<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the period ended March 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE Act
of 1934 for the transition period from ___ to ____.
Commission file number: 000-23319
AVANI INTERNATIONAL GROUP INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Nevada 88-0367866
------ ----------
(State of (I.R.S. Employer
Incorporation) I.D. Number)
#328-17 Fawcett Road, Coquitlam, B.C. (Canada) V3K 6V2
- ---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 604-525-2386.
-------------
Securities registered under Section 12 (b) of the Act:
Title of each class Name of exchange on which
to be registered each class is to be registered
---------------- ------------------------------
None None
Securities registered under Section 12(g) of the Act:
Common Stock
------------
(Title of Class)
Check whether issuer (1) filed all reports to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or 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: _____ No: __X__.
Yes: __X__ No: _____.
The number of shares issued and outstanding of issuer's common stock, $.001 par
value, as of March 31, 1998 was 11,453,600.
<PAGE>
Transitional Small Business Issuer Format (Check One):
Yes: _____ No: __X__
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page No.
--------
Consolidated Condensed Balance Sheet as of March 31, 1998
and December 31, 1997. 3
Consolidated Condensed Statement of Operations for the
Three Months Ended March 31, 1998 and 1997. 4
Consolidated Condensed Statement of Stockholders
Equity for the Three Months Ended March 31, 1998 and 1997. 5
Consolidated Condensed Statement of Cash Flows
for the Three Months Ended March 31, 1998 and 1997. 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 10
Signatures 11
<PAGE>
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,010,716 $ 120,492
Accounts receivable 80,615 76,343
Goods and services tax receivable 29,440 54,105
Subscription receivable 20,700 240,000
Inventory 90,186 105,530
Prepaid expenses 36,386 60,716
----------- -----------
TOTAL CURRENT ASSETS 1,268,043 657,186
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - Net 1,775,976 1,752,806
----------- -----------
OTHER ASSETS
Security deposits 10,899 8,541
Trademarks 5,690 4,244
License 32,800 4,800
----------- -----------
49,389 17,585
----------- -----------
TOTAL ASSETS $ 3,093,408 $ 2,427,577
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 27,953 $ 68,924
Accounts payable and accruals 257,763 54,794
Wages and benefits payable 13,341 16,086
Unearned income 14,285 19,737
Bottle and cooler deposits 71,745 66,859
----------- -----------
TOTAL CURRENT LIABILITIES 385,087 226,400
LONG-TERM DEBT - Net of current portion 446,938 440,669
----------- -----------
TOTAL LIABILITIES 832,025 667,069
----------- -----------
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 par value, 25,000,000 shares authorized;
11,453,600 and 10,113,600 shares issued and outstanding 11,454 10,114
COMMON STOCK DISCOUNT (55,000) --
ADDITIONAL PAID-IN CAPITAL 4,636,847 3,465,257
COMMON STOCK SUBSCRIBED 20,700 240,000
ACCUMULATED OTHER COMPREHENSIVE INCOME (81,721) (100,361)
ACCUMULATED DEFICIT (2,270,897) (1,854,502)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,261,383 1,760,508
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,093,408 $ 2,427,577
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUE
Bottled water and supply sales $ 104,001 $ 141,776
Cooler and equipment sales 6,594 3,201
Cooler rentals 10,346 4,617
------------ ------------
120,941 149,594
------------ ------------
COST OF GOODS SOLD
Cost of goods sold (excluding depreciation) 85,429 99,227
Depreciation 21,210 17,054
------------ ------------
106,639 116,281
------------ ------------
GROSS PROFIT 14,302 33,313
------------ ------------
OPERATING EXPENSES
General and administrative 253,757 159,636
Marketing 169,199 60,492
------------ ------------
422,956 220,128
------------ ------------
LOSS FROM OPERATIONS (408,654) (186,815)
------------ ------------
OTHER INCOME (EXPENSE)
Other 1,397 44
Interest income 1,787 6,738
Interest expense (10,925) (9,405)
------------ ------------
(7,741) (2,623)
------------ ------------
NET LOSS $ (416,395) $ (189,438)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.04) $ (0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 10,496,933 9,456,333
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Common Additional Common Other
----------------------- Stock Paid-In Stock Comprehensive Accumulated
Shares Amount Discount Capital Subscribed Income Deficit
------ ------ -------- ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997
(Audited) 10,113,600 $ 10,114 $ -- $ 3,465,257 $ 240,000 $ (100,361) $(1,854,502)
PURCHASE AND RETIREMENT OF
COMMON STOCK (400,000) (400) -- (399,600) -- -- --
ISSUANCE OF COMMON STOCK 1,500,000 1,500 (55,000) 1,463,500 -- -- --
CASH UNDER SUBSCRIPTION
AGREEMENT 240,000 240 -- 239,760 (240,000) -- --
OFFERING COSTS FOR SHARES
ISSUED -- -- -- (132,070) -- -- --
COMMON STOCK SUBSCRIBED -- -- -- -- 20,700 -- --
NET LOSS -- -- -- -- -- -- (416,395)
OTHER COMPREHENSIVE INCOME -- -- -- -- -- 18,640
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1998 11,453,600 $ 11,454 $ (55,000) $ 4,636,847 $ 20,700 $ (81,721) $(2,270,897)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
<PAGE>
.
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (416,395) $ (189,438)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 30,086 25,765
Issuance of common stock for professional fees 10,000 --
(Increase) decrease in assets
Accounts receivable 22,363 (27,446)
Inventory 17,072 (3,192)
Prepaid expenses 24,612 1,953
Other assets (2,202) --
Increase (decrease) in liabilities
Accounts payable 199,562 (38,439)
Unearned income and deposits (2,088) 14,798
----------- -----------
Net cash used in operating activities (116,990) (215,999)
----------- -----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (22,256) (202,474)
Investment in trademarks and patents (28,000) --
----------- -----------
Net cash used in investing activities (50,256) (202,474)
----------- -----------
FINANCING ACTIVITIES
Proceeds from mortgages payable -- 72,183
Payments of mortgages payable (43,390) (909)
Issuance of common shares, net of offering costs 1,507,930 --
Purchase of common shares (400,000) (1,000)
----------- -----------
Net cash provided by financing activities 1,064,540 70,274
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (7,070) (9,910)
----------- -----------
NET INCREASE (DECREASE) IN CASH 890,224 (358,109)
CASH - BEGINNING OF PERIOD 120,492 898,581
----------- -----------
CASH - END OF PERIOD $ 1,010,716 $ 540,472
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 10,925 $ 9,405
=========== ===========
Income taxes $ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
Common stock subscription $ 20,700 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management reflects
normal recurring adjustments necessary for a fair presentation of the
information for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Form 10-K
for the year ended December 31, 1997.
The results of operations for the three month periods ended March 31, 1998 and
1997 are not necessarily indicative of operating results for the full year.
NOTE 2 - BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of Avani
International Group, Inc. (the "Company") and its subsidiaries. All material
intercompany balances and intercompany transactions have been eliminated.
NOTE 3 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS"), Comprehensive Income for the first quarter of fiscal year 1998.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income. Comprehensive income (loss),
representing foreign currency translation adjustments for the three months ended
March 31, 1998 and 1997 was $18,640 and $(22,296).
NOTE 4 - MAJOR CUSTOMER AND SUPPLIER
The Company sells a substantial portion of its products to one customer. During
the three months ended March 31, 1998 and 1997, sales to this customer
aggregated $18,720 and $139,781. At March 31, 1998 and 1997, amounts due from
this customer included in trade accounts receivable were $-0- and $-0-.
During the three months ended March 31, 1998 and 1997, the Company purchased
approximately 36% and 0% of its materials from one supplier. At March 31, 1998
and 1997 amounts due to that supplier were $-0- and $-0-. If the supplier ceased
doing business with the Company, management believes that other sources of
materials are available.
<PAGE>
Management's Discussion and Analysis.
The following discusses the financial results and position of the consolidated
accounts of the Company and its wholly owned subsidiaries for the periods
indicated.
Results of Operations
Three Months Ended March 31, 1998 compared with Three Months Ended March 31,
1997.
Revenues for the three months ended March 31, 1998 were $120,941 representing a
decrease of 19.15% from revenues of $149,594 for the comparable period in 1997.
This decrease was due to a reduction in sales to the Company's major customer in
Taiwan. The reduction is a result of the current economic difficulties in this
country. The decrease in sales to the major customer was offset partially by the
increase in sales of its five gallon bottles. Revenues for the 1998 period
consisted of $104,001 in water and supply sales (a decrease of 26.64% from
$141,776 for the prior period), $6,594 in cooler and equipment sales (an
increase of 106% from $3,201 for the prior period) and $10,346 in cooler rentals
(an increase of 124% from $4,617 for the prior period). Of the total revenue for
the 1998 period, $18,720 (or 18% of total water sales) represented sales to a
Taiwan distributor. This amount represents a decrease of 86.61% from sales of
$139,781 to the distributor for the prior period. Interest income earned on
investment of cash totaled $1,784 for the period in 1998 representing a decrease
of 73.53% from $6,738 for the prior period. The decrease is a result the
reduction of available cash which was used for increased operations during the
remaining 1997 period and first quarter of 1998.
Cost of sales for the 1998 period totaled $106,639 which represents a decrease
of 8.29% from $116,281 for the prior period. Cost of goods sold as a percentage
of sales increased by 4.13% from 66.33% to 70.64% due principally to increased
delivery expense related to sales of the five gallon bottles. Cost of sales
consisted of $85,429 in bottled water, supplies, coolers and related equipment
(a decrease of 13.91% from $99,227 for the prior period) and $21,210 in
depreciation (an increase of 21.17% from $17,504 for the prior period). Gross
profit for period was $14,302 compared with a gain of $33,313 for the prior
period. The decrease was due to reduced revenue for the 1998 period.
General and administrative expenses which includes administrative salaries and
overhead for the period totaled $253,757 which represents an increase of 58.96%
from $159,636 for the prior period. This increase is due to principally to
increased professional fees, printing and general office expense. Marketing
expenses totaled $169,199 for the 1998 period, representing an increase of
179.70% from $60,492 for the prior period. The increase in marketing expenses is
due principally to costs related to the Company's sponsorship of the Los Angeles
Marathon. Interest expense in connection with the Company's real estate totaled
<PAGE>
$10,925 for the 1998 period representing an increase of 16.16% from $9,405 for
the prior period. Net loss for the 1998 fiscal period was ($416,395) which
represents an increase of 119.81% from $189,438) for the prior period.
Liquidity and Capital Resources
Since its inception through December 31, 1997, the Company has raised
approximately $4,399,600 from the private placement of its common stock (net of
offering costs of $449,429). The Company has used these proceeds to fund the
construction of its manufacturing facilities and its working capital
requirements. At the end of the first quarter of 1998, the Company raised
approximately $1,500,000 from the private placement of its common stock. In
addition, during the first quarter of 1998, the Company repurchased 400,000
shares of common stock at $1.00 per share from certain shareholders.
As of March 31, 1998, the Company has working capital in the amount of $882,956.
The Company is uncertain as to when it will achieve profitable operations. Until
such time, the Company intends to finance its ongoing operations through the
private placement of its capital stock or though debt financing. The Company has
no commitments for any such financing. No assurances can be given that the
Company will be successful in these endeavors. If the Company is unsuccessful in
these endeavors, such event will have a material adverse impact on Company.
Property, plant and equipment, net of accumulated depreciation, totaled
$1,775,976 on March 31, 1998. Property, plant and equipment, net of accumulated
depreciation, totaled $1,752,806 on March 31, 1997. In connection with its real
estate properties, as of March 31, 1998, the Company has balloon mortgage
payments in the aggregate amount of 446,938.
Forward Looking Statements. Certain of the statements contained in this Annual
Report on Form 10-QSB includes "forward looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange
Act"). See the Company's Annual Report on Form 10-KSB for additional statements
concerning operations and future capital requirements.
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of matters to a vote of securityholders.
None
<PAGE>
Item 5. Other Information.
None
Item 6. EXHIBITS.
(a). Furnish the Exhibits required by Item 601 of Regulation S-B.
None.
(b) Reports on Form 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVANI INTERNATIONAL GROUP, INC.
Date: June 27, 1998 /s/ Peter Khean
-----------------------------------
Peter Khean
Chairman and President
/s/ Nico Huang
-----------------------------------
Nico Huang
Chief Financial Officer and Treasurer
