Capacitive Deionization Technology Systems (CDTN) Inactive
Filed: 14 Nov 01, 12:00am
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2001
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 X No___
(2) yes X No___
The number of shares outstanding of the registrant's $.0001 par value common stock as of November 12, 2001 was 9,400,779.
Capacitive Deionization Technology Systems, Inc. | |||
Index | Page | ||
Part I | Financial Information | ||
Item 1 | Financial statements | ||
Report of Independent Accountants | 3 | ||
Balance Sheets as of September 30, 2001 and | |||
December 31, 2000 | 4 | ||
Statements of operations for the three and nine | |||
months ended September 30, 2001 and 2000 | 5 | ||
Statements of Cash Flows for the nine | |||
months ended September 30, 2001 and 2000 | 6 | ||
Notes to Financial Statements | 7-9 | ||
Item 2 | Management's discussion and analysis | ||
of Financial Condition and Results | |||
of Operations | 9 | ||
Part II | Other Information | ||
Item 1 | Legal | 10 | |
Item 2 | Changes in securities | 10 | |
Item 3 | Defaults upon senior securities | 11 | |
Item 4 | Submission of matters to a vote of security holders | 11 | |
Item 5 | Other information | 11 | |
Item 6 | Exhibits and Reports on Form 8-K | 11 | |
Signature page | 11 | ||
Part I Financial Information
Item 1 Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Capacitive Deionization Technology Systems, Inc.
We have reviewed the accompanying balance sheets of Capacitive Deionization Technology Systems, Inc. (Formerly FarWest Group, Inc.) as of September 30, 2001 and the related statements of operations for the three and nine months then ended and cash flows for the nine months then ended. These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of analytical procedures applied to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Capacitive Deionization Technology Systems, Inc. (Formerly FarWest Group, Inc.) as of December 31, 2000 and the related statements of operations and cash flows for the year then ended (not presented separately herein), and in our report dated February 26, 2001 we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2000 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
/s/ Jackson & Rhodes P.C.
Jackson & Rhodes P.C.
Dallas, Texas
November 2, 2001
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC.
(Formerly FarWest Group, Inc.)
BALANCE SHEETS
September 30, | December 31, | |||
2001 | 2000 | |||
(Unaudited) | (Audited) | |||
Assets | ||||
Current assets: | ||||
Cash | $ 326 | $4,877 | ||
Accounts receivable | 10,500 | 4,030 | ||
Inventory | 12,792 | - | ||
Prepaid expenses | 22,777 | - | ||
Total current assets | 46,395 | 8,907 | ||
Furniture and equipment | 25,294 | 25,294 | ||
Less accumulated depreciation | (10,682) | (8,285) | ||
14,612 | 17,009 | |||
$61,007 | $25,916 | |||
Liabilities and Stockholders' Equity (Deficit) | ||||
Current liabilities: | ||||
Accounts payable and accrued liabilities | $ 932,016 | $588,797 | ||
Accounts and notes payable to shareholder | 136,616 | 136,616 | ||
Notes payable to stockholders | 128,500 | 66,000 | ||
Current portion of long-term debt | 14,861 | 11,145 | ||
Payable to former subsidiary | 31,808 | 31,808 | ||
Total current liabilities | 1,243,801 | 834,366 | ||
Long-term and convertible debt | 30,310 | 34,026 | ||
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; 9,344,731 and 8,114,932 | ||||
shares issued and outstanding | 934 | 811 | ||
Additional paid-in capital | 5,713,995 | 5,191,915 | ||
Accumulated deficit | (6,928,033) | (6,035,202) | ||
Total stockholders' equity (Deficit) | (1,213,104) | (842,476) | ||
$ 61,007 | $ 25,916 | |||
See accompanying notes to financial statements.
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC.
(Formerly FarWest Group, Inc.)
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2001 and 2000
(Unaudited)
Three months ended | Nine months ended | ||||
September 30, | September 301, | ||||
2001 | 2000 | 2001 | 2000 | ||
Revenues | $ - | $ - | $ - | $ - | |
Operating expenses: | |||||
Common stock and options | |||||
issued for services: | |||||
General and administrative | 90,400 | 69,750 | 233,785 | 446,609 | |
Research and development | 21,800 | 16,500 | 58,533 | 16,500 | |
Research and development | 88,065 | 208,070 | 330,016 | 632,760 | |
General and administrative | |||||
(excluding amounts applicable | |||||
to stock and options issued | |||||
for services each period) | 81,079 | 336,508 | 245,388 | 640,702 | |
281,344 | 630,828 | 867,722 | 1,736,571 | ||
Loss from operations | (281,344) | (630,828) | (867,722) | (1,736,571) | |
Other expenses | |||||
Interest expense | (14,439) | (8,930) | (25,107) | (16,908) | |
Net loss | $(295,783) | $(639,758) | $(892,829) | $(1,753,479) | |
Basic loss per common share: | $(0.03) | $(0.08) | $(0.10) | $0.23) | |
Weighted average common shares | |||||
Outstanding | 8,706,790 | 7,858,365 | 9,064,620 | 7,497,176 | |
See accompanying notes to financial statements.
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC.
(Formerly FarWest Group, Inc.)
STATEMENTS OF CASH FLOW
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
2001 | 2000 | |||
Cash flows from operating activities: | ||||
Net Loss | $(892,829) | $(1,753,479) | ||
Adjustments to reconcile net loss to net cash | ||||
Used in operating activities: | ||||
Depreciation | 2,397 | 1,165 | ||
Shares issued for services | 292,318 | 463,109 | ||
Change in operating assets and liabilities: | ||||
Accounts receivable | (6,470) | (49,244) | ||
Inventory | (12,792) | - | ||
Prepaid expenses | (2,777) | - | ||
Accounts payable and accrued liabilities | 422,617 | 84,663 | ||
Net cash used in operating activities | (197,536) | (1,253,786) | ||
Cash flows from investing activities: | ||||
Purchase of furniture and equipment | - | (14,990) | ||
Cash flows from investing activities: | ||||
Net advances from shareholders | - | (95,754) | ||
Sale of common shares | 116,485 | 1,177,750 | ||
Net payments on long-term debt | - | (17,894) | ||
Proceeds from notes payable to stockholders | 76,500 | 56,000 | ||
Payments to former subsidiary | - | (239,300) | ||
Net cash provided by financing activities | 192,985 | 880,802 | ||
Net increase (decrease) in cash and cash equivalents | (4,551) | (387,974) | ||
Cash at beginning of period | 4,877 | 389,401 | ||
Cash at end of period | $ 326 | $ 1,427 | ||
Supplemental disclosure: | ||||
Total interest paid | $ - | $39,400 | ||
Non-cash transactions:
During 2001, the Company issued $79,400 of common stock for accounts payable, $20,000 for prepaid expenses and $14,000 for notes payable.
During 2000, the Company converted $100,000 of convertible debt to common stock.
See accompanying notes to financial statements.
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC.
(Formerly FarWest Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
September 30, 2001
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 financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company is reporting cumulative net losses from continuing operations since January 1, 1997 of approximately $6,930,000 as of September 30, 2001 and has utilized approximately $2,390,000 in cash from operations during the same period.
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 financial investment required to support the potential business opportunities, which are being discussed. There is no guarantee that the Company can complete the funding necessary to develop the manufacturing and engineering structure to manufacture and install the potential CDT orders. The company is currently discussing financing options which include: a corporate partnership for manufacturing; joint ventures with an international investment group, an investment alliance with a major U.S. engineering and construction company, and an investment/distribution agreement with a leading Pacific Rim water system company. Management believes that there is a probability of obtaining the required financing for the next twelve months through one of the above.
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 2001 through private placements and investment/distribution agreements.
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.
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 commenced in-house prototype manufacture and construction of demonstration and pilot water treatment plants for clients.
(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, 2000 included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim unaudited financial statements should be read in conjunction with those financial statements 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 nine mo nths ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001
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 September 30, 2001 or 2000. The Company will recognize revenue from the sale of CDT bricks for pilot systems during the fourth quarter of 2001. Operating expenses totaled $281,344 during the third quarter of 2001; this was a reduction of $349,484 compared to $630,828 operating expenses in the third quarter of 2000. This 55% reduction was primarily due to the delay in completing the joint venture and equity funding which were scheduled for completion in the third quarter 2001. The lack of funding also limited the research and development expenditures for the quarter resulting in a better than 50% reduction from research and development expenditures when compared to third quarter 2000.
During the third quarter 2001, the Company completed a private placement, which provided proceeds totaling $116,485. In addition, during the third quarter 2001, the Company issued 263,000 shares for services provided. Of this total, 133,332 were shares vested by four members of the Company's Board of Directors and 83,333 shares were vested by three members of the Company's Advisory Board. The remaining 46,668 shares were issued in settlement of accounts and notes payable
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 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.
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.
Part II Other Information
Item 1 Legal
There were no legal proceedings instituted by or against the Company during the quarter ended September 30, 2001. The following proceedings instituted in the year 1999 are currently in appeal by the former employees.
Three former employees of the Company or its former subsidiary, FarWest Pump Co., filed a lawsuit in Maricopa County Superior Court alleging the Company failed to pay them certain wages and provide them with stock options. The former subsidiary of the Company, FarWest Pump, Inc., has also entered the lawsuit and asserted various claims against the three former employees and their current employer, Duncan Pump, Inc., including conversion, civil conspiracy, wrongful interference with contractual relationships, and violation of trade secrets. The employees seek to recover approximately $250,000 in future wages and, in the aggregate, have asked to be awarded stock options permitting the purchase of up to 630,000 shares of stock of the Company at $.25 per share. The employees also requested that any damages awarded be trebled under Arizona law applicable to the failure of an employer to pay wages.
During the quarter ended September 30, 2000, the Superior Court of Arizona Maricopa County ruled that the Company had no monetary liability to any of the three former employees of FarWest Pump Inc. The court ruled that the stock option claims for one of the three ex-employees be dismissed; however, the claims of the other two ex-employees for 205,000 stock options at $.25 per share require further investigation. The ex-employees have filed an appeal, including the employee whose claims were dismissed. The employees also contest the Company's price of $.25 per share. The Company has been advised that the appeal is currently being scheduled for trial in early 2002.
The Company is continuing to contest this matter vigorously and believes there is no validity to the ex-employees' stock option claims, pricing claims or any appeal action.
Item 2 Changes in Securities
During the quarter ended September 30, 2001, the Company issued 601,665 shares of common stock: 124,000 shares of common stock were issued for cash and 477,665 shares of common stock were issued for services. 216,665 of these shares were issued to directors. The shares issued were in reliance upon Section 4(2) of the Securities Act of 1933.
For the nine month period ended September 30, 2001, the Company issues 1,229,797 shares of common stock. 233,000 shares were issued for cash, 107,800 shares were issued in settlement of accounts payable, 888,997 shares were issued for services including 349,997 to four outside members of the Board of Directors and the outside members of the Company's Advisory Board. The shares issued were in reliance upon Section 4(2) of the Securities Act of 1933.
Item 3 Defaults upon senior securities
The Registrant does not have any outstanding debt or securities of this nature.
Item 4 Submission of matters to a vote of securities holders.
NONE
Item 5 Other information.
NONE
Item 6 Exhibits and Reports of Form 8-K.
NONE
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this 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 and Financial
Officer
Dated: November 14, 2001