Current liabilities: | | | |
Accounts payable | $ 533,233 | | $ 435,374 |
Wages payable | 706,850 | | 738,249 |
Accrued liabilities | 226,179 | | 205,108 |
Customer deposits | 93,700 | | 93,700 |
Accounts and notes payable to shareholder | 154,000 | | 154,000 |
Current portion of long-term debt | 271,671 | | 90,671 |
Notes payable to stockholders | 60,000 | | 60,000 |
Payable to former subsidiary | 31,808 | | 31,808 |
Total current liabilities | 2,077,441 | | 1,808,910 |
| | | |
Long-term debt | 20,000 | | 188,000 |
| | | |
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; 14,647,304 and 12,979,304 | | | |
shares issued and outstanding | 1,463 | | 1,297 |
Additional paid-in capital | 7,592,091 | | 7,235,282 |
Note receivable issued for stock | (45,500) | | (61,250) |
Accumulated deficit from previous operating activities | (3,523,977) | | (3,523,977) |
Deficit accumulated during the development stage | (6,104,238) | | (5,628,804) |
Total stockholders' equity (deficit) | (2,080,161) | | (1,977,452) |
| $ 17,280 | | $ 19,458 |
| | | |
| | | Cumulative |
| | | Through |
| 2003 | 2002 | June 30, 2003 |
Cash flows from operating activities: | | | |
Net loss | $ (475,434) | $ (638,855) | $(6,104,238) |
Adjustments to reconcile net loss to net cash | | | |
used in operating activities: | | | |
Depreciation | 2,500 | 2,397 | 15,837 |
Shares issued for services | 123,135 | 260,080 | 1,558,777 |
Stock options issued as compensation | - | - | 489,040 |
Writedown of note receivable | 15,750 | - | 129,500 |
Changes in operating assets and liabilities: | | | |
Inventory | - | - | (10,500) |
Accounts payable and accrued liabilities | 265,032 | 264,709 | 1,856,326 |
Net cash used in operating activities | (69,017) | (111,669) | (2,065,258) |
| | | |
Cash flows from investing activities: | | | |
Purchase of furniture and equipment | - | - | (14,169) |
| | | |
Cash flows from financing activities: | | | |
Sale of common shares | 56,339 | 111,501 | 1,811,051 |
Net advances from shareholder | - | - | (96,388) |
Net payments on long-term debt | - | - | (17,894) |
Payments to former subsidiary | - | - | 161,500 |
Additions to convertible debt and notes payable | 13,000 | - | (225,192) |
Proceeds (payments) - notes payable to stockholders | - | (1,200) | 58,000 |
Net cash provided by financing activities | 69,339 | 110,301 | 1,691,077 |
| | | |
Net increase (decrease) in cash and cash equivalents | 322 | (1,368) | (388,350) |
| | | |
Cash at beginning of period | 729 | 1,668 | 389,401 |
| | | |
Cash at end of period | $ 1,051 | $ 300 | $ 1,051 |
| | | |
Supplemental disclosure: | | | |
Total interest paid | $ - | $ - | $ - |
| | | |
.CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC. |
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NOTES TO FINANCIAL STATEMENTS |
June 30, 2003 |
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Note 1 - Future Operations |
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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. |
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The following is a summary of management's plan to raise capital and generate additional operating funds. |
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The Company was funded initially through investment by the principal shareholder. Since 1998 funding has been through private investments including strategic alliances. |
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Business opportunities for the next twelve months include establishment of an international (Joint Venture) subsidiary, international CDT systems sales to governments, major multi-national industrial corporations and U.S. pilot sales. Several opportunities are being discussed including: humanitarian trust funds, Iraq rehabilitation, industrial joint ventures and geographic distribution agreements. |
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The Company recognizes the extent of the financial investment necessary to support current and planned business activities. There is no guarantee that the Company can complete the above-referenced financing; however, the Company is currently negotiating the following opportunities: |
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1. A significant equity investment including establishment of a majority-owned international subsidiary. |
2. A matching CDT R&D Grant from an international government |
3. Bridge financing to implement the State of Texas and Red River Agreements. |
4. Additional strategic investment alliances. |
5. Expansion of current strategic and investment alliances. |
6. Incentive financing from the State of Texas. |
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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 2003 through private placements, investment/distribution agreements and product sales. |
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There can be no assurances given 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. |
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Note 2 - Summary of Significant Accounting Policies and Practices |
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(a) Description of Business |
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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. |
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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. |
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During the first quarter of 2003 the Company completed an Incentive Agreement with the State of Texas Economic Development Commission. The Incentive Program includes approximately five million dollars of incentives based on the Company employing a specified number of employees at its North Texas manufacturing facility, and making budgeted capital equipment investments and engineering development expenditures. |
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The Company received a Letter of Intent from the Red River Redevelopment Authority (Texarkana area) whereby Red River will provide approximately two million dollars in incentive financing plus assistance in financing the construction of the Company's 200,000 square foot manufacturing facility at Red River. |
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(b) Net Loss per Weighted Average Share |
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Net loss per weighted average share is calculated using the weighted average number of shares of common stock outstanding. |
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(c) Basis of Presentation |
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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, 2002 which will be 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, have been made. Operating results for the six months ended June 30, 2003 are not indicative of the results that may be expected for the year ending December 31, 2003. |
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(d) Stock-Based Compensation |
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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 no t to adopt the new rules will continue to apply the existing rules, but will be required to disclose pro forma net income under the new method. |
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The Company issued no options or warrants to employees during the periods ended June 30, 2003 and 2002. |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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Results of Operations. |
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To date the Company did not recognize any revenue. Initial revenues from pilot systems are expected to be recognized during the third quarter of 2003. Operating expenses for the six months ended June 30, 2003 were $448,993 compared to $617,730 for the first six months of 2002, a reduction of approximately 27%. Operating expenses for the second quarter of 2003 were reduced by 26% to $214,532 compared to $288,450 for the second quarter 2002. Research and development for the six month period in 2003 was $233,634 compared to $268,961 for the same period in 2002. Second quarter 2003 research and development was reduced by $23,867 compared to the second quarter 2002. The 13% reduction for the six months was a direct result of the reduction in available cash which was also reflected in the reduced operating costs. |
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During the second quarter of 2003, a private placement of 554,100 shares was completed. This transaction provided $31,339 cash to the Company for 191,000 shares issued. In addition, 15,000 shares were issued for accounts payable penalties, 136,000 shares were issued for engineering, research and development, 212,400 shares were issued for legal and professional services and 16,000 shares were issued for interest expense. |
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During the first quarter 2003, a private placement of 262,600 shares of the Company's rule 144 common stock was completed. The private placement provided the Company $25,000 in cash; 20,000 shares were issued for engineering services, 120,600 shares were issued for professional services; and 15,000 shares were issued for services provided by an Advisory Board member. |
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Liquidity and capital resources. |
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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 an equity participation manufacturing joint venture, an equity investment in conjunction with a publicly financed trust fund and a long-term debt financing. There is no certainty that these fundings will be completed. |
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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. |
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Item 3. Controls And Procedures |
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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. |
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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. |
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Part II - Other Information |
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Item 2. Changes in Securities |
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During the second quarter of 2003, a private placement of 1,405,400 shares was completed. This transaction provided $31,339 cash to the Company for 191,000 shares issued. In addition, 140,000 shares were issued for accounts payable penalties, 136,000 shares were issued for engineering, research and development, 212,400 shares were issued for legal and professional services and 16,000 shares were issued for interest expense. An additional 710,000 shares were issued for accrued salaries. |
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During the first quarter 2003, a private placement of 262,600 shares of the Company's rule 144 common stock was completed. The private placement provided the Company $25,000 in cash (107,000 shares); 20,000 shares were issued for engineering services, 120,600 shares were issued for professional services; and 15,000 shares were issued for services provided by an Advisory Board member. |
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Item 6 - Exhibits and Reports on Form 8-K. |
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(a) Exhibit List |
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