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, 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
- ---------------------------------------------- -----------
(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: X No:
(2). Yes: X No:
The number of shares issued and outstanding of issuer's common stock,
$.001 par value, as of March 31, 1999 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
March 31, 1999 (unaudited) and December 31, 1998 (audited). 3
-Consolidated Condensed Statement of Operations for the
Three Months Ended March 31, 1999 and 1998 (unaudited). 4
-Consolidated Condensed Statement of Stockholders
Equity for the Three Months Ended
March 31, 1999 (unaudited). 5
-Consolidated Condensed Statement of Cash Flows
for the Three Months Ended March 31, 1999
and 1998 (unaudited). 6
-Notes to Financial Statements. 7
Item 2. Management's Discussion and Analysis. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities. 11
Item 3. Defaults upon Senior Securities. 11
Item 4. Submission of Matters to 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 STATEMENTS
Item 1. Financial Statements.
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1999 1998
----------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 34,751 $ 103,428
Accounts receivable 109,077 79,397
Goods and services tax receivable 51,479 44,280
Inventory 41,097 33,123
Prepaid expenses ------------ -----------
32,790 38,650
------------ -----------
TOTAL CURRENT ASSETS 269,194 298,878
PROPERTY, PLANT AND EQUIPMENT - NET 1,644,306 1,647,871
------------ -----------
OTHER ASSETS
Security deposits 10,355 10,217
Trademarks and licenses 18,252 18,031
------------ -----------
28,607 28,248
------------ -----------
TOTAL ASSETS $1,942,107 $1,975,997
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 7,119 6,869
Accounts payable and accruals 53,025 77,446
Wages and benefits payable 13,413 14,453
Unearned income 14,924 16,127
Bottle and cooler deposits 88,944 85,901
----------- -----------
TOTAL CURRENT LIABILITIES 177,425 200,796
LONG-TERM DEBT - NET OF CURRENT PORTION 479,274 408,361
----------- -----------
TOTAL LIABILITIES 656,699 609,157
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 par value, 25,000,000
shares authorized; 11,608,257 and
11,608,257 shares issued and outstanding 11,608 11,608
COMMON STOCK DISCOUNT (55,000) (55,000)
ADDITIONAL PAID-IN CAPITAL 4,765,432 4,765,432
ACCUMULATED DEFICIT (3,232,928) (3,140,336)
ACCUMULATED OTHER COMPREHENSIVE LOSS (203,703) (215,864)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,285,409 1,365,840
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,942,108 $1,974,997
=========== ===========
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 MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
------------ ------------
REVENUE
Bottled water and supply sales $ 166,404 $ 104,001
Cooler and equipment sales 1,432 6,594
Cooler rentals 10,662 10,346
------------ ------------
178,498 120,941
------------ ------------
COST OF GOODS SOLD
Cost of goods sold (excluding depreciation) 84,869 85,429
Depreciation 21,535 21,210
------------ -----------
106,404 106,639
------------ -----------
GROSS PROFIT 72,094 14,302
------------ -----------
OPERATING EXPENSES
General and administrative 140,592 253,757
Marketing 16,378 169,199
------------ -----------
156,970 422,956
------------ -----------
LOSS FROM OPERATIONS (84,876) (408,654)
------------ -----------
OTHER INCOME (EXPENSE)
Other 611 1,397
Interest income - 1,787
Interest expense (8,327) (10,925)
------------ ----------
(7,716) (7,741)
------------ -----------
NET LOSS $ (92,592) $ (416,395)
============ ===========
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.04)
============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES 11,608,257 10,496,933
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
Accumulated
Common Stock Add- Common Other
----------------- Common itional Stock Accumu- Compre-
Stock Paid-In Sub- lated hensive
Shares Amount Discount Capital scribed Deficit Income
---------- ------- --------- --------- ------- ---------- -----------
BALANCE
DECEMBER 31,
1998
(Audited) 11,608,257 $11,608 $(55,000) $4,765,432 $ - $(3,140,336)$(215,864)
NET LOSS - - - - - (92,592) -
OTHER
COMPREHENSIVE
INCOME - - - - - - 12,161
---------- ------ --------- ---------- ------ ------------ ---------
BALANCE,
MARCH 31,
1999 11,608,257 $11,608 $(55,000) $4,765,432 $ - $(3,232,928)$(203,703)
=========== ======= ========= ========== ====== ============ =========
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
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
---------- ------------
OPERATING ACTIVITIES
Net loss $ (92,592) $(416,395)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 33,627 30,086
Issuance of common stock for professional fees - 10,000
(Increase) decrease in assets
Accounts receivable (34,812) 22,363
Inventory (7,382) 17,072
Prepaid expenses 6,111 24,612
Other assets - (2,202)
Increase (decrease) in liabilities
Accounts payable and accruals (26,411) 199,562
Unearned income and deposits 192 (2,088)
---------- -----------
Net cash used in operating activities (121,267) (116,990)
---------- -----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (4,008) (22,256)
Investment in trademarks and patents - (28,000)
---------- -----------
Net cash used in investing activities (4,008) (50,256)
---------- -----------
FINANCING ACTIVITIES
Proceeds from mortgages payable 63,955 -
Payments of mortgages payable - (43,390)
Issuance of common shares, net of offering costs - 1,507,930
Purchase of common shares - (400,000)
---------- -----------
Net cash provided by financing activities 63,955 1,064,540
---------- -----------
EFFECT OF EXCHANGE RATES ON CASH (7,357) (7,070)
---------- -----------
NET INCREASE (DECREASE) IN CASH (68,677) 890,224
CASH - BEGINNING OF PERIOD 103,428 120,492
---------- -----------
CASH - END OF PERIOD $ 34,751 $1,010,716
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 8,327 $ 10,925
========== ===========
Income taxes $ - $ -
========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
ACTIVITIES
Common stock subscription $ - $ 20,700
========== ===========
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
MARCH 31, 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 periods ended March 31,
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 three months ended March 31, 1999 and 1998 was
$12,161 and $18,640.
-7-
NOTE 4 - MAJOR CUSTOMER AND SUPPLIER
In each period the Company sold a substantial portion of its products to
one customer. During the three months ended March 31, 1999 and 1998,
sales to an Australian customer aggregated $33,984 and to a Taiwanese
customer aggregated $18,720. At March 31, 1999 and 1998, there were no
amounts due from these customers included in trade accounts receivable.
During the three months ended March 31, 1999 and 1998, the Company
purchased approximately 47% and 36% of its materials from one supplier.
At March 31, 1999 and 1998 there were no amounts due to that supplier.
If the supplier ceased doing business with the Company, management
believes that other sources of materials are available.
- 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
Three Months Ended March 31, 1998 compared with Three Months Ended March 31,
1997.
Revenues for the three months ended March 31, 1999 were $178,498 representing
an increase of 47.59% from revenues of $120,941 for the same period in 1998.
The increase for the period was due to higher pricing of its PET bottles,
initiation of sales to an Australian distributor, and an increase in local
sales of its five gallon bottles. Revenues for the three month period in
1999 consisted of $166,404 in water and supply sales (an increase of 60% from
$104,001 for the prior period), $1,432 in cooler and equipment sales (an
decrease of 78.28% from $6,594 for the prior period) and $10,662 in cooler
rentals (an increase of 3.05% from $10,346 for the prior period). Of the
total revenue for the three month period in 1999, $33,984 (or 20.42% of total
water sales) represented sales to a new Australian distributor. During this
period, sales to a Taiwan distributor accounted for $18,062 (or 10.85% of
total water sales). This amount represents a decrease of 3.51% from sales of
$18,720 to the Taiwan distributor for the prior period. During this period, the
Company terminated its arrangement with the Taiwan distributor. Interest
income earned on investment of cash was $0 for the three month period in 1999
contrasted with $1,787 for the prior period. The decrease is a result of the
reduction of available cash for the period.
Cost of sales for the three month period in 1999 totaled $106,404 representing
a slight decrease from $106,639 for the same period in 1998. Cost of goods
sold for the three month period as a percentage of sales was 59.61% for
the 1999 period representing a decrease of 28.56% from 88.17% for the prior
period. The decrease is a result of the Company's higher pricing of PET
bottles and a reduction of sample promotions. Cost of sales for the three
month period in 1999 consisted of $84,869 in bottled water, supplies,
coolers and related equipment (a slight decrease from $85,429 for the prior
period) and $21,535 in depreciation (a slight increase from $21,210 for the
prior period). Gross profit for the three month period in 1999 was $72,094,
compared with $14,302 for the same period in 1998.
General and administrative expenses which includes administrative salaries
and overhead for the three month period in 1999 totaled $140,592 compared with
$253,757 for the same period in 1998. The decrease of 44.59% for the three
month period is due principally to cost reduction measures implemented by the
Company in the fourth quarter of 1998, which included the elimination of
certain salaried positions and the reduction of certain professional expenses.
Marketing expenses totaled $16,378 for the three month period in 1999
representing a decrease of 90.32% from $169,199 for the prior period. The
decrease in marketing expenses is due the reduction of advertising and
promotional costs, including elimination of costs related to the Los Angeles
Marathon and the Vancouver Marathon and certain television advertising, all
of which occurred in first quarter of 1998. Interest expense in connection
with the Company's real estate totaled $8,327 for the three month period in
1999 representing a decrease of 23.78% from $10,925 for the prior period.
Net loss for the three month period in 1999 was $92,592 compared with a loss of
$416,395 for the prior period.
-9-
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 complaint. The Company has been
informed by its suppliers of major pieces of office and manufacturing
equipment that such equipment is also Year 2000 complaint. 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. The Company does not rely on any sole source vendor or supplier, and
most items can be obtained for 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 complaint. 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 first 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.
As of March 31, 1999, the Company has working capital in the amount of $91,769.
The Company continues to experience significant losses from operations. During
the last month of 1998 and continuing to the 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. 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
$1,644,306 on March 31, 1999. Property, plant and equipment, net of accumulated
depreciation, totaled $1,647,871 on December 31, 1998. In connection with its
real estate properties, as of March 31, 1999, the Company has balloon mortgage
payments in the aggregate amount of $479,274.
-10-
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 the period ending December 31, 1998 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.
(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: May 13, 1999 /s/ Peter Khean
------------------------------
Peter Khean
Chairman, President
and Principal Financial Officer
-11-
SCHEDULE 27.1
FINANCIAL DATA SCHEDULE
ART.5 FDS FOR 1st QUARTER 10-Q
Multiplier 1,000
PERIOD TYPE 3 MONTHS
FISCAL YEAR END DEC-31-1999
PERIOD END MAR-31-1999
CASH 35
SECURITIES 0
RECEIVABLES 109
ALLOWANCES 0
INVENTORY 41
CURRENT-ASSETS 269
PP&E 1,995
DEPRECIATION 351
TOTAL ASSETS 1,942
CURRENT-LIABILITIES 177
BONDS 0
COMMON 12
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 1,273
TOTAL-LIABILITIES-AND-EQUITY 1,942
SALES 178
TOTAL-REVENUES 178
CGS 106
TOTAL-COST 263
OTHER-EXPENSES (1)
LOSS-PROVISION 0
INTEREST-EXPENSE 8
INCOME-PRETAX (93)
INCOME-TAX 0
INCOME-CONTINUING (93)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (93)
EPS-PRIMARY (.01)
EPS-DILUTED (.01)
