U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549  FORM 10-Q (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, 2008  [ ] 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)  108-2419 Bellevue Ave. West Vancouver, B.C. V7V 4T4 Canada (Address of principal executive offices)              (Zip Code)  Issuer's telephone number (604)-913 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). [X] Yes  [  ] No: (2). [X] Yes [  ] No:  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. [X] Smaller Reporting Company  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [  ] No  The number of shares issued and outstanding of issuer's common stock, $.001 par value, as of November 6, 2008 was 17,582,571.    1  PART I - FINANCIAL INFORMATION  Item 1. Financial Statements. Page No. -Consolidated Interim Balance Sheets as of August 31, 2008 (unaudited) and December 31, 2007 (audited). 3 -Consolidated Interim Statements of Operations and Comprehensive Loss for the Three Months and Nine Months ended August 31, 2008 and 2007 (unaudited). 4 -Consolidated Interim Statements of Changes in Capital Deficit for the Three Months and Nine Months Ended August 31, 2008 and 2007 (unaudited). 5 -Notes to Consolidated Interim Financial Statements. 7 Item 2. Management's Discussion and Analysis. 9 Item 3. Effectiveness of the Registrants Disclosure Controls and Procedures 11 Item 3(A)T Controls and Procedures. 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 12 Item 1A. Risk Factors 12 Item 2. Unregistered Sales of Securities of Equity Securities and Use of Proceeds. 12 Item 3. Defaults upon Senior Securities. 12 Item 4. Submission of Matters to Vote of Securityholders. 12 Item 5. Other Information. 12 Item 6. Exhibits and Reports on Form 8-K. 12 Signatures 13       2    Avani International Group Inc.Consolidated Interim Balance Sheets(Expressed in US dollars)September 30December 3120082007Assets(Unaudited)CurrentCash and cash equivalents$1,060,791$1,217,971Accounts receivable (net of allowance for doubtful accountsin 2008 - $Nil; 2007 - $Nil)15,5132,671Prepaid expenses5,2095,0061,081,5131,225,648Property, plant and equipment82,80512,874Other assets13,22418,828$1,177,542$1,257,350Liabilities and Capital DeficitLiabilitiesCurrentAccounts payable$925,858$885,417Accrued liabilities59,19963,553Debts payable164,756170,819Unearned revenue and deposits9,2309,9091,159,0431,129,698Capital DeficitCapital stock (Note 2)Authorized800,000,000 common shares, par value of $0.001
1,000,000 preferred shares, par value of $0.001Issued and outstanding- 17,582,571 (2007 17,582,571) common shares
- 1,000,000 preferred shares17,58317,583Additional paid-in capital8,116,0928,116,092Accumulated deficit(8,097,913)(7,947,590)Accumulated other comprehensive loss- foreign exchange translation(17,263)(58,433)18,499127,652$1,177,542$1,257,350The accompanying notes are an integral part of these consolidated interim financial statements.     Avani International Group Inc.Consolidated Interim Statements of Operations and Comprehensive Loss(Expressed in US Dollars)(Unaudited)Three-month periods endedNine-month periods endedSeptember 30September 302008200720082007RevenueBottled water and supply sales$-$-$-$-----Cost of revenueCost of goods sold (excludingdepreciation)----Depreciation--------Gross profit----Operating expensesMarketing41,17526,267126,508126,622General and administration54,48045,877137,520144,62695,65572,144264,028271,248Income (loss) from operations(95,655)(72,144)(264,028)(271,248)Other income (expenses)Interest on debts payable(1,919)(1,906)(5,891)(5,431)Interest income-1,43613,11312,025Royalty income3,274-9,564-Equipment rental income--19,833-Bad debts recovery (Note 4)77,08677,08678,441(470)113,7056,594Net loss for the period(17,214)(72,614)(150,323)(264,654)Foreign currency translation adjustment13,404(8,886)41,170(45,354)Comprehensive loss for the period$(3,810)$(81,500)$(109,153)$(310,008)Gain(Loss) per share - basic and diluted$(0.01)$(0.01)$(0.01)$(0.02)Weighted average shares outstanding17,582,571115,082,57117,582,571115,082,571The accompanying notes are an integral part of these consolidated interim financial statements.  3


Avani International Group Inc.Consolidated Interim Statements of Changes in Capital Deficit(Expressed in US Dollars)(Unaudited)AccumulatedAdditionalOtherTotalCommon SharesPaid-inAccumulatedComprehensiveCapitalSharesAmountCapitalDeficitLossDeficitBalance, January 1, 200715,082,571$15,083$7,717,620$(8,012,065)$(2,813)$(282,175)Issuance of common stock2,500,0002,500398,472-400,972--Stock option compensation----Net profit (loss)  for the year---64,475-64,475Foreign exchange translation adjustment----(55,620)(55,620)Balance, December 31, 200717,582,57117,5838,116,092(7,947,590)(58,433)127,652Net loss for the period---(150,323)-(150,323)Foreign exchange translation adjustment----41,17041,170Balance, September 30, 200817,582,571$17,583$8,116,092$(8,097,913)$(17,263)$18,499Preferred SharesSharesBalance, January 1, 2007NilIssuance of preferred stock in July 20071,000,000Balance, December 31, 20071,000,000Balance , September 30, 20081,000,000   The accompanying notes are an integral part of these consolidated interim financial statements


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Avani International Group Inc.Consolidated Statements of Cash Flows(Expressed in US Dollars)(Unaudited)For the nine-month periods ended September 3020082007Cash provided by (used in)Operating activitiesNet loss for the year$(150,323)$(264,654)Adjustments to reconcile net loss for the year tonet cash provided by (used in) operating activitiesDepreciation11,11011,972Loss (gain) on disposal of assets-Bad debts recovery(77,086)(Increase) decrease in assetsAccounts receivable(12,842)(949)Prepaid expenses(203)(144)Increase (decrease) in liabilitiesAccounts payable34,37849,898Accrued liabilities(4,354)(5,730)Unearned revenue and deposits(679)1,446(199,999)(208,161)Investing activitiesProceeds from sale of capital assets-Financing activitiesIssuance of common shares-Increase (Decrease) in cash during the period(199,999)(208,161)Effect of foreign exchange on cash42,819(51,064)Cash and cash equivalents, beginning of period1,217,971968,419Cash and cash equivalents, end of period$1,060,791$709,194Supplemental Information:Interest paid$5,891$5,431The accompanying notes are an integral part of these consolidated interim financial statements.  .


Avani International Group Inc.Consolidated Statements of Cash Flows(Expressed in US Dollars)(Unaudited) 1. Basis of Presentation and Ability to Continue as a Going Concern The consolidated interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The consolidated interim financial statements for the nine-month period ended September 30, 2008 include the accounts of the Company and its wholly owned subsidiaries. All material inter-company balances and inter-company transactions have been eliminated. These statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary for fair presentation of the information contained therein. After the sale of its property including land, building and building improvements on June 15, 2006, the Companys production of water has been suspended. For the nine-month period ended September 30, 2008, the revenue of the Company was Nil, and the result of its operations was a deficit of $150,323. As mentioned previously by the Company, the Company recovered from Avani O2 Water Sdn. Bhd its proprietary bottling equipmentthat was the subject of its prior joint venture with Avani O2 (See Note 4).  On March 15, 2008, the Company rented the recovered equipment, on a month to month basis,  to Avani Oxygen Water Corporation Sdn. Bdh. (formerly Avani Water Corporation Sdn. Bdn.), an unaffiliated Malaysian company (AOW). The rental arrangement was terminated on June 30, 2008. The rental arrangement provided for a rental of approximately $5,000 per month and 2% royalty on gross sales resulting from the equipment use. Following the termination of the rental agreement, the Company entered into a month to month lease agreement with AOW to store the equipment, spare parts and inventory. The monthly rental is approximately $3,000 and the leasehold space is approximately 10,000 square feet. Results of operations for the interim periods are not indicative of annual results. These accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.The Company has incurred accumulated losses to September 30, 2008 of $8,097,913.  The continuation of the Company is dependent upon the continuing financial support of creditors and stockholders, obtaining additional long-term financing, as well as achieving and maintaining a profitable level of operations.  The Company plans to raise additional equity and debt capital as necessary to finance the operating and capital requirements of the Company. Amounts raised will be used to provide financing for the marketing and promotion of the Company's business, capital expansion and for other working capital purposes. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern.  These financial statements do not include any adjustments that might arise from this uncertainty.  2.    Capital Stock Transactions not disclosed elsewhere in these consolidated interim financial statements are as follows: As at December 31, 2007, the Company had 1,500,000 fully exercisable share purchase warrants outstanding, which were granted in August 2003 and exercisable at any time within 5 years at an exercise price of $0.06 per share. As of September 30, 2008, these warrants expired unexercised.  Avani International Group Inc.Consolidated Statements of Cash Flows(Expressed in US Dollars)(Unaudited)   a) A summary of share purchase warrant transactions for the periods presented is as follows:  WeightedAverageExerciseNumberPriceStock Warrants outstanding at December 31, 20071,500,000$0.06Stock Warrants outstanding at September 30, 20080n/a  c) The Company applies Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for stock options granted to employees.  Generally, under APB No. 25 compensation expense is recognized for the difference between the market price of the underlying stock and the exercise price of the stock options.  Accordingly, no compensation has been recognized in connection with options granted to employees. Had compensation cost been determined based upon the fair value of the stock options at the grant date consistent with the fair value method prescribed in SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts as indicated below.  Nine-month  period
ended September 3020082007Net loss, as reported$(150,323)$(264,654)Deduct: stock-based employee compensation expensedetermined under fair-value based method for all awardsnot included in net loss--Pro-forma net loss$(150,323)$(264,654)Loss per share:Basic and diluted  as reported$(0.01)$(0.02)Basic and diluted  pro-forma$(0.01)$(0.02) All options granted by the Company expired in September 2006. As there was no stock-based compensation awarded to employees during the period ended September 30, 2008, the pro-forma information for the periods ended September 30, 2008 equals the information as reported on the Statement of Operations and Comprehensive Income (Loss).  On October 11, 2007, the Company filed with the Nevada Secretary of State a Certificate of Designations to create a class of preferred stock consisting of 1,000,000 shares and known as the Class A Super Voting Preferred Stock. On all matters presented to the shareholders for a vote, the Class A Super Voting Preferred Stock has 2,000 votes per share. No other rights, privileges, or features are attendant to the Class A Super Voting Preferred Stock. On December 13, 2007, the Company issued 1,000,000 shares of the Class A Super Voting Preferred Stock to the Companys Chairman and President. Avani International Group Inc.Consolidated Statements of Cash Flows(Expressed in US Dollars)(Unaudited)    3. Related Party Transactions  During the nine-month period ended September 30, 2008, the president of the Company was reimbursed $Nil (2007  6,889) as transportation expenses. The Company accrued $54,000 as salary (2007 - $54,000) and $47,074 (2007 - $42,500) of overseas living allowance, all of which are payable to the President of the Company. The Companys accounts payable total $925,868 as of September 30, 2008. Of the total amount, $533,066 is owed to an officer of the Company and $300,695 is owed to a majority shareholder. 4. Purchase of Assets and Bad Debts Recovery In September 2008, the Company obtained from Avani O2, a Malaysia company, assets including plant equipment and office equipment. The parties have agreed that the equipment offsets $77,863 in amounts previously owed by Avani O2 to the Company. At the end of 2005, the Company wrote off as bad debt $502,110 owed to the Company by Avani O2. The stated $77,863 amount  has been recorded as a bad debt recovery for the three and nine months periods ended September 30, 2008.        6   Item 2. Management's Discussion and Analysis and Plan of Operations.  The following discusses the Companys plan of operations for the next 12 month. During 2006, the Company suspended the production and sale of its oxygenated water. Since the suspension of its operations, the Company has sold its real estate located in Coquitlam, British Columbia, and has transported its proprietary oxygenated water producing equipment to Malaysia for storage.  As of the date of this report, the Company does not expect to resume the manufacture and sale of its oxygenated water. Rather, it is currently seeking a joint venture partner or licensee in the Far East, mainly Malaysia, for the purpose of re-commencing operations utilizing the Companys proprietary oxygenated water producing equipment. Under this proposed arrangement, the Company expects that its licensee or joint venture partner will engage in the actual manufacture and sale of its oxygenated product, subject to the payment of a yet to be determined royalty to the Company. In doing so, management believes that it will limit its overhead and other expenditures attendant to its operations. In addition to its existing equipment, the Company also recovered from Avani O2 Water Sdn. Bhd equipment that was the subject of its prior joint venture with Avani O2. On March 15, 2008, the Company rented the recovered equipment to Avani Oxygen Water Corporation Sdn. Bdh. (formerly Avani Water Corporation Sdn. Bdn.) (Avani Oxygen Water), an unaffiliated Malaysian company,  under a rental arrangement which provides for a rental of approximately $5,000 per month and 2% royalty on gross sales resulting from the equipment use. The term of the agreement is month to month. The agreement was terminated on June 30, 2008. Following the termination of the rental agreement, the Company entered into a month to month lease agreement with AOW to store the equipment, spare parts and inventory. The monthly rental is approximately $3,000 and the leasehold space is approximately 10,000 square feet.  The Company expects to incur approximately $360,000 in expenditures during fiscal 2008. The amount is comprised of an estimated $160,000 in marketing expenses, and an estimated $200,000 in general and administrative expenses. Marketing expenses include promotions, advertisements, and the repair and modifications of the existing equipment from 110v and 60hz to 220v and 50hz. The modification of the Companys existing equipment will enable it to be utilized in Malaysia and elsewhere in the Far East. General and administrative expenses include payments to the Companys President in the form of annual salary and overseas living allowances which total approximately $121,000, annual rent for its Canadian and Malaysia offices estimated to be $8,000, annual legal and accounting fees estimated to be $34,000, and annual salaries for two employees estimated to be $37,000 collectively.  The Company believes that it will be able to meet its anticipated expenditures for the 2008 period through some combination of; deferment of paying certain accounts payable and cash on hand. In this regard, as stated below, the Companys independent registered accountants included an explanatory paragraph regarding the Companys ability to continue as going concern in their report on the consolidated financial statements for the year ended December 31, 2007.  It does not anticipate hiring additional personnel during this period, nor does it anticipate incurring any research and development costs during the 2008 period.  Liquidity and Capital Resources. As of August 31, 2008, the Company had working capital deficit of $77,530. Working capital as of December 31, 2007 was $95,950. The decrease in working capital deficit is principally due to the comprehensive loss of the Company which occurred through the third fiscal quarter of 2008.   7   Property, plant and equipment, net of accumulated depreciation, totaled $82,804 on August 31, 2008. Property, plant and equipment, net of accumulated depreciation, totaled $12,874 on December 31, 2007. The increase is due to the recovery of the Avani O2 equipment, partially offset by depreciation during the nine month period in 2008.  The Company continues to experience significant losses from operations. The Company expects to re-commence operations of its water business in Malaysia through a licensee or joint venture arrangement. As mentioned above, the Company believes that it will be able to meet its anticipated expenditures for the 2008 period through some combination of; deferment of paying certain accounts payable and cash on hand. However, beyond fiscal 2008, the Company likely will need to raise additional capital pursuant to the private placement of its debt or equity. The Company also is aggressively exploring other business opportunities for purposes of effecting a business acquisition or combination.  In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, franchise or licensing agreement with another corporation or entity.  As of the date of this filing, the Company has no formal plan, proposal, agreement, understanding or arrangement to acquire or merge with any specific business or company. The Company can not predict whether it will be sucessful in raising additional capital, or whether it will be sucessful in effecting any form of business acquisition or combination. The private placement of its capital stock in capital raising transaction, or the issuance of capital stock in effecting any form of business acquisition or combination may result in significant dilution to existing shareholders (See disclosure relating to Cautionary Statements in the Companys Form 10-KSB for the period ending December 31, 2007 (2007 Form 10-KSB)). If the Company is unsuccessful in raising required funds, it will have a material adverse impact on the Company and its ability to re-commence operations and it future business in general. Accordingly, the Companys financial statements contain note disclosures describing the circumstances that lead to doubt over the ability of the Company to continue as a going concern. In their report on the consolidated financial statements for the year ended December 31, 2007, the Companys independent registered accountants included an explanatory paragraph regarding the Companys ability to continue as going concern.  Cautionary Statements.  Readers are urged to refer to the section entitled "Cautionary Statements in the Company's 2007 Form 10-KSB and elsewhere therein for a broader discussion of such risks and uncertainties. These risks include the lack of profitable operations, the need for additional capital to sustain operations, and significant dilution to existing shareholders.  Off-Balance Sheet Arrangement As the Company has adopted FIN 46R effective January 1, 2004, there are no off-balance sheet arrangements at the end of the first quarter of 2008. Critical Accounting Policies Revenue Recognition. Revenue on sales of bottled water and sales of cooler and equipment is recognized when the products are delivered and title transfers to customers. Sales terms generally do not permit a right of return.  Revenue from leasing of water coolers and filters are accounted for as operating leases and, accordingly, rental income is reported over the terms of the leases. Deposits received for bottles and coolers are accrued as liabilities until refunded upon return of bottles and coolers. Freight charges billed to customers are included in Revenue while associated freight costs are included in Cost of Revenue.  Stock Based Compensation. Statement of Financial Accounting Standards ("SFAS") No. 123,  8   "Accounting for Stock-Based Compensation", requires the Company to provide pro-forma information regarding net income as if compensation cost for the Company's stock option plan had been determined in accordance with the fair value based method prescribed in SFAS No. 123.  The value of stock options granted to consultants is recognized in these consolidated financial statements as compensation expense using the Black-Scholes option pricing model.  Such compensation is amortized over the contract services period or, if none exists, from the date of grant until the options vest.  Compensation associated with unvested options is remeasured on each balance sheet date using the Black Scholes option pricing model. The Company has not adopted the fair value method of accounting for stock-based compensation awarded to employees.   The pro-forma loss per share equals the loss per share as reported. During the nine months ended September30, 2006 and 2005, no stock based compensation was granted.  Off Balance Sheet Arrangements. As the Company has adopted FIN 46R effective January 2004, there are no off balance sheet arrangements as of September 30, 2007. New Accounting Pronouncement. There was no new accounting pronouncement that impacted the Company since the issuance of the audited consolidated financial statements.  Item 3. Controls and Procedures.  (a) Under the supervision and with the participation of management, including the Companys President and Principal Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operations of its disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as of August 31, 2008 for this Form 10-QSB. Based on this evaluation, the Companys  President and Principal Financial Officer concluded that the Companys disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission ("SEC") reports is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms relating to the Companys reporting obligations, and was made known to them by others within the Company, particularly during the period when this report was being prepared. (b) There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the period ended August 31, 2008 has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting.  Item 3(A)T. Controls and Procedures. Not applicable       9    Part II OTHER INFORMATION Item 1. Legal Proceedings. None Item 1A. Risk Factors. Not Applicable  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 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. Exhibit 31  Certification Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002. Exhibit 32  Certification Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002.     10    SIGNATURES  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 13, 2008 /s/Dennis Robinson  Dennis Robinson  Treasurer and Principal  Financial Officer                11