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
ended April 30, 2003

Commission file number 0-16416

ELECTROPURE, INC.

(Exact name of registrant as specified in its charter)

California		33-0056212
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

23456 South Pointe Drive, Laguna Hills, California 92653
(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 ý No o.

At May 29, 2003, 11,889,009 shares of the Registrant’s stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

Electropure, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

ASSETS

	April 30, 2003

Current assets:
Cash	$	167,015
Trade accounts receivable	27,071
Inventories	192,309
Prepaid legal fees	25,625
Other prepaid expenses	7,145

Total current assets	419,165

Property, plant and equipment, net	2,588,143

Other assets	49,766

Total assets	$	3,057,074

The accompanying notes are an integral part of the condensed consolidated financial statements.

Electropure, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

LIABILITIES AND SHAREHOLDERS’ EQUITY

	April 30, 2003

Current liabilities:
Current portion of obligations under capital leases	$	11,169
Current portion of notes payable to bank	36,190
Current portion of notes payable to shareholder	1,600,000
Trade accounts payable	190,437
Accrued payroll	147,870
Other accrued liabilities	127,161
Customer deposits	11,643

Total current liabilities	2,124,470

Obligations under capital leases, net of current portion	6,075
Note payable	200,000
Note payable to bank, net of current portion	1,861,576

Total liabilities	4,192,121

Commitments and contingencies	—

Redeemable convertible preferred stock, $0.01 par value; 2,600,000 shares authorized, issued and outstanding at April 30, 2003.	26,000

Shareholders’ equity (deficit):
Series C convertible preferred stock; $1.00 par value; 250,000 shares authorized, issued and outstanding at April 30, 2003; liquidation preference of $1,000,000.	250,000
Series D convertible preferred stock; $1.00 par value; 250,000 shares authorized, issued and outstanding at April 30, 2003; liquidation preference of $500,000.	250,000
Common stock, $0.01 par value; 20,000,000 shares authorized; 11,889,009 shares issued and outstanding at April 30, 2003.	118,890
Class B common stock, $0.01 par value; 839,825 shares authorized: 83,983 shares issued and outstanding at April 30, 2003.	840
Additional paid-in capital	25,026,965
Notes receivable on common stock	(32,816		)
Accumulated deficit	(26,774,926		)

Total shareholders’ deficit	(1,161,047		)

Total liabilities and shareholders’ deficit	$	3,057,074

The accompanying notes are an integral part of the condensed consolidated financial statements.

Electropure, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended April 30,						Six months ended April 30,
	2003			2002			2003			2002

Net sales	$	372,252		$	246,534		$	606,555		$	784,177
Cost of sales	251,990			230,295			533,931			643,377

Gross profit	120,262			16,239			72,624			140,800

Operating costs and expenses:
Research and development	97,297			118,614			194,786			223,077
Sales, general and administrative	279,088			292,310			556,167			563,757

Total operating expenses	376,385			410,924			750,953			786,834

Loss from operations	(256,123		)	(394,685		)	(678,329		)	(646,034		)

Other income (expense):
Interest income	413			263			771			695
Interest expense	(67,863		)	(55,251		)	(128,842		)	(111,632		)
Sublease income	30,015			30,000			60,015			53,500
Other income (expense), net	(2,988		)	(5,400		)	(6,859		)	(7,600		)

Other income (expense), net	(40,423		)	(30,388		)	(74,915		)	(65,037		)

Loss before provision for income taxes	(296,551		)	(425,073		)	(753,244		)	(711,071		)
Provision for income tax	—			—			(1,600		)	(1,600		)

Net loss	$	(296,551	)	$	(425,073	)	$	(754,844	)	$	(712,671	)

Net loss per share, basic and diluted	$	(0.03	)	$	(0.04	)	$	(0.06	)	$	(0.07	)

Shares used in computing basic and diluted net loss per share	11,633,175			11,050,951			11,598,120			10,660,038

The accompanying notes are an integral part of the condensed consolidated financial statements.

Electropure, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended April 30,
	2003			2002
Cash flows from operating activities:
Net loss	$	(754,844	)	$	(712,671	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	92,874			98,443
Amortization	11,945			20,000
Issuance of shares for services	—			19,150
Issuance of options and warrants for services	23,211			72,200
Interest paid with common stock	40,000			40,000
Interest on notes receivable for common stock	(687		)	(695		)

(Increase) decrease in assets:
Trade accounts receivable	73,615			26,048
Prepaid legal and other expenses	30,938			60,094
Inventories	(37,319		)	(37,051		)
Other assets	2,996			—
Increase (decrease) in liabilities:
Trade accounts payable	42,754			(86,898		)
Customer deposits	(22,702		)	(50,526		)
Accrued payroll and other liabilities	(37,876		)	13,550

Net cash used in operating activities	(535,095		)	(538,356		)

Cash flows from investing activities
Purchase of property, plant and equipment	—			(11,341		)

Net cash used in investing activities	—			(11,341		)

Cash flows from financing activities:
Principal payments on notes payable	(18,943		)	(12,456		)
Proceeds from issuance of notes payable	200,000			—
Proceeds from issuance of notes payable to a related party	450,000			—
Proceeds from issuance of common stock	50,000			550,000

Net cash provided by financing activities	681,057			537,544

Net increase (decrease) in cash	145,962			(12,153		)

Cash at beginning of period	21,053			43,676

Cash at end of period	$	167,015		$	31,523

The accompanying notes are an integral part of the condensed consolidated financial statements.

Forward-Looking Statements

This Quarterly Report on Form 10-QSB, including the Notes to the Condensed Consolidated Financial Statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intends,” “projects,” and similar expressions identify forward-looking statements. Such statements may include, but are not limited to, projections regarding demand for the Company’s products, the impact of the Company’s development and manufacturing process on its research and development costs, future research and development expenditures, and the Company’s ability to obtain new financing as well as assumptions related to the foregoing. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all adjustments which management believes are necessary for a fair presentation of the Company’s financial position at April 30, 2003 and results of operations for the periods presented. 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. The accompanying condensed consolidated financial statements should be read in conjunction with our audited financial statements and footnotes as of and for the year ended October 31, 2002, included in our Annual Report on Form 10-KSB.

Certain amounts presented within the 2002 financial statements have been reclassified in order to conform to the 2003 financial statement presentation.

2. Summary of Significant Accounting Policies

New Accounting Pronouncements

In December 2002, the FASB issued Statements of Financial Accounting Standards No.148, “Accounting for Stock-Based compensation – Transition and Disclosure – an amendment of FASB Statement 123” (SFAS 123). For entities that change their accounting for stock-based compensation from the intrinsic method to the fair value method under SFAS 123, the fair value method is to be applied prospectively to those awards granted after the beginning of the period of adoption (the prospective method). The amendment permits two additional transition methods for adoption of the fair value method. In addition to the prospective method, the entity can choose to either (i) restate all periods presented (retroactive restatement method) or (ii) recognize compensation cost from the beginning of the fiscal year of adoption as if the fair value method had been used to account for awards (modified prospective method). For fiscal years beginning after December 15, 2003, the prospective method will no longer be allowed. The Company currently accounts for its stock-based compensation using the intrinsic value method as proscribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and plans on continuing using

this method to account for stock options, therefore, it does not currently intend to adopt the transition requirements as specified in SFAS 148 until it is required to do so.

3. Notes Payable

Between December 2, 2002 and February 23, 2003, we borrowed $450,000 from Anthony M. Frank, our largest shareholder. The principal amounts borrowed are payable, with interest at 8%, one year from the loan date. Mr. Frank also has the option to convert any or all of the principal and interest into common stock at fair market value as of the conversion date.

In January 2001, Mr. Frank loaned us $1,000,000 through his personal Keogh Plan for three years at 8% annual interest as the down payment to purchase the building we currently occupy. Interest on the loan is payable each calendar quarter beginning on June 30, 2001, with the principal balance due on January 17, 2004. In September 2002, Mr. Frank assigned $400,000 of the principal balance of this loan from his Keogh account to his Pension Plan. The interest rate, maturity date and payment terms remain the same. Mr. Frank has converted a total of $176,444 in interest accrued on this loan through March 31, 2003 into common stock. In April 2003, the Company granted Mr. Frank a security interest in the building, subordinated to the first mortgage lender, to the extent of the principal and interest remaining due on this loan.

During April 2003, we obtained a $200,000 loan with principal and interest at prime plus 2% due on April 23, 2008. We are required to apply certain proceeds from the sale of certain EDI products to reduce the outstanding principal and interest during the term of the loan.

4. Securities Transactions

Private Placement Offering - Common Stock

On November 8, 2002, we sold 227,273 shares of Common Stock to Anthony M. Frank, our largest shareholder, for net proceeds of $50,000, or $0.22 per share.

Common Stock Issued for Debt

In April 2003, we issued 307,692 shares of common stock, with a fair market value of $0.13 per share, in payment of $40,000 in accrued interest on a loan due to Anthony M. Frank.

Options Issued to Employees

On January 20, 2003, the Company granted options to purchase a total of 500,000 shares of common stock to two employees for services to be rendered. The options are exercisable at $0.29 per share, vest in four equal annual increments of 125,000 commencing on the grant date, and expire in January 2013.

Warrants Issued to Consultants

In March 2003, we issued warrants to purchase 60,000 shares of common stock to one individual for consulting services. The warrants are exercisable at $0.13 per share and expire in March 2008. A consulting expense of $7,200 relating to these services was recognized for the six months ended April 30, 2003.

5. Stock Compensation

The Company’s stock option plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). The Company uses the disclosure requirements of Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”). Under APB No. 25, the Company does not recognize compensation expense on stock options granted to employees, because the exercise price of each option is equal to the market price of the underlying stock on the date of the grant. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by FAS 123, the Company’s net loss and loss per share would have been increased to the following pro forma amounts:

	Three months ended April 30,						Six months ended April 30,
	2003			2002			2003			2002
Net loss, as reported:	$	(296,551	)	$	(425,073	)	$	(754,844	)	$	(712,671	)

Deduct: Total stock-based employee compensation determined under fair value value method for all awards, net of related tax effects	(102,770		)	(86,068		)	(84,270		)	(120,270		)

Pro forma net loss:	$	(399,321	)	$	(511,141	)	$	(839,114	)	$	(832,941	)

Earnings per share:
Basic and diluted, as reported	$	(0.03	)	$	(0.04	)	$	(0.07	)	$	(0.07	)

Basic and diluted, pro forma	$	(0.03	)	$	(0.05	)	$	(0.07	)	$	(0.08	)

Weighted average shares outstanding	11,633,175			11,050,951			11,598,120			10,660,038

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 April 30, 2003 and April 30, 2002 as follows:

Stock options and warrants	5,537,603	6,732,703
Convertible preferred stock	500,000	500,000
Contingently issuable common shares	516,479	516,479
	6,554,082	7,749,182

6. Business Segments

We have two reportable segments: water purification (“EDI/Membrane”), (formerly reported separately under “EDI” and “Membrane”) and fluid monitoring (“MI”, a start up segment). The EDI segment produces water treatment modules for sale to manufacturers of high purity water treatment systems. The Membrane segment formerly produced ion exchange membranes for outside customers for use in electrodialysis, electrodeionization, electrodeposition and general electrochemical separations. The MI segment is developing technology that is anticipated to enable real time identification of contamination in fluids.

The Company’s 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. The Company evaluates performance based on results from operations before income taxes not including nonrecurring gains and losses.

Business Segment Information:

	Three months ended April 30,						Six months ended April 30,
	2003			2002			2003			2002
Revenue:
EDI/Membrane	$	372,252		$	246,534		$	606,555		$	784,177
MI	—			—			—			—
Total revenues	$	372,252		$	246,534		$	606,555		$	784,177

Operating Loss:
EDI/Membrane	$	(8,828	)	$	(88,015	)	(174,829		)	$	(62,547	)
MI	(81,387		)	(102,235		)	(163,386		)	(190,381		)
Corporate	(165,908		)	(204,435		)	(340,114		)	(393,106		)
Total operating loss	$	(256,123	)	$	(394,685	)	$	(678,329	)	$	(646,034	)

Depreciation and Amortization:
EDI/Membrane	$	29,960		$	37,275		$	68,855		$	79,731
MI	1,216			955			2,473			2,082
Corporate	16,138			17,338			33,491			36,630
Total depreciation and amortization	$	47,314		$	55,568		$	104,819		$	118,443

Expenditures for Long Lived Assets:
EDI/Membrane	$	—		$	6,980		$	—		$	11,341
MI	—			—			—			—
Corporate	—			—			—			—
Total expenditures for long lived assets	$	—		$	6,980		$	—		$	11,341

GEOGRAPHIC INFORMATION:

Revenues:
United States	$	116,507		$	106,638		$	165,684		$	386,470
Asia	134,356			44,200			230,009			177,156
Europe	114,189			82,481			203,662			165,534
Other foreign countries	7,200			13,215			7,200			55,017
Total revenues	$	372,252		$	246,534		$	606,555		$	784,177

	April 30, 2003		October 31, 2002
Identifiable Assets:
EDI/Membrane	$	432,087	$	537,238
MI	11,925		14,398
Corporate	2,613,062		2,534,525
Total identifiable assets	$	3,057,074	$	3,086,161

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 2002 and fiscal 2003 are for the six months ended April 30, 2002 and 2003, respectively.

Net sales in the six months ended April 30, 2003 decreased by $177,622 or 22.7% from 784,177 in fiscal 2002 to $606,555. The decrease in revenues, primarily experienced in the first three months of fiscal 2003, was due to the decline in the overall economic environment and resulted in reduced capital spending for water treatment products in most of our target markets. In particular, deteriorating conditions in the power generation industry which began in 2002 resulted in delays and cancellations of new generation plants being constructed. Conversely, net sales for the three month period ended April 30, 2003 increased by $125,718, or 51%, compared to the prior year period, indicating a stronger demand for our EDI products as industry sales appear to be on the rise.

From a geographic perspective, net sales in the United States declined by $220,786, or 57.1%, in fiscal 2003 compared to the prior fiscal period. In contrast, sales in Asia and Europe increased in fiscal 2003 by 29.8% and 23.0%, respectively. The rise in net sales during the three months ended April 30, 2003 reflected a 9.3% increase in domestic sales and an aggregate increase of 196.9% in sales to foreign customers compared to the prior year three month period.

Cost of sales consists primarily of purchased materials, labor and overhead (including depreciation) associated with product manufacturing, royalty costs, warranties and sustaining engineering expenses pertaining to products sold. Cost of sales increased to 88% of revenue for fiscal 2003 compared to 82% of revenue for the six months ended April 30, 2002. This increase is primarily due to inventory-related charges for warranty repairs and replacements of EDI products. The three months ended April 30, 2003 showed a decrease in costs as a percentage of sales at 68% compared to the comparable three months in 2002 at 93%. This decrease is predominantly due to increased unit sales volume during the relevant three months which allowed for fixed costs to be allocated over a higher number of EDI products sold.

Research and development expenses for the three and six month periods ended April 30, 2003 decreased by $21,317 and $28,291, respectively, compared to the prior year. 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 was primarily due to a reduction in personnel related expenses and a decrease in patent expenses.

Sales, general and administrative expenses decreased by $13,222 and $7,590 for the three and six months ended April 30, 2003 as compared to the same periods in 2002. While overall, these decreases reflect a significant reduction in the expense related to options and warrants issued to employees and consultants, the decreases were offset by increases in legal and insurance costs, as well as marketing expenses and sales commissions paid on the increased number of products sold in Europe and Asia in the current periods.

Interest income is generated from short-term investments and increased by $150 and $76 for the three and six months ended April 30, 2003 over the prior year periods. Interest expense for the three and six months ended April 30, 2003 increased by $12,612 and $17,210, respectively, compared to the comparable prior periods. The increase is primarily due to financing activities relating to loans received from our largest shareholder.

Components of other income (expense), other than interest, increased by $2,427 and $7,256 for the three and six months ended April 30, 2003 compared to the prior year periods and primarily relates to an increase in sublease income.

We recorded the minimum state income tax provision in fiscal 2002 and 2003 as we had cumulative net operating losses in all tax jurisdictions.

Liquidity and Capital Resources

At April 30, 2003, we had working capital deficit of $1,705,305. This represents a working capital decrease of $1,355,052 compared to that reported at October 31, 2002. The decrease includes a $450,000 increase in notes payable and accrued interest of $21,000 as well as the reclassification of a $1,000,000 loan due in January 2004 to a current liability. The working capital decrease in fiscal 2003 was partially offset by a $37,319 increase in inventories payable and a $22,702 reduction of current liabilities resulting from the application of customer deposits on sales orders fulfilled.

Our primary sources of working capital have been from short-term loans and from the sale of private placement securities. During fiscal 2003, we received $50,000 in net proceeds from the sale of 227,273 shares of common stock to our largest shareholder. We also received $450,000 in short term loans from this shareholder and a $200,000 loan from an unaffiliated third party during the six months ended April 30, 2003.

Sales of our EDI and membrane products during the six months ended April 30, 2003 amounted to $606,555. Shipments of EDI products are made as promptly as possible after receipt of firm purchase orders in accordance with delivery requirements stipulated by the customer. As of April 30, 2003, we had accepted firm orders for delivery of unshipped EDI modules valued at $246,500.

Plan of Operation

In the opinion of management, available funds, accounts receivable, and proceeds to be realized from the sale of EDI products currently on order, are expected to satisfy our working capital requirements through July 2003. Our independent auditors have included an explanatory paragraph in their report on the financial statements for the year ended October 31, 2002 which raises substantial doubt about our ability to continue as a going concern.

Currently, we are seeking working capital through manufacturing arrangements, strategic partnerships, 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 our EDI technology and the MIT System as we discuss licensing and/or joint venture arrangements with potential candidates. The implementation of these strategies will be dependent upon our ability to secure sufficient working capital in a timely manner and will require the approval of our shareholders if any arrangement involves the sale or encumbrance of our assets .

We will be required to raise substantial amounts of new financing in the form of additional equity investments, loan financings, 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 at significantly higher interest rates 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.

Item 3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be included in our Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Changes in Internal Controls

In addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On February 21, 2003, we filed a Complaint in Superior Court for the County of Orange, California, Case No. 03 CC 03606, against Omexell, Inc. of Houston, Texas, for unfair business practices, trade libel and other related causes of action. The lawsuit alleges that the defendants disparaged the Company’s business in an attempt to disrupt its business relationships by using unfair business practices. The lawsuit seeks to enjoin the defendant from further unfair business practices and seeks $10 million in compensatory and punitive damages. We have given the defendants in this action an extension of time, until May 19, 2003, in which to file a response to the Complaint. No assurances can be given as to the future outcome of this lawsuit or as to any potential recovery of damages that may result.

Item 2. Changes in Securities

Common Stock and Warrants Issued in Private Placement Transactions

On November 8, 2002, in a private placement offering, our largest shareholder purchased 227,273 shares of common stock for net proceeds of $50,000.

In March 2003, the Company granted warrants to purchase 60,000 shares of common stock to a consultant for services to be rendered. The warrants are exercisable at $0.13 per share and expire in March 2008.

On April 15, 2003, we issued 307,692 shares of common stock to our largest shareholder in payment of $40,000 in interest accrued on a loan.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Items 3 and 5 omitted as not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

10.10.AQ		Stock Purchase Agreement with Anthony M. Frank - 11/08/02 *

10.10.AR		Debt Conversion Agreement (Keogh) - 04/15/03 **

10.10.AS		Debt Conversion Agreement (Pension) - 04/15/03 **

10.10.AT		Second Deed of Trust and Security Agreement (Keogh) - 05/12/03 **

10.10.AU		Second Deed of Trust and Security Agreement (Pension) - 05/12/03 **

10.10.AV		8% Convertible Term Note - 12/02/02 **

10.10.AW		8% Convertible Term Note - 12/18/02 **

10.10.AX		8% Convertible Term Note - 01/09/03 **

10.10.AY		8% Convertible Term Note - 01/23/03 **

10.10.AZ		8% Convertible Term Note - 02/23/03 **

10.55		Amended and Restated Loan and Supply Agreement with Ecolochem - 04/24/03

99.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Previously filed on November 12, 2002 in connection with Amendment No. 17 to Schedule 13D filed on behalf of Anthony M. Frank.

** Previously filed on May 29, 2003 in connection with Amendment No. 18 to Schedule 13D filed on behalf of Anthony M. Frank.

(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: May 29, 2003

	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)

CERTIFICATIONS

I, Floyd H. Panning, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Electropure, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: May 29, 2003

	/S/ FLOYD H. PANNING
	Floyd H. Panning
	Chief Executive Officer

I, Catherine Patterson, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Electropure, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

b) fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Dated: May 29, 2003

	/S/ CATHERINE PATTERSON
	Catherine Patterson
	Chief Financial Officer

EXHIBIT 10.55

AMENDED AND RESTATED LOAN AND SUPPLY AGREEMENT

THIS AMENDED AND RESTATED LOAN AND SUPPLY AGREEMENT (the “Agreement”) is entered into as of this 24th day of April, 2003, by ELECTROPURE, INC., a California corporation, and ELECTROPURE EDI, INC., a Nevada corporation, both having registered offices at 23456 South Pointe Drive, Laguna Hills, CA 92653 (collectively, “Borrower”), and ECOLOCHEM, INC., a Virginia corporation, having its registered office at 4545 Patent Road, Norfolk, VA 23502 (“Lender”). Borrower and Lender are collectively referred to as “Parties” or individually as a “Party.”

RECITALS

A. Borrower wishes to borrow from Lender, and Lender is willing to lend to Borrower, $200,000.

B. Borrower possesses technical information and manufacturing skills with respect to an electrodeionization (“EDI”) product line (“Products”) and Lender wishes to purchase from Borrower, on a discounted basis, a quantity of the Products on the terms and conditions set forth below.

THE AGREEMENT

1. Term. The term of this Agreement will be 10 years and it will terminate on April 23, 2013.

2. Loan. On the terms and conditions of this Agreement, Lender makes a loan of $200,000 to Borrower (the “Loan”). The Loan is evidenced by the promissory note issued by Borrower to Lender in the form of Exhibit A.

3. Interest. Interest shall accrue on the unpaid principal of the Loan from the date hereof at an annual rate equal to 2% above the Prime Rate as published in The Wall Street Journal on the first business day of each month.

4. Repayment of Principal and Payment of Interest. Principal on the Loan, if not sooner prepaid, shall be due and payable in full, plus all accrued interest, on April 23, 2008. Interest shall accrue on the Loan. All accrued, but unpaid interest, shall be due and payable on April 23, 2008. Interim payments of interest and principal shall be credited to Borrower as Lender receives the Discount (as defined below) on the Products purchased by Lender from Borrower over the first 5 years of the term of this Agreement. Payment credits on the Loan on account of the Discounts shall be made when the Products are invoiced by Borrower to Lender and applied first to interest and then to principal.

5. Pricing; Product Discounts. Borrower will invoice Lender for Products at pricing no less favorable to prices quoted other customers of similar size quantity orders; provided, however, that new or modified Products will be priced based on assumed volumes and complexity factors employed in the pricing model of the Product. During the first 3 years of the term of this

Agreement, on all Products ordered by Lender and supplied by Borrower to Lender, Lender will receive a 15% discount and, during the remaining 7 years of the term of this Agreement, Lender will receive a 10% discount (collectively, the “Discount”). The Discount will be applicable to all Products purchased by Lender from Borrower over the 10-year term of this Agreement, regardless when the Loan is repaid by Borrower. Lender shall have the right, on reasonable notice, to audit Borrower’s financial records, to the extent necessary, to verify Borrower’s pricing of the Products.

6. Supply and Delivery. Borrower will supply Lender a continuing supply of Products for the term of this Agreement. After receipt of Lender’s purchase order, Borrower will deliver the Products within reasonable shipment times, consistent with shipments of Products to other customers of Borrower similar size orders. Products will be shipped via Ex-Works, Laguna Hills, CA.

7. Warranty. At the time of delivery, Borrower will warrant the Products with the same warranties given to other customers of the Products with similar size quantity orders.

8. Improvements. Borrower will include improvements and innovations in the Products supplied to Lender, at the same time it provides such improvements and innovations to other customers of Borrower.

9. Invoicing. On shipment of Products, Borrower will submit to Lender an invoice showing the invoice number and date, remit-to address, the purchase order number, the description of the Products, quantities, unit prices, extended totals and the Discount. Lender will remit to Borrower any and all amounts due (less the Discount) according to the credit terms provided in Lender’s purchase order to Borrower.

10. Delivery Forecast. Lender will provide Borrower with a non-binding, rolling 12-month forecast on a quarterly basis. This forecast will include a description of the Products and the quantity and anticipated dates of delivery. The forecast will be communicated through the U.S. mail, by facsimile or by e-mail. Lender may make adjustments to its forecast at any time, the purpose of this requirement being to assist Borrower in scheduling material purchase and manpower needs.

11. Default.

(a) If (i) Borrower, or (ii) if there should occur a change-in-control of Borrower, the entity acquiring control of Borrower or, (iii) if Borrower should sell, lease or otherwise transfer all or substantially all of its assets, the entity acquiring such assets defaults in any material respect in supplying Products to Lender as provided in this Agreement (a “Default”), then, in addition to all other rights and remedies Lender may have against Borrower or such entity acquiring Borrower or its assets (the “Acquirer”), the entire outstanding and unpaid principal amount of the Loan and all interest that would have been payable on the Loan shall be immediately due and payable to Lender regardless of the Discounts already received by Lender which Lender shall be entitled to retain.

(b) In the event of a Default, Lender shall give Borrower or the Acquirer a notice specifying the Default at Borrower’s address in Section 17. Borrower or the Acquirer shall have a 15-day period in which to cure the Default.

(c) In the event the Default is caused by acts of God or other circumstance beyond the control of Borrower or the Acquirer, then as long as Borrower or the Acquirer uses its best efforts to remedy the circumstance, Lender may not invoke the right granted by subsection (a) above.

12. Patents, Trademarks and Copyrights. Except as otherwise specifically provided herein, nothing contained in this Agreement shall be construed as transferring any patent, trademark or copyright on the Products.

13. Nondisclosure. The parties will use their best efforts to maintain the confidentiality of the Agreement unless (a) disclosure of the Agreement is required by applicable rules and regulations, including, but not limited to, those rules and regulations imposed by the Securities and Exchange Commission and National Association of Securities Dealers, Inc.; or (b) a majority of the members of the board of directors of the party intending to make the disclosure (the “Disclosing Party”) determines, in their sole and absolute discretion, that it is in the best interests of the Disclosing Party and its shareholders to disclose the Agreement. The Disclosing Party will be permitted to make such disclosure, but only after providing the other party at least 10 days’ prior written notice of such disclosure. Such notice shall specify the content of the intended disclosure. Neither party shall have the right to control the content of the disclosure of the other party nor shall either party have the right to require that the Disclosing Party reveal the identity of the recipient of the disclosure.

14. Entire Agreement. This Agreement contains the entire agreement and understanding between the Parties and supersedes all prior negotiations, representations, understandings and agreements on any subject matter of this Agreement.

15. Severability. If any provision of this Agreement or any document executed in connection herewith shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.

16. Amendments. No provision of this Agreement may be amended, modified, waived or rescinded except by written agreement executed by the Parties.

17. Independent Contractors. The relationship between the Parties created by this Agreement is that of independent contractors. Nothing in this Agreement shall be construed to constitute either Party as agent of the other for any purpose whatsoever, and neither Party shall bind or attempt to bind the other Party to any contract or the performance of any obligation, nor represent to third parties that it has any right to enter into any binding obligation on the other’s behalf.

18. Notices. All notices, requests, permissions, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) 5 business days

following sending by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile; provided that the facsimile transmission is promptly confirmed by telephone, (c) when delivered, if delivered personally to the intended recipient and (d) one business day following sending by overnight delivery via a national courier service and, in each case, addressed to a Party at the following address for such Party:

(i) if to Borrower,

Electropure, Inc.

23456 Southpointe Drive

Laguna Hills, CA 92653

Attention: Floyd H. Panning, President

with a copy to:

Deron M. Colby, Esq.

4100 Newport Place, Suite 660

Newport Beach, CA 92660

Fax: (949) 250-8656

(ii) if to Lender,

Ecolochem, Inc.

4545 Patent Road

Norfolk, VA 23452

Attention: Lyman B. Dickerson, President

with a copy to:

Williams Mullen

One Columbus Center, Suite 900

Virginia Beach, VA 23462

Attention: Frederick T. Stant, Esq.

Fax: (757) 473-0395

or to such other address(es) as shall be furnished in writing by any such Party to each of the other Parties in accordance with the provisions of this Paragraph 18.

19. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

20. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF VIRGINIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE COMMONWEALTH OF VIRGINIA, WITHOUT

REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF THE COMMONWEALTH OF VIRGINIA.

21. Consent to Jurisdiction. Each of the Parties irrevocably submits to the exclusive jurisdiction of the United States District Court for the Eastern District of Virginia, for the purposes of any suit, action or other proceeding arising out of this Agreement, or any transaction contemplated hereby. Each of the Parties must commence any action, suit or proceeding relating hereto either in the United States District Court for the Eastern District of Virginia, or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Circuit Court of the City of Norfolk, Virginia. Service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in such court with respect to any matters to which it has submitted to jurisdiction in this Paragraph 21. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the United States District Court for the Eastern District of Virginia, and further irrevocably and unconditionally waives and shall not plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

22. Waiver of Jury Trial. Each Party waives, to the fullest extent permitted by Applicable Law, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated hereby or disputes relating hereto. Each Party (a) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Paragraph 22.

23. Binding Effect. This Agreement shall bind the Parties and their transferees, successors and assigns. Borrower’s obligations and liability under this Agreement shall extend to any alienee, trustee, lessee and the like or the acquirer of all or substantially all of the assets of Borrower.

IN WITNESS, Borrower and Lender have each executed this Agreement as of the day and year first written above.

	BORROWER:

	ELECTROPURE, INC.,


	By:			/S/ FLOYD H. PANNING
	Title:			Floyd H. Panning, President

	ELECTROPURE EDI, INC.


	By:			/S/ FLOYD H. PANNING
	Title:			Floyd H. Panning, President


	LENDER:

	ECOLOCHEM, INC.


	By:			/S/ J.R. TAYLOR
	Title:			Vice President and Chief Operating Officer

EXHIBIT A

PROMISSORY NOTE

$200,000

April 24, 2003

FOR VALUE RECEIVED, the undersigned, ELECTROPURE, INC., a California corporation, and ELECTROPURE EDI, Inc., a Nevada corporation (collectively, the “Borrower”), promises to pay to the order of ECOLOCHEM, INC., a Virginia corporation (the “Lender”) the principal amount of TWO HUNDRED THOUSAND DOLLARS ($200,000). Payment of the outstanding principal sum and any unpaid interest shall be made on April 23, 2008, or such other date or dates as provided in that certain Amended and Restated Loan and Supply Agreement between Borrower and Lender.

Both principal and interest are payable in lawful money of the United States to Lender at 4545 Patent Road, Norfolk, Virginia 23502.

Borrower waives, demand, presentment, protest and notice of nonpayment and protest.

THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF THE COMMONWEALTH OF VIRGINIA.

ELECTROPURE, INC., a California corporation


By:	/S/ FLOYD H. PANNING
Name:		Floyd H. Panning


ELECTROPURE EDI, Inc., a Nevada corporation


By:	/S/ FLOYD H. PANNING
Name:			Floyd H. Panning

EXHIBIT 99.1