10QSB 1 f10qsb1203_transworld.txt QUARTERLY REPORT FOR DECEMBER 31, 2003 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 000-32673 TRANSWORLD BENEFITS INTERNATIONAL, INC. (Exact name of small business issuer as specified in its charter) Nevada 98-0218912 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 18201 Karman Avenue, Suite 1170, Irvine, California 92612 (Address of Principal Executive Offices) (949) 975-0077 (Issuer's telephone number) (Former name, address and fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes common equity, as of March 22, 2004: 35,019,898 shares of common stock outstanding, $0.001 par value. Part I-- FINANCIAL INFORMATION Item 1. Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition Item 3. Controls and Procedures Part II-- OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Item 1. Financial Information TransWorld Benefits International, Inc. (A Development Stage Company) Consolidated Balance Sheet
December 31, 2003 ------------- (Unaudited) ASSETS Cash $ ============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accrued salaries and related $ 302,854.41 Accrued salaries officers and related 221,368.20 Accounts payable 334,312.95 Accounts payable related party 450,317.73 Notes payable 216,500.00 Advance from related party 32,500.00 Notes payable officer 154,067.00 Accrued interest officer 48,704.34 --------------- Total current liabilities 1,760,624.63 Convertible debenture, 153,750.00 Subscription Common Stock 34,013.09 Total liabilities 1,948,387.72 --------------- Commitments and contingencies Equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding Common stock, $0.001 par value; 100,000,000 shares authorized; 33,249,927 shares issued and outstanding 33,249.93 Additional paid-in capital 2,325,760.58 Deficit accumulated during the development stage (4,307,398.23) --------------- Total stockholders' deficit (1,948,387.72) --------------- $ (1,948,387.72)
The accompanying notes are an integral part of these unaudited consolidated financial statements. TransWorld Benefits International, Inc. (A Development Stage Company) Consolidated Statement of Operations
FOR THE PERIOD FROM FOR THE SIX FOR THE SIX FOR THE THREE SEPTEMBER 16, 1996 MONTHS ENDED MONTHS ENDED MONTHS ENDED (DATE OF INCEPTION) TO DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31,2003 DECEMBER 31, 2003 ------------------ ------------------ ---------------- ------------------ UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenue $ -- $ -- $ -- $ -- Operating expense General and administrative (934,109.00) (65,004.00) 536,294.00 (4,180,230.00) ------------- ----------- ------------- -------------- Loss before other income (expense) (934,109.00) (65,004.00) 536,294.00 (4,180,230.00) ------------- ----------- ------------- -------------- Other income (expense): Other income 35,493.00 29,000.00 36,395.00 Loss on increase in fair value Of warrants and stock purchase rights Gain on settlement of accounts payable (122,217.00) and accrued expenses 104,072.00 104,072.00 Interest expense, net (11,084.00) 2,360.00 (145,418.00) ------------- ----------- ------------- -------------- Total other income (expense) 128,481.00 2,360.00 29,000.00 (127,168.00) ------------- ----------- ------------- -------------- Net income (loss) $ (805,628.00) $ 62,644.00) $(4,307,398.00) ============= =========== ============= ============== Income (loss) available to common stockholders per common share: Basic $ (805,625.00) $(62,644.00) $ (507,294.00) $(4,307,398.00) ============= =========== ============= ============== Diluted $ -- $ ============= =========== ============= ==============
The accompanying notes are an integral part of these unaudited consolidated financial statements. TransWorld Benefits International, Inc. (A Development Stage Company) Consolidated Statement of Cash Flows
FOR THE PERIOD FROM FOR THE SIX FOR THE SIX SEPTEMBER 16, 1996 MONTHS ENDED MONTHS ENDED (DATE OF INCEPTION) TO DECEMBER 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2003 ------------------ ------------------ ------------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss for period $ (805,628.00) $ (62,644.00) $ (4,307,398.00) Changes in operating assets and liabilities, net of effects of merger: Amortization of deferred financing costs 34,115.00 Stocks and warrants issued for services 355,510.00 Loss on increase in fair value of warrants and stock purchase rights liabilities 119,635.00 241,852.00 Changes in operating assets and liabilities net of effects of merger: Rent deposit 827,851.00 Accounts payable to related parties 1,025,708.00 Accrued interest on notes payable to a related party 60,474.00 (Increase) Decrease in deposit 1,979.00 (Increase) Decrease in other current assets 3,537.00 (Decrease) Current liabilities (1,131,207.37) (1,243,49.37) Subtotal: (1,817,200.00) (57,128.00) (3,005,036.00) ---------------- ---------------- ---------------- Cash flows provided by investing activities: Payments received on note receivable From a related party 205,400.00 Cash flows from financing activities: Proceeds from notes payable 44,500.00 Proceeds from convertible debenture 163,750.00 Proceeds from sale of stock- common stock 1,817,200.00 2,292,819.00 Advances (to) from related parties 144,500.00 Proceeds from notes payable to a related party 154,067.00 ---------------- ---------------- ---------------- Net cash provided by financing activities 1,817,200.00 2,799,636.00 Net increase (decrease) in cash (25,746.00) Cash, beginning of period 2,322.00 25,476.00 ---------------- ---------------- ---------------- Cash, end of period $ 0 $ 0 $ 0 ================ ================ ================
The accompanying notes are an integral part of these unaudited consolidated financial statements TransWorld Benefits International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BACKGROUND AND ORGANIZATION Effective January 30, 2003, Thinka Weight-Loss Corporation ("TWLO") entered into a Share Purchase Agreement dated October 4, 2002 ("Purchase Agreement") with TransWorld Benefits, Inc. ("TransWorld"). Pursuant to the terms of the Purchase Agreement, all of the outstanding stock of TransWorld was sold to TWLO for 4,500,000 shares of TWLO's common stock. TransWorld merged with and into TWLO and TWLO continued as the surviving entity (TransWorld and TWLO as a combined entity are referred to as the "Company"). In October 2003, the Company's stockholders approved changing the name of the Company to TransWorld Benefits International, Inc., which was filed and completed in December 2003. The Purchase Agreement also required that two stockholders of TransWorld be given two of the three existing seats on the Board of Directors of the Company. In addition, the majority stockholders of TransWorld entered into an option with a stockholder of TWLO to purchase an additional 5,300,000 shares of the Company's outstanding common stock from one of TWLO's stockholders, which expired unexercised on September 21, 2003. As the stockholders of TransWorld exercised control of the combined entity after the completion of the merger, the transaction has been accounted for as a "reverse acquisition." Under reverse acquisition accounting, TransWorld is considered the accounting acquiror and TWLO is considered the accounting acquiree, and the 14,534,600 shares of TWLO common stock outstanding at the date of the transaction are considered issued to stockholders of the Company in a recapitalization of the Company. In connection with the transaction, the Company agreed to assume certain liabilities of TWLO totaling $148,947; as a result, the net value of the shares recorded by the Company for the recapitalization was $(148,947). The historical financial statements of the Company have now become those of TransWorld. In addition, the Company agreed to change from its historical December 31 year end to the June 30 fiscal year end of TWLO. Therefore, these financials present the six month results through December 31, 2003. The Company was incorporated in 1996 in Nevada. The Company is a development stage company formed to provide emergency travel services to the funeral, insurance, travel, Internet, and credit card industries. The Company will generate revenue through direct sales or licensing of the Company's proprietary products such as the return of remains of the deceased by private executive aircraft. The Company also intends to market and sell insured plans for the repatriation of remains benefit, medical evacuation and necessary repatriation as well as accidental death and dismemberment benefits. The Company expects to sell its products to customers both domestically and internationally. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by the management of the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America for interim financial information. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly represent the financial position and operating results for the respective periods. Certain information and footnote disclosures normally present in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. It is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and notes thereto for the six-month period ended June 30, 2003, included in the Company's Form 10-KSB filed with the Securities and Exchange Commission on October 17, 2003. The results of the six months ended December 31, 2003 are not necessarily indicative of the results to be expected for the period ending June 30, 2004. TransWorld Benefit International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED DEVELOPMENT STAGE ENTERPRISE The Company is a development stage company as defined in Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises." The Company is devoting substantially all of its present efforts to establish a new business, and its planned principal operations have not yet commenced. The Company has not generated any revenues from operations and has no assurance of any future revenues. All losses accumulated since inception have been considered as part of the Company's development stage activities. The Company will require substantial additional funding for continuing research and development and for the commercialization of its products. There is no assurance that the Company will be able to obtain sufficient additional funds when needed, or that such funds will be obtainable on terms satisfactory to the Company. PRINCIPLES OF CONSOLIDATION The accompanying condensed consolidated financial statements include the accounts of Thinka Weight-Loss Corporation and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. Certain amounts in the six months ended December 31, 2003 have been reclassified to conform to the six months ended December 31, 2003 presentation. GOING CONCERN The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred cumulative losses of $ 4,307,398.00 since inception, had no revenue during the period ended December 31, 2003, had a cash balance of $ 0 at December 31, 2003 and had a working capital deficit of $ 1,948,388 at December 31, 2003. Management recognizes that the Company must generate additional resources for the eventual achievement of sustained profitable operations. The Company's success is dependent upon numerous items, including the successful development of effective marketing strategies to customers in a competitive market. Management believes that its products will have a significant effect on future profitability. Management's plans also include obtaining additional capital through equity or debt financing. However, no assurance can be given that additional capital, if needed, will be available when required or upon terms acceptable to the Company. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the respective reporting period. Actual results could differ from those estimates. Significant estimates made by management include, among others, the valuation allowance on deferred tax assets. TransWorld Benefit International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ACCRUED LIABILITY RELATED TO WARRANTS AND STOCK PURCHASE RIGHTS The Company accounts for freestanding derivative financial instruments potentially settled in its own common stock under Emerging Issues Task Force ("EITF") Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." As the Company potentially does not have sufficient authorized shares available to settle its open stock-based contracts, the initial fair value of the applicable contracts (consisting primarily of non-employee stock warrants and rights to purchase common stock - see Notes 4 and 5) has been classified as "accrued liability related to warrants and stock purchase rights" on the accompanying consolidated balance sheet and measured subsequently at fair value (based on a Black-Scholes computation), with gains and losses included in the statement of operations. For the six months ended December 31, 2003, the Company recorded a gain on the decrease in the fair value of the accrued liability related to warrants and stock purchase rights of $ 122,217 in the accompanying consolidated statement of operations. At December 31, 2003, the balance of the accrued liability related to warrants and stock purchase rights was $ 597,727 in the accompanying condensed consolidated balance sheet. REVENUE RECOGNITION The Company anticipates generating future sales revenue from sales of its products. The Company will recognize revenue at the time products are sold or services are performed for customers. STOCK-BASED COMPENSATION The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services." All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur. The Company has elected, pursuant to SFAS No. 123, to account for purchase rights granted to employees under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as amended. The Company adopted a stock incentive plan on July 17, 2003. At December 31, 2003, the Company has not granted any options to employees. LOSS PER SHARE Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares assumed to be outstanding during the period of computation. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of December 31, 2003 and, there were 30,591,097 and potentially dilutive securities that would effect loss per share if they were to be dilutive. COMPREHENSIVE INCOME Comprehensive income is not presented in the Company's condensed consolidated financial statements since the Company did not have any items of comprehensive income in any period presented. TransWorld Benefit International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION As the Company operates in one segment, the Company has not made segment disclosures in the accompanying condensed consolidated financial statements. NEW ACCOUNTING PRONOUNCEMENTS In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not have a material impact on the Company's financial position, cash flows or results of operations. NOTE 2 - NOTES PAYABLE The Company has received non-interest bearing advances from unrelated parties that are due on demand. The total outstanding balance of these notes is $ 48,704 as of December 31, 2003. In 2002, the Company entered into a secured promissory note payable with an unrelated party with a principal balance of $45,000, which bears interest of 10% per annum, and was due on October 31, 2002. The promissory note payable is secured by certain assets of one of the Company's shareholders. The Company is currently in negotiations with the unrelated party to extend the note payable maturity date. NOTE 3 - RELATED PARTY TRANSACTIONS NOTES PAYABLE TO RELATED PARTIES The Company has unsecured promissory notes payable to one of the Company's officers which bear interest at 10% per annum and are due on demand. The principal balance on the notes is $154,067 as of December 31, 2003. The Company also has unsecured promissory notes payable to one of the Company's shareholders which bear interest at 8% per annum and were due on demand. The principal balance on the note is $ 77,000 as of December 31, 2003. The accrued interest payable on the notes payable to related parties is $ 48,704 as of December 31, 2003. The Company recorded interest expense of $ 11,804 and $ 0 for the six months ended December 31, 2003 and 2002, respectively. ADVANCES FROM A RELATED PARTY From time to time, the Company receives advances from a related party to fund its operating expenses. The advances are non-interest bearing and are due on demand. The balance due on advances from a related party is $ 32,500 at December 31, 2003. TransWorld Benefit International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 3 - RELATED PARTY TRANSACTIONS, CONTINUED OTHER EXPENSES The accounts payable to related parties balance of $ 1,007,040 as of December 31, 2003 represents accruals for consulting services and general and administrative expenses payable to various related parties, including consultants, officers and/or stockholders of the Company. The Company recorded general and administrative expenses (including the rent expense discussed below) of approximately $ 263,127 to these related parties for the six months ended December 31, 2003. LEASES The Company leases one of its office facilities from a related party. The rent expense paid to the related party was $3,600 and $5,250 during the six months ended December 31, 2003 and 2002, respectively, and is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. NOTE 4 - CONVERTIBLE DEBENTURE On January 29, 2003 (as amended on August 14, 2003 to clarify the intent of the parties), the Company entered into a Securities Purchase Agreement (the "Agreement") with La Jolla Cove Investors, Inc. ("La Jolla"), pursuant to which the Company issued an 8% convertible debenture in the amount of $300,000 (the "Convertible Debenture"). The Convertible Debenture is due on January 29, 2005. On January 30, 2003, the Company received $163,750 of the principal amount of the Convertible Debenture. In connection with the Agreement, the Company issued La Jolla a warrant for the purchase of 1,500,000 shares of common stock at $1.00 per share, which expires on January 29, 2006. Provided the Company was to obtain additional financing from a third party of at least $1,000,000 by July 29, 2003, the Company had the right to reject La Jolla's request to exercise all or any portion of the warrant. This did not occur; thus, the warrant terms are in full force and effect. Pursuant to the terms of the Agreement, La Jolla shall simultaneously with the conversion of the Convertible Debenture at any time, exercise the warrant at the rate of at least 5 times the dollar amount of the debenture being converted. The terms of the Agreement permit La Jolla to convert the Convertible Debenture into common shares of the Company at any time during the term of the Agreement. The number of shares issued upon conversion of the debenture is equal to the following: the dollar amount of the debenture being converted (a maximum of $300,000), multiplied by 6, minus the product of the Conversion Price (as defined in the debenture which is the lesser of $0.20 or 80% of the lowest market rate over the previous 20 trading days, less 3% for every month or partial month following June 8, 2003, until the registration statement is declared effective) multiplied by 5 times the amount of the debenture being converted, and the entire result shall be divided by the Conversion Price. In connection with the Agreement, the Company is required to register the sale of the underlying common stock to be issued upon conversion of the Convertible Debenture. Upon the effective date of the registration statement, the Company will receive the balance of the Convertible Debenture of $136,250. Thirty days following the effective date of the registration statement, the Company has the right to cause La Jolla to convert up to 10% of the Convertible Debenture and exercise up to $150,000 of the warrant per month. As the Convertible Debenture allows La Jolla to convert the outstanding principal amount into shares of the Company's common stock at a price below fair value at the time of conversion, the Company has recorded a beneficial conversion feature in the amount of $78,600. This amount has been recorded as a debt discount and is being amortized as interest expense over the life of the Convertible Debenture. The warrants issued to La Jolla of $85,150 were recorded based on the relative fair value of the debt and warrants (computed pursuant to the Black Scholes pricing model under SFAS No. 123) as a debt discount and are amortized as interest expense over the remaining life of the Convertible Debenture. TransWorld Benefit International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 5 - STOCKHOLDERS' EQUITY PREFERRED STOCK On September 30, 2003, the Company's stockholders authorized the amending of the Articles of Incorporation to allow for the issuance of up to 5,000,000 shares of $0.001 par value preferred stock. Shares of preferred stock may be issued in one or more classes or series at such time the Board of Directors determine. As of November 14, 2003, there were no shares of preferred stock issued and outstanding and no classes or series have been designated by the Board of Directors. COMMON STOCK Common Stock in the company during the period ending December 31, 2003 was issued according to the following schedule:
Name Date Number of Shares at Price Stock Type Resolution Date Purpose ------------------------------------------------------------------------------------------------------------- Noah Clark 10/07/2003 1,500,000 shares @$0.045 S-8 10/2/2003 Consulting Services Peter Nasca 10/08/2003 44,445 shares @ $0.045 S-8 10/3/2003 Consulting Services Richard Anslow 10/14/2003 77,778 shares @ $0.08 S-8 10/14/2003 Legal Services Gregg Jaclin 10/14/2003 33,333 shares @ $0.08 S-8 10/14/2003 Legal Services CDI Holdings 10/29/2003 229,888 shares @ $0.026 Rule 144 10/29/2003 Consulting Services CDI Holdings 10/29/2003 241,135 shares@ $0.26 Rule 144 10/29/2003 Consulting Services CDI Holdings 10/29/2003 1,028,979 shares @ $0.026 Rule 144 10/30/2003 Consulting Services Charles C. Seven 10/31/2003 4,835,177 shares @$0.055 Rule 144 10/30/2003 Consulting Services J. Basso 11/13/2003 160,000 shares @ $0.25 Rule 144 11/12/2003 Consulting Services Darrell Seven 11/30/2003 25,000 shares @ $0.20 Rule 144 11/20/2003 Consulting Services Lonene Fontagne 12/08/2003 2,000,000 shares @0.05 Rule 144 12/5/2003 Subscritpiton Peter Nasca 12/08/2003 12,500 shares @$0.08 S-8 12/5/2003 Consulting Services Sonny O'Sullivan 12/12/2003 333,334 shares @ $0.09 S-8 12/11/2003 Consulting Services
TransWorld Benefits International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 5 - STOCKHOLDERS' EQUITY, CONTINUED In July 2003, the Company issued 2,693,651 registered shares of its common stock valued at $471,389 (or $0.175 per share which was the estimated fair market value of the common stock on the date the shares were issued) under the 2003 Plan to employees and consultants for settlement of $673,413 of the accrued salaries and consulting fees outstanding as of June 30, 2003. The settlement resulted in recognizing a gain on settlement of accounts payable and accrued expenses of $202,024, of which $104,072 is recorded in other income in the accompanying condensed consolidated statement of operations for the six months ended December 31, 2003. The Company agreed to settle the remaining balance owed to these employees and consultants totaling approximately $2,402,000 in restricted shares. The Company has issued 4,835,177 of the restricted shares to the employees and consultants subsequent to December 31, 2003 (see Note 7). STOCK OPTIONS On July 17, 2003, the Company adopted the 2003 Plan that authorized the issuance of 6,000,000 shares of the Company's registered common stock. Options will vest at the discretion of the Board of Directors as determined at the grant date and the 2003 Plan terminates on July 1, 2013. The number of shares available for grant under the 2003 Plan was 2,286,231 as of December 31, 2003. NOTE 6 - COMMITMENTS AND CONTINGENCIES LITIGATION On December 23, 2002, an individual filed a lawsuit against TransWorld and other related parties (the "Lawsuit"). On November 17, 2003, the Company and the other related parties entered into a settlement agreement pursuant to which the Company will pay $45,000 to the individual on or before January 16, 2004. If the Company fails to make the payment by the due date, the Company shall pay $58,000 to the individual on or before March 1, 2004. Upon execution of the settlement agreement, the Company shall deliver 1,500,000 shares of restricted common stock into an escrow as security for payment of the amounts due to the individual. In the event the Company fails to pay $45,000 on or before January 16, 2004, the Company will deliver additional shares into the escrow account in an amount equal to the average selling price of the Company's shares for the period of February 1 through February 15, 2004, divided into $174,000 less the stock already in escrow of 1,500,000. If the Company makes the required payment by March 1, 2004, the shares in escrow will be returned to the Company; otherwise, the shares will be delivered to the individual on March 2, 2004. As of December 31, 2003, the Company accrued $45,000 in accounts payable and other accrued expenses in the accompanying condensed consolidated balance sheet with a corresponding amount recorded as other expense in the accompanying condensed consolidated statement of operations for the six months ended December 31, 2003. The Company may become involved in other legal proceedings and claims which arise in the ordinary course of its business. Management does not believe that any other matters will have a material adverse effect on the Company's financial position or results of operations. TransWorld Benefit International, Inc. (A Development Stage Company) Notes to Unaudited Consolidated Financial Statements NOTE 6 - COMMITMENTS AND CONTINGENCIES, CONTINUED INDEMNITIES AND GUARANTEES During the normal course of business, the Company has made certain indemnities and guarantees under which it may be required to make payments in relation to certain transactions. These indemnities include certain agreements with the Company's officers, under which the Company may be required to indemnify such person for liabilities arising out of their employment relationship. The duration of these indemnities and guarantees varies and, in certain cases, is indefinite. The majority of these indemnities and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated to make significant payments for these obligations and no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheet. NOTE 7 - INCOME TAXES At December 31, 2003, the Company had net operating loss carryforwards of approximately $4,307,398 for income tax purposes, available to offset future taxable income expiring on various dates through 2020. The net operating loss created a deferred tax asset of approximately $1,206,071. This tax asset has been fully reserved through a valuation allowance due to the uncertainty of future operations generating income to realize such deferred tax asset. Item 2. Management's Discussion and Analysis or Plan of Operation The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with our financial statements and footnotes. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. Going Concern. We recognize that we must generate additional resources in order for us to eventually reach a level of sustained profitable operations. We are dependent on the development of effective marketing strategies for our products to customers in a competitive market coupled with the timeliness of the delivery of our services. We anticipate bringing our services to market as described below, which will generate revenue flow to the Company. Our plans also include obtaining additional working capital through equity or debt financing. However, no assurances can be made that we will attain profitability and that the additional working capital will be available when needed or on terms acceptable to us. We have incurred losses from operations since our inception, are still in the development stage, and have a working capital deficit of approximately $2,395,093 as of December 31, 2003. These factors, among others, raise substantial doubt regarding our ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties. Plan of Operations We plan to be a world-wide provider of Bridge Medical Coverage that will reimburse up to $2,500 of a medical deductible or co-pay. The policy pays for the costs associated with sickness or injury while traveling 100 miles or more from home. We plan to be the first company in the world that provides for the return of remains by contracted private executive aircraft as a standard feature. Not only will our service provide this dignified and respectful service, but up to three members of the deceased's family may also accompany the remains. Of the world's airports, 90% are unable to accommodate a commercial airplane. The TransWorld solution will provide privacy and convenience at a time of need. We have developed our unique product line utilizing the experience of our staff and officers in aircraft management, death care and insurance resulting in the development of a product with unique, state-of-the-art features and benefits. Our actuarial analysis and aircraft network constitute a significant barrier to entry for competitors. We believe we have completed our product research and development for the foreseeable future and do not intend to spend significant resources on research and development over the next twelve (12) months. Insurance underwriting on our trip products and other short-term products as well as annual products have a committed from an A-rated insurance company. Completion of insurance underwriting on all products and services are expected in late November 2003 with underwriter approval of all marketing materials, i.e. video tapes, brochures, certificates, I.D. cards and the initial website wherein their guarantee is referenced in early December 2003. Marketing materials will be available at that time, and we intend to begin sales in November 2003. Our corporate legal, insurance and auditing cost for the twelve months ended June 30, 2000, is expected to be approximately $250,000. Current liabilities scheduled to be paid through the period ending June 30, 2004, amount to $500,000. Hardware and software purchases through the period ending June 30, 2004 are estimated at approximately $150,000. General and administrative costs through the period April 30, 2004 will be approximately $200,000. Sales expenses are estimated at approximately $100,000 through the period ending May 31, 2004. We estimate our marketing expenses (video tapes, brochures, advertising) at approximately $ 250,000 through the period ending June 30, 2004. The total estimated cost to get us to market through the period ending March 31, 2004 is $1,500,000 with a $50,000 contingency for outside contractors and data processing needs. We plan to obtain $1,500,000 capital investment from a private placement of common stock or derivates thereof, pursuant to an outstanding convertible debenture and warrant issued to La Jolla Cove Investors, Inc., as more fully described on pages 7 through 9 of our Form SB-2, filed with the Securities and Exchange Commission on August 26, 2003, which is hereby incorporated by reference, or from other potential sources with whom we are currently in conversations. We project that following our initial phase until we begin receiving operating revenue sufficient to cover operating expenses, our monthly expenses will be approximately $535,000 per month which includes the cost of sales. We further project our earnings and positive cash flow to be very strong by the eighth month, in the amount of $500,000 per month or more. Prior to reaching profitability and after the initial $1,500,000 capital investment, we will require additional capital of $3,000,000, which if all prior liabilities were paid (optional), would leave us with a projected minimum positive cash flow of approximately $400,000 in month seven. The $3,000,000 additional capital is expected to come from the factoring of a potential strategic alliance, from the warrant held by La Jolla Cove Investors, Inc., from a private placement of common stock or one of two loan opportunities. Should we not meet our second tier of financing in a timely manner, we would negotiate extensions of current liabilities to employees and we would reduce our start-up marketing and advertising expenses. Hiring programs and equipment purchases would be minimized. These cuts would allow us to maintain the quality assets of the company, i.e. its management and unique product position in the marketplace, although revenues would then be generated very slowly, and could require us to within 8 to 12 months seek a "takeover" partner from one of the company's many strategic alliance opportunities in the funeral, insurance and travel markets. Liquidity And Capital Resources. We had $ 0 in cash at December 31, 2003. We had $ 1,760,624 in current liabilities at December 31, 2003. During the six months ended December 31, 2003, our net cash position decreased by $2,322 from a balance of $ 2,322 as of June 30, 2003. During the six months ended December 31, 2003, we had a loss from operations of $ 691,366, generated no cash flows from investing activities and generated net cash flows from financing activities of $1,936,837. During this period, our operating activities utilized net cash of $ 1,936,837. We do not currently have any material commitments for capital expenditures in the short term other than those expenditures incurred in the ordinary course of business. Since inception, our operating and investing activities have used all cash from financing activities. We will have an ongoing need to raise additional capital to meet working capital requirements in order to fund the growth and development of the business. Our forecast for the period for which our financial resources will be adequate to support our operations involves risks and uncertainties and actual results could fail as a result of a number of factors. We need to raise additional capital to develop and conduct our operations. Such additional capital may be raised through public or private financing as well as borrowings and other sources. We are currently negotiating potential investments with four separate groups or individuals to raise money through a private sale of stock or convertible debentures, but there can be no assurance that additional funding will be available on favorable terms, if at all. In addition, if our SB-2 registration statement filed on August 26, 2003, becomes effective, we will receive additional revenue from exercise of warrants held by La Jolla Cove Investors, Inc. We cannot be certain, when, if at all, such registration statement will be made effective. If adequate funds are not available, we believe that our officers and directors will contribute funds to pay for our expenses. Therefore, we have not contemplated any plan of liquidation in the event that we do not generate revenues. Item 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer (collectively the "Certifying Officers") maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) within 90 days prior to the filing date of this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures are effective in timely alerting them to material information relative to our company required to be disclosed in our periodic filings with the SEC. (b) Changes in internal controls. Our Certifying Officer has indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no such control actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION Item 1. Legal Proceedings On December 23, 2002, plaintiff Tom Clark filed a lawsuit in Superior Court for the County of Orange, State of California, against TransWorld Benefits, Inc. (the "Company") and others, entitled Clark v. Seven, et al., OCSC Case No. 02CC18901(the "Lawsuit"). The other defendants named in the Lawsuit are The Senna Corporation, Charles Seven and Raymond A. Lee. The only cause of action alleged against the Company in the Lawsuit is for breach of contract. In that cause of action, Mr. Clark alleges that he lent $35,000 to the Company and has not been repaid. Mr. Clark alleges that he is entitled to judgment for $45,000, plus prejudgment interest and court costs. On October 6, 2003, the Company filed a cross-complaint against Mr. Clark for breach of contract and fraud alleging that Mr. Clark has breached an obligation to pay the Company $500,000 pursuant to a Stock Purchase Agreement between Mr. Clark and the Company. This lawsuit was settled for a total of $45,000 which was to be paid to Mr. Clark by no later than January 16, 2004. If the settlement was not paid by such time, then the Company agreed to pay a total of $58,000 by no later than March 1, 2004 which was be secured by shares of the Company's restricted common stock. The parties subsequently agreed to extend such date to May 1, 2004. Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. Not Applicable Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports of Form 8-K. (a) Exhibits 31.1 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002 32.1 Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (b) Reports of Form 8-K None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSWORLD BENEFITS INTERNATIONAL, INC. Date: March 22, 2004 /s/ Charles Seven --------------------------------------- Charles Seven Chief Executive Officer and President