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 September 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 September 30, 2000 was 7,876,032.
FarWest Group, Inc.
Index Page
Part I Financial Information
Item 1 Financial statements
Report of Independent Accountants 3
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 4
Consolidated Statements of operations
for the three and nine months ended
September 30, 2000 and 1999 5
Consolidated Statements of Cash Flow
For the nine months ended September 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 10-11
Item 2 Changes in securities 11
Item 3 Defaults upon senior securities 11
Item 4 Submission of matter to a vote of security
holders 11-12
Item 5 Other information 12
Item 6 Exhibits and Reports on Form 8-K 12
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 September 30, 2000 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 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 December 31, 1999 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
November 8, 2000
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FARWEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Assets
September 30 December 31,
2000 1999
Current assets: (Unaudited) (Audited)
Cash $ 1,427 $ 389,401
Accounts receivable-officers and employees 49,244 -
Total current assets 50,671 389,401
Furniture and equipment 26,115 11,125
Less accumulated depreciation (4,893) (3,728)
21,222 7,397
$ 71,893 $ 396,798
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 433,592 $ 348,929
Accounts payable to shareholder 56,634 152,388
Note payable 56,000 -
Current portion of long-term debt 10,700 109,891
Payable to former subsidiary 30,700 270,000
Total current liabilities 587,626 881,208
Long-term and convertible debt 34,471 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; 7,875,032 and 6,684,507
shares issued and outstanding 788 668
Additional paid-in capital 4,726,464 2,985,725
Accumulated deficit (5,277,456) (3,523,977)
Total stockholders' equity (550,204) (537,584)
$ 71,893 $ 396,798
See accompanying notes to consolidated financial statements.
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FARWEST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Revenues $ - $ - $ - $ -
Operating expenses:
Common stock and options issued
for services 86,250 714,000 463,109 929,750
Research and development 208,070 200,849 632,760 420,000
General and administrative
(excluding amounts applicable
to stock and options issued
for services each period) 336,508 (108,049) 640,702 12,520
630,828 806,800 1,736,571 1,362,270
Loss from operations (630,828) (806,800) (1,736,571)(1,362,270)
Other expenses
Interest expense (8,930) (1,000) (16,908) (3,500)
Loss from continuing
operations (639,758) (807,800) (1,753,479)(1,365.770)
Discontinued operations:
Income (loss) from discontinued
operations - (64,274) - (15,928)
Net loss $(639,758)$(872,074)$(1,753,479)$(1,381,698)
Loss per common share:
From continuing operations $(.08) $(.13) $(.23) $(.25)
Net loss $(.08) $(.14) $(.23) $(.25)
Weighted average common shares
outstanding 7,858,365 6,036,746 7,497,176 5,502,316
See accompanying notes to consolidated financial statements.
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FARWEST GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
Cash flows from operating activities:
Net Loss $(1,753,479) $(1,381,698)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,165 1,250
Shares and options issued for services 463,109 929,750
Change in operating assets and liabilities:
Accounts receivable (49,244) 28,704
Accounts payable and accrued liabilities 84,663 53,849
Net liabilities of discontinued operations - 38,326
Net cash used in operating activities (1,253,786) (329,819)
Cash flows from investing activities:
Purchase of furniture and equipment (14,990) (2,483)
Cash flows from investing activities:
Net advances from shareholders (95,754) 79,250
Payments on long-term debt (17,894) -
Additional note payable 56,000 -
Payments to former subsidiary (239,300) -
Sale of common and preferred stock 1,177,750 283,251
Net cash provided by financing activities 880,802 362,501
Net increase(decrease) in cash and cash
equivalents (387,974) 30,199
Cash at beginning of period 389,401 -
Cash at end of period $ 1,427 $ 30,199
Supplemental disclosure:
Total interest paid $ 61,418 $ 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
September 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
$5,300,000 as of September 30, 2000 and has utilized
approximately $2,200,000 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.
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; a European
government-sponsored program. A potential strategic alliance
with a leading European Water company and an investment alliance
with a major U.S. engineering and construction 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 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
through private placements.
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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 continue in-house prototype manufacture and
construction of demonstration and pilot water treatment plants
for clients in the fourth 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
September 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 the periods
ending September 30, 2000 or 1999. Initial revenues from pilot
systems are expected to occur during the fourth quarter of 2000.
Operating expenses decreased by approximately $170,000 to
$630,828 during the quarter ended September 30, 2000. Research
and development expenses dedicated to the continued improvement
of the base CDT technology remained relatively constant at
$208,070 during the quarter ended September 30, 2000. For the
Nine month period ended September 30, 2000, operating expenses
have increased by approximately 21% from September 30, 1999 to
$1,736,571 with research and development to continue to be
approximately 31% of the total operating expenses.
During third quarter 2000 the Company installed the first pilot
CDT system at Carlsbad, California. The system will continue to
be expanded during the fourth quarter of 2000 and when complete
will include ten CDT bricks and will have the capacity to produce
up to 10,000 gallons of potable water per day. Evaluation visits
are scheduled during the fourth quarter for domestic and
international prospective users and potential strategic partners.
The Carlsbad pilot CDT system will be operational in Carlsbad
through mid 2001.
On June 27, 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.
Air water has options to expand its investment agreement in 2001.
These options include purchase of an additional 400,000 shares of
the Company's common stock at $2.50 per share and/or $3.00 per
share and to also add on an additional application to their
Japanese marketing rights.
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,
9
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,
except registration rights 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 were completed in
the third quarter and the Company expects the executed contract
and applicable deposit by mid fourth quarter 2000.
The Company plans to submit its third amendment to its Form 10SB
during November 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 September 30, 2000. The
following proceedings were instituted in the year 1999.
Three former employees of the Company or its former subsidiary,
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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 damages 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.
No further decision has been reached on the open stock option
issues, however, the Company is continuing to contest this 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 September 30, 2000 the Company issues
57,500 shares of common stock. All of the shares issued in the
third quarter were for services valued at an aggregate total of
$86,250. The shares issued were in reliance upon Section 4(2) of
the Securities Act of 1933.
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 issuance 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.
As part of the Investment Agreement with ABB, Inc., the Company
issued 250,000 shares of Rule 144 unregistered stock to ABB, Inc.
during the quarter ended March 31, 2000.
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.
11
No matters were submitted for a vote by security holders in the
fourth quarter ending September 30, 2000.
Item 5 Other information.
None
Item 6 Exhibits and Reports of Form 8-K.
(a) Form 8-K was filed by the Registrant on November 7, 2000
relating to its press release dated November 3, 2000 regarding
changes in its Board of Directors.
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
Chairman of the Board,
President and Chief Financial
Officer
Dated: November 8, 2000
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