U.S. SECURITIES AND EXCHANGE COMMISSION PRIVATE
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the period ended September 30, 2000.
[ ] 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 September 30, 2000 was 20,403,257.
Transitional Small Business Issuer Format (Check One):
Yes: No: X
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page No.
-Consolidated Condensed Balance Sheet as of September 30,
2000 (unaudited) and December 31, 1999 (audited). 3
-Consolidated Condensed Statement of Operations for the Three
Months and Nine Months Ended September 30, 2000 and 1999 (unaudited).4
-Consolidated Condensed Statement of Stockholders Equity for the
Nine Months Ended September 30, 2000 (unaudited). 5
-Consolidated Condensed Statement of Cash Flows the Nine Months
Ended September 30, 2000 and 1999 (unaudited). 6
-Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 10
Item 2. Change in Securities. 11
Item 3. Defaults Upon Senior securities. 11
Item 4. Submission Of Matters To A Vote of Securityholders. 11
Item 5. Other Information. 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
2000 1999
------------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 402,965 $ 954,606
Accounts receivable, net 52,386 62,419
Goods and services tax receivable 10,590 20,675
Inventory 56,020 65,078
Prepaid expenses 1,447 12,874
Assets held for resale 401,025 -
-------------- ------------
TOTAL CURRENT ASSETS 924,433 1,115,652
PROPERTY, PLANT AND EQUIPMENT - Net 1,546,194 2,027,440
--------------- -------------
OTHER ASSETS
Security deposits 10,421 10,709
Trademarks and licenses 25,330 15,318
--------------- -------------
35,751 26,027
--------------- -------------
TOTAL ASSETS $ 2,506,378 $3,169,119
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable stockholders $ 66,670 $ 109,521
Current portion of long-term debt 351,099 7,865
Accounts payable and accruals 91,943 144,632
Wages and benefits payable 8,451 23,548
Unearned income 18,141 15,542
Bottle and cooler deposits 95,335 107,915
--------------- --------------
TOTAL CURRENT LIABILITIES 631,639 409,023
LONG-TERM DEBT - Net of current portion 61,253 424,074
--------------- --------------
TOTAL LIABILITIES 692,892 833,097
=============== ==============
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 par value,
25,000,000 shares authorized
20,403,257 and 20,233,257 shares
issued and outstanding 20,403 20,233
COMMON STOCK DISCOUNT (55,000) (55,000)
WARRANTS OUTSTANDING 547,114 547,114
ADDITIONAL PAID-IN-CAPITAL 5,823,523 5,789,693
ACCUMULATED DEFICIT (4,407,358) (3,804,861)
ACCUMULATED OTHER COMPREHENSIVE LOSS (115,196) (161,157)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,813,486 2,336,022
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,506,378 $3,169,119
============= ============
See the accompanying notes.
Page F-3
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -----------------------
2000 1999 2000 1999
REVENUE
Bottled water and supply sales $ 123,571 $ 177,127 $ 357,418 $ 456,745
Cooler and equipment sales 3,780 2,228 12,950 4,339
Cooler rentals 2,134 3,795 9,041 18,348
----------- ----------- ----------- ----------
129,485 183,150 379,409 479,432
----------- ----------- ----------- ----------
COST OF GOODS SOLD
Cost of goods sold
(excluding depreciation) 67,255 80,461 247,359 233,386
Depreciation 9,782 25,083 51,836 68,688
----------- ----------- ----------- ----------
77,037 105,544 299,195 302,074
GROSS PROFIT 52,448 77,606 80,214 177,358
----------- ---------- ----------- ----------
OPERATING EXPENSES
General and administrative 188,451 234,414 519,081 550,286
Marketing 49,942 6,495 176,171 32,187
----------- ---------- ----------- ---------
238,393 240,909 695,252 582,473
----------- ---------- ----------- ---------
LOSS FROM OPERATIONS (185,945) (163,303) (615,038) (405,115)
----------- ---------- ----------- ---------
OTHER INCOME (EXPENSE)
Other 2,504 11,046 8,423 12,492
Interest income 6,905 1,972 24,396 1,972
Interest expense (3,181) (5,834) (20,278) (25,162)
----------- ---------- ----------- ---------
6,228 7,184 12,541 (10,698)
----------- ---------- ----------- ---------
NET LOSS $ (179,717) $ (156,119) $ (602,497) $(415,813)
============ =========== =========== =========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.01) $ (0.01) $ (0.03) (0.03)
============ =========== =========== =========
WEIGHTED AVERAGE NUMBER
OF SHARES 20,400,514 17,670,757 20,381,625 14,212,424
============ =========== ============ ==========
See the accompanying notes.
Page F4
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
PAGE 1 OF 2
Common Stock
__________________ Common
Stock Warrants
Shares Amount Discount Outstanding
__________ _______ __________ ___________
BALANCE, DECEMBER 31, 1999 (AUDITED) 20,233,257 $20,233 $(55,000) $547,114
ISSUANCE OF COMMON STOCK 170,000 170 -
NET LOSS - - - -
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS - - - -
COMPREHENSIVE LOSS - - - -
__________ _______ __________ _________
BALANCE, SEPTEMBER 30, 2000 20,403,257 $20,403 $(55,000) $547,114
========== ======== ========== =========
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
PAGE 2 OF 2
Accumulated
Additional Other
Paid-In Accumulated Comprehensive Comprehensive
Capital Deficit Loss Loss
----------- ----------- -------------- ------------
BALANCE,
DECEMBER 31, 1999
(AUDITED) $5,789,693 $(3,804,861) $(161,157) $ -
ISSUANCE OF COMMON STOCK 33,830 - - -
NET LOSS - (602,497) - (602,497)
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS - - 45,961 45,961
-----------
COMPREHENSIVE LOSS - - - $(556,536)
---------- ------------ ----------- ============
BALANCE,
SEPTEMBER 30, 2000 $5,823,523 $(4,407,358) $ 115,196
=========== ============ ==========
See the accompanying notes.
Page F-5
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net loss $(602,497) $(415,813)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 90,809 101,232
Issuance of common stock for consulting fees 34,000 130,000
(Increase) decrease in assets
Accounts receivable 17,999 11,240
Inventory 7,069 (59,960)
Prepaid expenses 11,401 16,321
Other assets (14,517) -
Increase (decrease) in liabilities
Accounts payable and accruals (101,942) 47,311
Unearned income and deposits 3,135 21,890
---------- ----------
Net cash used in operating activities (554,543) (147,779)
---------- ----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (28,834) (16,274)
---------- ----------
FINANCING ACTIVITIES
Proceeds from mortgages payable - 61,415
Payments of mortgages payable (5,868) -
Payments of stockholder loans (10,857) -
Issuance of common shares, net of offering costs - 1,450,000
---------- ----------
Net cash provided by (used in) financing activities (16,725) 1,511,415
---------- ----------
EFFECT OF EXCHANGE RATES ON CASH 48,461 (24,472)
---------- ---------
NET INCREASE (DECREASE) IN CASH (551,641) 1,322,890
CASH - BEGINNING OF PERIOD 954,606 103,428
---------- ---------
CASH - END OF PERIOD $ 402,965 $1,426,318
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest $ 78,370 $ 25,162
========== ==========
Income taxes $ - $ -
========== ==========
See the accompanying notes.
Page F-6
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 - INTERIM FINANCIAL INFORMATION
The financial statements of Avani International Group, Inc. and Subsidiaries
(the "Company") as of September 30, 2000, and for the three and nine months
ended September 30, 2000 and 1999 and related footnote information are
unaudited. All adjustments (consisting only of normal recurring adjustments)
have been made which, in the opinion of management, are necessary for a fair
presentation. Results of operations for the three and nine months ended
September 30, 2000 and 1999 are not necessarily indicative of the results
that may be expected for any future period. The balance sheet at December 31,
1999 was derived from the audited financial statements for the year ended
December 31, 1999.
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 for the year ended
December 31, 1999, included in the Form 10-KSB of the Company for such
period.
NOTE 2 - BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of the
Company and its subsidiaries. All material intercompany balances and
intercompany transactions have been eliminated.
NOTE 3 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
Comprehensive Income for the first quarter of fiscal year 1998.
Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of certain financial information that historically
has not been recognized in the calculation of net income. Comprehensive
income (loss), representing foreign currency translation adjustments for the
nine months ended September 30, 2000 and 1999 was $104,053 and $28,458.
NOTE 4 - MAJOR CUSTOMER AND SUPPLIER
In each period the Company sold a substantial portion of its products to a
few customers. During the nine months ended September 30, 2000, sales to a
Japanese customer aggregated $47,282 and during the nine months ended
September 30, 1999, sales to an Australian customer aggregated $57,100 and
sales to two Japanese customers aggregated $50,377. At September 30, 2000
and 1999, amounts due from these customers included in trade accounts
receivable were $-0-.
During the nine months ended September 30, 2000 and 1999, the Company
purchased approximately 45% and 47% of its materials from one supplier. At
September 30, 2000 and 1999 there were no amounts due to that supplier. If
the supplier ceased doing business with the Company, management believes
that other sources of material are available.
NOTE 5 - COMMON STOCK
The Company issued 170,000 shares valued at $34,000 for consulting services
during the nine months ended September 30, 2000.
Page F-7
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 6 - JOINT VENTURE AGREEMENT
The Company entered into an agreement on February 18, 2000 with a Malaysian
company, Avani 02 Water SDN.BHD ("AOW"), whereby AOW would have the
exclusive right and license to produce and sell the Company's proprietary
enriched water products. In return AOW would pay the Company a royalty of
2% of gross revenue, a license fee of $500,000 per production facility, 20%
of the net profits of AOW and purchase the equipment supplied by the Company.
The royalty will initially be payable within 60 days of preparation of the
annual audited financial statements; however, once AOW has completed one
profitable year, the royalty will be calculated quarterly and will be
payable within 60 days of the end of each year.
The licensing fee is payable on or before 6 months from the date each
facility is commissioned and begins production.
NOTE 7 - FINANCIAL CONSULTING AGREEMENT
On March 23, 2000, the Company entered into a financial consulting
arrangement with SJH Corporate Services, Inc. ("SJH"). SJH specializes in
sourcing funding for companies in their infancy stage, as well as introducing
potential distributors for products. The company has granted SJH a stock
option to acquire 3,200,000 shares of common stock of Avani with the
following terms:
1) Exercise price per share is $.20.
2) The option shares must be exercised on or before each respective date,
in the increments stated below:
Date Number of Option Shares
June 30, 2000 250,000 expired
July 31, 2000 250,000 expired
August 30, 2000 1,000,000 *
September 30, 2000 250,000 *
November 30, 2000 1,250,000 *
December 31, 2000 200,000
*Extended to December 31, 2000
NOTE 8 - MANAGEMENT'S PLANS
The Company has incurred substantial recurring losses from operations. This
condition raises substantial doubt about its ability to continue as a going
concern. For the nine months ended September 30, 2000 the Company incurred
a net loss of $602,497 and has an accumulated deficit of ($4,407,358).
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. While the Company is
expected to be able to meet its current obligations, its future is dependent
on the ability to obtain capital infusions and/or profitable operations. In
an effort to improve its operations, management is in the process of
instituting certain revenue enhancing measures, including the establishment
of another manufacturing facility in Malaysia, and its expansion efforts to
other international markets.
Page F-8
Item 2. Management's Discussion and Analysis.
The following discusses the financial results and position of the
consolidated accounts of the Company and its wholly owned subsidiaries for
the periods indicated.
Results of Operations
Revenues for the three- and nine-month periods ended September 30, 2000
were $129,485 and $379,409, respectively, compared with revenues of $183,150
and $479,432 for the same periods in 1999. The decrease of 20.86% for the
nine-month period in 2000 was due to a loss of sales from an Australian
distributor and a Taiwanese distributor, and the reduction of local sales.
Revenues for the nine-month period in 2000 consisted of $357,418 in bottled
water and supply sales (a decrease of 21.75% from $456,745 for the prior
period), $12,950 in cooler and equipment sales (an increase of 198% from
$4,339 for the prior period) and $9,041 in cooler rentals (a decrease of
50.72% from $18,348 for the prior period). Of the total revenue for the nine-
month period in 2000, $47,282 (or 13.23% of total water sales) represented
sales to a Japanese distributor. Interest income earned on investment of
cash totaled $24,396 for the nine-month period in 2000 compared with $1,972
for the prior period. The increase is a result of the increase of available
cash for the current period as compared with the prior period.
Cost of sales for the three- and nine-month periods in 2000 totaled $77,037
and $299,195, respectively, compared with $105,544 and $302,074 for the
same periods in 1999. Cost of goods sold for the nine-month periods as a
percentage of sales increased by 15.85% for the 2000 period from 63.01% to
78.86% due principally to the reduction in sales and increased delivery
costs. Cost of sales for the nine-month period in 2000 consisted of $247,359
in bottled water, supplies, coolers and related equipment (an increase of
5.99% from $233,386 for the prior period) and $51,836 in depreciation (a
decrease of 24.53% from $68,688 for the prior period). Gross profit for the
three- and nine-month periods in 2000 was $52,448 and $77,606, respectively,
compared with $80,214 and $177,358 for the prior periods.
General and administrative expenses which includes administrative salaries
and overhead for the nine-month period totaled $519,081 which represents a
decrease of 5.67% from $550,286 for the prior period. This decrease is due
to a reduction in expenses for advertising, vehicle operation, and
professional charges, partially offset by increases in salaries, marketing
expenses, and sales commissions. Marketing expenses totaled $176,171 for the
nine-month period in 2000 representing an increase of 447% from $32,187 for
the prior period. The increase in marketing expenses is due principally to
increased promotional expenses associated with its overseas markets, and to a
lesser extent expenses for local promotions. Interest expense in connection
with the Company's real estate totaled $20,278 for the nine-month period in
2000 representing a decrease of 19.41% from $25,162 for the prior period.
Net loss for the three- and nine-month periods in 2000 was $179,717 and
$602,497, respectively, compared with $156,119 and $415,813 for the prior
periods.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through the
private placement of its common stock. During 1999, the Company raised
approximately $1,450,000 net of offering costs from the private placement of
its common stock.
As of September 30, 2000, the Company had working capital in the amount
of $292,794. The Company continues to experience difficulties in establishing
any meaningful distribution channels, and, as a result continues to experience
significant losses from operations. The Company is uncertain as to when it
will achieve profitable operations. Until such time as it achieves profitable
operations for which no assurances can be given, the Company intends to
finance its ongoing operations through the private placement of its capital
stock or through debt financing. As of this date, 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 in fact
unsuccessful in its financing endeavors, such event will have a material
adverse impact on its operations.
In March 2000, the Company entered into two agreements with an unaffiliated
company to identify potential sources of capital and to provide investor
relations services. The Company granted 3,200,000 stock options to the third
party at an option price of $0.20 per share. The option under the original
grant were exercisable monthly on or before the end of each calendar month
from June to December 2000 in the following respective monthly increments;
250,000, 250,000, 1,000,000, 250,000, 1,250,000 and 200,000. Options for
500,000 shares of common stock have expired. The exercise date for the
remaining 2,700,000 shares under the options have been extended to December
31, 2000.
Page 9
Property, plant, and equipment, net of accumulated depreciation, totaled
$1,546,194 on September 30, 2000. Property, plant and equipment, net of
accumulated depreciation, totaled 2,027,440 on December 31, 1999.
Forward Looking Statements. Certain of the statements contained in this
Quarterly Report on Form 10-QSB includes "forward looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
("Exchange Act"). See the Company's Annual Report on Form 10-KSB for
additional statements concerning operations and future capital requirements.
Certain risks exist with respect to the Company and its business, which risks
include the lack of profitable operations, limited distribution channels,
and the need for additional capital to sustain operations. Readers are
urged to refer to the section entitled "Cautionary Statements in the
Company's Annual Report on Form 10-KSB for the period ended December 31, 1999
for a broader discussion of such risks and uncertainties.
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Page 10
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
Page 11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVANI INTERNATIONAL GROUP, INC.
Date: November 15, 2000 /s/ Dennis Robinson
Dennis Robinson Treasurer and
Chief Accounting Officer
SCHEDULE 27.1
FINANCIAL DATA SCHEDULE
ART.5 FDS FOR 3rd QUARTER 10-Q
Multiplier 1,000
PERIOD TYPE 9 MONTHS
FISCAL YEAR END DEC-31
PERIOD END SEPT-30-2000
CASH 403
SECURITIES 0
RECEIVABLES 52
ALLOWANCES 0
INVENTORY 56
CURRENT-ASSETS 924
PP&E 2,118
DEPRECIATION 572
TOTAL ASSETS 2,506
CURRENT-LIABILITIES 632
BONDS 0
COMMON 20
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 1,793
TOTAL-LIABILITIES-AND-EQUITY 2,506
SALES 379
TOTAL-REVENUES 379
CGS 299
TOTAL-COST 994
OTHER-EXPENSES (24)
LOSS-PROVISON 0
INTEREST-EXPENSE 20
INCOME-PRETAX (602)
INCOME-TAX 0
INCOME-CONTINUING (602)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (602)
EPS-PRIMARY (.03)
EPS-DILUTED (.03)
Page 12
