U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the period ended December 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 Incorporation) (I.R.S. Employer 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: X. No
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
State issuer's revenues for the most recent fiscal year.
$568,009.
As of April 13, 1999, the aggregate market value of the voting
and non-voting common equity held by non-affiliates was
approximately $ 1,765,486. This calculation is based upon the
average bid price of $0.11 and asked price of $0.25 of the common
stock on April 13, 1999.
The number of shares issued and outstanding of issuer's common
stock, $.001 par value, as of December 31, 1998 was 11,608,257.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
Item 1. Description of Business.
________________________
Introduction.
_____________
Avani International Group Inc. ("Avani" or "Company") was
organized under the laws of the State of Nevada on November 29,
1995.
Since its inception, the Company has constructed a bottling
facility and has been engaged in the business of developing,
manufacturing and distributing an oxygen enriched, purified
bottled water under the trade name "Avani Water".
The Company's executive offices and bottling facility are located
at #328-17 Fawcett Road, Coquitlam, British Columbia (Canada) V3K
6V2, and its telephone number is (604) 525-2386.
General.
________
The Company was incorporated in the State of Nevada on November
29, 1995 under the name Rainfresh Technologies, Inc. and changed
its name to Avani International Group, Inc. on January 14, 1997.
The Company has three wholly-owned subsidiaries; Avani Marketing
Corp., Avani Water Corporation and Avani Manufacturing (China),
Inc. Avani Marketing Corp. was organized under the laws of the
State of Nevada on August 16, 1994. Avani Water Corporation was
organized under the laws of the Province of British Columbia
(Canada) on December 8, 1995. Avani Manufacturing (China), Inc.
was organized under the laws of the State of Nevada on December
1, 1997. Unless the context indicates otherwise, (i) all
references to the Company herein shall include the Company and
its wholly-owned subsidiaries and (ii) all dollar amounts are
expressed in US dollars. Any reference to Canadian dollars shall
be indicated as "Cdn".
Following its incorporation, the Company commenced construction
of its bottling facility in May 1996 which was completed in
August 1996. In September 1996, the Company initiated the
production, marketing and sale of its purified, oxygen enriched
water under the brand name "Avani Water". The Company utilizes a
unique technology which injects oxygen into purified water
producing an oxygen enriched, purified bottled water.
The Company sells its product in the greater Vancouver
metropolitan area and internationally to the United States,
Taiwan, Korea, Singapore, Japan and Australia. The Company
provides home and business delivery of five gallon bottles in the
Vancouver metropolitan area and, to a limited extent, sells 500
ml and 1.5 liter PET bottles directly to retail outlets in the
Vancouver area. Since December 1996, the Company has exported
both PET sized bottles to Taiwan pursuant to a distribution
agreement with a Taiwan company. In March 1999, the Company
terminated its agreement with the Taiwanese distributor. The
Company's sales nationally and internationally have been limited.
The Company intends to increase its national and international
sales to existing and other markets, through licensing
agreements, distribution agreements or joint ventures with third
parties.
In December 1995, the Company acquired the exclusive, worldwide
rights to the oxygen enrichment process from Georgia Pacific
Company, a Taiwanese company, in exchange for the issuance of
5,000,000 shares of common stock of the Company which has been
valued at $5,000 (See "Certain Transactions"). During 1995 and
1996, the Company raised approximately $3,300,000 in gross
proceeds from the private placement of its common stock at
$1.00 per share. During 1997, the Company raised approximately
$1,100,000 in gross proceeds from the private placement of its
common stock at $1.00 per share. During 1998, the Company raised
approximately $1,600,000 in gross proceeds from the private
placement of its common stock at $1.00 per share. The proceeds
from such stock placements were used to construct the bottling
facility and to provide working capital for the Company's
operations.
The Company's business is subject to various laws and regulations
implemented by the Canadian government and local regulators,
which require the Company to obtain licenses for its business and
equipment, to be subject to annual inspections, to comply with
certain quality standards regarding the Company's bottling plant
and equipment, and to continuously control the quality of water
sold by the Company. In addition, certain other governments and
states within the United States require the Company to obtain
certification of its bottled water. The Company believes that it
is currently in compliance with these laws and regulations and
has passed all regulatory inspections necessary for its to sell
its product in its current markets. In addition, the Company
anticipates receiving approval from other governmental and state
agencies as its geographical market expands. The Company believes
that the cost of compliance with applicable governmental laws and
regulations is not material to its business.
Bottled Water Market.
_____________________
The premium bottled water market has experienced rapid growth
since the early 1980's as consumers became concerned about the
decline in quality of municipal water available in their homes
and offices. This market growth also has been fueled by an
overall health consciousness of the consumer seeking to eliminate
the consumption of foods and beverages containing sugars,
calories and artificial additives, trending instead to
consumables with little or no sugars, calories or additives.
Premium bottled water fits squarely within this trend. Per capita
consumption of bottle water rose from 2.8 gallons in 1980 to over
11 gallons per capita in 1995 (Beverage World September 1996).
The bottled water business increased sales by approximately one
billion dollars from 1991 to 1996 totaling $3.1 billion in 1996.
In 1996, the industry experienced growth of 8.4%, the second best
annual growth in the decade and the PET sized segment grew by 25%
(Beverage World April 1997).
The Company considers its product to appeal to consumers of
premium bottled water products and believes that its purity as
well as its oxygen enrichment offers a distinct alternative to
other premium bottled waters.
Product and Product Features.
____________________________
The Company manufactures and sells its purified, oxygen enriched
water in 500 ml and 1.5 liter PET bottles and five gallon bottles
under the trade name "Avani Water".
Avani Water contains less than 2 parts per million (ppm) of total
dissolved solids (tds). The tds level of Avani water contrasts to
other more recognizable products such as Evian water with 309 ppm
of tds and Perrier water with 505 ppm of tds. Many regional
spring waters fall between 45 and 600 ppm of tds. Total dissolved
solids include metals such as iron, copper and lead, and organic
substances such as herbicides and pesticides. The limited tds
content of Avani Wwater is achieved through a comprehensive
filtration process used by the Company. The Company believes that
this filtration process together with other aspects of its
bottling process (reverse osmosis, carbon filtration and oxygen
enrichment) enables the Company to deliver a smoother, more
polished water when compared to most other bottled waters.
The Company's unique oxygenation process yields a water
containing 26.4 mg/L (or 264 ppm) of dissolved oxygen which is
approximately three times higher than the oxygen content level in
Evian brand water or ordinary tap water. Internal tests performed
by the Company indicate that 24 hours after opening a sealed
bottle of Avani Water, the oxygen content is reduced to
approximately 240 ppm. Ordinary water and most bottled water
(unopened) contain less than 90 ppm of oxygen.
During fiscal years ending December 31, 1997 and December 31,
1998, the Company expended $12,022 and $0, respectively, in
research and development costs.
Manufacturing Process.
______________________
The Company purchases its water from the local municipality which
is piped to a holding tank located on premises. From the holding
tank, the water flows through the bottling process at constant
pressure. The water initially passes through a 10 micron filter
to remove the larger solids and then passes through a series of
finer media filters to remove solids greater than 2 microns in
size including inorganic metals such as iron, copper and lead.
The water then passes through ozonation and carbon filtration
processes. Ozonation is the strongest disinfectant and oxidizing
agent available for water treatment and is a standard
disinfectant for bottled water processing. Activated carbon
filtration removes organic compounds such as pesticides and
herbicides and associated tastes and odors. The water next passes
through a seven membrane reverse osmosis process which removes
particles greater than 0.001 micron. The water is demagnetized to
remove remaining metals and is exposed to ultraviolet light for
aseptic purposes. The water is then placed in a storage tank
where high volumes of oxygen (O2) is injected into the purified
water under pressure creating an oxygen enriched water product.
Following the oxygen enrichment process, the water is piped to
the "clean room". The "clean room" is a completely enclosed room
with an over-balanced ventilation system which feeds filtered,
sterile air to the room. There, the water product is
automatically bottled in pre-rinsed bottles, capped and labeled.
The bottles are directed to a case packer which automatically
loads the bottles into shipping cases for distribution.
For quality assurance purposes, the Company tests its product
every two hours at various points in the bottling process,
including its finished products.
The Company purchased the plant equipment in 1996. The bottling
equipment which includes a conveyor system together with an
automatic rinsing, filling, capping, labeling and casing system,
allows production of approximately 100 to 130 bottles per minute
of the 500 ml bottles, 30 to 40 bottles per minute for the 1.5
liter bottles and 300 bottles per hour of the five gallon
bottles. The Company is able to produce either the 500 ml or 1.5
liter bottles simultaneously with the 5 gallon bottles. The
conversion time to one of the PET sizes from the other requires
approximately one hour. As of December 31, 1998, the plant is
operating at 30% of capacity using a one 40 hour shift. Two
additional 40 hour shifts can be added to increase production
capacity.
The overall working condition of the Company's plant and
equipment is good to excellent. All of the bottling equipment
will operate reliably at the maximum capacity rated by each
respective manufacturer. The Company's trucks and forklifts are
all in good working condition.
The Company is a member in good standing of the Canadian Bottled
Water Association and the International Bottled Water
Association.
Sales and Distribution.
_______________________
The Company sells its products through internal sales personnel,
independent distributors and commissioned brokers. Its product is
sold in the greater Vancouver metropolitan area and
internationally to Taiwan, United States, Korea, Singapore, Japan
and Australia. The Company provides home and business delivery of
five gallon bottles in the Vancouver metropolitan area and, on a
limited basis, sells 500 ml and 1.5 liter PET bottles directly to
retail outlets in the Vancouver area.
The Company's sales development plan includes the increase of
local and national sales to retail outlets, and the expansion of
sales to existing markets through existing and other sales
channels.
The Company directly markets its five gallon bottles in the
greater Vancouver metropolitan area to business and residential
users through its salaried and commissioned sales staff. In
addition, the Company leases water coolers to its customers which
it purchases directly from a manufacturer. Each customer
subscribes for a minimum of 2 bottles per month for a one year
period, although most customers subscribe for 3 or more bottles
per month. The customer pays a minimum charge of $11.80 per month
(for two bottles), a one time bottle deposit charge of $7.35, a
one time cooler deposit charge of $73.00 and an annual cooler
lease charge of $73.00. The Company owns and operates three
delivery vehicles and employs three delivery persons to service
its customers. As of December 31, 1998, the Company has
approximately 2,500 customers. Revenues from its five gallon
bottles represent approximately 49% of total water sales.
The Company also directly markets its 500 ml and 1.5 liter
products to a limited number of specialty food outlets in the
Vancouver area. As of December 31, 1998, direct sales to local
retail outlets has been insignificant.
In March 1999, the Company terminated its agreement with Maxzone
Enterprises Co. Ltd. for the distribution of its 500 ml and 1.5
liter products to Taiwan. The Company presently is negotiating
with a number of other distributors for this territory. In the
past, sales to the Taiwan distributor represented a significant
portion of gross income. In 1997, sales to Taiwan accounted for
$192,459 in revenues, and in 1998, sales to the distributor
accounted for $121,499 in revenues, although offset by $81,000 in
bad debt. In the event the Company is unable to replace sales to
this territory, such event may have a material adverse impact
upon the operations of the Company. The Company believes that
future sales to Taiwan will be constrained by the current
economic difficulties experienced by Taiwanese economy. The
economic difficulties include the devaluation of the Taiwan
currency against other non-Asian currencies causing imported
goods to be more expensive, as well as a general decrease in
consumer spending. As a result, the Company can not predict
the level of sales it will likely experience in the future from
Taiwan.
In addition to Taiwan, during fiscal 1998, the Company made
limited shipments of its 500 ml and 1.5 liter PET products to the
United States, Japan, Korea and Singapore. Product sales to these
territories have been limited. The Company continues to seek
distributors in these and other territories that will
significantly advance product sales, however, no assurances can
be given. [Japan-JAL] In February 1999, the Company commenced
shipment of its PET bottles to Australia through local
distributor. Although the Company has been encouraged by the
expressions of interest from the Australian distributor, at this
time, the Company can not predict the level of sales which it
likely will experience in this market.
Backlog.
________
The Company had no backlog for the year ended December 31 1998.
There is no seasonal impact on the Company's sales.
Facilities.
__________
The Company's maintains it production facilities at its corporate
headquarters located at 328-17 Fawcett Road, Coquitlam, British
Columbia (Canada) V3K 6V2. The total facilities of the Company
comprise 14,000 square feet, of which 11,200 square feet is
dedicated to production and storage and the remainder dedicated
to its administrative offices.
Competition.
____________
The bottled water industry is extremely competitive and populated
by a significant number of large regional, national and
international companies. Well established names in the industry,
include Evian and Naya, as well as a significant number of
regional products. Many of these companies maintain significantly
greater resources (including financial, technical and personnel)
in all aspects of business than those available to the Company.
In addition, their products have achieved enormous consumer
acceptance and loyalty. The principal competitive factors in the
bottled water industry are price, taste, packaging, name
recognition and water source. However, the Company believes that
its smooth taste and its unique oxygen enrichment will enable it
to sufficiently compete in this market.
Product Liability.
__________________
The Company is engaged in a business which could expose it to
possible claims for personal injury resulting from contamination
of its water. While the Company believes that through its regular
product testing it carefully inspects the quality of its water,
it may be subject to exposure due to customer or distributor
misuse or storage. The Company maintains product liability
insurance against certain types of claims in amounts which it
believes to be adequate. The Company also maintains an umbrella
insurance policy that it believes to be adequate to cover claims
made above the limits of its product liability insurance.
Although no claims have been made against the Company or its
distributors to date and the Company believes its current level
of insurance to be adequate for its present business operations,
there can be no assurances that such claims will not arise in the
future or this the Company's policies will be sufficient to pay
for such claims.
Proprietary Rights.
___________________
The Company has not sought patent protection for its proprietary
oxygen enrichment process, rather, it relies, to the extent it
can, upon trade secrets to protect its proprietary process.
Employees.
__________
As of December 31, 1998, the Company has 20 employees, which
includes two officers of a subsidiary. The Company has no
collective bargaining agreements with its employees and believes
its relations with its employees are good.
Item 2. Description of Property.
________________________________
The Company's maintains it production facilities and its
corporate headquarters at #328-17 Fawcett Road, Coquitlam,
British Columbia (Canada) V3K 6V2. The total facilities of the
Company comprise 14,000 square feet, of which 11,200 square feet
is dedicated to the production and storage facilities and the
remainder is dedicated to its administrative offices.
The Company owns its facilities subject to existing mortgages and
are comprised of seven adjoining buildings. Five of the buildings
were purchased for a total of $563,740 between April 1996 and
June 30, 1996, subject to first mortgages in the principal amount
of $288,958 as of December 31,1998. The mortgages are amortized
over 25 years and bear interest at the rate of 8.30% per annum.
A balloon payment of $276,867 is due May 1, 2001. The sixth
building was purchased on July 1996 for $119,500 and is subject
to a first mortgage in the principal amount of $62,980 as of
December 31,1997. The first mortgage is amortized over 25 years
and bears interest at the rate of 8.30% per annum. A balloon
payment of $60,189 is due July 29, 2001. The seventh building was
purchased in March 1997 for $119,500 and is subject to a first
mortgage in the principal amount of $63,292 as of December 31,
1998. The first mortgage is amortized over 25 years and bears
interest at the rate of 7.00% per annum. A balloon payment of
$59,278 is due March 27, 2002. The Company believes that it
will be able to refinance the described notes on or before their
respective balloon payment due dates or pay the notes as they
come due out of available cash. If the Company is unable to do
so, it will be required to raise additional funds for such
purposes, although no assurance can be given.
Item 3. Legal Proceedings.
__________________________
On August 18, 1998, a former sales representative of Avani Water
Company filed an action against the Avani Water Corporation and
Avani Marketing Corporation, among other defendants, in the
Superior Court for the State of California alleging breach of
contract and intentional misrepresentation, among other claims.
The amount demanded by the plaintiff is actual damages in the
amount of $100,000, plus other actual and punitive damages. The
Company has filed an answer to such claims and the action is
presently in discovery. The Company believes the claim is without
merit and intends to vigorously defend the claim.
Item 4. Submission of Matters to Vote of Security Holders.
None
PART II
Item 5. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters.
The table below sets forth the high and low bid prices of the
Common stock of the Company as reported by NASDAQ. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down,
or commissions and may not necessarily represent actual
transactions. The Company's common stock is listed on the NASDAQ
OTC Bulletin Board under the symbol "AVIG". There is an absence
of an established trading market for the Company's common stock,
as the market is limited, sporadic and highly volatile The
absence of an active market may have an effect upon the high and
low priced as reported.
1998 Low Bid High Bid
3rd Quarter 2 2 1/16
4th Quarter 9/16 1
As of December 31, 1998, there are 738 shareholders of record of
the Company's common stock. Although there are no restrictions on
the Company's ability to declare or pay dividends, the Company
has not declared or paid any dividends since its inception and
does not anticipate paying dividends in the future.
Item 6. 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
Fiscal year end 1998 compared with Fiscal year end 1997.
________________________________________________________
Revenues for fiscal 1998 were $568,009 representing an increase
of $94,795 or 20% from revenues of $473,214 for the comparable
period in 1997. This increase was due to increased local sales
of the 5 gallon bottles and related equipment leases for the
1998 period contrasted with 1997. Revenues in 1998 consisted of
$516,591 in water and supply sales (an increase of $77,955 or
17.8% from $438,636 for the prior period), $10,965 in cooler
and equipment sales (an decrease of $11,897 or 52% from $22,862
for the prior period) and $40,453 in cooler rentals (an increase
of $28,737 or 245% from $11,716 for the prior period). Of the
total revenue for the 1998 period, $121,499 (or 23.5% of total
water sales) represented sales to a Taiwan distributor. This
amount represents a decrease of $70,960 from sales of $192,459
to the distributor for the prior period. Interest income for the
period earned on investment of cash totaled $14,988 for the
period in 1998 representing a decrease of $796 or 5% from $15,784
for the prior period. The decrease is a result the reduction
of available cash which was used for increased operations
during the 1998 period.
Cost of sales for the 1998 period totaled $387,367 or 68.2% of
total revenue contrasted with $400,738 or 84.7% of total revenue
for the 1997 period. The decrease of 16.5% in the cost of sales
was a result of price reductions of raw material purchases in
1998 and sales discounts and allowances in 1997. Cost of sales
consisted of $303,408 in bottled water, supplies, coolers and
related equipment (a decrease of $13,327 or %4.2 from $316,735
for the prior period). Gross profit for period was $180,642
compared with $72,476 for the prior period. Increase was due
to the higher revenues together with a slight reduction in costs
of sales for the 1998 period contrasted with the 1997 period.
General and administrative expenses which includes administrative
salaries and overhead for the period totaled $1,077,380 which
represents an increase of $384,548 or 55.5% from $692,832 for
the prior period. This increase is due to costs related to
certain write-offs related to bad debt and mistrust in an
affiliated company, and increased salaries, consulting and
professional fees. Marketing expenses totaled $386,383 for the
1998 period, representing an increase of $14,273 or 3.8% from
$372,110 for the prior period. The slight increase in marketing
expenses is due to expenses of the Company's sponsorship of the
Los Angeles Marathon. No research and development costs were
incurred in 1998 compared with $12,022 in 1997. Interest
expense relates to mortgage interest incurred in connection with
the Company's real estate and totaled $37,470 for the 1998 period,
representing a decrease of $5,184 or 12.2% from $42,654 for the
prior period. The decrease is due to the reduction of principal
amount of the real estate mortgages. Net loss for the 1998
fiscal period was $1,285,834 which represents an increase
of $254,827 or 24.7% above the loss of $1,030,997 for the prior
period.
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.
Fiscal year end 1997 compared with Fiscal year end 1996.
Revenues for fiscal 1997 were $473,214 representing an increase
of $404,505 from revenues of $68,709 for the comparable period in
1996. This increase was due to product sales for a full 12 month
period in 1997 contrasted with its initial month of sales in
1996. Revenues in 1997 consisted of $438,636 in water and supply
sales (an increase of $381,496 from $57,140 for the prior period),
$22,862 in cooler and equipment sales(an increase of $16,153 from
$6,709 for the prior period) and $11,716 in cooler rentals (an
increase of $6,856 from $4,860 for the prior period). Of the
total revenue for the 1997 period, 192,459 (or 44% of total water
sales) represented sales to a Taiwan distributor. This amount
represents an increase of $165,734 from sales of $26,725 to the
distributor for the prior period. Interest income for the period
earned on investment of cash totaled $15,784 for the period in
1997 representing a decrease of $10,374 from $26,158 for the
prior period. The decrease is a result the reduction of available
cash which was used for increased operations during the 1997
period.
Cost of sales for the 1997 period totaled $400,738 which
represents an increase of $245,455 from $155,283 for the prior
period. This increase is due to costs associated with production
operations for a full 12 month period in 1997 contrasted with its
initial month of operations for the prior period. Cost of sales
consisted of $316,735 in bottled water, supplies, coolers and
related equipment (an increase of $217,631 from $99,104 for the
prior period) and $84,003 in depreciation (an increase of $27,824
from $56,179 for the prior period). Gross profit for period was
$72,476 compared with a loss of ($86,574) for the prior period.
The increase was due to increased revenues from 12 months of
operations in 1997 contrasted with revenues from its initial
month of operations for the period in 1996.
General and administrative expenses which includes administrative
salaries and overhead for the period totaled $692,832 which
represents an increase of $169,858 from $522,974 for the prior
period. This increase is due to costs related to building the
necessary corporate infrastructure to accommodate full scale
operations. Marketing expenses totaled $372,110 for the 1997
period, representing an increase of $164,316 from $207,794 for
the prior period. The increase in marketing expenses is due to
12 months of operations contrasted with less than a full year
of operations for the prior period. Research and development
costs totaled $12,022 for the period. No research and development
costs were incurred in 1996. Interest expense relates to
mortgage interest incurred in connection with the Company's real
estate and totaled $42,654 for the 1997 period, representing an
increase of $19,585 from $23,069 for the prior period. The
increase is due to the acquisition of additional real estate in
1997 and interest charges for a full 12 month period on certain
properties in 1997 contrasted with a shorter period for the same
properties in 1996. Net loss for the 1997 fiscal period was
($1,030,997) which represents an increase of $216,744 over
($814,253) for the prior period.
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.
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 $1,647,871 on December 31,1998. Property, plant and
equipment, net of accumulated depreciation, totaled $1,806,651
on December 31, 1997.
In connection with its real estate properties, as of December 31,
1998, the Company has balloon mortgage payments of; $276,867 due
May 1, 2001, $60,189 due July 29, 2001 and $59,278 due March 27,
2002 (See "Item 2. Description of Property"). The Company
believes that it will be able to refinance the described balloon
payments on or before their respective dates, or pay the notes
as they come due out of available cash. If the Company is unable
to do so, it will be required to raise additional funds for such
purposes, although no assurance can be given.
Disclosure Regarding Forward Looking Statement and Cautionary
Statement.
Forward Looking Statements. Certain of the statements contained
in this Annual Report on Form 10-KSB includes "forward looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). All
statements other than statements of historical facts included
in this Form 10-KSB regarding the Company's financial position,
business strategy, and plans and objectives of management for
future operations and capital expenditures, and other matters,
are forward looking statements. These forward looking statements
are based upon management's expectations of future events.
Although the Company believes the expectations reflected in
such forward looking statements are reasonable, there can be
no assurances that such expectations will prove to be correct.
Additional statements concerning important factors that could
cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed below in
the Cautionary Statements section and elsewhere in this Form
10-KSB. All written and oral forward looking statements
attributable to the Company or persons acting on behalf of the
Company subsequent to the date of this Form 10-KSB are expressly
qualified in their entirety by the Cautionary Statements.
Cautionary Statements. Certain risks and uncertainties are
inherent in the Company's business. In addition to other
information contained in this Form 10-KSB, the following
Cautionary Statements should be considered when evaluating the
forward looking statements contained in this Form 10-KSB:
1. Lack of Profitable Operations. Since the Company's inception,
the Company has experienced significant operating losses. Loss
from operations for fiscal 1998 exceeded $1,000,000. Moreover,
the Company can not predict when it will achieve profitable
operations. The ability of the Company to achieve profitable
operations will be dependent upon many factors, including the
successful market development of its super oxygenated water.
Successful market development includes establishing necessary
sales channels in the United States and other markets through
distributors and food brokers, and having funds available for
product marketing and slotting fees. As of December 31, 1998,
the Company has limited sales channels in the United States,
Canada and its other markets. The Company will be required to
Raise additional funds in the immediate future to fund its
Operating deficits, including the expansion of its marketing
efforts. No assurances can be given that the Company will
be able to successfully develop the market for its product.
2. Need For Additional Capital. The Company will require
additional capital to sustain its operations until such time as
the Company achieves profitable operations, and to otherwise
expand its business. No assurances can be given that the Company
will be successful in raising the capital necessary for it to
sustain its operations during its operational loss period.
3. Limited Distribution Channels and Loss Of Distributor. As of
December 31, 1998, the Company has limited distribution channels
in the United States, Canada and its other markets. Although the
Company continues to seek distributors to advance sales, no
assurances can be given that the Company will be successful in
its efforts. Further, during 1999, the Company terminated its
relationship with a Taiwan distributor. Although the distributor
did not account for significant revenues in 1998 as a result of
an offset for bad debt, the distributor accounted for
approximately 44% of total water sales in 1997. The inability of
the Company to replace the loss of sales may adversely affect
the Company.
Item 7. Financial Statements.
_____________________________
The Financial Statements that constitute Item 7 of this Annual
Report on Form 10-KSB are included in Item 13 below.
Item 8. Changes in and Disagreements with Accountants on
__________________________________________________________________
Accounting and Financial Disclosure.
_____________________________________
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
_________________________________________________________________
Persons; Compliance with Section 16(a) of the Exchange Act.
___________________________________________________________
The directors and executive officers of the Company, their ages,
and the positions they hold are set forth below. The directors of
the Company hold office until the next annual meeting of
stockholders of the Company and until their successors in office
are elected and qualified. All officers serve at the discretion
of the Board of Directors.
Director/
Officer
Name Age Since Position
____ ___ _________ _________
Peter Khean 54 1995 President, Secretary and
Chairman
Nico Huang 49 1995 Vice-President,Treasurer
and Director
______________________________________________________________
Peter Khean - Mr. Khean has been President, Secretary and
Chairman of the Company since December 1995. From 1985 to
December 1995, Mr. Khean has been a business consultant providing
services to individuals and business located in the Pacific Rim
countries. Mr. Khean is a Certified General Accountant in Canada.
Nico Huang - Ms. Huang has been Vice President, Secretary and
Director of the Company since December 1995. From 1975 until
December, 1995, Ms. Huang has operated a family owned health
product manufacturing facility located in Taiwan.
Item 10. Executive Compensation.
________________________________
The compensation for all directors and officers individually for
services rendered to the Company for the fiscal years ended
December 31, 1998, 1997 and 1996, respectively, are set forth in
the following table:
SUMMARY COMPENSATION
Annual Compensation Long Term Compensation
___________________ _______________________
Awards Payouts
Name and
Principal Salary Bonus Other Restr. Options
Position Year ($) ($) ($) Stock SARS LTIP Other
---- ------ ------ ----- ----- ---- ---- -----
Peter Khean (1 1996 -- -- -- -- - - --
President and 1997 -- -- -- -- - - --
Chairman 1998 -- -- -- -- - - --
Nico Huang (1) 1996 -- -- -- -- - - --
Vice President and 1997 -- -- -- -- - - --
Director 1998 -- -- -- -- - - --
- ------------------------------------------------------------------
(1)In 1999, the Company intends to initiate the payment of a
monthly salary in the amount of $7,000 to both Mr. Khean and Ms.
Huang at such time as determined by the Board of Directors.
Other than as indicated above, the Company does not have any
other form of compensation payable to its officers or directors,
including any stock option plans, stock appreciation rights, or
long term incentive plan awards for the periods indicated in the
table.
The Company's directors received no fees for their services as a
director, however, they are reimbursed for expenses incurred by
them in connection with the Company's business.
Item 11. Security Ownership of Certain Beneficial Owners and
_________________________________________________________________
Management.
___________
The following table will identify, as of December 31, 1998, the
number and percentage of outstanding shares of common stock of
the Company owned by (i) each person known to the Company who
owns more than five percent of the outstanding common stock, (ii)
each officer and director, and (iii) and officers and directors
of the Company as a group:
Title Name and Address Amount and nature Percent
of Class of Beneficial Owner Beneficial Ownership of Class
- --------- -------------------- ---------------------- --------
Common Peter Khean(1) 450,000 3.87%
Stock 328-17 Fawcett Road
Coquitlam, B.C. V3K 6V2
Common Nico Huang(2) 450,000 3.87%
Stock 328-17 Fawcett Road
Coquitlam, B.C. V3K 6V2
Common Wang Hsiu Yun(3) 900,000 7.75%
Stock 8F-1, 110 Hon Ko Street
Taipei, Taiwan
Common Wen Lung Hsieh 1,000,000 8.61%
Stock 7F 78 Chang An East Rd.
Section 2
Taipei, Taiwan
Common Officers and 900,000 7.75%
Stock Directors, as
a group (2 persons)
_______________________________________________________________
(1). Excludes 150,000 shares held by Mrs. Eunice Khean, the wife
Mr. Khean. Mr. Khean disclaims beneficial ownership of such
shares.
(2). Excludes 150,000 shares held by Mr. Tomo Hwang, the husband
of Mrs. Huang. Mrs. Huang disclaims beneficial ownership of such
shares.
(3). Wang Hsiu Yun is a controlling shareholder of Georgia
Pacific Company (see "Certain Relationships and Related
Transactions").
Item 12. Certain Relationships and Related Transactions.
________________________________________________________
On December 18, 1995, the Company entered into an agreement with
Georgia Pacific Company, a Taiwanese company ("Georgia Pacific"),
to acquire the exclusive worldwide rights to the technology for
the oxygen enrichment process in exchange for 5,000,000 shares of
common stock of the Company. In addition, pursuant to the
agreement, the Company agreed to pay Georgia Pacific a finder's
fee of 10% in connection with the sale of its common stock to
Taiwanese investors identified by Georgia Pacific.The parties did
not specify a term or duration for this aspect of the agreement.
During 1996,the Company paid Georgia Pacific $218,800 in finder's
fees. During 1997, the Company paid Georgia Pacific $134,630 in
finder's fees. In addition, during 1997, the Company paid Wang
Hsiu Yun, the controlling shareholder of Georgia Pacific, the sum
of $22,962.00 as a broker's fee in connection with the purchase
of certain equipment.
On December 21, 1995, the Company entered into a separate
agreement with Georgia Pacific pursuant to which Georgia Pacific
agreed to assist the Company in the market and sale of its
product to the Pacific Rim countries through joint venture
arrangements, licensees or distributors. The consideration
payable to Georgia Pacific was $10,000 per month during the term
term of the agreement which expired on December 31, 1996.
Effective May 1, 1997, a new agreement was entered into that
provided for a monthly payment of $12,000 to Georgia Pacific.
During 1997, the Company paid Georgia Pacific the sum of $90,000
in connection with this agreement. The agreement has expired and
new agreement has not been entered into by the parties. The
Company has entered into distribution agreements for Taiwan,
Singapore and Korea as a result of the efforts of Georgia
Pacific.
In 1995, the Company issued 450,000 shares to Peter Khean,
450,000 shares to Nico Huang, 150,000 to Eunice Khean and 150,000
to Tomo Hwang and the shares were valued at $450.00, $450.00,
$150.00 and $150.00, respectively. The shares were issued in
exchange for services rendered by such parties in connection with
the formation of the Company.
PART IV
Item 13. Exhibits and reports on Form 8-K.
__________________________________________
(a)(1). Exhibits
EXHIBIT INDEX
3.(i) Articles of Incorporation, as amended
of the Company.*
Articles of Incorporation, as amended of
Avani Marketing Corp.*
Certificate of Incorporation and Name Change
and Articles of Avani Water Corporation.*
Articles of Marina Bottling Company Ltd.**
Articles of Incorporation of Avani**
Manufacturing (China) Inc.
3.(ii) By-Laws of the Company.*
By-Laws of Avani Marketing Corp.*
By-Laws of Avani Manufacturing (China) Inc.**
10.(i) Mortgage in favor of International Commercial Bank
of Cathay (Canada) dated May 2, 1996.*
10.(ii) Mortgage in favor of Riversedge Holding Corp. dated
May 2, 1996.*
10.(iii) Mortgage in favor of International Commercial Bank
of Cathay (Canada) dated July 26, 1996.*
10.(iv) Mortgage in favor of Riversedge Holding Corp. dated
July 26, 1996.*
10.(v) Mortgage in favor of International Commercial Bank
of Cathay (Canada) dated March 25, 1997.*
10.(vi) Mortgage in favor of Riversedge Holding Corp. dated
March 25, 1997.*
10.(vii) Agreement dated December 15, 1995 between the Company
and Georgia Pacific Company.*
10.(viii) Agreement dated December 18, 1995 between the Company
and Georgia Pacific Company.*
10.(ix) Agreement dated December 26, 1996 between the Company
and Georgia Pacific Company.*
10.(x) Distribution Agreement dated December 14, 1996
between the Company and Yueh Long Enterprise Co.,
LTD.*
10.(xi) Distribution Agreement dated June 13, 1997 between the
Company and Beon Top Enterprises Ltd.*
10.(xii) Agreement dated April 29, 1997 by and between the
Company and Georgia Pacific Company. *
21.(i) Subsidiaries of the Registrant
27.1 Financial Data Schedule
* Incorporated by reference to the Company's Form 10-SB
Registration Statement filed on November 4, 1997.
** Incorporated by reference to the Company's Form 10-KSB for the
period ended December 31, 1997.
3.(a)(2). Financial Statements
FINANCIAL STATEMENTS INDEX
Independent Auditors' Report of
March 4, 1999.. ......................................F-1
- -Consolidated Balance Sheets as of December 31, 1998
and December 31, 1997.................................F-2
- -Consolidated Statements of Operations for
Fiscal Years Ended December 31, 1998 and
December 31, 1997......................................F-3
- -Consolidated Statements of Stockholder's Equity
For Years Ended December 31, 1998
and December 31, 1997..................................F-4
- -Consolidated Statements of Cash Flows for
Fiscal Years Ended December 31, 1998 and
December 31, 1997......................................F-5
- -Notes to consolidated Financial Statements............F-6
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Avani International Group Inc.
We have audited the accompanying consolidated balance sheets of
Avani International Group Inc. (a Nevada corporation) and
Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Avani International Group Inc. and Subsidiaries as of
December 31, 1998 and 1997 and the results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 10 to the consolidated financial
statements, the Company incurred a loss of $1,285,834 during
1998. This condition raises substantial doubt about its ability
to continue as a going concern. Management's plans regarding
those matters also are described in Note 10. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
March 4, 1999
F-1
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 103,428 $ 120,492
Accounts receivable 79,397 76,343
Goods and services tax receivable 44,280 54,105
Subscription receivable - 240,000
Inventory 33,122 51,685
Prepaid expenses 38,650 60,716
----------- -----------
TOTAL CURRENT ASSETS 298,878 603,341
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - NET 1,647,871 1,806,651
----------- -----------
OTHER ASSETS
Security deposits 10,217 8,541
Trademarks and licenses 18,031 9,044
----------- -----------
28,248 17,585
----------- -----------
TOTAL ASSETS $1,974,997 $2,427,577
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 6,869 $ 68,924
Accounts payable and accruals 77,446 54,794
Wages and benefits payable 14,453 16,086
Unearned income 16,127 19,737
Bottle and cooler deposits 85,901 66,859
----------- -----------
TOTAL CURRENT LIABILITIES 200,796 226,400
LONG-TERM DEBT - NET OF CURRENT PORTION 408,361 440,669
----------- -----------
TOTAL LIABILITIES 609,157 667,069
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 par value, 25,000,000
shares authorized; 11,608,257 and 10,113,600
shares issued and outstanding 11,608 10,114
COMMON STOCK DISCOUNT (55,000) -
ADDITIONAL PAID-IN CAPITAL 4,765,432 3,465,257
COMMON STOCK SUBSCRIBED - 240,000
ACCUMULATED DEFICIT (3,140,336) (1,854,502)
ACCUMULATED OTHER COMPREHENSIVE LOSS (215,864) (100,361)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,365,840 1,760,508
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,974,997 $2,427,577
------------ ------------
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
REVENUE
Bottled water and supply sales $ 516,591 $ 438,636
Cooler and equipment sales 10,965 22,862
Cooler rentals 40,453 11,716
------------ ------------
568,009 473,214
COST OF GOODS SOLD
Cost of goods sold (excluding depreciation) 303,408 316,735
Depreciation 83,959 84,003
------------ ------------
387,367 400,738
GROSS PROFIT 180,642 72,476
------------ ------------
OPERATING EXPENSES
General and administrative 1,077,380 692,832
Marketing 386,383 372,110
Research and development - 12,022
------------ ------------
1,463,763 1,076,964
------------ ------------
LOSS FROM OPERATIONS (1,283,121) (1,004,488)
------------ ------------
OTHER INCOME (EXPENSE)
Other 19,769 361
Interest income 14,988 15,784
Interest expense (37,470) (42,654)
------------ ------------
(2,713) (26,509)
------------ ------------
NET LOSS $(1,285,834) $(1,030,997)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.12) $ (0.11)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 11,090,997 9,631,504
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Common Additional Common
-------------------- Stock Paid-In Stock
Shares Amount Discount Capital Subscribed
------------ -------- ---------- ----------- -----------
BALANCE,
DECEMBER 31, 1996 9,456,500 $ 9,457 $ - $2,938,443 $ -
PURCHASE AND RETIREMENT
OF COMMON STOCK (486,000) (486) - (480,514) -
ISSUANCE OF
COMMON STOCK 1,143,100 1,143 - 1,141,957 -
OFFERING COSTS
FOR SHARES ISSUED - - - (134,629) -
COMMON STOCK SUBSCRIBED - - - - 240,000
NET LOSS - - - - -
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS - - - - -
------------ -------- -------- ----------- ---------
COMPREHENSIVE LOSS - - - - -
------------ -------- -------- ----------- ---------
BALANCE,
DECEMBER 31, 1997 10,113,600 10,114 - 3,465,257 240,000
PURCHASE AND RETIREMENT
OF COMMON STOCK (400,000) (400) - (399,600) -
ISSUANCE OF
COMMON STOCK 1,654,657 1,654 (55,000) 1,618,000 -
OFFERING COSTS
FOR SHARES ISSUED - - - (157,985) -
COMMON STOCK SUBSCRIBED 240,000 240 - 239,760 (240,000)
NET LOSS - - - - -
FOREIGN CURRENCY
TRANSLATION ADUSTMENTS - - - - -
COMPREHENSIVE LOSS - - - - -
----------- -------- --------- ----------- ---------
BALANCE,
DECEMBER 31, 1998 11,608,257 $11,608 $(55,000) $4,765,432 $ -
========== ======== ========= =========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
Accumulated
Other Accumulated
Comprehensive Accumulated Comprehensive
Loss Deficit Loss
--------------- --------------- --------------
BALANCE,
DECEMBER 31, 1996 $ (13,307) $ (823,505) $ -
PURCHASE AND RETIREMENT
OF COMMON STOCK - - -
ISSUANCE OF
COMMON STOCK - - -
OFFERING COSTS
FOR SHARES ISSUED - - -
COMMON STOCK SUBSCRIBED - - -
NET LOSS - (1,030,997) (1,030,997)
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS (87,054) - (87,054)
----------- -------------- -------------
COMPREHENSIVE LOSS - - $(1,118,051)
===========
BALANCE,
DECEMBER 31, 1997 (100,361) (1,854,502) $ -
PURCHASE AND RETIREMENT
OF COMMON STOCK - - -
ISSUANCE OF
COMMON STOCK - - -
OFFERING COSTS
FOR SHARES ISSUED - - -
COMMON STOCK SUBSCRIBED - - -
NET LOSS - (1,285,834) (1,285,834)
FOREIGN CURRENCY
TRANSLATION ADUSTMENTS (116,312) - (116,312)
-------------
COMPREHENSIVE LOSS - - $(1,402,146)
--------- ----------- ============
BALANCE,
DECEMBER 31, 1998 $(216,673) $(3,140,336)
========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------- ------------
OPERATING ACTIVITIES
Net loss $(1,285,834) $(1,030,997)
Adjustments to reconcile net loss to net
cash used in operating activities
Issuance of common stock for
professional fees 10,000 -
Depreciation and amortization 133,270 127,159
(Increase) decrease in assets
Accounts receivable (143) (17,831)
Inventory 16,478 (32,899)
Prepaid expenses 21,043 (32,852)
Other assets (10,872) (7,210)
Increase (decrease) in liabilities
Accounts payable 24,354 (91,940)
Unearned income and deposits 21,059 54,626
------------- -----------
Net cash used in operating activities (1,070,645) (1,031,944)
------------- -----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (76,307) (310,210)
------------- -----------
FINANCING ACTIVITIES
Proceeds from mortgages payable - 115,360
Payments of mortgages payable (66,928) (63,911)
Issuance of common shares, net of offering
costs 1,636,670 1,008,471
Purchase of common shares (400,000) (481,000)
------------- ------------
Net cash provided by financing activities 1,169,742 578,920
------------- ------------
EFFECT OF EXCHANGE RATES ON CASH (39,854) (14,855)
------------- ------------
NET DECREASE IN CASH (17,064) (778,089)
CASH - BEGINNING OF YEAR 120,492 898,581
------------- ------------
CASH - END OF YEAR $ 103,428 $ 120,492
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest $ 37,470 $ 42,654
============= ============
Income taxes $ - $ -
============= ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
100,000 share stock certificate was
redeemed for $80,000 and the issuance
of a 15,000 share stock certificate $ - $ 15,000
============= ============
Common stock subscription - 240,000
============= ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FORMATION AND NATURE OF BUSINESS
Avani International Group Inc. (the "Company"), a Nevada
corporation, formerly Rainfresh Technologies, Inc. has
constructed a bottling facility and has been engaged in the
business of developing, manufacturing and distributing an oxygen
enriched, purified bottled water under the trade name "Avani
Water".
The Company changed its name from Rainfresh Technologies, Inc. to
Avani International Group Inc. on January 14, 1997. The Company
has three wholly-owned subsidiaries, Avani Marketing Corp.,
organized under the laws of Nevada; Avani Water Corporation,
organized under the laws of British Columbia (Canada); and Avani
Manufacturing (China), organized under the laws of Nevada.
Marina Bottling Company, Ltd., ("Marina") organized under the
laws of British Columbia (Canada), is 50% owned by the Company
and is accounted for utilizing the equity method. There is no
market for Marina's common stock. Marina was inactive during
1998 and due to certain factors that now exist, the Company has
determined that the carrying value of its investment exceeds the
estimated recovery value. Accordingly, at December 31, 1998 an
allowance of $35,592 has been established and a corresponding
amount has been charged to operations in 1998.
A technology, which injects oxygen into purified water is
utilized by the Company to produce an oxygen enriched, purified
bottled water. The exclusive worldwide rights to the oxygen
enrichment process were acquired from a Taiwanese company, in
December 1995 for the issuance of common stock. The product is
sold in the greater Vancouver metropolitan area and
internationally primarily in Taiwan.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the foreign subsidiary have been
translated using the exchange rate at the balance sheet date.
The average exchange rate for the period has been used to
translate revenues and expenses. Translation adjustments are
reported separately and accumulated in a separate component of
equity (other comprehensive loss).
FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts
payable, other liabilities and deposits approximates fair value
as of December 31, 1998 because of their short maturities.
The carrying value of the fixed rate long-term debt approximates
fair value since the interest rate associated with the long-term
debt approximates the current market interest rate.
ACCUNTS RECEIVABLE AND BAD DEBTS
The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is
required. If amounts become uncollectible, they will be charged
to operations when that determination is made. Bad debts during
1998 and 1997 amounted to $108,013 and $814.
INVENTORY
Inventory is stated at the lower of cost (determined by the first-
in, first-out method) or market. Inventory is comprised of
small bottles, packaging containers, supplies and water coolers
for resale.
F-6
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT
The cost of property , plant and equipment is depreciated over
the estimated useful lives of the related assets. Depreciation
is computed using accelerated methods. Five liter bottles and
leased water coolers are amortized over their estimated useful
lives.
REVENUE RECOGNITION
Revenue on sales of bottled water and coolers is recognized upon
delivery. Leases of water coolers and filters are accounted for
under the operating method and, accordingly, rental income is
reported over the terms of the leases.
INCOME TAXES
The Company accounts for its income taxes under Statement of
Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax
liabilities and assets for the estimated future tax effects of
events that have been recognized in the financial statements or
income tax returns. Under this method, deferred tax liabilities
and assets are determined based on differences between the
financial accounting and income tax bases of assets and
liabilities, and the use of carryforwards, if any, using enacted
tax rates in effect for the years in which the differences and
carryforwards are expected to reverse and be utilized.
LOSS PER SHARE
The Company computes its earnings (loss) per share under SFAS No.
128. Basic earnings (loss) per share include the weighted average
number of shares outstanding during the year. Diluted earnings
(loss) per share include the weighted average number of shares
outstanding and dilutive potential common shares, such as
warrants and options. Since there are no dilutive potential
common shares, basic and diluted earnings (loss) per share are
the same.
RECOVERABILITY OF LONG LIVED ASSETS
The Company follows SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable (see note 10).
COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income", beginning January 1, 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.
The component of comprehensive income (loss) consists of foreign
currency translation adjustments of ($116,312) and ($87,054),
with no applicable tax benefit for the years ended December 31,
1998 and 1997.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" beginning January 1, 1998.
Since the company only has one reportable segment, the required
disclosures relate to product and services, geographic areas and
major customers.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial
statements in order for them to be in conformity with the 1998
presentation.
NOTE 2 - CONCENTRATION OF CREDIT RISK INVOLVING CASH
The Company maintains its cash balances in a bank located in
Canada. These balances are not insured.
F-7
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
December 31,
-------------------------
1998 1997
--------- ----------
Land $ 143,030 $ 151,795
Building 821,954 868,103
Plant equipment 812,032 824,542
Office furniture and equipment 101,195 88,178
Coolers 67,138 53,845
Vehicles 19,580 20,638
----------- -----------
1,964,929 2,007,101
Less: Accumulated depreciation 317,058 200,450
----------- -----------
Property, Plant and
Equipment - Net $1,647,871 $1,806,651
=========== ===========
NOTE 4 - LONG TERM DEBT
Following is a summary of long-term debt:
December 31,
-----------------------
1998 1997
---------- ---------
Mortgage payable due in monthly installments
of $2,343 including interest at 8.3%,
balloon payment of $276,867 due May 1, 2001,
secured by land and building with a net book
value of $486,219. $288,958 $311,279
Mortgage payable due in monthly installments
of $510 including interest at 8.3%, balloon
payment of $60,189 due July 29, 2001, secured
by land and building with a net book value
of $103,204. 62,980 67,823
Mortgage payable due in monthly installments
of $456 including interest at 7%, balloon
payment of $59,278 due March 27, 2002 secured
by land and building with a net book value of
$104,651. 63,292 68,301
Second mortgage payable, interest only,
interest at 8% per annum, principal payments
$20,730 due January 31, 1998, March 30, 1998
and August 30, 1998, secured by land and
building with a net book value of $736,607. - 62,190
--------- ---------
415,230 509,593
Less: Current portion 6,869 68,924
--------- ---------
$408,361 $440,669
F-8
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - LONG TERM DEBT (Continued)
The minimum annual repayment requirements on long-term debt as of
December 31, 1998 are as follows:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ --------
1999 $ 6,869
2000 7,436
2001 341,305
2002 59,620
--------
$415,230
========
NOTE 5 - INCOME TAXES
There is no income tax benefit for operating losses for years
ended December 31, 1998 and 1997 due to the following:
Current tax benefit - the operating losses cannot be
carried back to earlier years.
Deferred tax benefit - the deferred tax assets were
offset by a valuation allowance. Management believes
that a valuation allowance is considered necessary
since it is more likely than not that the deferred tax
asset will not be realized through future taxable
income.
The components of the net deferred tax assets (liabilities) are
as follows:
1998 1997
---------- ---------
Property, plant and equipment $ 241,400 $(185,300)
Net operating loss carryforwards 1,196,800 719,000
Valuation allowance (955,400) (533,700)
----------- ---------
$ - $ -
=========== =========
Avani International Group Inc., Avani Marketing Corp. and Avani
Manufacturing file a consolidated corporate income tax return in
the United States and Avani Water Corporation files a corporate
income tax return in Canada.
The use of net operating loss carryforwards for United States
income tax purposes is limited when there has been a substantial
change in ownership (as defined) during a three year period.
Because of the recent and contemplated changes in common stock,
such a change may occur in the future. In this event, the use of
net operating losses each year would be restricted to the value
of the Company on the date of such change multiplied by the
federal long-term rate ("annual limitation"); unused annual
limitations may then be carried forward without this limitation.
At December 31, 1998, the Company had net operating loss
carryforwards of approximately $1,105,000 for U.S. income tax
purposes, which if not used will expire during the years 2010
through 2013. At December 31, 1998, the Company had net
operating loss carryforwards of approximately $1,887,000 for
Canadian income tax purposes, which if not used will expire
during the years 2002 through 2005.
F-9
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - COMMON STOCK
During 1998, the Company raised $1,554,654 from a private
placement through the issuance of 1,554,657 shares of common
stock. Offering costs related to the private placement amounted
to $157,985. The Company also issued 100,000 shares of
restricted common stock valued at $65,000 for professional
services valued at $10,000. The Company redeemed and retired
400,000 shares of common stock for $400,000.
During 1997, the Company raised $1,143,100 from a private
placement through the issuance of 1,143,100 shares of common
stock. Offering costs related to the private placement amounted
to $134,629. The Company redeemed and retired 486,000 shares of
common stock for $481,000. In addition, the Company received
subscriptions for 240,000 shares of common stock at $1.00 per
share, and the proceeds of $240,000 were received in January
1998.
NOTE 7 - RELATED PARTY TRANSACTIONS
In December 1995, the Company entered into two agreements with
the Taiwanese company from which the worldwide rights were
acquired. The Company agreed to pay a 10% finder's fee in
connection with the sale of the Company's common stock to
Taiwanese investors. During the year ended December 31, 1997
finders fees incurred amounted to $134,629, of which $20,000 was
payable at December 31, 1997.
In May 1997 a marketing agreement was entered into for a term of
eight months at $12,000 per month. Consulting fees incurred for
the year ended December 31, 1997 amounted to $90,000, net of a
$6,000 credit.
In addition, during 1997, the Company paid $22,962 to the
controlling shareholder of the Taiwanese company as a broker's
fee in connection with the purchase of certain equipment.
NOTE 8 - LEASES
For the years ended December 31, 1998 and 1997 total rental
expenses under leases amounted to $46,147 and $19,155. At
December 31, 1998, the Company was obligated under various
noncancelable operating lease arrangements for vehicles as
follows:
YEARS ENDING LEASE
DECEMBER 31, OBLIGATIONS
--------------- ------------
1999 $ 45,118
2000 29,376
2001 25,245
2002 796
-----------
$100,535
===========
NOTE 9 - GEOGRAPHIC AREAS, MAJOR CUSTOMERS AND SUPPLIERS
The Company had sales of $183,788 and $214,488 to Taiwan during 1998 and
1997, with the remaining sales being generated in Canada.
All of the Company's long-lived assets are located in Canada.
The Company sold a substantial portion of its product to one customer in
1998 and 1997. During the year ended December 31, 1998 and 1997, sales
to this customer aggregated $121,499 and $192,459. At December 31, 1998
and 1997, amounts due from this customer included in trade accounts
receivable were $ -0- and $9,453.
During the years ended December 31, 1998 and 1997, the Company purchased
Approximately 34% of its materials from one supplier. At December 31,
1998 and 1997 there were no amounts due to that supplier. The
supplier filed for bankruptcy in 1998 and the Company has established
relationships with other suppliers.
F-10
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - MANAGEMENT'S PLANS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However, the
Company has sustained substantial recurring losses from operations. The
Company experienced a net loss of $1,285,834 for the year ended December
31, 1998 which resulted in cash used in operations of $1,070,645.
In view of the matters described above, the continuation of the Company
is dependent on the Company's ability to meet its cash flow requirements
on a continuing basis and to succeed in its future operations. The
consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in the normal course of business.
Management, in its ongoing restructuring efforts has made major
reductions in its personnel cost. The Company is in the process of
instituting certain revenue - enhancing measures, including the expansion
of its exports to other areas of the world, such as Australia and seeking
technological partners to establish other manufacturing facilities. In
addition, the Company continues to work towards raising additional
capital through private placements.
F-11
(b). Reports on Form 8-K.
None
SIGNATURES
In accordance with Section 13 or 15(d) 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.
/s/ Peter Khean April 14, 1999
- ------------------------------- ---------------
Peter Khean Date
Chairman and
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Peter Khean April 14, 1999
- ------------------------------- ---------------
Peter Khean
Director
/s/ Nico Huang April 14, 1999
- ------------------------------- ---------------
Nico Huang
Director
EXHIBIT 21 (i)
SUBSIDIARIES
Avani Water Company
Avani Marketing Company
Avani Manufacturing (China), Inc.
EXHIBIT 27.1
FINANCIAL DATA SCHEDULE
ART.5 FDS
Multiplier 1,000
PERIOD TYPE 12 MONTHS
FISCAL YEAR END DEC-31-1998
PERIOD START JAN-1-1998
PERIOD END DEC-31-1998
CASH 103
SECURITIES 0
RECEIVABLES 79
ALLOWANCES 0
INVENTORY 33
CURRENT-ASSETS 299
PP&E 1,965
DEPRECIATION 83
TOTAL ASSETS 1,975
CURRENT-LIABILITIES 201
BONDS 0
COMMON 12
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 1,366
TOTAL-LIABILITIES-AND-EQUITY 1,975
SALES 568
TOTAL-REVENUES 568
CGS 303
TOTAL-COST 1,464
OTHER-EXPENSES (35)
LOSS-PROVISION 0
INTEREST-EXPENSE 37
INCOME-PRETAX (1,286)
INCOME-TAX 0
INCOME-CONTINUING (1,286)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (1,286)
EPS-PRIMARY (.12)
EPS-DILUTED (.12)
