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 September 30,1998.
[ ] 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.
(1). Yes: No: X
(2). Yes: X No:
The number of shares issued and outstanding of issuer's common
stock, $.001 par value, as of September 30, 1998 was 11,608,257.
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
September 30,1998 and December 31, 1997. 3
-Consolidated Condensed Statement of Operations for the
Nine Months Ended September 30, 1998 and 1997. 4
-Consolidated Condensed Statement of Stockholders
Equity for the Nine Months Ended September 30, 1998
and 1997. 6
-Consolidated Condensed Statement of Cash Flows
for the Nine Months Ended September 30, 1998
and 1997 7
-Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis. 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities. 12
Item 3. Defaults upon Senior Securities. 12
Item 4. Submission of Matters to Vote of Securityholders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 12
-2-
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements.
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September December
30, 31,
1998 1997
--------- --------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash $242,292 $ 120,492
Accounts receivable 179,397 76,343
Goods and services tax receivable 37,458 54,105
Subscription receivable - 240,000
Inventory 72,919 105,530
Prepaid expenses 44,096 60,716
---------- ----------
TOTAL CURRENT ASSETS 576,162 657,186
PROPERTY, PLANT AND EQUIPMENT - Net 1,616,307 1,752,806
---------- ----------
OTHER ASSETS
Security deposits 10,505 8,541
Trademarks 5,216 4,244
License 32,800 4,800
--------- -----------
48,521 17,585
TOTAL ASSETS $2,240,990 $2,427,577
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $25,958 $68,924
Accounts payable and accruals 37,752 54,794
Wages and benefits payable 13,278 16,086
Unearned income 16,071 19,737
Bottle and cooler deposits 78,465 66,859
------- -------
TOTAL CURRENT LIABILITIES 171,524 226,400
LONG-TERM DEBT - Net of current portion 392,432 440,669
------- -------
TOTAL LIABILITIES 563,956 667,069
------- -------
STOCKHOLDERS' EQUITY
COMMON STOCK - $.001 par value, 25,000,000
shares authorized; 11,608 10,114
11,608,257 and 10,113,600 shares issued and
outstanding
COMMON STOCK DISCOUNT (55,000) -
ADDITIONAL PAID-IN CAPITAL 4,745,431 3,465,257
COMMON STOCK SUBSCRIBED - 240,000
ACCUMULATED OTHER COMPREHENSIVE INCOME (198,999) (100,361)
ACCUMULATED DEFICIT (2,826,006)(1,854,502)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,677,034 1,760,508
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,240,990 $2,427,577
---------- ----------
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------
1998 1997 1998 1997
---------- ----------- ---------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Bottled water and supply
sales $161,144 $89,700 $384,168 $352,628
Cooler and equipment sales 419 2,553 9,686 9,465
Cooler rentals 9,718 7,665 29,039 17,875
----- ----- ------ ------
171,281 99,918 422,893 379,968
--------- ------- --------- --------
COST OF GOODS SOLD
Cost of goods sold
(excluding depreciation) 102,537 60,515 253,297 235,552
Depreciation 21,731 24,428 65,551 59,574
--------- ------- ------- -------
124,268 84,943 318,848 295,126
--------- ------- ------- -------
GROSS PROFIT 47,013 14,975 104,045 84,842
------ ------ ------- -------
OPERATING EXPENSES
General and administrative 185,454 252,881 670,771 593,101
Marketing 93,547 140,712 392,644 274,491
Research and development - 6,668 - 9,957
------- ------- ------- -------
279,001 400,261 1,063,415 877,549
------- ------- --------- --------
LOSS FROM OPERATIONS (231,988) (385,286) (959,370) (792,707)
--------- -------- ---------- ---------
OTHER INCOME (EXPENSE)
Other 1,435 - 4,224 -
Interest income 4,294 3,452 13,822 13,656
Interest expense (10,714) (10,300) (30,180) (34,690)
--------- -------- -------- --------
(4,985) (6,848) (12,134) (21,034)
NET LOSS $(236,973)$(392,134)$(971,504)$(813,741)
BASIC AND DILUTED LOSS PER
COMMON SHARE
$(0.02) $(0.04) $(0.09) $(0.08)
====== ====== ====== =======
WEIGHTED AVERAGE NUMBER
OF SHARES 11,604,242 9,612,583 11,255,937 9,612,583
========== ========= ========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Accumulated
Other
COMMON STOCK Common Additional Common Compre-
--------------- Stock Paid-In Stock hensive Accumulated
Shares Amount Discount Capital Subscribed Income Deficit
-------- ------- -------- ------- ---------- ------- -----------
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 1,654,657 1,654 (55,000) 1,618,003 - - -
CASH UNDER
SUBSCRIPTION
AGREEMENT 240,000 240 - 239,760 (240,000) - -
OFFERING COSTS
FOR SHARES
ISSUED - - - (177,989) - - -
NET LOSS - - - - - - (971,504)
OTHER
COMPREHENSIVE
INCOME - - - - - (98,638) -
----- ------- ------- --------- ----- -------- ------------
BALANCE,
SEPTEMBER 30,
1998 11,608,257 $11,608 $(55,000) $4,745,431 $ - $(198,999) $(2,826,006)
========== ======= ========= ========== ===== ========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
1998 1997
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss $(971,504) $(813,741)
Adjustments to reconcile net loss to net cash
used in operating activities
Issuance of common stock for professional fees 10,000 -
Depreciation 65,551 166,586
(Increase) decrease in assets -
Accounts receivable (95,689) 24,347
Inventory 27,600 (54,930)
Prepaid expenses 15,492 4,434
Other assets (2,349) -
Increase (decrease) in liabilities
Accounts payable (17,525) (52,573)
Unearned income and deposits 13,057 42,546
-------- --------
Net cash used in operating activities (955,367) (683,331)
--------- ---------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (23,300) (325,332)
Investment in trademarks and patents (28,000) -
-------- ---------
Net cash used in investing activities (51,300) (325,332)
--------- ---------
FINANCING ACTIVITIES
Proceeds from mortgages payable - 116,209
Payments of mortgages payable (65,088) (62,691)
Issuance of common shares, net of offering costs 1,616,670 493,100
Purchase of common shares (400,000) (301,000)
---------- ---------
Net cash provided by (used in) financing
activities 1,151,582 245,618
---------- ---------
EFFECT OF EXCHANGE RATES ON CASH (23,115) 85
NET INCREASE (DECREASE) IN CASH 121,800 (762,960)
CASH - BEGINNING OF PERIOD 120,492 898,581
--------- ---------
CASH - END OF PERIOD $242,292 $135,621
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $30,180 $34,690
======= ========
Income taxes $- $-
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
-7-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 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-KSB for the year ended
December 31, 1997.
Certain reclassifications have been made to the 1997 financial
statements to conform to 1998 presentations.
The results of operations for the nine month periods ended September 30,
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 wholly owned
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 nine months ended September 30,1998 and
1997 was $98,638 and $(17,786).
-8-
NOTE 4 - MAJOR CUSTOMER AND SUPPLIER
The Company sells a substantial portion of its products to one customer.
During the nine months ended September 30,1998 and 1997, sales to this
customer aggregated $89,294 and $170,498. At September 30, 1998 and
1997, amounts due from this customer included in trade accounts
receivable were $62,446 and $-0-.
During the nine months ended September 30, 1998 and 1997, the Company
purchased approximately 49% and 36% of its materials from one supplier.
At September 30, 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.
-9-
PART II - OTHER INFORMATION
Item 2. 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
Revenues for the three and nine months ended September 30, were
$171,281 and $422,893, respectively, compared with $99,918 and $379,968
for the same periods in 1997. The increase of 11.30% for the nine month
period in 1998 was due to the increase in local sales of its five gallon
and PET bottles, and the commencement of shipments to foreign markets
other than Taiwan which occurred in September 1998. The increase was
partially offset by a reduction in sales to the Company's major customer
in Taiwan. Revenues for the nine month period in 1998 consisted of
$384,168 in water and supply sales (an increase of 8.93% from $352,628
for the prior period), $9,686 in cooler and equipment sales (an increase
of 2.33% from $9,465 for the prior period) and $29,039 in cooler rentals
(an increase of 62.46% from $17,875 for the prior period). Of the total
revenue for the nine month period in 1998, $89,294 (or 23.24% of total
water sales) represented sales to a Taiwan distributor. This amount
represents a decrease of 47.63% from sales of $170,498 to the
distributor for the prior period. Interest income earned on investment
of cash totaled $13,822 for the nine month period in 1998 representing
an increase of 1.22% from $13,656 for the prior period. The decrease
is a result of the reduction of available cash.
Cost of sales for the three and nine month periods in 1998 totaled
$124,268 and $318,848, respectively, compared with $84,943 and $295,126
for the same periods in 1997. The increase of 8.04% for the nine month
period and the increase for the three month period in 1998 is a result
of an increase of sales for the period. Cost of goods sold for the nine
month period as a percentage of sales decreased by 2.27% from 77.67% to
75.40% due to the lower cost of sales associated with its gallon
bottles. Cost of sales for the nine month period in 1998 consisted of
$253,297 in bottled water, supplies, coolers and related equipment (an
increase of 7.53% from $235,552 for the prior period) and $65,551 in
depreciation (an increase of 10.03% from $59,574 for the prior period).
Gross profit for the three and nine month periods in 1998 was $47,013
and $104,045, respectively, compared with $14,975 and $84,842 for the
same periods in 1997. The increase for the nine month period in 1998
was due to the higher margins associated with its five gallon bottles
contrasted with lower margins for overseas sales of PET bottles.
General and administrative expenses which includes administrative
salaries and overhead for the three and nine month periods in 1998
totaled $185,454 and $670,771, respectively, compared with $252,881 and
$593,101 for the same periods in 1997. The increase of 13.10% for the
nine month period is due to principally increased professional fees,
printing and general office expense. Marketing expenses totaled $392,644
for the nine month period in 1998 representing an increase of 43.04%
from $274,491 for the prior period. The increase in marketing expenses
is due principally to one time costs related to the Company's
sponsorship of the Los Angeles Marathon and the Vancouver Marathon, and
certain television advertising. Interest expense in connection with the
Company's real estate totaled $30,180 for the nine month period in 1998
representing a decrease of 13% from $34,690 for the prior period. Net
loss for the three and nine month periods in 1998 was $236,973 and
$971,504, respectively, compared with a loss of $392,134 and $813,741
for the prior periods.
-10-
Liquidity and Capital Resources
Since its inception through December 31, 1997, the Company has raised
approximately $4,300,000 from the private placement of its common stock
(net of offering costs). The Company has used these proceeds to fund the
construction of its manufacturing facilities and its working capital
requirements. Through the third quarter of 1998, the Company raised
$1,616,670 in additional proceeds (net of offering costs) 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 September 30, 1998, the Company has working capital in the amount
of $404,638. 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 through 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 the
company.
Property, plant and equipment, net of accumulated depreciation, totaled
$1,616,307 on September 30,1998. Property, plant and equipment, net of
accumulated depreciation, totaled $1,752,806 on December 31, 1997. In
connection with its real estate properties, as of September 30, 1998,
the Company has balloon mortgage payments in the aggregate amount of
$392,432.
Forward Looking Statements. Certain of the statements contained in this
Quarterly 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
-11-
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of securityholders.
None
Item 5. Other Information.
None
Item 6. EXHIBITS.
(a). Furnish the Exhibits required by Item 601 of Regulation S-B.
Exhibit 27.1 - Financial Data Schedule
(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: December 21, 1998 /s/ Peter Khean
Peter Khean
Chairman and President
/s/ Nico Huang
Nico Huang
Chief Financial Officer and Treasurer
-12-
SCHEDULE 27.1
FINANCIAL DATA SCHEDULE
ART.5 FDS FOR 3rd QUARTER 10-Q
Multiplier 1,000
PERIOD TYPE 9 MONTHS
FISCAL YEAR END DEC-31-1998
PERIOD END SEP-30-1998
CASH 242
SECURITIES 0
RECEIVABLES 179
ALLOWANCES 0
INVENTORY 73
CURRENT-ASSETS 576
PP&E 1,682
DEPRECIATION 66
TOTAL ASSETS 2,241
CURRENT-LIABILITIES 172
BONDS 0
COMMON 12
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 1,665
TOTAL-LIABILITIES-AND-EQUITY 2,241
SALES 423
TOTAL-REVENUES 423
CGS 319
TOTAL-COST 1,382
OTHER-EXPENSES (17)
LOSS-PROVISION 0
INTEREST-EXPENSE 30
INCOME-PRETAX (972)
INCOME-TAX 0
INCOME-CONTINUING (972)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (972)
EPS-PRIMARY (.09)
EPS-DILUTED (.09)
-13-
