U.S. SECURITIES AND EXCHANGE COMMISSION PRIVATE
Washington, D. C. 20549
FORM 10-QSB
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(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, 1999.
[ ] 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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number 604-525-2386.
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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: X No:
(2). Yes: X No:
The number of shares issued and outstanding of issuer's common stock,
$.001 par value, as of June 30, 1999 was 20,233,257.
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, 1999 (unaudited) and
December 31, 1998 (audited). 3
Consolidated Condensed Statement of Operations for the Three
Months and Nine Months Ended September 30, 1999 and 1998 (unaudited). 4
Consolidated Condensed Statement of Stockholders Equity
for the Nine Months Ended September 30, 1999 and 1998 (unaudited). 5
Consolidated Condensed Statement of Cash Flows the Nine Months
Ended September 30, 1999 and 1998 (unaudited). 6
Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 11
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 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1999 1998
-------------- -------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash $1,426,318 $ 103,428
Accounts receivable 97,594 79,397
Goods and services tax receivable 19,783 44,280
Inventory 96,006 33,123
Prepaid expenses 22,828 38,650
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TOTAL CURRENT ASSETS 1,662,529 298,878
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PROPERTY, PLANT AND EQUIPMENT - Net 1,637,354 1,647,871
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OTHER ASSETS
Security deposits 10,616 10,217
Trademarks 18,674 18,031
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29,290 28,248
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TOTAL ASSETS $3,329,173 $1,974,997
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 7,691 $ 6,869
Accounts payable and accruals 122,362 77,446
Wages and benefits payable 21,144 14,453
Unearned income 29,623 16,127
Bottle and cooler deposits 99,558 85,901
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TOTAL CURRENT LIABILITIES 280,378 200,796
LONG-TERM DEBT - Net of current portion 490,313 408,361
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TOTAL LIABILITIES 770,691 609,157
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY
COMMON STOCK - $.001 par value, 25,000,000
shares authorized; 20,233,257 and 11,608,257
shares issued and outstanding 20,233 11,608
COMMON STOCK DISCOUNT (55,000) (55,000)
ADDITIONAL PAID-IN CAPITAL 6,336,804 4,765,432
ACCUMULATED DEFICIT (3,556,149) (3,140,336)
ACCUMULATED OTHER COMPREHENSIVE LOSS (187,406) (215,864)
------------ -----------
TOTAL STOCKHOLDERS EQUITY 2,558,482 1,365,840
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $3,329,173 $1,974,997
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 3
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
1999 1998 1999 1998
----------- ---------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Bottled water and supply
sales $ 177,127 $ 161,144 $ 456,745 $ 384,168
Cooler and equipment sales 2,228 419 4,339 9,686
Cooler rentals 3,795 9,718 18,348 29,039
------------ ----------- ----------- ---------
183,150 171,281 479,432 422,893
------------ ----------- ----------- ---------
COST OF GOODS SOLD
Cost of goods sold
(excluding Depreciation) 80,461 102,537 233,386 253,297
Depreciation 25,083 21,731 68,688 65,551
------------ ----------- ----------- ---------
105,544 124,268 302,074 318,848
------------ ----------- ----------- ---------
GROSS PROFIT 77,606 47,013 177,358 104,045
------------ ----------- ----------- ---------
OPERATING EXPENSES
General and administrative 234,414 185,454 550,286 670,771
Marketing 6,495 93,547 32,187 392,644
------------ ----------- ----------- ---------
240,909 279,001 582,473 1,063,415
LOSS FROM OPERATIONS (163,303) (231,988) (405,115) (959,370)
------------ ----------- ----------- ---------
OTHER INCOME (EXPENSE)
Other 11,046 1,435 12,492 4,224
Interest income 1,972 4,294 1,972 13,822
Interest expense (5,834) (10,714) (25,162) (30,180)
------------ ----------- ----------- ---------
7,184 (4,985) (10,698) (12,134)
------------ ----------- ----------- ---------
NET LOSS $ (156,119) $ (236,973) $ (415,813) $(971,504)
============ =========== =========== ==========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.01) $ (0.02) $ (0.03) $ (0.09)
============ =========== =========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES 17,670,757 11,604,242 14,212,424 11,255,937
============ ============ =========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Accumulated
Common Stock Common Additional Other Compre-
-------------------- Stock Paid-In Accumulated ehensive
Shares Amount Discount Capital Deficit Loss
---------- -------- --------- --------- ------------ -------------
BALANCE,
DECEMBER 31,
1998 (Audited) 11,608,257 $11,608 $(55,000) $4,765,432 $(3,140,336) $(215,864)
ISSUANCE OF
COMMON STOCK 8,625,000 8,625 - 1,571,375 - -
NET LOSS - - - - (415,813) -
OTHER COMPREHENSIVE
INCOME - - - - - 28,458
------------ ------- -------- ----------- ----------- ----------
BALANCE,
SEPTEMBER 30,
1999 20,233,257 $20,233 $(55,000) $6,336,804 $(3,556,149) $(187,406)
=========== ======= ========= ========== ============ ==========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 5
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
1999 1998
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(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net loss $ (415,813) $ (971,504)
Adjustments to reconcile net loss to net
cash used in operating activities
Issuance of common stock for professional fees 130,000 10,000
Depreciation 101,232 65,551
(Increase) decrease in assets -
Accounts receivable 11,240 (95,689)
Inventory (59,960) 27,600
Prepaid expenses 16,321 15,492
Other assets - (2,349)
Increase (decrease) in liabilities
Accounts payable 47,311 (17,525)
Unearned income and deposits 21,890 13,057
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Net cash used in operating activities (147,779) (955,367)
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INVESTING ACTIVITIES
Acquisition of property, plant and equipment (16,274) (23,300)
Investment in trademarks and patents
- (28,000)
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Net cash used in investing activities (16,274) (51,300)
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FINANCING ACTIVITIES
Proceeds from mortgages payable 61,415 -
Payments of mortgages payable - (65,088)
Issuance of common shares, net of
offering costs 1,450,000 1,616,670
Purchase of common shares - (400,000)
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Net cash provided by financing activities 1,511,415 1,151,582
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EFFECT OF EXCHANGE RATES ON CASH (24,472) (23,115)
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NET INCREASE IN CASH 1,322,890 121,800
CASH - BEGINNING OF PERIOD 103,428 120,492
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CASH - END OF PERIOD $1,426,318 $ 242,292
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest $ 25,162 $ 30,180
========== ===========
Income taxes $ - $ -
========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
Page 6
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
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, 1998.
The results of operations for the three month and nine month
periods ended September 30, 1999 and 1998 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, 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, 1999 and 1998 was $28,458 and
$98,638.
NOTE 4 - COMMON STOCK
In May 1999, the Company raised $700,000 from a private offering
through the issuance of 3,500,000 shares of common stock. In
connection with this offering, 3,500,000 warrants were issued to
purchase common shares at an exercise price per share of $.20 on
or before July 1, 2000, $.25 on or before July 1, 2001 and $.30
on or before July 1, 2002.
Page 7
In August 1999, the Company completed a private offering and
received $750,000 through the issuance of 3,750,000 shares of
common stock. In connection with this offering, 3,750,000
warrants were issued to purchase common shares at an exercise
price per share of $0.20 on or before August 12, 2000, $0.25 on or
before August 12, 2001, and $0.30 on or before August 12, 2002.
Also in connection with these two offerings, the Company entered
into finder's fee agreements, which provide that 725,000 shares
of common stock will be issued at a price of $.20 per share. In
addition the agreements provide for 725,000 warrants to be issued
to purchase common shares with a term of three years, at an
exercise price per share of $.20 within one year following receipt
of the funding, $.25 between one and two years following receipt
of the funding and $.30 after two years following receipt of the
funding.
The Company also issued 650,000 shares of common stock for
consulting fees at a price of $.20 per share.
NOTE 5 - MAJOR CUSTOMER AND SUPPLIER
In each period the Company sold a substantial portion of its
products to foreign markets. During the nine months ended
September 30, 1999, sales to an Australian customer aggregated
$57,100, sales to two Japanese customers aggregated $50,377 and
sales to a Malaysian customer aggregated $22,680. During the nine
months ended September 30, 1998, sales to a major customer
aggregated $89,294. At September 30, 1999 and 1997 amounts due
from these customers included in trade accounts receivable were $0
and $62,446.
During the nine months ended September 30, 1999 and 1998, the
Company purchased approximately 47% and 49% of its materials from
one supplier. At September 30, 1999 and 1998, amounts due to that
supplier were $18,000 and $0. If the supplier ceased doing
business with the Company, management believes that other sources
of materials are available.
Page 8
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 periods ended September 30, 1999
were $183,150 and $479,432 respectively, compared with revenues of
$171,281 and $422,893 for the same periods in 1998. The increase of
13.37% for the nine month period in 1999 was due to initiation of sales
to Australian, Japanese and Malaysian distributors, and an increase in
local sales of its five gallon bottles. Revenues for the nine month
period in 1999 consisted of $456,745 in water and supply sales (an
increase of 18.89% from $384,168 for the prior period), $4,339 in cooler
and equipment sales (a decrease of 55.20% from $9,686 for the prior
period) and $18,348 in cooler rentals (a decrease of 36.82% from $29,039
for the prior period). Of the total revenue for the nine month period
in 1999, $57,100 (or 12.50% of total water sales) represented sales to
an Australian distributor, $50,377 (or 11.03% of total water sales)
represented sales to a Japanese distributor, and $22,680 (or 5.00% of
total water sales) represented sales to a Malaysian distributor.
Interest income earned on investment of cash totaled $1,972 for the nine
month period in 1999 compared with $13,822 for the prior period. The
decrease is a result of the reduction of available cash for the period
prior to the recent private placements by the Company.
Cost of sales for the three and nine month period in 1999 totaled
$105,544 and $302,074, respectively, compared with $124,268 and $318,848
for the same periods in 1998. Cost of goods sold for the nine month
periods as a percentage of sales decreased by 12.39% from 75.40% to
63.01% due principally to a reduction of sample promotions. Cost of
sales for the nine month period in 1999 consisted of $233,386 in bottled
water, supplies, coolers and related equipment (a decrease of 7.86% from
$253,297 for the prior period) and $68,688 in depreciation (an increase
of 4.79% from $65,551 for the prior period). Gross profit for the three
and nine month periods in 1999 was $77,606 and $177,358, respectively,
compared with $47,013 and $104,045 for the prior periods. The increase
for the three month and nine month periods in 1999 was due to the
increase in water sales, partially offset by the reduction in cooler
rentals and sales, together with improved operating efficiencies.
General and administrative expenses which includes administrative
salaries and overhead for the nine month period totaled $550,286 which
represents a decrease of 17.96% from $670,771 for the prior period. This
decrease is due principally to cost reduction measures implemented by
the Company in late 1998 and early 1999. Marketing expenses totaled
$32,187 for the nine month period in 1999 representing a decrease of
91.80% from $392,644 for the prior period. The decrease in marketing
Page 9
expenses is due principally to the reduction of advertising and
promotional costs, including 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
$25,162 for the nine month period in 1999 representing a 16.63% decrease
from $30,180 for the prior period. Net loss for the three and nine month
periods in 1999 were $156,119 and $415,813, respectively, compared with
$236,973 and $971,504 for the prior periods.
Year 2000 Compliance
Year 2000 compliance is the ability of computer hardware and software to
respond to problems posed by the fact that computer programs
traditionally have used two digits rather than four digits to define an
applicable year. As a consequence, any of computer programs or equipment
using internal programs may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing interruptions of operations, including temporary
inability to send invoices or engage in normal business activities or to
operate equipment such as telephone systems, facsimile machines and
production machinery.
To date, the Company has reviewed its financial accounting software and
system and has determined it is fully Year 2000 compliant. The Company
has been informed by its suppliers of major pieces of office and
manufacturing equipment that such equipment is also Year 2000 compliant.
The Company has initiated a review of its relationships with suppliers
and vendors to determine if there will be an impact to the Company's
operations due to a Year 2000 issue. Although the Company does rely on a
sole source vendor, most other items can be obtained from alternative
sources if a preferred supplier or vendor is not able to meet the
Company's needs. Because this review is not yet completed, the Company
has not established a contingency plan for any vendors that may not be
Year 2000 compliant. The Company anticipates that using a contingency
plan will require using alternate vendors which may not be operationally
efficient. The supplier and vendor review is anticipated to be completed
by the second half of 1999. Costs to date and future costs of Year 2000
compliance are not significant or anticipated to be significant.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations principally
Through the private placement of its common stock, and to a lesser
extent, through cash flow from operations. During 1998, the Company
raised approximately $1,600,000 net of offering costs from the private
placement of its common stock. In addition during the period, the
Company repurchased 400,000 shares of common stock at $1.00 per share.
During 1999, the Company received $1,450,000 from the private placement
of its common stock.
As of September 30, 1999, the Company has working capital in the amount
of $1,382,151. The Company continues to experience significant losses
from operations. During the last month of 1998 and continuing to the
Page 10
first quarter of 1999, the Company has undertaken cost reduction
measures in an effort to reduce operating losses. These measures include
personnel reductions and the elimination of certain promotional charges.
However, despite these measures, the Company is uncertain as to when it
will achieve profitable operations.
Property, plant and equipment, net of accumulated depreciation, totaled
$1,637,354 on September 30, 1999. Property, plant and equipment, net of
accumulated depreciation, totaled $1,647,871 on December 31, 1998.
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
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 and Reports.
---------------------
(a) Exhibits.
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
On September 23, 1999, the Company filed a Form 8-K to report events
under Item 1 therein.
On September 30, 1999, the Company filed a Form 8-K to report events
under Item 1 therein.
Page 11
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: November 12, 1999 /s/Dennis Robinson
-----------------------
Dennis Robinson
Treasurer and
Chief Accounting Officer
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-31-1999
PERIOD END SEPT-30-1999
CASH 1,426
SECURITIES 0
RECEIVABLES 98
ALLOWANCES 0
INVENTORY 96
CURRENT-ASSETS 1,663
PP&E 2,074
DEPRECIATION 437
TOTAL ASSETS 3,329
CURRENT-LIABILITIES 280
BONDS 0
COMMON 20
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 2,538
TOTAL-LIABILITIES-AND-EQUITY 3,329
SALES 479
TOTAL-REVENUES 479
CGS 302
TOTAL-COST 884
OTHER-EXPENSES (14)
LOSS-PROVISION 0
INTEREST-EXPENSE 25
INCOME-PRETAX (416)
INCOME-TAX 0
INCOME-CONTINUING (416)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (416)
EPS-PRIMARY (.03)
EPS-DILUTED (.03)
Page 12
