Capacitive Deionization Technology Systems 10QSB 2002 Q3 Quarterly report (small business)

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, 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 October 31, 2002 was 12,332,104.

Capacitive Deionization Technology Systems, Inc.
Index			Page
Part I	Financial Information

	Item 1	Financial statements

		Balance Sheets as of September 30, 2002 and
		December 31, 2001	3

		Statements of operations for the three and nine
		months ended September 30, 2002 and 2001	4

		Statements of Cash Flows for the nine
		months ended September 30, 2002 and 2001	5

		Notes to Financial Statements	6-8

	Item 2	Management's discussion and analysis
		of Financial Condition and Results
		of Operations	8-9

Part II	Other Information

	Item 1	Legal	9-10

	Item 2	Changes in securities	10

	Item 3	Defaults upon senior securities	10

	Item 4	Submission of matters to a vote of security holders	10

	Item 5	Other information	11

	Item 6	Exhibits and Reports on Form 8-K	11-12

Signature page			12

Part I Financial Information

Item 1 Financial Statements

CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC.

(Formerly FarWest Group, Inc.)

BALANCE SHEETS

		September 30,	December 31,
		2002	2001
		(Unaudited)	(Unaudited)
Assets
Current assets:
	Cash	$ 337	$ 1,668
	Accounts receivable	7,500	10,500
	Note receivable	175,000	-
	Inventory	19,200	-
	Prepaid expenses	3,000	-
	Total current assets	205,037	12,168

Furniture and equipment		25,294	25,294
	Less accumulated depreciation	(16,458)	(13,065)
	Total furniture and equipment	8,836	12,229

		$213,873	$ 24,397
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
	Accounts payable and accrued liabilities	$1,378,572	$1,191,659
	Severance payable to shareholder	154,000	154,000
	Notes payable to outside stockholders	125,500	137,500
	Current portion of long-term debt	26,000	23,297
	Payable to former subsidiary	31,808	31,808
	Total current liabilities	1,715,880	1,538,264

Long-term and convertible debt		32,171	21,874

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; 12,332,104 and 10,275,901
	shares issued and outstanding	1,234	1,027
	Additional paid-in capital	7,149,064	6,327,752
	Accumulated deficit	(8,684,476)	(7,864,520)
	Total stockholders' equity (Deficit)	(1,534,178)	(1,535,741)

		$ 213,873	$ 24,397

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, 2002 and 2001

(Unaudited)

		Three months ended		Nine months ended
		September 30,		September 30,
		2002	2001	2002	2001

Revenues		$ -	$ -	$ -	$ -

Operating expenses:
	Common stock and options
	issued for services:
	General and administrative	80,175	90,400	278,985	233,785
	Research and development	24,700	21,800	60,200	58,533
	Research and development	153,910	88,065	422,871	330,016
	General and administrative
	(excluding amounts applicable
	to stock and options issued
	for services each period)	(53,738)	81,079	34,951	245,388

		205,047	281,344	797,007	867,722

	Loss from operations	(205,047)	(281,344)	(797,007)	(867,722)

Other expenses
	Interest expense	(1,823)	(14,439)	(22,948)	(25,107)

	Net loss	$(206,870)	$(295,783)	$(819,955)	$(892,829)

Basic loss per common share:		$(0.02)	$(0.03)	$(0.07)	$(0.10)

Weighted average common shares
	outstanding	11,936,993	8,706,790	11,366,233	9,064,620

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, 2002 and 2001

(Unaudited)

			2002	2001
Cash flows from operating activities:
	Net Loss		$(819,955)	$(892,829)
	Adjustments to reconcile net loss to net cash
	used in operating activities:
		Depreciation	3,393	2,397
		Shares issued for services	339,184	292,318
		Change in operating assets and liabilities:
		Accounts receivable	3,000	(6,470)
		Inventory	(19,200)	(12,792)
		Prepaid expenses	(3,000)	(2,777)
		Accounts payable and accrued liabilities	330,247	422,617

		Net cash used in operating activities	(166,331)	(197,536)

Cash flows from investing activities:
	Sale of common shares		154,000	116,485
	Additional long-term debt		13,000	-
	(Payments) Proceeds notes payable to stockholders		(2,000)	76,500

		Net cash provided by financing activities	165,000	192,985

Net increase (decrease) in cash and cash equivalents			(1,331)	(4,551)

Cash at beginning of period			1,668	4,877

Cash at end of period			$ 337	$ 326

Supplemental disclosure:
	Total interest paid		$ -	$ -

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 2002, the Company issued 350,000 common shares for a note receivable of $175,000 and 481,334 shares of common stock for settlement of $143,334 in accounts payable and $10,000 of notes payable.

See accompanying notes to financial statements.

CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC.

(Formerly FarWest Group, Inc.)

NOTES TO FINANCIAL STATEMENTS

September 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 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 $8,700,000 as of September 30, 2002 and has utilized approximately $3,100,000 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 system's 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 government entity.

Equity and convertible debt transaction with international groups, as well as, with a leading U.S. financial institution.

An industry specific joint venture.

A joint venture with industry and government partners to accelerate pilot systems for the Powder River CBME (Gas) Wastewater Remediation Project and government agencies.

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 prospective client or investor violating t he 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.

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, have been made. Operating results for the nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

Item 2 Management's discussion and analysis of financial condition and results of operations.

Results of operations.

Operating expenses for the nine months ending September 30, 2002 were $797,007 compared to $867,722 the nine months ending September 30, 2001. The operating expenses for the third quarter 2002 were approximately 27% less than for the third quarter 2001. This reduction was primarily due to a revaluation of a consulting liability upon advice of counsel. Research and Development expenses for the third quarter 2002 increased by more than 63% compared to the third quarter 2001; this increase was a result of accelerated developmental testing with strategic alliance partners.

During the third quarter 2002 private placements of 907,534 shares of the Company's rule 144 common stock were completed. Of this total 158,000 shares were issued for cash, 343,334 shares were issued for conversion of officer's salary, 131,200 shares were issued to settle accounts payable and penalties, 63,500 shares were issued for research and development and 211,500 shares were issued for professional services including 45,000 shares to members of the Company's Advisory Board.

During the second quarter 2002, a private placement of 313,000 shares of the Company's Rule 144 common stock was completed. This total included 21,000 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.

Part II Other Information

Item 1 Legal

There were no new legal proceedings instituted by or against the Company since 1999. The following proceedings were instituted in the year 1999.

Three former employees of the Company's 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., also entered the lawsuit and asserted various claims against the three former employees and their employer, Duncan Pump, Inc., including conversion, civil conspiracy, wrongful interference with contractual relationships, and violation of trade secrets.

The ex-employees attempted to recover approximately $250,000 in future wages and, in the aggregate, 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 had requested that any damages awarded be trebled under Arizona law applicable to the failure of an employer to pay wages.

In late 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 would require further investigation.

The three ex-employees appealed the Superior Court's decision on all counts. During 2001, the Company vigorously contested the action. In January 2002, the Superior Court of Arizona Maricopa County granted the Company's request for a summary judgment on all monetary claims of the three ex-employees and granted summary judgment on the stock option claims for two ex-employees with stock option claims of 550,000. The Plaintiffs' filed a motion to amend the judgment on behalf of the ex-employees. The Court on April 29, 2002 declined to set oral arguments and therefore, ruled, "IT IS ORDERED denying Plaintiffs' Motion to Amend judgment." However, the two employees are again appealing that verdict and have request a jury trail. No decision has been made on this appeal.

The Company is in settlement negotiations with the third employee and expects to resolve that action.

Item 2 Changes in Securities.

During the third quarter 2002 private placements of 907,534 shares of the Company's rule 144 common stock was completed. Of this total 158,000 shares were issued for cash, 343,334 shares were issued for conversion of officer's salary, 131,200 shares were issued to settle accounts payable and penalties, 63,500 shares were issued for research and development and 211,500 shares were issued for professional services including 45,000 shares to 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 Default 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.

CERTIFICATIONS

I, Dallas Talley, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Capacitive Deionization Technology Systems, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the condensed financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

November 14, 2002

/s/ Dallas Talley

Dallas Talley

Chairman of the Board & Chief Executive

and Financial Officer

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report ofCapacitive Deionization Technology Systems, Inc. ("the Company") on Form 10-QSB for the nine months ending September 30, 2002 as filed with the Securities and Exchange Commission of the date hereof ("the Report"), I, Dallas Talley, Chairman of the Board and Chief Executive and Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2002

/s//s/ Dallas Talley

Dallas Talley

Chairman of the Board & Chief Executive

and Financial Officer

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, 2002

Capacitive Deionization Technology Systems (CDTN) Inactive 10QSB2002 Q3 Quarterly report (small business)