-----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, LT2HTZr1PnKWRHGRxKDrcnTfU/P6SQxxVUvjOmG03UIs4ORbf3iyAfUHu0ymIn3m BdRiNZPrPmJUn2Y1CnuhCQ== /in/edgar/work/20000908/0001095811-00-003265/0001095811-00-003265.txt : 20000922 0001095811-00-003265.hdr.sgml : 20000922 ACCESSION NUMBER: 0001095811-00-003265 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELECTROPURE INC CENTRAL INDEX KEY: 0000808015 STANDARD INDUSTRIAL CLASSIFICATION: [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: 719035 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 a65529e10qsb.txt FORM 10QSB QUARTERLY PERIOD ENDED JULY 31, 2000 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 JULY 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 September 7, 2000, 9,377,341 shares of the Registrant's stock were outstanding. ================================================================================ 2 ELECTROPURE, INC. Consolidated Balance Sheets ================================================================================ ASSETS
July 31, October 31, 2000 1999 --------- ----------- (UNAUDITED) Current assets: Cash and equivalents $ 96,637 $ 204,328 Certificate of deposit -- restricted 15,000 -- Trade accounts receivable 61,292 97,745 Inventories 209,180 204,888 Prepaid legal fees 92,500 92,500 Other prepaid expenses 4,237 12,007 ---------- ---------- Total current assets 478,846 611,468 Property and equipment, net 536,410 566,872 Acquired technology, net of accumulated amortization 101,945 131,945 Building purchase option 105,000 105,000 ---------- ---------- TOTAL ASSETS $1,222,201 $1,415,285 ========== ==========
The accompanying notes are an integral part of the financial statements. 2 3 ELECTROPURE, INC. Consolidated Balance Sheets ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, October 31, 2000 1999 ------------ ------------ (UNAUDITED) Current liabilities: Trade accounts payable $ 111,628 $ 86,544 Current portion of obligations under capital leases 8,172 9,465 Note payable to bank 13,252 -- Note payable to officer -- 7,632 Customer deposit 24,994 168,755 Accrued payroll 89,197 87,986 Other accrued liabilities 63,060 51,630 ------------ ------------ Total current liabilities 310,303 412,012 Obligations under capital leases, net of current portion 6,614 1,298 Note payable to officer, net of current portion -- 4,683 ------------ ------------ TOTAL LIABILITIES 316,917 417,993 ============ ============ Commitments and contingencies Redeemable preferred stock; $0.01 par value; 2,600,000 shares authorized, issued and outstanding at July 31, 2000 and October 31, 1999 26,000 26,000 Shareholders' equity: Series B convertible preferred stock; $1.00 par value; 1,000,000 shares authorized, issued and outstanding at July 31, 2000 and October 31, 1999 1,000,000 1,000,000 Common stock; $0.01 par value; 20,000,000 shares authorized; 8,877,341 and 7,791,425 shares issued and outstanding at July 31, 2000 and October 31, 1999 88,773 77,914 Class B common stock; $0.01 par value; 83,983 shares authorized, issued and outstanding at July 31, 2000 and October 31, 1999 840 840 Additional paid-in capital 22,180,080 20,971,537 Accumulated deficit (22,321,595) (21,018,249) Notes receivable on common stock (68,814) (60,750) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 879,284 971,292 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,222,201 $ 1,415,285 ============ ============
The accompanying notes are an integral part of the financial statements. 3 4 ELECTROPURE, INC. Consolidated Statements of Operations (UNAUDITED) ================================================================================
Three months ended Nine months ended July 31, July 31, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Net sales $ 206,361 $ 145,786 $ 657,918 $ 557,240 Cost of sales 247,852 222,985 800,020 671,861 ----------- ----------- ----------- ----------- Gross profit (loss) (41,491) (77,199) (142,102) (114,621) ----------- ----------- ----------- ----------- Operating costs and expenses: Research and development 121,361 218,104 334,519 543,134 Salaries 88,896 70,092 297,999 249,445 Consulting 26,461 80,941 88,642 223,379 Other operating expenses 103,118 99,244 443,006 362,989 ----------- ----------- ----------- ----------- Total operating expenses 339,836 468,381 1,164,166 1,378,947 ----------- ----------- ----------- ----------- Loss from operations (381,327) (545,580) (1,306,268) (1,493,568) Other income (expense): Interest income 1,966 3,795 11,258 12,405 Interest expense (3,964) (2,012) (7,536) (2,012) ----------- ----------- ----------- ----------- Interest income, net (1,998) 1,783 3,722 10,393 ----------- ----------- ----------- ----------- Loss before provision for income taxes (383,325) (543,797) (1,302,546) (1,483,175) Provision for income tax -- -- (800) (800) ----------- ----------- ----------- ----------- NET LOSS $ (383,325) $ (543,797) $(1,303,346) $(1,483,975) =========== =========== =========== =========== NET LOSS PER SHARE, BASIC AND DILUTED $ (0.04) $ (0.06) $ (0.15) $ (0.17) =========== =========== =========== =========== Weighted average shares outstanding 8,713,496 8,586,208 8,409,944 8,611,855
The accompanying notes are an integral part of the financial statements. 4 5 ELECTROPURE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' 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 Common shares and warrants issued in private placement -- 1,065,206 -- -- 10,652 Common shares issued for public relations services -- 2,500 -- -- 25 Options and warrants granted to employees and consultants for services -- -- -- -- -- Increase in notes receivable on common stock -- -- -- -- -- Net loss -- -- -- -- -- Balance, July 31, 2000 1,000,000 8,877,341 83,983 $1,000,000 $88,773 ========= ========= ====== ========== =======
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 Common shares and warrants issued in private placement -- 1,054,554 -- -- 1,065,206 Common shares issued for public relations services -- 2,163 -- -- 2,188 Options and warrants granted to employees and consultants for services -- 150,187 -- -- 150,187 Increase in notes receivable on common stock -- -- -- (8,064) (8,064) Net loss -- -- (1,303,346) -- (1,303,346) Balance, July 31, 2000 $840 $22,180,080 $(22,321,595) $ (68,814) $ 879,284 ==== =========== ============ =========== ===========
The accompanying notes are an integral part of the financial statements. 5 6 ELECTROPURE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ================================================================================
Nine months ended July 31, ----------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $(1,303,346) $(1,483,175) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 101,410 32,159 Amortization 30,000 386,247 Issuance of warrants for services 150,188 64,770 (Increase) decrease in assets: Trade accounts receivable 36,453 (46,122) Accounts receivable - related party -- (70,627) Prepaid legal and other expenses 7,770 100,000 Inventories (4,292) (135,380) Other current assets -- 47,071 Increase (decrease) in liabilities: Trade accounts payable 25,084 (38,932) Customer deposit (143,761) 70,160 Accrued payroll and other liabilities 16,663 (12,731) ----------- ----------- CASH USED IN OPERATING ACTIVITIES (1,083,831) (1,086,560) ----------- ----------- Cash flows used in investing activities Purchase of property and equipment (70,948) (199,874) Purchase of certificate of deposit (15,000) -- ----------- ----------- CASH USED IN INVESTING ACTIVITIES (85,948) (199,874) ----------- -----------
The accompanying notes are an integral part of the financial statements. 6 7 Electropure, Inc. Consolidated Statements of Cash Flows (Unaudited) ================================================================================
Nine months ended July 31, ----------------------------- 2000 1999 ----------- ----------- Cash flows provided by (used in) financing activities: Principal payments on notes payable (14,063) (4,609) Proceeds from issuance of note payable 15,000 -- Proceeds from the issuance of common stock 1,059,330 620,000 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 1,062,088 1,615,391 ----------- ----------- NET INCREASE (DECREASE) IN CASH (107,691) 328,957 CASH AT BEGINNING OF PERIOD 204,328 57,440 ----------- ----------- CASH AT END OF PERIOD $ 96,637 $ 386,397 =========== =========== CASH PAID DURING THE NINE MONTHS ENDED JULY 31 FOR: Interest $ 3,028 2,012 Income Taxes $ 800 -- Supplemental Schedule of Non-Cash Investing and Financing Activities Litigation settlement: Return and cancellation of common stock $ 292,500 Surrender of acquired technology $ (292,500) Issuance of common stock for prepaid legal fees: Prepaid legal fees $ 100,000 Issuance of common stock $ (100,000)
The accompanying notes are an integral part of the financial statements. 7 8 ELECTROPURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated 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 we 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 our audited financial statements and footnotes as of and for the year ended October 31, 1999, included in our Annual Report on Form 10-KSB. Principles of Consolidation The consolidated financial statements of Electropure, Inc. and Subsidiaries include the accounts of its wholly-owned subsidiaries, Electropure EDI, Inc. and Micro Imaging Technology, both of which were incorporated in February 2000. All significant intercompany balances have been eliminated in consolidation. Financial Statement Classification Certain amounts presented within the 1999 financial statements have been reclassified in order to conform to the 2000 financial statement presentation. 2. NOTES PAYABLE At July 31, 2000 and October 31, 1999, notes payable consisted of the following:
2000 1999 ------ ---- NOTE PAYABLE TO BANK Note payable to bank, collateralized by a $15,000 certificate of deposit, with an interest rate of 8% per annum, payable in 11 monthly installments of $678 and one final payment on April 25, 2001 of $8,477 13,252 -- Less: Current Portion 13,252 -- ------ ---- LONG TERM PORTION OF NOTE PAYABLE TO BANK $ -- $ --
8 9 ELECTROPURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 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. Note paid in full on April 26, 2000 -- 12,315 Less: Current portion -- (7,632) -------- -------- LONG TERM PORTION OF NOTES PAYABLE TO OFFICER $ -- $ 4,683
3. CONTINGENCIES Litigation In August 1999, Electropure, Inc. and an unaffiliated third party, Universal Aqua Technologies, Inc. were named as cross defendants in a cross complaint by Douglas B. Platt doing business as East-West Technic Group arising from a lawsuit brought by Staar Surgical Company, Inc. against East-West Technic Group, Douglas B. Platt, and Does 1 through 100. The cross complaint was filed in the Los Angeles Superior Court, Case No. GC 023410, and alleged that we failed to provide an EDI module that could be operated as part of the system provided by Platt to Staar. In April 2000, the lawsuit was settled in its entirety in exchange for the total payment of $18,000 to the plaintiff, Staar; to be paid in equal amounts of $6,000 by Platt, Universal and us. We paid $3,000 as of July 31, 2000 and will satisfy the balance due in monthly installments of $1,000 through October 2000. As part of the settlement agreement, we are entitled to recover the EDI module held by Staar. Concentration of Risk Financial instruments which potentially subject us 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. We monitor our exposure to credit losses and reserve for those accounts receivable that we deem to be not collectible. During the nine months ended July 31, 2000: - Approximately 76% of the $364,630 in sales of our EDI products were made to foreign customers. One such foreign customer, Mihama Corporation of Tokyo, Japan, accounted for 43% of EDI product sales. Of the total EDI sales during the period, approximately 56% represented sales of the redesigned EDI module which incorporates our proprietary ion exchange membranes. 9 10 ELECTROPURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ - Less than 1% of the $224,402 in sales of our Hydro Components products were made to foreign customers. Two domestic companies accounted for approximately 53% of Hydro Components sales; Lenscrafters at 41% and McMaster-Carr Corporation at 12%. - Our membrane division began selling ion exchange membranes for use in electrodialysis, electrodeionization, electrodeposition and general electrochemical separations. One domestic customer, Purolite Company, accounted for 69% of the total of $68,886 in membrane product sales. We make all sales and receive all payments in U.S. dollars. No provision has been recorded for uncollectable trade accounts receivable for the period ended July 31, 2000. 4. SHARE TRANSACTIONS Private Placement Offering - Common Stock In a February 2000 private placement offering, we sold units consisting of 25,000 shares of common stock and 12,500 redeemable detachable three-year warrants to purchase common stock at an exercise price of $2.00 per share. The warrants are redeemable at $0.05 per warrant if the price of common stock equals or exceeds $4.00 per share for 30 consecutive business days. We issued units representing 660,000 shares of common stock for net proceeds of $160,000 and a note receivable in the amount of $500,000 was also issued to a related party who is our largest shareholder. This receivable was collected in full as of July 31, 2000. Common Shares Issued for Debt Between December 1999 and February 2000, we borrowed $400,000 from a related party who is the largest shareholder. The terms of the notes provided for conversion into our securities on terms to be mutually agreed. On February 24, 2000, the notes were converted into the above private placement securities. We issued 405,206 shares of common stock and 202,603 redeemable detachable three-year warrants to purchase common stock at an exercise price of $2.00 per share at fair market value of $405,206 in connection with the conversion of convertible notes payable and accrued interest totalling $5,206. Common Shares Issued for Warrants Exercised On November 1, 1999, warrants were exercised resulting in the purchase of 18,210 shares of common stock and we received net proceeds of $1,821. 10 11 ELECTROPURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ Common Shares Issued for Services On February 23, 2000, we issued 2,500 shares of common stock, valued at $2,188, to a consulting firm in partial payment for public relations services to be rendered. The value attributable to the services involved in the transaction was determined based on the fair value of the 2,500 shares of common stock issued and has been expensed and added to common stock and additional paid-in capital. 5. LOSS PER COMMON SHARE In accordance with the disclosure requirements of SFAS No. 128, Earnings Per Share, a reconciliation of the numerator and denominator of the basic and diluted loss per share calculation and the computations of net loss per common share for the periods ended July 31, 2000 and 1999 are as follows.
Three months ended Nine months ended July 31, July 31, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Net loss available to common shareholders $ (383,325) $ (543,797) $(1,303,346) $(1,483,975) =========== =========== =========== =========== Weighted average shares outstanding: 8,713,496 8,586,208 8,409,944 8,611,855 =========== =========== =========== =========== Basic and diluted loss per common $ (0.04) $ (0.06) $ (0.15) $ (0.17) ----------- ----------- ----------- -----------
The following securities and contingently issuable shares are excluded in the calculation of diluted shares outstanding as their effects would be antidilutive for the periods ended July 31, 2000 and July 31, 1999 as follows:
2000 1999 --------- --------- Stock options and warrants 5,351,327 3,525,124 Convertible preferred stock 1,000,000 1,000,000
6. BUSINESS SEGMENTS We have four reportable segments: water purification (Electropure, EDI, Inc. ["EDI"]), hydro components ("HC"), ion exchange membranes ("MEM") (a start up segment), and fluid monitoring (Micro Imaging Technology ["MIT"]). The water purification segment produces water treatment modules for sale to manufacturers of high purity water treatment systems. The hydro components segment sells water and wastewater treatment products to the light commercial/industrial markets. The membrane segment sells ion exchange membranes for use in electrodialysis, electrodeionization, electrodeposition and general 11 12 ELECTROPURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ electrochemical separations. The fluid monitoring segment is developing technology that is anticipated will enable real time identification of contamination in fluids. Our reportable segments are strategic business units that offer different products, are managed separately, and require different technology and marketing strategies. The accounting policies of the segments are those described in the summary of significant accounting policies. We evaluate performance based on results from operations before income taxes and interest, net, excluding nonrecurring gains and losses. BUSINESS SEGMENT INFORMATION
Three months ended Nine months ended July 31, July 31, ----------------------------- ----------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenue EDI $ 132,852 $ 46,114 $ 364,630 $ 243,573 HC 48,469 99,672 224,402 313,667 MEM 25,040 -- 68,886 -- MIT -- -- -- -- ----------- ----------- ----------- ----------- TOTAL REVENUE $ 206,361 $ 145,786 $ 657,918 $ 557,240 =========== =========== =========== =========== Operating Loss EDI $ (69,204) $ (122,502) $ (281,868) $ (551,249) HC 7,901 55,303 24,749 (73,359) MEM 5,419 (10,000) (143,769) (112,500) MIT (51,686) (218,104) (302,546) (495,484) Corporate (152,872) (250,277) (602,834) (260,976) ----------- ----------- ----------- ----------- TOTAL OPERATING LOSS $ (381,327) $ (545,580) $(1,306,268) $(1,493,568) =========== =========== =========== =========== Depreciation and Amortization EDI $ 7,397 $ 836 $ 22,102 $ 836 HC 35 -- 233 -- MEM 24,838 10,000 74,515 30,000 MIT 1,095 19,337 3,235 357,161 Corporate 10,408 10,136 31,325 30,409 ----------- ----------- ----------- ----------- TOTAL DEPRECIATION AND AMORTIZATION $ 43,773 $ 40,309 $ 131,410 $ 418,406 =========== =========== =========== =========== Expenditures for Long Lived Assets EDI $ 16,687 $ 29,034 $ 53,499 $ 39,575 HC -- -- -- -- MEM 840 38,989 5,252 132,117 MIT -- 2,045 1,505 10,373 Corporate -- 1,268 10,692 17,809 ----------- ----------- ----------- ----------- TOTAL EXPENDITURES FOR LONG LIVED ASSETS $ 17,527 $ 71,336 $ 70,948 $ 199,874 =========== =========== =========== ===========
12 13 BUSINESS SEGMENT INFORMATION, CONTINUED:
Three months ended Nine months ended July 31, July 31, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Georgraphic Information: Revenues United States $146,372 $133,274 $364,985 $372,019 Japan -- -- 170,300 130,427 Germany 1,254 2,300 44,676 10,235 Other foreign countries 58,735 10,212 77,957 44,559 -------- -------- -------- -------- TOTAL REVENUES $206,361 $145,786 $657,918 $557,240 ======== ======== ======== ========
July 31, October 31, 2000 1999 ---------- ---------- Identifiable Assets EDI $ 404,852 $ 426,103 HC 139,869 634,154 MEM 427,360 -- MIT 79,804 122,374 Corporate 170,316 232,654 ---------- ---------- TOTAL IDENTIFIABLE ASSETS $1,222,201 $1,415,285 ========== ==========
7. SUBSEQUENT EVENTS In August 2000, the Board of Directors authorized an offering of up to 100 Units of securities, each Unit consisting of: - Fifteen Thousand (15,000) shares of Electropure, Inc. common stock, plus - Seven Thousand Five Hundred (7,500) warrants to purchase Electropure common stock at $1.25/share - exercisable commencing on July 31, 2001 and expiring on June 30, 2005, plus - Seven Thousand Five Hundred (7,500) warrants to purchase the common stock of our wholly-owned subsidiary, Micro Imaging Technology, common stock at $1.25/share. MIT warrants are exercisable commencing on July 31, 2001 or at such time as MIT securities are publicly traded, whichever occurs first. MIT warrants expire on June 30, 2005. The purchase price for each Unit is $15,000 and there is no minimum subscription amount. The offering expires on October 15, 2000. In August 2000, our largest shareholder subscribed for one-third of the above private placement offering and received 500,000 shares of common stock and 250,000 warrants each of Electropure and Micro Imaging Technology at an exercise price of $1.25 per warrant. We realized net proceeds of $250,000 on the sale of securities and a note receivable in the sum of $250,000. 13 14 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 fiscal 1999 and fiscal 2000 are for the nine months ended July 31, 1999 and 2000, respectively. Sales increased in fiscal 2000 by $100,678 as compared to fiscal 1999 primarily due to enhanced efforts to market the EDI product line and our ion exchange membrane products. The increase in sales was partially offset by a decrease in sales of our Hydro Components products due to a temporary decrease in marketing personnel during the period. Costs of goods sold for fiscal 2000 increased by $118,159 partly due to depreciation expense on new manufacturing equipment placed in service in fiscal 2000 and as a result of writing off obsolete inventory. Research and development expenses for fiscal 2000 decreased by $208,615 compared to fiscal 1999. These expenses primarily arise from the program which we initiated in December 1997 to develop the micro imaging technology for detecting and identifying contaminants in fluids. The decrease primarily results from a reduction in non-capitalized equipment expenditures and consulting expenses related to the program as well as a reduction in amortization expense relating to proprietary technology when the net book value of the technology was offset against shares issued for the technology that were cancelled in the fiscal year ended October 31, 1999. General and administrative expenses for fiscal 2000 increased by $3,834 as compared to fiscal 1999. The increase results primarily from a $48,554 increase in salaries and related expenses and increased operating expenses of $80,817 due primarily to the cost of issuing warrants for services. These increases were partially offset by a decline of $134,737 in consulting expenses. Interest income arose from short-term investments and decreased by $1,147 for the fiscal period ended July 31, 2000 as compared to the prior year period, reflecting a reduction in available working capital. Interest expense for fiscal 2000 increased by $5,524 compared to the prior period primarily due to equipment and automobile financing activities. 14 15 We realized a net loss before income taxes of $1,302,546 for fiscal 2000, representing a decrease of $180,629 from the prior year level. The decrease reflects a small increase in sales profitability and a substantial reduction in research and development expenses. LIQUIDITY AND CAPITAL RESOURCES At July 31, 2000, we had working capital of $168,543. This represents a working capital decrease of $30,913 compared to that reported at October 31, 1999 and primarily reflects the cost of writing off obsolete inventory during the period. Our primary sources of working capital have been from short term loans and from the sale of private placement securities. In February 2000, we borrowed $100,000 from Mr. Anthony Frank, a majority shareholder, at a 10% annual interest rate. During the nine months ended July 31, 2000, we received $1,065,206 from the sale of 1,065,206 shares of common stock and 532,603 warrants to purchase common stock at $2.00 per share. Of the proceeds received, $400,000 represented the conversion of principal loans, plus $5,206 in accrued interest, on loans we had received between December 1999 and February 2000 from Mr. Anthony Frank. In August 2000, we received $250,000 and a note receivable in the sum of $250,000 on the sale of private placement securities to our majority shareholder. 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 began in late December 1999 of the new EDI model called XL, which incorporates the more cost-effective ion permeable membranes. Sales of EDI products increased during the three months ended July 31, 2000 by 57% over the two quarters ended April 30, 2000 and are expected to continue to increase through the end of fiscal year 2000. PLAN OF OPERATION In the opinion of management, available funds and funds to be realized from the note receivable from private placement subscriptions discussed above will satisfy our working capital requirements through December 2000 and provides for an increase in marketing efforts. In addition, we have formed two Nevada corporations which are wholly-owned subsidiaries of Electropure: - Micro Imaging Technology was formed in February 2000 and will conduct research and development operations on the detection and identification of fluid-borne microorganisms. We filed a patent application on this technology in February 2000. It is contemplated that, within the next 60 days, we will enter into an arrangement with MIT to transfer all patent rights, in exchange for a combination of stock, options and cash, as well as a percentage of future revenues. - We formed Electropure EDI, Inc. in February 2000 to conduct manufacturing and sales operations for the EDI line of products. 15 16 In May 2000, we appointed an exclusive representative to sell our EDI products to original equipment manufacturers in Belgium, Luxembourg, Germany, Austria, Switzerland, France, Spain, Portugal, Italy, Greece, Hungary, Bulgaria, Romania, Czech Republic, Slovakia, Poland, Denmark, Norway, Sweden, and Finland. The arrangement also provides that this representative may sell EDI products to both end-users and OEM's located in The Netherlands. The appointment expires on May 8, 2001 and provides that our representative will receive a 10% commission on all EDI orders in the stated territories. Currently, we are seeking short term working capital through loans and/or the sale of private placement securities so that we may expand our EDI marketing efforts and further the MIT research program. This approach is intended to optimize the value of the MIT System when we are in a position to discuss licensing and/or joint venture arrangements with potential candidates. Similar arrangements may arise for our EDI technology although we are not conducting any licensing or joint venture discussions for either the EDI or MIT technology at the current time. The implementation of these strategies will be dependent upon our ability to secure sufficient working capital in a timely manner. 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 additional financing on terms that are acceptable to us and at the time required by us, or at all. Further, any financing may cause dilution of the interests of our current shareholders. If we are unable to obtain 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 various assumptions, including assumptions as to our revenues, net income or loss and other factors, and there can be no assurance that these 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. 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. 16 17 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, the defendant in a Los Angeles Superior Court action, Case No. GC 023410, brought by Staar Surgical Company, Inc. The cross-complaint charged Electropure with breach of contract, misrepresentation and negligence in connection with the sale to Platt of an EDI module subsequently provided by Platt to Staar Surgical. The matter was settled in April 2000 for equal payments to Staar Surgical of $6,000 each by Platt, Electropure and Universal Aqua Technologies, who manufactured the water treatment system supplied to Staar. ITEM 2. CHANGES IN SECURITIES No reportable transactions occurred during the three months ended July 31, 2000. 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. 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: September 7, 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) 17 EX-27 2 a65529ex27.txt FINANCIAL DATA SCHEDULE
5 9-MOS OCT-31-1999 NOV-01-1999 JUL-31-2000 96,637 0 61,292 0 209,180 478,846 692,714 156,304 1,222,201 310,303 0 0 1,026,000 88,773 0 1,222,201 657,918 657,918 790,020 790,020 1,174,969 0 (7,536) (1,302,546) 0 (1,302,546) 0 0 0 (1,303,346) (0.15) (0.15)
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