,167,543) -------------------------------------------------------------------------------------- Discontinued Operations (Net) - (395,438) (395,438) (395,438) Extraordinary gain 408,552 408,552 408,552 -------------- -------------- --------------- -------------- -------------- $ (101,244) $ (1,854,033) $ (1,955,277) $ (199,152) $ (2,154,429) ============== ============== =============== ============== ============== Extraordinary eps 1.36 1.36 1.36 Basic loss per share (1.70) (23,175.41) (7.87) - (8.54) ============== ============== =============== ============== ============== Net loss per share $ (0.34) $ (23,175.41) $ (6.51) $ (7.18) ============== ============== =============== ============== Weighted average shares outstanding 300,106 80 300,186 300,186 ============== ============== =============== ==============
------------- TOTAL IDENTITY CORPORATION UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Combined TIC Total TIC & Total For The Nine For The Eight Combined Pro Forma For The Nine Months Ended Months Ended Months Ended Sept. 30, 2003 Sept. 30, 2003 TIC & Total Adjustments Sept. 30, 2003 -------------- -------------- --------------- -------------- -------------- Sales $ - $ 7,125,511 $ 7,125,511 $ - $ 7,125,511 Cost of goods - 3,549,618 6,846,729 - 6,846,729 -------------- -------------- --------------- -------------- -------------- Gross Margin - 3,575,893 278,782 - 278,782 General and administrative expenses 4,186,847 3,007,485 7,194,332 163,764 (6) 7,358,096 -------------- -------------- --------------- -------------- -------------- Income (Loss) from operations (4,186,847) 568,408 (3,618,439) (163,764) (3,782,203) -------------- -------------- --------------- -------------- -------------- Other income (expense) Other income (loss) - 63,729 63,729 63,729 Interest expense (24,130) (128,979) (153,109) - (153,109) -------------- -------------- --------------- -------------- -------------- Total other expenses (24,130) (65,250) (89,380) - (89,380) -------------- -------------- --------------- -------------- -------------- Net loss before tax benefit (4,210,977) 503,158 (3,707,819) (163,764) (3,871,583) Income tax benefit - - - - -------------- -------------- --------------- -------------- -------------- Net loss before discontinued (4,210,977) 503,158 (3,707,819) (163,764) (3,871,583) -------------------------------------------------------------------------------------- Discontinued Operations (Net) (182,214) - (182,214) (182,214) -------------- -------------- --------------- -------------- -------------- $ (4,393,191) $ 503,158 $ (3,890,033) $ (163,764) $ (4,053,797) ============== ============== =============== ============== ============== Basic loss per share (1.09) 6,289.48 (0.96) - (1.01) ============== ============== =============== ============== ============== Net loss per share $ (1.09) $ 6,289.48 $ (0.96) $ (1.01) ============== ============== =============== ============== Weighted average shares outstanding 4,032,308 80 4,032,388 4,032,388 ============== ============== =============== ==============
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