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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 June 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.
Incorporation Employer
Incorporation) I.D. Number)
#328-17 Fawcett Road, Coquitlam, B.C. (Canada) V3K6V2
- ------------------------------------------------------------
(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 June 30, 1998 was 11,601,244.
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 June 30, 1998
and December 31, 1997. 3
Consolidated Condensed Statement of Operations for the
Six Months Ended June 30, 1998 and 1997. 4
Consolidated Condensed Statement of Stockholders
Equity for the Six Months Ended June 30, 1998 and 1997. 5
Consolidated Condensed Statement of Cash Flows
for the Six Months Ended June 30, 1998 and 1997. 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of 9
Operations and Financial Condition.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 10
Item 2. Change in Securities. 11
Item 3. Defaults Upon Senior securities. 11
Item 4. Submission Of Matters To A Vote of Securityholders. 11
Item 5. Other Information. 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures 11
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June December
30, 31,
1998 1997
--------- ---------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash $ 623,867 $ 120,492
Accounts receivable 100,863 76,343
Goods and services tax receivable 28,934 54,105
Subscription receivable - 240,000
Inventory 63,190 105,530
Prepaid expenses 45,718 60,176
------------- -----------
TOTAL CURRENT ASSETS 862,572 657,186
------------- -----------
PROPERTY, PLANT AND EQUIPMENT - Net 1,698,353 1,752,806
------------- ------------
OTHER ASSETS
Security deposits 10,885 8,541
Trademarks 5,477 4,244
License 32,800 4,800
------------- ------------
49,162 17,585
------------- ------------
TOTAL ASSETS $ 2,610,087 $2,427,577
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $27,079 $ 68,924
Accounts payable and accruals 77,932 54,794
Wages and benefits payable 12,711 16,086
Unearned income 12,505 19,737
Bottle and cooler deposits 74,341 66,859
------- ---------
TOTAL CURRENT LIABILITIES 204,568 226,400
LONG-TERM DEBT - Net of current portion 431,403 440,669
------- ---------
TOTAL LIABILITIES 635,971 667,069
------- ---------
STOCKHOLDERS' EQUITY
COMMON STOCK - $.001 par value, 25,000,000
shares authorized; 11,601,244 and
10,113,600 shares issued and outstanding 11,601 10,114
COMMON STOCK DISCOUNT (55,000) -
ADDITIONAL PAID-IN CAPITAL 4,741,170 3,465,257
COMMON STOCK SUBSCRIBED - 240,000
ACCUMULATED OTHER COMPREHENSIVE INCOME (134,622) (100,361)
ACCUMULATED DEFICIT (2,589,033) (1,854,502)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,974,116 1,760,508
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,610,087 $2,427,577
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1998 1997 1998 1997
--------- ---------- ---------- -----------
(Unaudited) (Unaudited)(Unaudited) (Unaudited)
REVENUE
Bottled water and supply
sales $119,023 $121,152 $223,024 $262,928
Cooler and equipment sales 2,673 3,711 9,267 6,912
Cooler rentals 8,975 5,593 19,321 10,210
---------- --------- --------- --------
130,671 130,456 251,612 280,050
---------- --------- -------- --------
COST OF GOODS SOLD
Cost of goods sold
(excluding depreciation) 65,331 75,810 150,760 175,037
Depreciation 22,610 18,092 43,820 35,146
---------- -------- ------- --------
87,941 93,902 194,580 210,183
---------- -------- -------- --------
GROSS PROFIT 42,730 36,554 57,032 69,867
---------- -------- -------- --------
OPERATING EXPENSES
General and administrative 231,559 180,584 485,316 340,220
Marketing 129,898 73,287 299,097 133,779
Research and development - 3,289 - 3,289
--------- ------- -------- -------
361,457 257,160 784,413 477,288
---------- --------- --------- ---------
LOSS FROM OPERATIONS (318,727) (220,606) (727,381) (407,421)
---------- ---------- --------- ---------
OTHER INCOME (EXPENSE)
Other 1,393 (44) 2,790 -
Interest income 7,740 3,466 9,527 10,204
Interest expense (8,542) (14,985) (19,467) (24,390)
--------- --------- -------- --------
591 (11,563) (7,150) (14,186)
--- -------- ------ --------
NET LOSS $(318,136) $(232,169)$(734,531) $(421,607)
========== ========== ========== ==========
BASIC AND DILUTED LOSS PER
COMMON SHARE $(0.03) $(0.03) $(0.07) $(0.04)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES 11,576,637 9,456,333 11,036,785 9,456,333
=========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Accumulated
Other
Common Stock Common Additional Common Compre-
----------------- Stock Paid-in Stock hensive Acumulated
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 1,647,644 1,647 (55,000) 1,610,997 - - -
CASH UNDER
SUBSCRIPTION
AGREEMENT 240,000 240 - 239,760 (240,000) - -
OFFERING
COSTS FOR
SHARES ISSUED - - - (175,244) - - -
NET LOSS - - - - - - (734,531)
OTHER
COMPREHENSIVE
INCOME - - - - - (34,261) -
========== ======= ======== ========= ========= ========== ============
BALANCE,
JUNE 30,
1998 11,601,244 $11,601 $(55,000)$4,741,170 $- $(134,62) $(2,589,033)
=========== ======= ========= ========= ======== ========= ============
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
------------- ------------
OPERATING ACTIVITIES
Net loss $(734,531) $(421,607)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 43,820 52,175
Issuance of common stock for professional
fees 10,000 -
(Increase) decrease in assets
Accounts receivable (1,056) 33,475
Inventory 41,149 (38,210)
Prepaid expenses 14,706 (25,546)
Other assets (2,398) -
Increase (decrease) in liabilities
Accounts payable 31,995 128,943
Unearned income and deposits (10,175) 25,997
------------- ----------
Net cash used in operating activities (606,490) (244,773)
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (13,632) (285,835)
Investment in trademarks and patents (28,000) -
--------- ----------
Net cash used in investing activities (41,632) (285,835)
--------- ---------
FINANCING ACTIVITIES
Proceeds from mortgages payable - 139,758
Payments of mortgages payable (44,271) (84,411)
Issuance of common shares, net of offering
costs 1,612,400 -
Purchase of common shares (400,000) (1,000)
--------- --------
Net cash provided by financing activities 1,168,129 54,347
---------- --------
EFFECT OF EXCHANGE RATES ON CASH (16,632) (1,131)
---------- --------
NET INCREASE (DECREASE) IN CASH 503,375 (477,392)
CASH - BEGINNING OF PERIOD 120,492 898,581
----------- ----------
CASH - END OF PERIOD $623,867 $ 421,189
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest 19,467 $ 20,286
============ ==========
Income taxes $ - $ -
============ ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 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.
The results of operations for the six month periods ended June 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 six months ended June 30, 1998 and 1997
was $(34,261) and $721.
-7-
NOTE 4 - MAJOR CUSTOMER AND SUPPLIER
The Company sells a substantial portion of its products to one customer.
During the six months ended June 30, 1998 and 1997, sales to this
customer aggregated $25,560 and $171,795. At June 30, 1998 and 1997,
amounts due from this customer included in trade accounts receivable
were $12,620 and $27,714.
During the six months ended June 30, 1998 and 1997, the Company purchased
approximately 41% and 46% of its materials from one supplier. At
June 30, 1998 and 1997 amounts due to that supplier were $2,205 and $-0-.
If the supplier ceased doing business with the Company, management
believes that other sources of materials are available.
-8-
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 six months periods ended June 30, 1998 were
$130,671 and $251,612, respectively, compared with revenues of $130,456
and $280,050 for the same periods in 1997. The decrease of 10.15% for
the six month period in 1998 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 that country. The decrease in
sales to the customer (the major portion of which occurred in the
comparable first quarter periods) was offset partially by the increase
in local sales of its five gallon and PET bottles (which is reflected in
the slight increase in revenues for the three month period in 1998).
Revenues for the six month period in 1998 consisted of $223,024 in water
and supply sales (a decrease of 15.18% from $262,928 for the prior period),
$9,267 in cooler and equipment sales (an increase of 34.07% from $6,912
for the prior period) and $19,321 in cooler rentals (an increase of 89.24%
from $10,210 for the prior period). Of the total revenue for the six month
period in 1998, $25,560 (or 11.46% of total water sales) represented sales
to a Taiwan distributor. This amount represents a decrease of 85.12%
from sales of $171,795 to the distributor for the prior period. Interest
income for the period earned on investment of cash totaled $9,527 for the
six month period in 1998 representing a decrease of 6.63% from $10,204
for the prior period. The decrease is a result of the reduction of
available cash.
Cost of sales for the three and six month period in 1998 totaled $87,941
and $194,580, respectively, compared with $93,902 and $210,183 for the
same periods in 1997. The decrease of 7.42% for the six month period
is a result of the reduction in sales for the period. The increase
for the three month period is a result of an incremental increase of
delivery expenses related to the increased sales of its five gallon
bottles. Cost of goods sold for the six month periods as a percentage
of sales increased by 2.28% from 75.05% to 77.33% due principally to the
incremental increase of delivery expenses. Cost of sales for the six
month period in 1998 consisted of $150,760 in bottled water, supplies,
coolers and related equipment (a decrease of 13.87% from $175,037 for
the prior period) and $43,820 in depreciation (an increase of 24.68%
from $35,146 for the prior period). Gross profit for the three and six
month periods in 1998 was $42,730 and $57,032, respectively, compared
with $36,554 and $69,867 for the prior periods. No cost of sales were
recognized for the six month period ended June 30, 1996. The decrease
for the three and six month periods in 1998 was due to reduced revenue
for the period coupled with increased delivery expenses for its five
gallon bottles.
General and administrative expenses which includes administrative salaries
and overhead for the six month period totaled $485,316 which represents
an increase of 42.65% from $340,220 for the prior period. This increase
is due to principally to increased professional fees, printing and general
office expense. Marketing expenses totaled $299,097 for the six month
period in 1998 representing an increase of 124% from $133,779 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. Interest expense in connection with
the Company's real estate totaled $19,467 for the six month period in
1998 representing a decrease of 20.18% from $24,390 for the prior period.
Net loss for the three and six month periods in 1998 fiscal period
was $318,727 and $727,381, respectively, compared with $220,606 and
$407,421 for the prior periods.
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 second quarter of 1998, the Company raised
$1,612,400 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 June 30, 1998, the Company has working capital in the amount of
$658,004. 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
$1,698,353 on June 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 June 30, 1998, the
Company has balloon mortgage payments in the aggregate amount of $431,403.
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.
-9-
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
Item 5. Other Information.
Marina Bottling Company Ltd. ("Marina") was organized under the laws of
the Province of British Columbia (Canada) on October 2, 1997 as a wholly
owned subsidiary of the Company. During 1998, an independent third party
acquired a 50% interest in Marina. As of this date, Marina is inactive.
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
SCHEDULE 27.1
FINANCIAL DATA SCHEDULE
ART.5 FDS FOR 2nd QUARTER 10-Q
Multiplier 1,000
PERIOD TYPE 6 MONTHS
FISCAL YEAR END DEC-31-1998
PERIOD END JUN-30-1998
CASH 624
SECURITIES 0
RECEIVABLES 101
ALLOWANCES 0
INVENTORY 63
CURRENT-ASSETS 863
PP&E 1,742
DEPRECIATION 44
TOTAL ASSETS 2,610
CURRENT-LIABILITIES 204
BONDS 0
COMMON 12
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 1,962
TOTAL-LIABILITIES-AND-EQUITY 2,610
SALES 252
TOTAL-REVENUES 252
CGS 195
TOTAL-COST 979
OTHER-EXPENSES (11)
LOSS-PROVISON 0
INTEREST-EXPENSE 19
INCOME-PRETAX (735)
INCOME-TAX 0
INCOME-CONTINUING (735)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (735)
EPS-PRIMARY (.07)
EPS-DILUTED (.07)
-11-
