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 March 31, 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 March 31, 2000 was 20,403,257.
Transitional Small Business Issuer Format (Check One):
Yes: No: X
PART I - FINANCIAL INFORMATION
INDEX
Item 1. Financial Statements. Page No.
-Consolidated Condensed Balance Sheet as of
March 31, 2000 (unaudited) and December 31, 1999 (audited). 3
-Consolidated Condensed Statement of Operations for the
Three Months Ended March 31, 2000 and 1999 (unaudited). 4
-Consolidated Condensed Statement of Stockholders
Equity for the Three Months Ended
March 31, 2000 (unaudited). 6
-Consolidated Condensed Statement of Cash Flows
for the Three Months Ended March 31, 2000
and 1999 (unaudited). 7
-Notes to Financial Statements. 8
Item 2. Management's Discussion and Analysis. 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities. 11
Item 3. Defaults upon Senior Securities. 11
Item 4. Submission of Matters to Vote of Securityholders. 11
Item 5. Other Information. 11
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 12
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2000 1999
___________ _____________
ASSETS
CURRENT ASSETS
Cash $ 649,319 $ 954,606
Accounts receivable, net 81,714 62,419
Goods and services tax receivable 18,117 20,675
Inventory 51,903 65,078
Prepaid expenses 16,680 12,874
Equipment held for resale 401,025 -
____________ _____________
TOTAL CURRENT ASSETS 1,218,758 1,115,652
_____________ _____________
PROPERTY, PLANT AND EQUIPMENT - Net 1,577,215 2,027,440
_____________ _____________
OTHER ASSETS
Security deposits 10,690 10,709
Trademarks and licenses 15,295 15,318
_____________ _____________
25,985 26,027
_____________ _____________
TOTAL ASSETS $2,821,958 $3,169,119
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans payable stockholders $ 79,587 $ 109,521
Current portion of long-term debt 7,969 7,865
Accounts payable and accruals 95,015 144,632
Wages and benefits payable 22,907 23,548
Unearned income 18,701 15,542
Bottle and cooler deposits 100,108 107,915
___________ _____________
TOTAL CURRENT LIABILITIES 324,287 409,023
LONG-TERM DEBT - Net of current portion 421,389 424,074
___________ _____________
TOTAL LIABILITIES 745,676 833,097
___________ _____________
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 (4,059,628) (3,804,861)
ACCUMULATED OTHER COMPREHENSIVE LOSS (200,130) (161,157)
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 2,076,282 2,336,022
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,821,958 $3,169,119
============ ============
See the accompanying notes.
- 3 -
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
___________ ____________
REVENUE
Bottled water and supply sales $ 99,629 $ 166,404
Cooler and equipment sales 3,837 1,432
Cooler rentals 2,128 10,662
___________ ____________
105,594 178,498
___________ ____________
COST OF GOODS SOLD
Cost of goods sold (excluding depreciation) 74,286 84,869
Depreciation 32,832 21,535
___________ ___________
107,118 106,404
___________ ___________
GROSS PROFIT (LOSS) (1,524) 72,094
___________ ___________
OPERATING EXPENSES
General and administrative 216,261 140,592
Marketing 41,202 16,378
___________ ___________
257,463 156,970
___________ ___________
LOSS FROM OPERATIONS (258,987) (84,876)
___________ ___________
OTHER INCOME (EXPENSE)
Other 2,011 611
Interest income 9,805 -
Interest expense (7,596) (8,327)
___________ ___________
4,220 (7,716)
___________ ___________
NET LOSS $ (254,767) $ (92,592)
============ ===========
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.01) $(0.01)
============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES 20,403,257 11,608,257
============ ===========
See the accompanying notes.
- 4 -
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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,
MARCH 31, 2000 20,403,257 $20,403 $(55,000) $547,114
=========== ======== ========== =========
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 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 $(3,804,361) $(161,157) $ -
ISSUANCE OF
COMMON STOCK 33,830 - - -
NET LOSS - (254,767) - (254,767)
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS - - (38,973) (38,973)
__________
COMPREHENSIVE LOSS - - - $(293,740)
____________ ____________ ____________ ==========
BALANCE
MARCH 31,2000 $5,823,523 $(4,059,628) $(200,130)
============ ============ =============
See the accompanying notes.
- 5 -
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
2000 1999
___________ __________
OPERATING ACTIVITIES
Net loss $(254,767) $ (92,592)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 45,720 33,627
Issuance of common stock for consulting fees 34,000 -
(Increase) decrease in assets
Accounts receivable (16,881) (34,812)
Inventory 13,109 (7,382)
Prepaid expenses (3,810) 6,111
Increase (decrease) in liabilities
Accounts payable and accruals (50,158) (26,411)
Unearned income and deposits (4,402) 192
__________ ___________
Net cash used in operating activities (237,189) (121,267)
__________ ___________
INVESTING ACTIVITIES
Acquisition of property, plant and equipment - (4,008)
__________ ___________
FINANCING ACTIVITIES
Proceeds from mortgages payable - 63,955
Payments of mortgages payable (1,739) -
Repayment of stockholder loans (29,554) -
___________ ___________
Net cash provided by (used in) financing activities (31,293) 63,955
___________ ___________
EFFECT OF EXCHANGE RATES ON CASH (36,805) (7,357)
___________ ___________
NET DECREASE IN CASH (305,287) (68,677)
___________ ___________
CASH - BEGINNING OF PERIOD 954,606 103,428
___________ ___________
CASH - END OF PERIOD $ 649,319 $34,751
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 7,596 $ 8,327
=========== ===========
Income taxes $ - $ -
=========== ===========
See the accompanying notes.
- 6 -
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - INTERIM FINANCIAL INFORMATION
The financial statements of Avani International Group, Inc. and Subsidiaries
the 'company') as of March 31, 2000, and for the three months ended March 31,
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 months ended March 31, 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 three months
ended March 31, 2000 and 1999 was $(38,973) and $12,161.
NOTE 4 - MAJOR CUSTOMER AND SUPPLIER
In each period the Company sold a substantial portion of its products to one
customer. During the three months ended March 31, 2000 and 1999, sales to an
Australian customer aggregated $21,552 and $33,984. At March 31, 2000 and
1999, there were no amounts due from these customers included in trade
accounts receivable.
During the three months ended March 31, 2000 and 1999, the Company purchased
approximately 27% and 47% of its materials from one supplier. At March 31,
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 three months ended March 31, 2000.
- 7 -
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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 source 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
July 31, 2000 250,000
August 30, 2000 1,000,000
September 30, 2000 250,000
November 30, 2000 1,250,000
December 31, 2000 200,000
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 three months ended March 31, 2000 the Company incurred a
net loss of $254,767 and has an accumulated deficit of $4,059,628.
- 8 -
AVANI INTERNATIONAL GROUP INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 9 - MANAGEMENT'S PLANS (Continued)
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 the expansion to
other international markets.
- 9 -
Item 2. Management's Discussion and Analysis.
The following discusses the financial results and position of the consolidated
accounts of the Company and its wholly owned subsidiaries for the periods
indicated.
Results of Operations
Three Months Ended March 31, 2000 compared with Three Months Ended March 31,
1999.
Revenues for the three months ended March 31, 2000 were $105,594 representing
a decrease of 40.84% from revenues of $178,498 for the same period in 1999.
The decrease for the period was due to reduction of international sales
caused principally by the loss of a Taiwanese distributor as previously
reported and the reduction of sales to an Australian distributor, and to a
lesser extent by reduced domestic sales. Revenues for the three month
period in 2000 consisted sales of $99,629 in water and supply sales (a decrease
of 40.13% from $166,404 for the prior period), $3,837 in cooler and equipment
sales (an increase of 167.95% from $1,432 for the prior period) and $2,128 in
cooler rentals (a decrease of 80.04% from $10,662 for the prior period). Of the
total revenue for the three month period in 2000, $21,552 (or 20.42% of total
sales) represented sales to an Australian distributor. This amount represents
a decrease of 36.58% from sales of $33,984 to the Australian distributor for
the prior period. Increase income earned on investment of cash $9,805 for the
three month period in 2000 contrasted with $-0- for the prior period. The
increase is due placements that occurred in 1999.
Cost of sales for the three month period in 2000 totaled $107,118 representing
a slight increase from $106,404 for the same period in 1999. Cost of goods
sold for the three month period as a percentage of sales was 101.44% for the
2000 period representing an increase of 42.34% from 59.1% for the prior
period. The percentage increase is a result of the reduction of revenues for the
quarter, coupled with an increase in depreciation and a less than pro-rata
reduction in cost of sales. Cost of sales for the three month period in 2000
consisted of $74,286 in bottled water, supplies, coolers and related equipment
(a decrease of 12.47% from $84,869 for the prior period) and $32,832 in
depreciation (an increase of 54.79% from 21,210 for the prior period). Gross
profit for the three month period in 2000 was $(1,524), compared with $72,094
for the same period in 1999.
- 10 -
General and administrative expenses which includes administrative salaries and
overhead for the three month period in 2000 totaled $216,261 compared with
$140,592 for the same period in 1999. The increase of 53.82% for the three
month period in 2000 is due to the hiring of additional in-house marketing
personnel, the accrual of certain benefits, the settlement of a lawsuit and
related legal costs, and increased travel expenses. Marketing expenses totaled
$41,202 for the three month period in 2000 representing an increase of 151.57%
from $16,378 for the prior period. The increase in marketing expenses is
due to increased promotional expenses associated with its overseas markets.
Interest expense in connection with the Company for the three month period in
2000 representing a decrease of 8.78% from $8,327 for the prior period. Net
loss for the three month period in 2000 was $254,767 compared with a net loss
of $92,592 for the prior period.
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 March 31, 2000, the Company had working capital in the amount of
$894,471(of which $401,025 is equipment held for resale in accordance with
the Company's Malaysian joint venture agreement). 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 achieve profitability for which no assurances can be
given, 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.
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 options are 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. In the event an increment is not exercised
by any such respective date, the remaining unexercised options expire
automatically.
Property, plant and equipment, net of accumulated depreciation, totaled
$1,577,215 on March 31, 2000. Property, plant and equipment, net of
accumulated depreciation, totaled $2,027,440 on December 31, 1999.
-11-
Forward Looking Statements. Certain of the statements contained in this
Quarterly Report on Form 10-QSB includes "forward looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
("Exchange Act"). See the Company's Annual Report on Form 10-KSB for the
period ending December 31, 1999 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 Form
10-KSB for the period ended December 31, 1999 and elsewhere therein for a
broader discussion of such risks and uncertainties.
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Securityholders.
None
Item 5. Other Information.
None
Item 6. Exhibits.
(a). Furnish the Exhibits required by Item 601 of Regulation S-B.
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVANI INTERNATIONAL GROUP, INC.
Date: May 16, 2000 /s/Dennis Robinson
Dennis Robinson
Treasurer and
Chief Accounting Officer
-12-
SCHEDULE 27.1
FINANCIAL DATA SCHEDULE
ART.5 FDS FOR 1st QUARTER 10-Q
Multiplier 1,000
PERIOD TYPE 3 MONTHS
FISCAL YEAR END DEC-31-1999
PERIOD END MAR-31-2000
CASH 649
SECURITIES 0
RECEIVABLES 82
ALLOWANCES 0
INVENTORY 52
CURRENT-ASSETS 1,219
PP&E 2,098
DEPRECIATION 521
TOTAL ASSETS 2,822
CURRENT-LIABILITIES 324
BONDS 0
COMMON 20
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 2,056
TOTAL-LIABILITIES-AND-EQUITY 2,822
SALES 106
TOTAL-REVENUES 106
CGS 107
TOTAL-COST 364
OTHER-EXPENSES (12)
LOSS-PROVISION 0
INTEREST-EXPENSE 8
INCOME-PRETAX (255)
INCOME-TAX 0
INCOME-CONTINUING (255)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (255)
EPS-PRIMARY (.01)
EPS-DILUTED (.01)
