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 March 31, 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 March 31, 2000 was 7,301,032.
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FarWest Group, Inc.
Index Page
Part I Financial Information
Item 1 Financial statements
Report of Independent Accountants 3
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 4
Consolidated Statements of operations
for the three months ended March 31,
2000 and 1999 5
Consolidated Statements of Cash Flow
For the three months ended March 31,
2000 6
Notes to Consolidated Financial
Statements 7-8
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 10
Item 4 Submission of matter to a vote of security holders 10
Item 5 Other information 10
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 March 31, 2000
Signature page 11
2
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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 March 31, 2000 and the related
statements of operations and cash flows for the period 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 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 balance
sheet as of March 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
May 18, 2000
3
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FARWEST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
Assets
March 31 December 31,
2000 1999
Current assets:(Unaudited)(Audited)
Cash $ 198,507 $ 389,401
Accounts receivable-officers 76,300 -
Total current assets 274,807 389,401
Furniture and equipment 23,309 11,125
Less accumulated depreciation (4,893) (3,728)
18,416 7,397
$ 293,223 $ 396,798
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 202,165 $ 348,929
Accounts payable to shareholder 82,388 152,388
Current portion of long-term debt 9,950 109,891
Payable to former subsidiary 70,000 270,000
Total current liabilities 364,503 881,208
Long-term and convertible debt 39,116 53,174
Stockholders' equity:
Preferred stock, $.0001 par value, 20,000,000
shares authorized; 60,000 issued and
outstanding at December 31, 1998 - -
Common stock, $.0001 par value, 80,000,000
shares authorized; 7,301,032 and 6,684,507
shares issued and outstanding 730 668
Additional paid-in capital3,901,086 2,985,725
Accumulated deficit (4,012,212) (3,523,977)
Total stockholders' equity (110,396) (537,584)
$ 293,223 $ 396,798
See accompanying notes to consolidated financial statements.
4
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FARWEST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
Revenues $ - $ -
Operating expenses:
Common stock and options issued for services 158,423 99,150
General and administrative (excluding amounts
applicable to stock and options issued for
for services each period) 328,325 195,071
486,748 294,221
Loss from operations (486,748) (294,221)
Other expenses
Interest expense (1,487) (11,250)
Loss from continuing operations (488,235) (305,471)
Discontinued operations:
Income (loss) from discontinued operations - 53,938
Net loss $(488,235) $(251,533)
Loss per common share:
From continuing operations $(.07) $(.07)
Net loss $(.07) $(.06)
Weighted average common shares outstanding 7,108,699 4,277,124
See accompanying notes to consolidated financial statements.
5
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FARWEST GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
Cash flows from operating activities:
Net Loss $ (488,235) $(251,533)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,165 497
Shares issued for services 158,423 99,150
Change in operating assets and liabilities:
Accounts receivable (76,300) 28,704
Accounts payable and accrued liabilities (146,764) (157,490)
Net liabilities of discontinued operations - (12,576)
Net cash used in operating activities (551,711) (293,248)
Cash flows from investing activities:
Purchase of furniture and equipment (12,184) (4,948)
Cash flows from investing activities:
Net advances from shareholders (70,000) 126,393
Payments on long-term debt (13,999) -
Payments to former subsidiary (200,000) -
Sale of common and preferred stock 657,000 283,250
Net cash provided by financing activities 373,001 409,643
Net increase (decrease) in cash and cash
equivalents (190,894) 111,447
Cash at beginning of period 389,401 -
Cash at end of period $ 198,507 $ 111,447
Supplemental disclosure:
Total interest paid $ - $ -
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 2000, the Company issued 200,000 shares to convert
$100,000 in convertible debt.
See accompanying notes to financial statements.
6
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FARWEST GROUP, INC.
NOTES TO FINANCIAL STATEMENT
March 31, 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
$3,300,000 as of March 31, 2000 and has utilized approximately
$1,550,000 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.
7
<PAGE>
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 first 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
March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
8
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Item 2 Management's discussion and analysis of financial condition
and results of operations.
The Company's former subsidiary, FarWest Pump Company (Pump
Company), was sold to Pump Company Management with the closing
effective November 30, 1999. The discontinued operations of the
Pump Company resulted in a total management focus on the
operations of FarWest Group's Capacitive Deionization Technology
(CDT).
The Company did not recognize any revenue during either of the
quarters ending March 31, 2000 or 1999. Initial revenues from
pilot systems are expected to occur during the third or fourth
quarter of 2000. Operating expenses increased by approximately
$193,000 to $486,748 during the first quarter of 2000, the result
of increased development expenses. Interest expense decreased do
to conversion of debt to equity in 1999.
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 March 31, 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. After
the end of the quarter, ABB, Inc. 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 received a Letter of Intent from the Kingdom of
Jordan in November 1999 for a pilot CDT plant to be built in
Jordan in the year 2000. In March, the Company was notified that
approval had been granted by the Jordan government to proceed
with implementing the Company's proposal and the Letter of Intent
to complete the pilot brackish water desalination plant using the
Company's Capacitive Deionization Technology (CDT) of the FarWest
Group, Inc.
9
<PAGE>
Part II Other Information
Item 1 Legal
There were no legal proceedings instituted by or against the
Company during the quarter ended March 31, 2000. The following
proceedings were instituted in the year 1999; the Company does
not believe the claims are material or have validity.
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.
The Company is contesting this matter vigorously. The Company
does not believe that there is validity to the claims; however,
should the Company be required to pay damages as a result of the
litigation, beyond stock consideration, the payments of such
damage awards may have an adverse effect upon its financial
condition.
Item 2 Changes in Securities
As part of the Investment Agreement with ABB, Inc., the Company
issued 500,000 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.
No items were submitted to a vote of the securities holders
during this quarter.
Item 5 Other information.
None
10
<PAGE>
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 March 31, 2000.
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: May 19, 2000
11
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 198,507
<SECURITIES> 0
<RECEIVABLES> 76,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 274,807
<PP&E> 23,309
<DEPRECIATION> 4,893
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0
0
<COMMON> 730
<OTHER-SE> (111,126)
<TOTAL-LIABILITY-AND-EQUITY> 293,223
<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 486,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,487
<INCOME-PRETAX> (488,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (488,235)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (488,235)
<EPS-BASIC> .07
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