-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DVuQaBu3ZjglSYRZQL7NhjuRrvnKrY12PRJG5YolJxqxFfdFu65D7rGbPa0svrYo bgieN7f360CZQ/+S+YP3mg== 0001095811-00-000548.txt : 20000316 0001095811-00-000548.hdr.sgml : 20000316 ACCESSION NUMBER: 0001095811-00-000548 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTROPURE INC CENTRAL INDEX KEY: 0000808015 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 330056212 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16416 FILM NUMBER: 570246 BUSINESS ADDRESS: STREET 1: 23456 S POINTE DR CITY: LAGUNA HILLS STATE: CA ZIP: 92653-1512 BUSINESS PHONE: 9497709347 MAIL ADDRESS: STREET 1: 23456 S POINTE DR STREET 2: SUITE A CITY: LAGUNA HILLS STATE: CA ZIP: 92653 FORMER COMPANY: FORMER CONFORMED NAME: HOH WATER TECHNOLOGY CORP DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10QSB FOR THE QUARTER ENDED 1/31/00 1 ----------------------------------------------------------------- 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 quarterly period Commission file number 0-16416 ended JANUARY 31, 2000 ELECTROPURE, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 33-0056212 (State or Other Jurisdiction (IRS Employer Identification No.) of Incorporation or Organization) 23456 South Pointe Drive, Laguna Hills, California 93653 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (949) 770-9347 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of Class) 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. Yes [X] No [ ]. At March 9, 2000 8,824,841 shares of the Registrant's stock were outstanding. ----------------------------------------------------------------- 2 ELECTROPURE, INC. BALANCE SHEETS ASSETS
January 31, October 31, 2000 1999 ------------ ------------ (UNAUDITED) Current assets: Cash and equivalents $ 109,118 $ 204,328 ------------ ------------ Trade accounts receivable 91,720 97,745 Inventories 208,650 204,888 Prepaid legal fees 92,500 92,500 Other prepaid expenses 21,325 12,007 ------------ ------------ Total current assets 523,313 611,468 Property and equipment, net 553,393 566,872 Acquired technology, net of accumulated amortization 121,945 131,945 Building purchase option 105,000 105,000 ------------ ------------ TOTAL ASSETS $ 1,303,651 $ 1,415,285 ------------ ------------
The accompanying notes are an integral part of the financial statements. 2 3 ELECTROPURE, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, October 31, 2000 1999 ------------ ------------ Current liabilities: (UNAUDITED) Trade accounts payable $ 164,074 $ 86,544 Current portion of obligations under capital leases 8,585 9,465 Notes payable to shareholder 302,849 - Note payable to officer 7,632 7,632 Customer deposit 63,455 168,755 Accrued payroll 105,602 87,986 Other accrued liabilities 64,384 51,630 ------------ ------------ Total current liabilities 716,581 412,012 Obligations under capital leases, net of current portion 64 1,298 Note payable to officer, net of current portion 3,039 4,683 ------------ ------------ TOTAL LIABILITIES 719,684 417,993 ------------ ------------ Commitments and contingencies Redeemable preferred stock; $0.01 par value; 2,600,000 shares authorized, issued and outstanding 26,000 26,000 Stockholders' equity: Series B convertible preferred stock; $1.00 par value; 1,000,000 and no shares authorized, issued and outstanding 1,000,000 1,000,000 Common stock; $0.01 par value; 20,000,000 shares authorized; 7,791,415 and 7,809,635 shares issued and outstanding 78,096 77,914 Class B common stock; $0.01 par value; 83,983 shares authorized, issued and outstanding 840 840 Additional paid-in capital 20,996,942 20,971,537 Accumulated deficit (21,450,781) (21,018,249) Notes receivable on common stock (67,130) (60,750) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 557,967 971,292 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,303,651 $ 1,415,285 ------------ ------------
The accompanying notes are an integral part of the financial statements. 3 4 ELECTROPURE, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended January 31, ---------------------------- 2000 1999 ------------ ------------ Net sales $ 224,570 $ 279,971 Cost of sales 280,750 252,746 ------------ ------------ Gross profit (loss) (56,180) 27,225 ------------ ------------ Operating costs and expenses: Research and development 100,284 166,939 Salaries 116,262 32,569 Consulting 27,809 52,546 Other operating expenses 135,057 62,158 ------------ ------------ Total operating expenses 379,412 314,212 ------------ ------------ Loss from operations (435,592) (286,987) Other income (expense): Interest income 6,584 950 Other income Interest expense (3,524) - ------------ ------------ Other income (expense), net 3,060 950 ------------ ------------ NET LOSS $ (432,532) $ (286,037) NET LOSS PER SHARE, BASIC AND DILUTED $ (0.06) $ (0.03)
The accompanying notes are an integral part of the financial statements. 4 5 ELECTROPURE, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Series B Series B Convertible Class B Convertible Preferred Common Common Preferred Common Shares Shares Shares Stock Stock ----------- --------- ------- ------------ ------------ BALANCE, OCTOBER 31, 1999 1,000,000 7,791,425 83,983 $ 1,000,000 $ 77,914 Common shares issued upon exercise of options - 18,210 - - 182 Options and warrants granted to employees and consultants for services - - - - - Increase in notes receivable on common stock - - - - - Net loss - - - - - BALANCE, JANUARY 31, 2000 1,000,000 7,809,635 83,983 $ 1,000,000 $ 78,096 --------- --------- ------ ------------ ------------ Note Class B Additional Receivable Common Paid-in Accumulated Common Stock Capital Deficit Stock Total ------------ ------------ ------------ ------------ ------------ BALANCE, OCTOBER 31, 1999 $ 840 $ 20,971,537 (21,018,249) $ (60,750) $ 971,292 Common shares issued upon exercise of options - 1,639 - - 1,821 Options and warrants granted to employees and consultants for services - 23,766 - - 23,766 Increase in notes receivable on common stock - - (6,380) (6,380) Net loss - - (432,532) - (432,532) BALANCE, JANUARY 31, 2000 $ 840 $ 20,996,942 $(21,450,781) $ (67,130) $ 557,967 ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements. 5 6 ELECTROPURE, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended January 31, ------------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net loss $(432,532) $(286,037) --------- --------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 33,511 8,422 Amortization 10,000 32,357 Provision for (recovery on) uncollectible accounts - 560 Issuance of warrants for services 23,766 20,542 Services provided in payment of note receivable - related party - (6,353) (Increase) decrease in assets: Trade accounts receivable 6,025 85,320 Prepaid legal and other expenses (9,318) 8,000 Inventories (3,762) (46,298) Increase (decrease) in liabilities: Trade accounts payable 77,530 4,773 Customer deposit (105,300) 70,000 Accrued payroll and other liabilities 29,461 (23,395) --------- --------- CASH USED IN OPERATING ACTIVITIES (370,619) (132,109) --------- ---------
The accompanying notes are an integral part of the financial statements. 6 7 STATEMENTS OF CASH FLOWS (UNAUDITED)
Cash flows used in investing activities Purchase of property and equipment (20,032) (5,146) Purchase of acquired technology - Interest accrued on notes receivable on common stock (6,380) - ----------- ----------- CASH USED IN INVESTING ACTIVITIES (26,412) (5,146) ----------- ----------- Cash flows provided by (used in) financing activities: Principal payments on notes payable - (505) Proceeds from the issuance of notes payable to a related party 300,000 - Proceeds from exercise of warrants 1,821 - Proceeds from issuance of preferred stock to a related party - 1,000,000 ----------- ----------- CASH PROVIDED BY FINANCING ACTIVITIES 301,821 999,495 ----------- ----------- NET INCREASE (DECREASE) IN CASH (95,210) 862,240 CASH AT BEGINNING OF PERIOD 204,328 57,440 ----------- ----------- CASH AT END OF PERIOD $ 109,118 $ 919,680 =========== ===========
The accompanying notes are an integral part of the financial statements. 7 8 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements include all adjustments which management believes are necessary for a fair presentation of the results of operations for the periods presented, except those which may be required to adjust assets and liabilities to the net realizable value should the Company not be able to continue operations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. It is suggested that the accompanying condensed financial statements be read in conjunction with the Company's audited financial statements and footnotes as of and for the year ended October 31, 1999, included in the Company's Annual Report on Form 10-KSB. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Statement Classification Certain amounts presented within the 1999 financial statements have been reclassified in order to conform to the 2000 financial statement presentation. 3. NOTES PAYABLE TO OFFICER AND SHAREHOLDERS At January 31, 2000 and 1999, notes payable to officer and shareholders consisted of the following:
2000 1999 -------- ------ NOTES PAYABLE TO SHAREHOLDER Notes payable to shareholder, without collateral, with an interest rate of 10% per annum, originally due beginning December 13, 2001 (Note 5) $302,849 - -------- ------ NOTE PAYABLE TO OFFICER Note payable to officer, collateralized by an automobile, with interest at 9% per annum, payable in monthly installments of $636 through July 15, 2001 10,671 18,026 Less: Current portion (7,632) (6,357) -------- ------ LONG TERM PORTION OF NOTES PAYABLE TO OFFICER $ 3,039 11,669
Maturities of notes payable to an officer as of January 31, 2000 are as follows: 2000 $ 7,632 2001 $ 3,039 8 9 4. CONTINGENCIES Litigation In August 1999, the Company was named as a cross defendant in a cross complaint by Douglas B. Platt doing business as East-West Technic Group ("Platt") arising from a lawsuit brought by Staar Surgical Company, Inc. ("Staar") against East-West Technic Group, Douglas B. Platt, and Does 1 through 100. The cross complaint alleges breach of contract, breach of implied duty of good faith and fair dealing, misrepresentation, negligence and common counts. More specifically, Platt claims that in December 1997, the Company and Platt entered into a written agreement wherein the Company agreed to supply, service, and support an electrodeionization module to be part of a system installed by Platt for Staar. Platt claims that the Company knew the details and specifications of the systems and participated in its design, but failed to provide a module that could be operated as part of the system. As a result, Platt seeks to recover damages he suffered under the contract. The amount of such damages has not yet been determined. The Company believes the lawsuit is without merit and intends to vigorously defend itself. While it is not practical to estimate a range of possible loss, if any, for the Company's litigation of this matter, a loss could have a material adverse effect on the Company's results of operations, liquidity and financial position. Concentration of Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. Exposure to losses on accounts receivable is principally dependent on the individual customer's financial condition, as credit sales are not collateralized. The Company monitors its exposure to credit losses and reserves for those accounts receivable that it deems to be not collectible. Approximately 88% of the Company's sales of EDI products during the three months ended January 31, 2000 were made to foreign customers. One such foreign customer accounted for 81% of EDI product sales. The Company makes all sales and receives all payments in U.S. dollars on all foreign sales. Management believes that trade accounts receivable, aggregating $91,720 for the period ended January 31, 2000, are fully collectable, and therefore no provision has been recorded for uncollectable trade accounts receivable. 5. SUBSEQUENT EVENTS In February 2000, the Board of Directors authorized a private placement offering of Units of Electropure's securities, each Unit consisting of 25,000 shares of common stock and 12,500 three- year warrants to purchase common stock at $2.00 per share. The warrants are redeemable by us at any time that the common stock of Electropure shall equal or exceed $4.00 per share for thirty (30) consecutive trading days. 9 10 On February 25, 2000, Mr. Anthony Frank, a majority shareholder, converted $300,000 in principal loans made to us as of January 31, 2000, plus interest accrued thereon through the conversion date, into the above private placement Units. Mr. Frank received 304,822 shares of common stock and 152,411 two-year warrants to purchase common stock at $2.00 per share pursuant to such conversion. On February 10, 2000, Mr. Anthony Frank loaned us an additional $100,000 at 10% annual interest for two years which was also converted into private placement Units on February 25, 2000. We issued an additional 100,384 shares of common stock and 50,192 two-year warrants pursuant to this conversion. On March 6, 2000, Mr. Frank purchased an additional 20 Units of the above-described private placement offering for the sum of $500,000. In March 2000, we realized an additional $110,000 on the sale of 110,000 shares of common stock and 55,000 warrants pursuant to the above private placement offering. In March 2000, we issued 2,500 shares of common stock, valued at $2,500, as partial payment for public relations services to be rendered. In February 2000, we entered into a one-year agreement for administrative and financial consulting services for which we pay $1,000 per month for the first six months and $1,500 per month for the last six months of the agreement. We also granted 75,000 warrants to purchase common stock at $0.625 per share. The warrants vest in 25,000 annual increments commencing on February 1, 2000 and will expire on February 1, 2006. The fair value of the warrants was $46,500 and will be recorded as a consulting expense over the period we receive the services. 10 11 PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain of the statements contained herein (other than statements of historical fact) are forward-looking statements. Such forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results we expect. Potential risks and uncertainties that could affect our future operating results include, without limitation, economic, competitive and legislative developments. RESULTS OF OPERATIONS References to 1999 and 2000 are for the three months ended January 31, 1999 and 2000, respectively. Sales decreased in fiscal 2000 by $55,401 as compared to fiscal 1999 primarily due to several factors: (a) the current economic downturn in Japan and Europe accounted for an approximate 10% reduction in sales; (b) we lowered the EDI selling price to be more cost competitive during the latter part of fiscal 1999 and; (c) marketing efforts to sell EDI products were reduced during the latter part of the fiscal year as design changes for such products were being completed. We anticipate EDI sales to recover and increase through fiscal year 2000 since the EDI design modifications have been completed and marketing activities have been increased. Costs of goods sold for fiscal 2000 increased by $28,004 as compared to 1999 although sales for the comparative period decreased. The increase relates, primarily, to the allocation to cost of goods sold of depreciation expense on new manufacturing equipment placed in service in the first quarter of fiscal 2000. Research and development expenses for fiscal 2000 decreased by $66,655 compared to fiscal 1999. These expenses arise from the program which we initiated in December 1997 to develop the micro imaging technology acquired from Wyatt Technology Corporation in late October 1997. The decrease primarily results from a reduction in equipment expenditures and consulting expenses related to the program as well as a reduction in amortization expense relating to proprietary technology which was fully amortized as of the fiscal year ended October 31, 1999. General and administrative expenses for fiscal 2000 increased by $131,855 as compared to fiscal 1999. The increase results primarily from the addition of manufacturing and research and development personnel, causing an increase of $83,693 in salaries; an increase of $72,899 in operating expenses such as in legal and accounting fees and rent expense. These increases were partially offset by a $24,737 decrease in consulting expenses in fiscal 2000. 11 12 Interest income arose from short-term investments and increased by $5,634 for the fiscal period ended January 31, 2000 as compared to the prior year period. Interest expense for fiscal 2000 was $3,524, with no comparable activity during the prior period. Interest expense arises, primarily, from equipment and automobile financing activities as well as loans made to us during the current period. We realized a net loss before income taxes of $432,532 for fiscal 2000, representing an increase of $146,495 from the prior year level. The increase was primarily due, as noted above, to increases in operating expenses and costs of goods sold and a decrease in gross sales. LIQUIDITY AND CAPITAL RESOURCES At January 31, 2000, we had working capital deficit (total current assets less total current liabilities) of $196,371. The decrease in working capital, compared to that reported at October 31, 1999, reflects diminished EDI sales activities during our redesign of the product and an increase in liabilities resulting from short term loans. Our primary sources of working capital have been from short term loans and from the sale of securities. In February 2000, we began a private placement offering of securities to generate up to $1.5 million in equity financing. As of March 9, 2000, the Company had received $1.1 million in subscriptions to the offering, of which $400,000 represented the conversion of principal loans we had received as of that date. The private placement offering is scheduled to expire on May 23, 2000. During the latter part of fiscal year 1999, we curtailed our marketing activity on the EDI product while modifications could be effected to the EDI design and the ion permeable membrane derived from the Hydro Components acquisition could be developed. Sales of the EDI product are expected to increase through fiscal 2000 since the new EDI module design has been completed and now incorporates the more cost-effective ion permeable membranes we have developed. PLAN OF OPERATION In the opinion of management, available funds and funds to be realized from the private placement subscriptions discussed above will satisfy our working capital requirements through August 2000. We intend to fund our working capital requirements by focusing on selling our EDI product. In addition, we have taken the initial steps to form two Nevada corporations which will be wholly-owned subsidiaries of Electropure. Micro Imaging Technologies was formed in February 2000 and will conduct our research and development operations on the detection and identification of fluid-borne microorganisms. We formed Electropure EDI, Inc. in February 2000 to conduct manufacturing and sales operation for our EDI line of products. We are seeking to establish strategic alliances with potential joint venture partners for these subsidiaries and/or for specific products under development or now being produced by 12 13 Electropure. We have had preliminary discussions with potential strategic partners regarding our EDI product, membrane technology, and with regard to our micro imaging technology. We believe that, if necessary, we will be able to raise additional working capital by the private sale of our securities. No assurances can be given that currently available funds will satisfy our working capital needs for the period estimated, or that we can obtain additional working capital through the sale of common stock or other securities, the issuance of indebtedness or otherwise or on terms acceptable to us. Further, no assurances can be given that any such equity financing will not result in a further substantial dilution to the existing shareholders or will be on terms satisfactory to us. We will be required to raise substantial amounts of new financing, in the form of additional equity investments, loan financing, or from strategic partnerships, to carry out our business objectives. There can be no assurance that we will be able to obtain such additional financing on terms that are acceptable to us and at the time required by us, or at all. Further, any such financing may cause dilution of the interests of our current shareholders. If we are unable to obtain such additional equity or loan financing, our financial condition and results of operations will be materially adversely affected. Moreover, estimates of our cash requirements to carry out our current business objectives are based upon certain assumptions, including certain assumptions as to our revenues, net income (loss) and other factors, and there can be no assurance that such assumptions will prove to be accurate or that unbudgeted costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could have a material adverse effect on us and our plans. If we are not successful in obtaining loans or equity financing for future developments, it is unlikely that we will have sufficient cash to continue to conduct operations, particularly research and development programs, as currently planned. We believe that in order to raise needed capital, we may be required to issue debt or equity securities that are significantly lower than the current market price of our common stock. 13 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In August 1999, a cross complaint for breach of contract, misrepresentation and negligence was filed against us and other unaffiliated defendants by Douglas B. Platt d/b/a East-West Technic Group ("Platt"), the defendant in a Los Angeles Superior Court action, Case No. GC 023410, brought by Starr Surgical Company, Inc. The cross-complaint charges Electropure with breach of contract, misrepresentation and negligence in connection with the sale to Platt of an EDI module subsequently provided by Platt to Starr Surgical. The cross-complaint seeks unspecified damages. We intend to vigorously defend this matter. Electropure and its counsel believe that it will prevail on the merits if this matter should go to trial. ITEM 2. CHANGES IN SECURITIES In November 1999, we issued 18,210 shares of common stock upon the exercise of warrants at $0.10 per share and realized $1,821 in net proceeds from this transaction. In December 1999, the company granted 10,000 warrants at $0.5938 per share to a firm which provides services in the design and fabrication of EDI components. The warrants expire on January 1, 2003. In January 2000, we granted 30,000 warrants at $0.75 per share for technical consulting services. The warrants expire on January 24, 2005 and vest over a three-year period. The issuance of securities was exempt from registration under the Securities Act of 1933, as amended (the "Act"), by virtue of Sections 3(b) and 4(2) of the Act, including Regulation D promulgated thereunder. We believe that the recipient acquired the securities for investment only and not with a view to the distribution thereof and legends were affixed to the stock certificates. Except as noted, no underwriters or brokers were involved in any transaction. ITEMS 3 THROUGH 5 OMITTED AS NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Number Description -------------- ----------- 27 Financial Data Schedule (b) Report on Form 8-K. None.
14 15 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 9, 2000 ELECTROPURE, INC. By /S/ CATHERINE PATTERSON ---------------------------------------- Catherine Patterson (Secretary and Chief Financial Officer with responsibility to sign on behalf of Registrant as a duly authorized officer and principal financial officer) 15 16 EXHIBIT INDEX
Exhibit Number Description -------------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS OCT-31-1999 NOV-01-1999 JAN-31-2000 109,118 0 91,720 0 208,650 523,313 641,800 88,407 1,303,651 716,581 0 0 1,026,000 78,096 0 1,303,651 224,570 224,570 280,750 280,750 379,412 0 (3,060) (432,532) 0 (432,532) 0 0 0 (432,532) (0.06) (0.06)
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