SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
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.)
1665 E. 18th Street, Suite 113, Tucson, Arizona 85719
(Address of Principal executive offices)
520-740-1119
(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 July 31, 2000 was 7,818,532.
FarWest Group, Inc.
Index Page
Part I Financial Information
Item 1 Financial statements
Report of Independent Accountants 3
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 4
Consolidated Statements of operations
for the three and six months ended
June 30, 2000 and 1999 5
Consolidated Statements of Cash Flow
For the six months ended June 30,
2000 and 1999 6
Notes to Consolidated Financial
Statements 7-8
Item 2 Management's discussion and analysis
of Financial Condition and Results
of Operations 9-10
Part II Other Information
Item 1 Legal 10
Item 2 Changes in securities 10
Item 3 Defaults upon senior securities 10
Item 4 Submission of matter to a vote of security holders 11
Item 5 Other information 11
Item 6 Exhibits and Reports on Form 8-K 11
(a) No report on form 8-K was filed by the Registrant for
the quarter ended June 30, 2000
Signature page 12
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Part I Financial Information
Item 1 Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
FarWest Group, Inc.
We have reviewed the accompanying consolidated balance sheets of
FarWest Group, Inc. as of June 30, 2000 and the related
statements of operations for the three and six months then ended
and cash flows for the six 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 consolidated balance sheet of FarWest
Group, Inc. as of December 31, 1999 and the related statements of
operations and cash flows for the year then ended (not presented
separately herein), and in our report dated April 12, 2000 we
expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying
consolidated balance sheet as of June 30, 2000 is fairly stated,
in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Jackson & Rhodes P.C.
Jackson & Rhodes P.C.
Dallas, Texas
August 7, 2000
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FARWEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Assets
June 30, December 31,
2000 1999
Current assets: (Unaudited) (Audited)
Cash $ 250,838 $ 389,401
Accounts receivable-officers and employees 128,450 -
Total current assets 379,288 389,401
Furniture and equipment 25,973 11,125
Less accumulated depreciation (6,192) (3,728)
19,781 7,397
$ 399,069 $ 396,798
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 277,712 $ 348,929
Accounts payable to shareholder 78,188 152,388
Current portion of long-term debt 9,975 109,891
Payable to former subsidiary 30,700 270,000
Total current liabilities 396,575 881,208
Long-term and convertible debt 32,939 53,174
Stockholders' equity:
Preferred stock, $.0001 par value, 20,000,000
shares authorized; none issued and
outstanding - -
Common stock, $.0001 par value, 80,000,000
shares authorized; 7,817,532 and 6,684,507
shares issued and outstanding 782 668
Additional paid-in capital 4,696,471 2,985,725
Stock subscription receivable (90,000) -
Accumulated deficit (4,637,698) (3,523,977)
Total stockholders' equity (30,445) (537,584)
$ 399,069 $ 396,798
See accompanying notes to consolidated financial statements.
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FARWEST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
Revenues $ - $ - $ - $ -
Operating expenses:
Common stock and options issued
for services 218,436 116,600 376,859 215,750
Research and development 255,714 68,198 424,760 219,151
General and administrative
(excluding amounts applicable
to stock and options issued
for services each period) 146,845 65,201 302,902 115,569
620,995 249,999 1,104,521 550,470
Loss from operations (620,995) (249,999) (1,104,521) (550,470)
Other expenses
Interest expense (4,491) (2,500) (9,200) (7,500)
Loss from continuin operations (625,486) (252,499) (1,113,721) (557.970)
Discontinued operations:
Income (loss) from discontinued
operations - (5,592) - 48,346
Net loss $(625,486) $(258,091) $(1,113,721) $(509,624)
Loss per common share:
From continuing operations $(.08) $(.04) $(.15) $(.11)
Net loss $(.08) $(.04) $(.15) $(.10)
Weighted average common shares
outstanding 7,524,465 6,056,912 7,316,582 5,235,101
See accompanying notes to consolidated financial statements.
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FARWEST GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
Cash flows from operating activities:
Net Loss $(1,113,721) $(509,624)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,464 997
Shares and options issued for services 376,859 215,750
Change in operating assets and liabilities:
Accounts receivable (128,450) 3,704
Accounts payable and accrued liabilities (71,217) 19,359
Net liabilities of discontinued operations - (101,182)
Net cash used in operating activities (934,065) (370,996)
Cash flows from investing activities:
Purchase of furniture and equipment (14,848) (4,948)
Cash flows from investing activities:
Net advances from shareholders (74,200) 98,145
Payments on long-term debt (20,150) -
Payments to former subsidiary (239,300) -
Sale of common and preferred stock 1,144,000 283,250
Net cash provided by financing activities 810,350 381,395
Net increase (decrease) in cash and cash
equivalents (138,563) 5,451
Cash at beginning of period 389,401 -
Cash at end of period $ 250,838 $ 5,451
Supplemental disclosure:
Total interest paid $ 39,400 $ 7,910
Non-cash transactions:
During 1999, the Company issued 1,643,600 common shares for
services rendered in 1999 and 1998, of which$311,750 had been
accrued in 1998.
During 1999, the Company issued 253,332 common shares to convert
$100,000 in convertible debt and $26,667 in accrued interest.
During 1999, the Company issued options to acquire 110,000 shares
of Company common stock, valued at $116,000.
During 2000, the Company issued 200,000 shares to convert
$100,000 in convertible debt.
See accompanying notes to consolidated financial statements.
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FARWEST GROUP, INC.
NOTES TO FINANCIAL STATEMENT
June 30, 2000
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
$4,700,000 as of June 30, 2000 and has utilized approximately
$1,900,000 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 principally
through private placements.
Business opportunities for the next twelve months include
international CDT systems sales to governments and major
multi-national industrial corporations and U.S. pilot sales.
Several opportunities are now 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
which could be expanded to include marketing services; joint
ventures with an international investment group; and a European
government-sponsored program. In addition, a religious
humanitarian fund is evaluating equity investment and CDT
installation opportunities in the Mid-East. 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 proposed offerings
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 seed additional
financing sooner than anticipated. Management if confident it
will be able to continue raising funds in the balance of 2000 as
it did in the early part of 1999, principally through private
placements. With the filing of a Form 10-SB in the fourth
quarter of 1999 and becoming a Securities and Exchange Commission
fully reporting Company, management anticipates that additional
funding will be more likely in 2000.
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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.
Note 2 - Summary of Significant Accounting Policies and Practices
(a)Description of Business
FarWest Group, Inc. (the "Company"or "FarWest") was organized
under the laws of the state of Nevada in July 1996 to serve as a
water technology company dedicated to advanced water filtration
and purification.
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 with $30,000 per year, then
becoming a percentage of revenue. The Company was in arrears on
its annual royalty payments to Lawrence Livermore as of December
31, 1999, but has become current on its payments subsequently.
The Company has completed development of its first release CDT
unit and expects to commence in-house prototype manufacture and
construction of demonstration and pilot water treatment plants
for clients in the third quarter of 2000.
(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, 1999 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 three months ended
June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
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Item 2 Management's discussion and analysis of financial
condition and results of operations.
Results of operations.
As reported in the Company's 1999 Form 10K and annual report the
Company's former subsidiary, FarWest Pump Company (Pump Company),
was sold to Pump Company Management effective November 30, 1999.
Pump Company's operations are reflected as discontinued
operations as of November 30, 1999.
The Company did not recognize any revenue during any of the
periods ending June 30, 2000 or 1999. Initial revenues from
pilot systems are expected to occur during the fourth quarter of
2000. Operating expenses increased by approximately $370,000
from $249,999 during the quarter ended June 30, 2000. Research
and development expenses dedicated to the continued improvement
of the base CDT technology increased by approximately $190,000
during the quarter ended June 30, 2000. For the six month period
ended June 30, 2000, operating expenses have more than doubled
from June 30, 1999 to $1,104,521 with research and development to
continue to be approximately 50% of the total operating expenses.
During the quarter ended June 30, 2000, the Company completed an
investment agreement with Air Water Inc. (Air Water) of Osaka,
Japan. Air Water made an equity investment of $500,000 with the
purchase of 200,000 shares of the Company's common stock. These
funds were used to complete the Pump Company transaction and to
fund the final development of the pilot demonstration system
being installed at Carlsbad, California during the third quarter.
In consideration for this investment, Air Water received "First
Rights of Refusal" for the Japanese marketing rights for the
boiler water preparation and polishing market in Japan. Air
Water will also have the rights to establish the implementation
of the Company's Capacitive Deionization Technology (CDT) in the
industrial and agriculture remediation market.
On December 29, 1999, the Company entered into an Investment
Agreement with ABB, Inc. This agreement included equity
investments of $1,000,000 during the quarter ending March 31,
2000. These funds were received and utilized to make the
$200,000 payment to Pump Company Management for assuming the net
liabilities ($650,000) of Pump Company as well as to make
contractual payments required to bring the Lawrence Livermore
National Laboratories License fee current as of June 30, 2000.
The majority of the remaining equity investment was used to
accelerate CDT development including environmental and
manufacturing infrastructure necessary to develop the CDT
products required for completing the pilot CDT projects. ABB,
Inc. has informed the Company that it would not exercise its
additional equity options, thereby forfeiting all other options
which had been included in the initial Investment Agreement.
The Company submitted a final contract to the Kingdom of Jordan
for a 200 cubic meter per day pilot CDT system to be installed in
Jordan in 2001. These contract negotiations are expected to be
completed in the third quarter.
9
The Company submitted its second amendment to its Form 10SB
during May 2000.
Liquidity and capital resources.
Management recognizes the requirement for additional investment
to complete the necessary manufacturing and research facilities.
Discussions are being held with several potential strategic
partners and investors. There is no certainty if and when such
funding can 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 June 30, 2000. The following
proceedings were instituted in the year 1999.
Three former employees of the Company or its former subsidiary,
FarWest Pump Co., have 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 have also requested
that any damaged awarded be trebled under Arizona law applicable
to the failure of an employer to pay wages.
During the quarter ended June 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
requires further investigation.
10
The Company is continuing to contest this final matter vigorously
and believes there is no validity to the final two ex-employees
stock option claims.
Item 2 Changes in Securities
During the period ended June 30, 2000, the Company issued 639,600
shares of common stock for cash aggregating $1,414,000, net of
costs of $75,000, to Air Water Inc. (200,000 shares), ABB, Inc.
(250,000 shares) and private investors (189,600 shares). In
addition, the Company issued 233,425 shares of common stock for
services aggregating $286,339 and options to acquire 400,000
shares of common stock valued at $96,460. The Company recorded a
subscription for 60,000 shares at $90,000. 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.
The Company held its annual stockholders meeting on May 21, 2000.
The following individuals were elected as directors until the
Company's next annual meeting:
For Against Abstain
Tom Friezen 5,131,262 49,200 18,000
Chris Sheppard 5,180,462 0 18,000
Dallas Talley 5,180,462 0 18,000
Clark Vaught 4,360,633 455,238 626,505
Jackson & Rhodes P.C. appointment as auditors was ratified with
5,145,962 affirmative votes and 69,600 against.
FarWest Group Inc. 2000 Stock option plan was ratified with
4,159,042 affirmative votes and 263,155 against.
Item 5 Other information.
None
Item 6 Exhibits and Reports of Form 8-K.
(a) No reports on form 8-K were filed by the Registrant for the
quarter ended June 30, 2000.
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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.
Far West Group, Inc.
/s/ Dallas Talley
Dallas Talley
President and Chief Accounting
Officer
Dated: August 8, 2000
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