|
U.S. SECURITIES AND EXCHANGE COMMISSION |
|
WASHINGTON, D.C. 20549 |
|
|
FORM 10 - QSB/A |
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) |
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the quarter ended June 30, 2002 |
|
Capacitive Deionization Technology Systems, Inc. |
(Formerly Far West Group, Inc.) |
(Exact name of registrant as specified in its charter) |
|
Nevada | 86-0867960 |
(State of Jurisdiction) | (I.R.S. Employer |
| identification No.) |
|
|
13636 Neutron Road, Dallas, Texas 75244-4410 |
(Address of Principal executive offices) |
|
972-934-1586 |
(Registrant's telephone number) |
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 No X |
(2) Yes X No |
|
The number of shares outstanding of the registrant's $.0001 par value common stock as of July 31, 2002 was 11,440,520. |
|
This Quarterly Report on Form 10-QSB/A is intended to amend and restate Part I in its entirety and Part II relating to Exhibits of the Company's Quarterly Report for June 30, 2002 on Form 10-QSB, as amended. The financial statements have been adjusted to reflect that the Company is a development stage entity, to reflect certain adjustments made to the balance sheets from 2001 and to reflect an adjustment made in the second quarter of 2002 to increase expense by $25,770 for certain options issued by the Company. The Company is also filing two exhibits for certifications now required by Sarbanes-Oxley Act of 2002. |
|
Capacitive Deionization Technology Systems, Inc. |
|
Index |
|
|
| |
Part I | Financial Information |
| ||
|
|
|
| |
| Item 1 | Financial statements |
| |
|
|
|
| |
|
| Balance Sheets as of June 30, 2002 and |
| |
|
| December 31, 2001 |
| |
|
|
|
| |
|
| Statements of Operations for the three and six |
| |
|
| months ended June 30, 2002 and 2001 and Cumulative Through June 30, 2002 |
| |
|
|
|
| |
|
| Statements of Cash Flows for the six |
| |
|
| months ended June 30, 2002 and 2001 and Cumulative Through June 30, 2002 |
| |
|
|
|
| |
|
| Notes to Financial Statements |
| |
|
|
|
| |
| Item 2 | Management's discussion and analysis |
| |
|
| of Financial Condition and Results |
| |
|
| of Operations |
| |
| Item 3 | Controls and Procedures |
| |
Part II | Other Information |
| ||
| Item 2 | Changes in Securities and Use of Proceeds |
| |
| Item 6 | Exhibits and Reports on Form 8-K |
| |
|
|
|
| |
Signature page |
|
| ||
|
|
|
|
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC. |
(A Development Stage Entity) |
BALANCE SHEETS |
Assets |
June 30, | December 31, | ||
2002 | 2001 | ||
Current assets: | (Unaudited) | (Audited) | |
Cash | $ 300 | $ 1,668 | |
Furniture and equipment | 25,294 | 25,294 | |
Less accumulated depreciation | (15,462) | (13,065) | |
Total furniture and equipment | 9,832 | 12,229 | |
10,132 | $ 13,897 | ||
Liabilities and Stockholders' Equity (Deficit) |
Current liabilities: | |||
Accounts payable | $ 519,178 | $ 495,394 | |
Wages payable | 653,194 | 495,367 | |
Accrued liabilities | 145,297 | 142,198 | |
Customer deposits | 68,200 | 48,200 | |
Severance payable to shareholder | 154,000 | 154,000 | |
Current portion of long-term debt | 25,697 | 23,297 | |
Notes payable to outside stockholders | 80,800 | 80,000 | |
Payable to former subsidiary | 31,808 | 31,808 | |
Total current liabilities | 1,678,174 | 1,470,264 | |
Long-term debt | 74,974 | 79,374 | |
Commitments and contingencies | - | - | |
Stockholders' equity (Deficit): | |||
Preferred stock, $.0001 par value, 20,000,000 shares | |||
authorized; none issued and outstanding | - | - | |
Common stock, $.0001 par value, 80,000,000 shares | |||
authorized; 11,237,520 and 10,075,901 | |||
shares issued and outstanding | 1,124 | 1,007 | |
Additional paid-in capital | 6,783,228 | 6,176,765 | |
Note receivable issued for stock | (175,000) | - | |
Accumulated deficit from previous operating activities | (3,523,977) | (3,523,977) | |
Deficit accumulated during the development stage | (4,828,391) | (4,189,536) | |
Total stockholders' equity (Deficit) | (1,743,016) | (1,535,741) | |
$ 10,132 | $ 13,897 | ||
See accompanying notes to financial statements. |
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC. |
(A Development Stage Entity) |
STATEMENTS OF OPERATIONS |
Three and Six Months Ended June 30, 2002 and 2001 |
And Cumulative Operations as a Development Stage Entity (January 1, 2000 Through June 30, 2002) |
(Unaudited) |
Three Months Ended | Six Months Ended | Cumulative | |||
June 30, | June 30, | Through | |||
2002 | 2001 | 2002 | 2001 | June 30, 2002 | |
Revenues | $ - | $ - | $ - | $ - | $ - |
Operating expenses: | |||||
Common stock and options issued for services -- | |||||
General and administrative | 117,170 | 77,485 | 224,580 | 165,185 | 1,522,019 |
Common stock and options issued for services -- | |||||
Research and development | 18,500 | 24,500 | 35,500 | 36,733 | 194,783 |
Other research and development | 100,680 | 101,215 | 233,461 | 241,951 | 2,056,729 |
Other general and administrative (excluding | |||||
amounts applicable to stock and options | 52,100 | 151,649 | 124,189 | 164,309 | 909,344 |
288,450 | 354,849 | 617,730 | 608,178 | 4,682,875 | |
Loss from operations | (288,450) | (354,849) | (617,730) | (608,178) | (4,682,875) |
Other income (expense): | |||||
Interest expense | (563) | (8,359) | (21,125) | (10,668) | (145,516) |
Total other expense | (563) | (8,359) | (21,125) | (10,668) | (145,516) |
Net loss | $ (289,013) | $ (363,208) | $ (638,855) | $ (618,846) | $(4,828,391) |
Basic and diluted loss per common share | $ (0.03) | $ (0.04) | $ (0.06) | $ (0.07) | |
Weighted average common shares outstanding | 11,127,520 | 8,508,731 | 10,880,853 | 8,527,875 | |
See accompanying notes to financial statements. |
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC. |
STATEMENTS OF CASH FLOWS |
(A Development Stage Entity) |
Six Months Ended June 30, 2002 and 2001 |
And Cumulative Operations as a Development Stage Entity |
(Unaudited) |
Cumulative | |||
Through | |||
2002 | 2001 | June 30, 2002 | |
Cash flows from operating activities: | |||
Net loss | $ (638,855) | $ (618,846) | $(4,828,391) |
Adjustments to reconcile net loss to net cash | |||
used in operating activities: | |||
Depreciation | 2,397 | 2,397 | 11,734 |
Shares issued for services | 260,080 | 201,918 | 1,253,532 |
Stock options issued as compensation | - | - | 463,270 |
Changes in operating assets and liabilities: | |||
Accounts receivable | - | 4,030 | - |
Accounts payable and accrued liabilities | 264,709 | 303,748 | 1,291,339 |
Net cash used in operating activities | (111,669) | (106,753) | (1,808,516) |
Cash flows from investing activities: | |||
Purchase of furniture and equipment | - | - | (14,169) |
Cash flows from financing activities: | |||
Net advances from shareholder | - | - | (96,388) |
Net payments on long-term debt | - | - | (17,894) |
Payments to former subsidiary | - | - | (238,192) |
Sale of common shares | 111,501 | 54,485 | 1,625,758 |
Proceeds (payments) - notes payable to stockholders | (1,200) | 48,000 | 160,300 |
Net cash provided by financing activities | 110,301 | 102,485 | 1,433,584 |
Net increase (decrease) in cash and cash equivalents | (1,368) | (4,268) | (389,101) |
Cash at beginning of period | 1,668 | 4,877 | 389,401 |
Cash at end of period | $ 300 | $ 609 | $ 300 |
Supplemental disclosure: | |||
Total interest paid | $ - | $ - | $ 45,343 |
Non-cash transactions: |
During 2001, the Company issued $34,400 of common stock for accounts payable. |
During 2002, the Company issued 350,000 common shares for a note receivable of $175,000. |
During 2002, the Company issued 120,000 common shares for accounts payable of $60,000. |
See accompanying notes to financial statements. |
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC. |
(Formerly FarWest Group, Inc.) |
NOTES TO FINANCIAL STATEMENTS |
June 30, 2002 |
|
Note 1 - Future Operations |
|
The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's significant operating losses and its working capital deficit and stockholders' deficit raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
|
The following is a summary of management's plan to raise capital and generate additional operating funds. |
|
The Company was funded initially through investment by the principal shareholder. Since 1998 funding has been through private investments including strategic alliances. |
|
Business opportunities for the next twelve months include international CDT systems sales to governments, major multi-national industrial corporations and U.S. pilot sales. Several opportunities are being discussed including: governments, humanitarian trust funds, industrial joint ventures, market sectors and geographic distribution agreements. |
|
The Company recognizes the extent of the financial investment necessary to support current business activities. There is no guarantee that the Company can complete the above-referenced financing; however, the Company is negotiating the following additional options: |
|
* Additional strategic investment alliances. |
* Potential financing of manufacturing and infrastructure in North Texas with a |
* An ethnic group, which is evaluating financing a local manufacturing facility including |
* An industry specific joint venture. |
* A joint venture with industry and government partners to accelerate pilot systems for |
|
The Company is dependent upon the proceeds of private placements and strategic alliances of the Company's securities to implement its business plan and to finance its working capital requirements. Should the Company's plans or its assumptions change or prove to be inaccurate or offering proceeds are insufficient to fund the Company's operations, the Company would be required to seek additional financing sooner than anticipated. Management is confident it will be able to continue raising funds in the balance of 2002 through private placements and investment/distribution agreements. |
There can be no assurances that the Company will be successful in generating sufficient revenues from its planned activities or in raising sufficient capital to allow it to continue as a going concern which contemplates increased operating expenses, acquisition of assets and the disposition of liabilities in the normal course of business. These factors can affect the ability of the Company to implement its general business plan including the completion of the required manufacturing facilities and continued proprietary CDT product improvements. The Company continues to enhance the CDT Technology licensed from Lawrence Livermore National Laboratory in parallel with making significant reductions in the manufacturing costs of the technology. The Company requires that a confidentiality agreement be executed prior to providing technological information to prospective clients and investors. The Company recognizes the risk of a prospect ive client or investor violating the confidentiality agreement and knowingly disclosing the Company's proprietary information including trade secrets. The Company continues to monitor all such relationships and vigorously enforces such agreements. The Company is aware of potential violation of an existing confidentiality agreement and is evaluating its enforcement action. |
|
Note 2 - Summary of Significant Accounting Policies and Practices |
|
(a) Description of Business |
|
Capacitive Deionization Technology Systems, Inc. (Formerly FarWest Group, Inc.) (the "Company" or "CDT Systems, Inc.") was organized under the laws of the state of Nevada in July 1996 to serve as a water technology company. |
|
In January 1997, the Company entered into a manufacturing and marketing license agreement with Lawrence Livermore National Laboratories ("Lawrence Livermore") whereby the Company obtained the rights to Lawrence Livermore's patented Capacitive Deionization Technology ("CDT"). The company has the rights to develop and manufacture a carbon aerogel CDT product for commercial use in the desalination, filtration and purification of water. The manufacturing and marketing license is effective for the life of the patents (up to 17 years). To maintain the license the Company must make contracted annual royalty payments to Lawrence Livermore beginning at $25,000 per year, then becoming a percentage of revenue. The Company has completed development of its first release CDT unit and has completed plans and is negotiating financing to construct a volume production manufacturing facility in North Texas for its CDT bricks. |
|
(b) Net Loss per Weighted Average Share |
|
Net loss per weighted average share is calculated using the weighted average number of shares of common stock outstanding. |
|
(c) Basis of Presentation |
|
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB of Regulations S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2001 included in the Company's Annual Report on Form 10-KSB to be filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements to be included in the Form 10-KSB. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, hav e been made. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. |
|
(d) Stock-Based Compensation |
|
The Company applies the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, in accounting for its stock-based compensation plans. Under Opinion 25, compensation cost is measured as the excess, if any, of the market price of the Company's stock at the date of the grant above the amount an employee must pay to acquire the stock. No compensation expense is recognized when the exercise price is equal to the market value of the stock on the day of the grant. The Financial Standards Board ("FASB") published SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) on January 1, 1996 which encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Companies that choose not to adopt the new rules will continue to apply the existing rul es, but will be required to disclose pro forma net income under the new method. |
|
The Company issued no options or warrants to employees during the periods ended June 30, 2003 and 2002. |
|
Item 2 Management's discussion and analysis of financial condition and results of operations. |
|
Results of operations. |
|
The Company did not recognize any revenue during the periods ending June 30, 2002 or 2001. Operating expenses for the six months ending June 30, 2002 were $617,730 compared to $608,178 for the six months ending June 30, 2001; however, the operating expenses for the second quarter 2002 were approximately 19% less than for the second quarter 2001, with a reduction of over $66,000. Research and development for the period ending June 30, 2001 decreased from $278,684 in 2001 to $268,961 for the second quarter 2002. |
|
During the second quarter 2002, a private placement of 310,000 shares of the Company's Rule 144 common stock was completed. This total included 18,000 shares issued for cash; 37,000 shares issued for research and development consulting; 20,000 shares issued to settle an account payable; 15,000 shares issued for legal services; 40,000 shares issued for accounts payable interest and penalties and 180,000 shares issued for professional services. |
|
During the first quarter 2002, a private placement of 555,000 shares of the Company's Rule 144 common stock was completed providing the Company $102,500 in cash and a note receivable of $175,000. The Company issued 100,000 shares to settle accounts payable totaling approximately $50,000. Further, the Company issued 196,619 shares for services provided. |
|
Liquidity and capital resources. |
|
Management recognizes the requirement for additional investment to execute the Company's business plan and complete the necessary manufacturing and research facilities. Financing transactions are currently being negotiated. These include equity participation in manufacturing joint ventures, government entity and ethnic group debt and grant financing and a long-term debt financing. There is no certainty that these fundings will be completed. |
|
Information regarding and factors affecting forward-looking statements. Forward-looking statements include statements concerning plans, goals, strategies, future events or performances and underlying assumptions and other statements, which are other than statements of historical fact. Certain statements contained herein are forward-looking statements and, accordingly, involve risk and uncertainties, which could cause the actual results or outcomes to differ materially from those expressed in the forward-looking statements. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitations, management's examination of historical trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result, or be achieved, or accomplished. |
|
Item 3. Controls And Procedures |
|
Within 90 days prior to the filing of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chairman and Chief Executive Officer and the Company's Chief Financial Officer. Based on that evaluation, the Company's Chairman and Chief Executive Officer, and Chief Financial Officer concluded that the Company's disclosure control and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. |
|
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company's reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chairman, Chief Executive Officer and President, and the Company's Chief Financial Officer as appropriate, to allow timely decision regarding required disclosure. |
|
Part II Other Information |
|
Item 2. Changes in Securities and Use of Proceeds |
|
During the second quarter 2002, a private placement of 310,000 shares of the Company's Rule 144 common stock was completed. This total included 18,000 shares issued for cash; 37,000 shares issued for research and development consulting; 20,000 shares issued to settle an account payable; 15,000 shares issued for legal services; 40,000 shares issued for accounts payable interest and penalties and 180,000 shares issued for professional services. |
|
During the first quarter 2002, a private placement of 555,000 shares of the Company's Rule 144 common stock was completed providing the Company $102,500 in cash and a note receivable of $175,000. The Company issued 100,000 shares to settle accounts payable totaling approximately $50,000. Further, the Company issued 196,619 shares for services provided. |
|
Item 6. Exhibits and Reports of Form 8-K. |
|
The Company filed a form 8-k on April 18, 2002 in reference to the changing of its auditors. |
|
Exhibits |
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURE |
|
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized. |
|
Capacitive Deionization Technology Systems, Inc. |
|
|
/s/ Dallas Talley |
Dallas Talley |
Chairman of the Board, |
Chief Executive Officer |
Dated: November 13, 2003 |
|
/s/ Phil Marshall |
Phil Marshall |
Chief Financial Officer |
|
Dated: November 13, 2003 |