-----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, GrdKUEUsX9E9Rf4/h40qL+L880hbLIIxCIbbweuyo3WsnQI6iIh4M3nXyKqCw7UZ vSLxCgdy4e3J56YgLiloZw== 0001140905-05-000128.txt : 20051004 0001140905-05-000128.hdr.sgml : 20051004 20051004171008 ACCESSION NUMBER: 0001140905-05-000128 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050731 FILED AS OF DATE: 20051004 DATE AS OF CHANGE: 20051004 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: 1934 Act SEC FILE NUMBER: 000-16416 FILM NUMBER: 051122572 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 electro705q.htm __________________________________________________________



__________________________________________________________


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, 2005


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 [ X ]   No [ ].


At September 3, 2005, 12,815,851 shares of the Registrant's stock were outstanding.



DOCUMENTS INCORPORATED BY REFERENCE:  NONE



Electropure, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)


 

ASSETS

 
 

July 31,

2005

   
Current assets:  
     Cash $    184,281
     Trade accounts receivable 100,404
     Inventories 119,391
     Prepaid expenses 48,858
          Total current assets 452,934
Property, plant and equipment 2,281,225
Other assets 46,171
Total assets $ 2,780,330
   


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

3



Electropure, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)



LIABILITIES AND SHAREHOLDERS' DEFICIT

 
   
 

July 31,

2005

   
Current liabilities:  
     Current portion of notes payable to bank $      48,131
     Notes payable to shareholder 2,520,000
     Trade accounts payable 252,550
     Accrued payroll 284,653
     Other accrued liabilities 370,952
     Customer deposits 61,117
     Redeemable convertible preferred stock, $0.01 par value; 2,600,000  
          shares authorized, issued and outstanding at July 31, 2005 26,000
   
     Total current liabilities 3,563,403
   
Notes Payable 116,498
Notes payable to bank, net of current portion 2,324,348
   
Total liabilities 6,054,249
   
Commitments and contingencies -
   
Shareholders' deficit:  
     Series C convertible preferred stock, $1.00 par value; 250,000 shares  
          authorized, issued and outstanding at July 31, 2005; liquidation preference $1,000,000 250,000
     Series D convertible preferred stock; $1.00 par value; 250,000 shares  
          authorized, issued and outstanding at July 31, 2005; liquidation preference $500,000 250,000
     Common stock, $0.01 par value; 20,000,000 share authorized;  
          12,815,851 shares issued and outstanding at July 31, 2005 128,158
     Class B common stock, $0.01 par value, 839,825 shares authorized;  
          83,983 shares issued and outstanding at July 31, 2005 840
     Additional paid-in capital 25,823,996
     Notes receivable on common stock (35,904)
     Accumulated deficit (29,691,009)
   
Total shareholders' deficit (3,273,919)
   
Total liabilities and shareholders' deficit $    2,780,330
   

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

4





Electropure, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

                 

(Unaudited)

 

 

 

 

 

 

 

 

 


  Three months ended   Nine months ended
  July 31,   July 31,
  2005   2004   2005   2004
               
Net sales $  396,408   $  289,323   $    967,607   $    837,887
Cost of Sales 212,877   247,609   639,786   674,660
     Gross profit 183,531   41,714   327,821   163,227
               
Operating costs and expenses:              
Research and development 79,694   88,871   240,579   290,314
Sales, general and administrative 290,046   399,790   723,076   837,105
               
     Total operating expenses 369,740   488,661   963,655   1,127,419
               
Loss from operations (186,209)   (446,947)   (635,834)   (964,192)
               
Other income (expense):              
     Interest income 345   345   1,034   1,110
     Interest expense (85,179)   (97,493)   (240,818)   (253,296)
     Sublease income 37,800   33,050   113,400   93,050
     Other income (expense), net -   33   (2)   6,332
Other income (expense), net (47,034)   (64,065)   (126,386)   (152,804)
               
Loss before provision for income tax (233,243)   (511,012)   (762,220)   (1,116,996)
     Provision for income tax -   -   (1,600)   (1,600)
               
Net loss $  (233,243)   $  (511,012)   $  (763,820)   $  (1,118,596)
               
Net loss per share, basic and diluted $        (0.02)   $        (0.04)   $        (0.06)   $           (0.09)
               
Shares used in computing basic and              
     diluted net loss per share 12,783,242   12,230,350   12,680,347   12,165,722
               


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

5



Electropure, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

  Nine months ended
  July 31,
  2005   2004
       
Cash flows from operating activities:      
Net loss $    (763,820)   $  (1,118,596)
Adjustment to reconcile net loss to net cash used in      
     operating activities:      
          Depreciation 60,835   129,787
          Bad debt expense -   6,085
          Interest expense relating to amortization of holdback -   4,000
          Interest expense relating to amortization of debt issuance costs -   146,399
          Common stock issued for services 5,000   -
          Warrants issued as partial consideration for loans 11,250   -
          Non-cash compensation for stock options and warrants 58,600   4,600
          Discount related to issuance of debt -   85,126
          Interest paid with common stock 20,000   40,000
          Interest on notes receivable for common stock (1,029)   (1,029)
       
(Increase) decrease in assets:      
     Trade accounts receivable (51,319)   (69,212)
     Prepaid expenses (38,351)   (5,093)
     Inventories (18,245)   16,275
     Other assets 9,055   -
Increase (decrease) in liabilities:      
     Trade accounts payable 8,977   (41,263)
     Customer deposits 18,175   12,015
     Accrued payroll and other liabilities 202,323   (2,430)
       
Net cash used in operating activities (478,549)   (788,476)
       
Cash flows from investing activities      
     Purchase of property, plant and equipment (684)   (4,340)
       
Net cash used in investment activities (684)   (4,340)
       
Cash flows from financing activities:      
     Principal payments on notes payable (84,166)   (2,296,981)
     Proceeds from issuances of notes payable 50,000   2,691,300
     Principal payments on capital lease obligations (1,927)   (8,004)
     Proceeds from issuance of notes payable to related party 670,000   400,000
       
Net cash provided by financing activities 633,907   786,315
       
Net increase (decrease) in cash 154,674   (6,501)
       
Cash at beginning of period 29,607   24,215
       
Cash at end of period $     184,281   $     17,714
       
Supplemental Disclosure of Cash Flow Information
       
Interest paid $     113,758   $     99,306
Income taxes paid $         1,600   $       1,600
       

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

 

6


 

Forward-Looking Statements

This Quarterly Report on Form 10-QSB, including the Notes to the Condensed Consolidated Financial Statements and the 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 A ct 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.

Nature of our Business and Continuance of Operations

                                                                                                                                                &n bsp;                                                                                                                                                                           ;                                                                                                                                                                 These unaudited condensed consolidated financial statemen ts have been prepared in conformity with generally accepted accounting principles applicable to a going concern which contemplated the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  Since inception, the Company has incurred substantial losses and there is substantial doubt that the Company will generate sufficient revenues in the foreseeable future to meet its operating cash requirements.  Accordingly, the Company's ability to continue operations depends on its success in obtaining additional capital in an amount sufficient to meet its cash needs.  This raises substantial doubt about its ability to continue as a going concern.  These financial statements do not include any adjustments that might result from this uncertainty.  At this time, the Company's future is dependent upon concluding certain transactions involving the sale of its assets.  See Item 5 - "Other Information - Prospective Sale of Assets."

The Company has been engaged in manufacturing and marketing the "EDI" series of electrodeionization water treatment devices for commercial and industrial high purity water applications through its Electropure EDI, Inc. subsidiary since 1997.  The Company also conducts research and development, through its Micro Imaging Technology subsidiary (MIT), on a non-biological identification method and process with the ability to quickly and accurately detect and identify pathogenic microbes such as Cryptosporidium, Giardia, E. coli, Listeria, and Salmonella.

Though sales of our EDI products recently showed a first, small profit during the three months ended July 31, 2005, the Company believes that the EDI operation does not have the potential to support either the corporate overhead needed to continue operations, or to justify and support a reasonable stock value for the Company's shareholders.  Consequently, the current general business strategy of the Company is to sell the assets of its EDI operation and the land and building owned by its Electropure Holdings, LLC subsidiary.  This strategy is designed to generate working capital for use in furthering the development and commercialization of the patented, proprietary technology held by its remaining MIT subsidiary.  


7



2.  

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 July 31, 2005 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.  

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, 2004, included in our Annual Report on Form 10-KSB.

Certain amounts presented within the 2004 financial statements have been reclassified in order to conform to the 2005 financial statement presentation.

3.    Related Party Transactions

A.

Due to lack of working capital, certain officers and employees of the Company deferred payment of salaries and reimbursement of expenses due between February 2004 and July 15, 2005.  The table below reflects the amount of accumulated salaries and expenses due as of July 31, 2005:



EMPLOYEE


POSITION

GROSS WAGES DEFERRED

TOTAL

UNPAID

EXPENSES

    

Floyd Panning

President and Director

$71,472

$25,924

Michael Snow

Vice President and Chief Operating Officer *


$52,292


$22,067

Catherine Patterson

Chief Financial Officer

$18,750

$  7,594

  

$142,514

$55,585


*

Dr. Snow resigned as an officer of the Company in August 2004 and remains employed as the General Manager of the Electropure EDI, Inc. subsidiary.   


B.

As a condition of his August 1997 employment agreement, the Company agreed to reimburse Mr. Panning for $63,700 in wages deferred while he was employed at EDI Components, a former licensor of Electropure, Inc.  A $25,000 promissory note issued in 1997 by Mr. Panning, in consideration for his exercise of 50,000 warrants to purchase common stock at $0.50 per share, will be satisfied with the deferred wages, net of normal federal, state and local income and payroll taxes.  Mr. Panning agreed to waive any remaining balance of deferred wages after payment of the promissory note with interest.  As of July 31, 2005, the Company has accrued a total of $53,576 in deferred wages pursuant to this agreement which will be utilized to satisfy the promissory note, plus interest accrued on the note through July 31, 2005 in the sum of $10,904.



8




C.

Also see Notes 5 and 6 and Item 5 - "Other Information - Prospective Sale of Assets - Sale of EDI Assets."

4.  

Summary of Significant Accounting Policies

The accounting policies followed are as set forth in Note 1 of the Notes to Financial Statements in the Company's 2004 Annual Report on Form 10-KSB.  The Company has not experienced any material change in its critical accounting policies since October 31, 2004.  The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates its estimates which are based upon historical experience and on other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company considers the following accounting policies to be most critical in their potential effect on its financial position or results of operations.

Stock Based Compensation

In December 2004, the FASB issued SFAS 123R, "Share-Based Payment," a revision of FASB Statement No. 123. Under this standard, all forms of share-based payment to employees, including stock options, would be treated as compensation and recognized in the income statement. This proposed statement would be effective for awards granted, modified or settled in fiscal years beginning after June 15, 2005. We currently account for stock options under APB No. 25. The pro forma impact of expensing options, valued using the Black Scholes valuation model, is disclosed in Note 1 of Notes to Consolidated Financial Statements. The Company is currently researching the appropriate valuation model to use for stock options. In connection with the issuance of SFAS 123R, the Securities and Exchange Commission issued Staff Accounting Bulletin number 107 ("SAB 107") in March of 2005. SAB 107 provides implementation guidance for companies to use in their adoption of SFAS 123R. We are currently evaluating the effect of SFAS 123R and SAB 107 on our financial statements with the intent of implementing this standard on November 1, 2005.

The following table illustrates the effect on the Company's net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS 123R to its stock based employee compensation awards, and recognized expense over the applicable award vesting period:

9


 

Three months ended

July 31,

 

Nine months ended

July 31,

  2005   2004   2005   2004
Net loss, as reported: $  (233,243)   $  (511,012)   $  (763,820)   $(1,118,596)
Add: Stock-based employee compensation              
      included in reported net loss -   -   -   -
               
Less:  Stock-based employee compensation expense determined              
     under fair value based method for all awards, net of related tax              
     effect (11,610)   (45,360)   (51,310)   (120,160)
Pro forma net loss: $  (244,853)   $  (556,372)   $  (815,130)   $(1,238,756)
               
Earnings per share:              
     Basic and diluted, as reported $        (0.02)   $        (0.04)   $        (0.06)   $        (0.09)
     Basic and diluted, pro forma $        (0.02)   $        (0.05)   $        (0.06)   $        (0.10)
               
         Weighted average shares outstanding 12,783,242   12,230,350   12,680,347   12,165,722
               


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, 2005 and July 31, 2004 as follows:

  2005   2004
Stock options and warrants 4,345,000   5,520,000
Convertible preferred stock 500,000   500,000
Contingently issuable common shares 516,479   516,479
  5,361,479   6,536,479
       


 5.    Notes Payable

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 $316,444 in interest accrued on this loan through December 31, 2004 into common stock and on May 20, 2004, Mr. Frank extended the due date of this loan to January 17, 2006.  In May 2004, the Company granted Mr. Frank a security interest in all of its current and future patents with respect to the technology owned by our Micro Imaging Technology subsidiary as collateral for this $1 million loan, as well as an additional $700,000 in principal loans made by Mr. Frank between December 2002 and December 2003.

Mr. Frank loaned the Company an additional $320,000 between January 27, 2005 and May 24, 2005, all of which loans bear interest at 8% per annum and all of which loans are currently due.  The Company granted Mr. Frank a security interest in the Company's building as collateral for $300,000 of these loans.



10



Except for a $150,000 loan made in May 2002, Mr. Frank also has the option to convert any or all of the above loans, including interest, into common stock at fair market value as of the conversion date.    See also Item 5 - "Defaults Upon Senior Securities."

In December 2004, the Company received a $100,000 working capital loan from SnowPure, LLC, a Nevada limited liability company formed by Michael Snow, General Manager of the Company's EDI subsidiary.  As collateral for the loan, SnowPure, LLC was granted a security interest in substantially all of the assets of the EDI operation.  The loan, together with 10% annual interest accrued thereon, was due to be repaid on March 9, 2005.  We have paid accrued interest on the loan through July 31, 2005, however, the principal balance of $100,000, plus subsequent interest accrued, remains due at this time.  See Item 5 - "Other Information - Prospective Sale of Assets - Sale of EDI Assets."  

On or about July 1, 2005, we received a $50,000 net short-term loan from an unaffiliated third party.  The loan was repaid, with interest and fees in the sum of $5,231, on July 28, 2005.

We received a $250,000 loan from the prospective buyer of our building on July 25, 2005.  The loan, which is collateralized by a second trust deed on the building, is due to be repaid upon the closing of the building sale or December 31, 2005, whichever first occurs.  Concurrent with the loan transaction, the Company agreed to reduce the purchase price of the building by $50,000, from $3,925,000 to $3,875,000, in partial consideration for the loan and to retain the buyer's interest in the transaction while the Company obtains the necessary approvals to conclude the sale.  See Item 5 - "Other Information - Prospective Sale of Assets - Building Sale."

6.  Securities Transactions

Common Stock Issued for Debt

On January 27, 2005, we issued 285,714 shares of common stock to our majority shareholder, Anthony M. Frank, in payment of $20,000 in accrued interest on a January 2001 loan for $1 million, which is due to be repaid in January 2006.  The fair market value of the common stock was $0.07 per share on the conversion date.

Common Stock and Warrants Issued to Consultants

On June 29, 2005, for one-year's services to be performed, we granted a consultant 600,000 shares of common stock and warrants to purchase 100,000 shares of common stock at exercise price of $0.10 per share, as well as 100,000 shares of common stock at $0.25 per share.  The warrants are exercisable through June 29, 2008.  The fair market value of the shares and warrants on the date of issuance was $60,000 and $18,000, respectively, and $5,000 was recorded as consulting expense in the current period.

On June 29, 2005, we granted warrants to purchase 50,000 shares of common stock to a consultant for future services.  The warrants are exercisable at $0.10 per share and expire on June 29, 2008.  The fair market value of the warrants was $4,500 and was recorded as a consulting expense.

On July 1, 2005, for future legal services to be performed, we granted local counsel 200,000 warrants to purchase 200,000 shares of common stock at exercise price of $0.06 per share and

11



200,000 shares of common stock at $0.25 per share.  The warrants are exercisable through July 1, 2008.  The fair market value of the warrants on the date of issuance was $36,000 and was recorded as legal expense.

Warrants Issued as Consideration for Loans

We granted warrants to purchase 25,000 shares of the Company's common stock as partial consideration for a $50,000 loan on or about July 1, 2005.  The warrants are exercisable for $0.06 per share and expire on July 1, 2008.  The fair market value of these warrants, $2,250, was recorded as financing charges.

We received a $250,000 loan from the prospective buyer of our building on July 25, 2005.  The loan, which is collateralized by a second trust deed on the building, is due to be repaid upon the closing of the building sale or December 31, 2005, whichever first occurs.  Concurrent with the loan transaction, the Company agreed to reduce the purchase price of the building from $3,925,000 to $3,875,000 in partial consideration for the loan and to retain the buyer's interest in the transaction while the Company obtains the necessary approvals to conclude the sale.  The Company also issued the prospective buyer three-year warrants to purchase 100,000 shares of common stock at $0.06 per share as additional consideration for the loan.

7.    Employee Retirement Plan

Commencing on January 1, 2005, the Company sponsored a Simple IRA retirement plan which covers substantially all qualified full-time employees.  Participation in the plan is voluntary and employer contributions are determined on an annual basis.  Currently employer contributions are being made at the rate of 3% of the employees' base annual wages.  The Company's contribution to the IRA plan for the nine months ended July 31, 2005 was $8,566.

8.    Business Segments

We have two reportable segments:  water purification ("EDI") 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 and 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.



12



Business Segment Information:

 

 

  Three months ended   Nine Months Ended
  July 31,   July 31,
  2005   2004   2005   2004
               
Revenue:              
     EDI $      967,607   $       289,323   $       967,607   $      837,887
     MI -   -   -   -
Total revenues $     967,607   $      289,323   $      967,607   $     837,887
               
Operating Loss:              
     EDI $        98,687   $       (87,038)   $         59,347   $    (175,964)
     MI (72,154)   (78,114)   (214,022)   (256,503)
     Corporate (267,742)   (281,795)   (536,159)   (531,725)
Total operating loss $   (241,209)   $    (446,947)   $    (690,834)   $   (964,192)
               
Depreciation and Amortization:              
      EDI $           6,080   $          29,227   $         21,251   $        87,611
      MI 821   1,131   2,459   3,604
      Corporate 12,119   12,636   36,835   38,572
Total depreciation and amortization $        19,021   $          42,994   $        60,545   $     129,787
               
Expenditures for Long Lived Assets:              
     EDI $                   -   $             1,938   $              684   $          1,938
     MI -   -   -   -
     Corporate -   -   -   2,402
Total expenditures for long lived assets $                   -   $             1,938   $             684   $         4,340
               
GEOGRAPHIC INFORMATION:              
Revenues:              
     United States $           82,963   $           74,992   $      224,823   $       105,156
     Asia 247,963   114,250   458,934   450,808
     Europe 60,324   90,393   231,694   253,957
     Other foreign countries 5,158   9,688   52,157   27,966
Total revenues $       396,408   $        289,323   $    967,607   $      837,887
               

 

 

July 31,

2005

 

July 31,

2004

Identifiable Assets:      
     EDI $     248,855   $      289,694
     MI 4,158   7,594
     Corporate 2,527,317   2,396,965
Total identifiable assets $  2,780,330   $    2,694,481
       

 

 


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



13



our future operating results include, without limitation, economic, competitive and legislative developments.

Results of Operations

References to fiscal 2005 and fiscal 2004 are for the nine months ended July 31, 2005 and 2004, respectively.

Net sales in the nine months ended July 31, 2005 increased by $129,720 from $837,887 in fiscal 2004 to $967,607.  The increase reflects a surge in customer orders during the three months ended July 31, 2005, primarily in Asia.  Current economic conditions suggest that Asia enjoys a favorable currency exchange rate with the United States.  However, no assurances can be given that such factors will not dramatically change or that our competitors will not attract our customers away, both of which events would have a material adverse material effect on sales.

From a geographic perspective, net sales in the United States grew by $7,971 (11%) and $119,667 (114%), in the three and nine month periods ended July 31, 2005, respectively, compared to the prior fiscal periods.  Sales in Asia also increased in fiscal 2005 by $133,713 (117%) and $8,126 (2%).  By contrast, however, sales in Europe and all other markets showed a less than 1% increase ($1,928) in the nine months ended July 31 2005, but a 35% decrease of $34,599 in the three month period then ended, all as compared to the prior fiscal year periods.

Cost of sales consists primarily of purchased materials, labor and overhead (including depreciation) associated with product manufacturing, warranties and sustaining engineering expenses pertaining to products sold.  Cost of sales decreased to 66% of revenue for fiscal 2005 compared to 81% of revenue for the nine months ended July 31, 2005.  This decrease is predominantly due to a reduction in warranty expenses and a more effective utilization of labor in production operations.  The decrease also reflects a significant reduction in depreciation expenses in the current period as the cost of capital equipment becomes fully amortized.  For the same reasons, costs of sales showed a substantial decrease for the three months ended July 31, 2005, declining from 86% in fiscal 2004 to 54% for the three months ended July 31, 2005.

Research and development expenses for the three and nine month periods ended July 31, 2005 decreased by $9,177 and $49,735, 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 consulting and accounting expenses, as well as a decrease in patent expenses.

Sales, general and administrative expenses decreased by $109,744 and $114,029 for the three and nine month periods ended July 31, 2005, respectively, as compared to the same periods in 2004.  In fiscal 2004, the Company incurred significant fees and expenses associated with borrowings, including the broker fees paid to refinance the Company's building.  The decreases also reflect a reduction in accounting and patent-related expenses in fiscal 2005 compared to the prior year period.  These reductions were offset by increases in legal expenses and the costs related to the issuance of warrants to consultants in fiscal 2005.



14



Interest income is generated from short-term investments and decreased by $76 for the nine months ended July 31, 2005, with no change for the comparable three month period.  Interest expense for the three and nine month periods ended July 31, 2005 decreased by $12,314 and 12,478, respectively, compared to the comparable prior periods.  The difference primarily represents the costs of additional borrowings during fiscal 2005, as well as the interest expense on the additional amount borrowed to refinance our building mortgage in June of 2004.

Components of other income, other than interest, increased by $4,717 and $14,016 for the three and nine months ended July 31, 2005 compared to the prior year periods.  The difference primarily relates to an increase in monthly sublease payments from our building tenant that went into effect in July 2004.

We recorded the minimum state income tax provision in fiscal 2004 and 2005 as we had cumulative net operating losses in all tax jurisdictions.

Liquidity and Capital Resources

At July 31, 2005, we had a working capital deficit of $3,110,469.  This represents a $1,636,986 increase in the working capital deficit compared to that reported at October 31, 2004.  A primary component of the increase is the reclassification of $1,000,000 in notes payable from long term to current liabilities on a loan due to be repaid in January 2006.  The increase also reflects $670,000 in additional borrowings during the current period.

Aggregate maturities required on notes payable at July 31, 2005 are due in future years as follows.  

  Payment Due by Fiscal Year    
  2005   2006   2007   2008   2009   Total
                       
Contractual Obligations:                      
     Notes payable $                 -   $                -   $              -   166,498   $              -   $      166,498
     Notes payable to bank 48,131   183,070   183,070   183,070   1,775,138   2,372,479
     Notes payable to shareholders 1,520,000   1,000,000   -   -   -   2,520,000
Total contractual obligations $  2,568,131   $  1,183,070   $   183,070   $  349,568   $1,775,138   $  5,058,977
                       

Our primary source of working capital has been from short-term loans.   Between January and May 2005, we borrowed a total of $320,000 from Mr. Anthony Frank, our largest shareholder.  On July 1, 2005, the Company borrowed $50,000 from an unaffiliated lender which was repaid on July 28, 2005 from the proceeds of a $250,000 loan made to the company by the prospective buyer of our building.   We also borrowed $100,000 in December 2004 from SnowPure, LLC, the prospective purchaser of the EDI assets.

Sales of our EDI and membrane products during the nine months ended July 31, 2005 amounted to $967,607.  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 July 31, 2005, we had accepted firm orders for delivery of unshipped EDI modules valued at over $125,000.



15



Plan of Operation

In the opinion of management, available funds, funds anticipated to be realized on the sale of EDI products currently on order, the eventual sale of our building and the assets of the EDI subsidiary, are expected to satisfy our working capital requirements through June 2006.  Our independent auditors have included an explanatory paragraph in their report on the financial statements for the year ended October 31, 2004 which raises substantial doubt about our ability to continue as a going concern.  

Management believes that the sale of its EDI assets and the building it currently owns is required to sustain the Company's operations and bring the MIT technology to a commercial stage.   This approach is intended to optimize the value of the Company for our shareholders.  To this end, we intend to seek commercial, technical and scientific partners that can aid in advancing the MIT expertise, provide external endorsements of the technology and accelerate introduction to the market.   The implementation of this strategy is completely dependent on obtaining the proceeds from the EDI and building sale transactions.  This strategy will also be dependent upon our ability to identify and attract the right customers and partners over the next six month period and to secure sufficient additional working capital in a timely manner thereafter.

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 financing for future developments, whether in the form of loans, licenses or equity transactions, 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.



16



Item 3.    Controls and Procedures

(a)

As of the end of the period covered by this report, 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").  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.

(b)

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 omitted as not applicable.

Item 2.

Changes in Securities

On January 27, 2005, the Company issued 285,714 shares of common stock to our majority shareholder upon the conversion of $20,000 in interest accrued on a $1 million loan.  The fair market value of the common stock on the date of conversion was $0.07 per share.

On July 15, 2005, in connection with a $250,000 loan from the prospective buyer of the Company's building, the Company issued warrants to purchase 100,000 shares of common stock at $0.06 per share, expiring on July 19, 2008.  The Company also agreed to reduce the building purchase price by $50,000.

On June 29, 2005, the Company entered into a one-year arrangement with a consultant for administrative, public relations and financial services.  In addition to a $5,000 per month consulting fee, the Company has agreed to issue 50,000 shares of common stock to the consultant each month and has granted three-year warrants to purchase: (a) 100,000 shares of common stock at an exercise price of $0.10 per share and (b) 100,000 shares at $0.25 per share.

Also on June 29, 2005, the Company granted warrants to purchase an additional 50,000 shares of the Company's common stock to a second consultant for business services to be rendered.  Such warrants are exercisable at $0.10 per share through June 29, 2008.

On June 30, 2005, the Company borrowed $50,000 from an unaffiliated lender at an annual interest rate of 5%.  As consideration for the making the loan, the Company agreed to pay an additional $5,050 in fees to the lender at maturity and has granted three-year warrants to purchase 25,000 shares of Electropure, Inc. common stock at $0.06 per share.  This loan was repaid, with accrued interest of $181, on July 28, 2005.



17



On July 1, 2005, the Company granted a consultant three-year warrants to purchase a total of 400,000 shares of common stock, one-half at $0.06 per share and one-half at $0.25 per share, for legal services to be rendered.  

Item 3.    Defaults Upon Senior Securities

As of July 31, 2005, of the aggregate $2,170,000 in principal loans made to the Company since January 2001 by our majority shareholder, we are in default of our obligations to pay a total of $420,000 in principal loans to Anthony M. Frank, which had matured through July 12, 2005.  An additional $300,000 in principal loans has come due and we are in default of the repayment terms as of August 18, 2005.

The Company has also failed to pay interest as it became due on December 31, 2004 and in March and June, 2005 as it relates to the $1 million loan made by Mr. Frank to the Company in January 2001.

We are also in default of the repayment provisions of a $100,000 loan made by SnowPure, LLC on December 9, 2004 at an interest rate of 10% per annum.  The loan was due to be repaid on March 9, 2005.  We have paid interest accrued on the loan through July 31, 2005.

Item 4 omitted as not applicable.

Item 5.  Other Information - Prospective Sale of Assets

    Other Information - Prospective Sa

Closing of both asset sales described below is contingent upon meeting all requirements, including regulations promulgated under the Securities Exchange Act of 1934, for the sale of corporate assets.  The principal terms of each sale require the approval of a majority in interest of the Company's shareholders under California corporate law.  The Company accordingly intends to solicit a vote of its shareholders to approve the sale transactions as soon as possible after filing this report on Form 10-QSB.

Sale of EDI Assets

In August 2004, Michael Snow, who was at the time the Vice President and Chief Operating Officer of the Company and General Manager of the EDI subsidiary, advised the Board of his interest in purchasing the assets of the EDI subsidiary.  Mr. Snow resigned as Vice President and COO at that time, and the Company began informal discussions with Mr. Snow while continuing all efforts to seek outside interested parties for the EDI business.  When efforts to locate other potential purchasers proved fruitless, on April 15, 2005, the parties agreed to the terms of a Purchase and Sale Agreement and on April 19, 2005, the Company's Board of Directors approved the sale, subject to shareholder approval.  The purchase price of the assets will be $800,000 and will be paid in the form of cash and assumption of certain debt on the books of EDI as of the closing, includin g notes and trade payables, accrued salaries and expenses due Michael Snow, the principal of SnowPure, LLC.  The portion of the purchase price to be paid in cash, therefore, will be the difference between $800,000 and the exact amount of the debt to be assumed pursuant to this transaction as determined at the closing, which is estimated to be approximately $362,000 as of July 31, 2005.  From the cash proceeds of the sale, the Company will be required to utilize approximately $86,000 to pay certain



18



taxes, trade payables and to repay SnowPure LLC for the December 2004 $100,000 loan, plus unpaid interest as of the closing date.  

The sale of the EDI assets also requires that the Company dissolve the Electropure EDI subsidiary and amend the charter of the Company to change its corporate identity to a name other than "Electropure".  A copy of the Agreement was filed with the Securities and Exchange Commission on April 26, 2005 as an Exhibit on Form 8-K.  To understand the terms of the transaction, the Agreement, including the exhibits and schedules to the Agreement, should be read in its entirety.  The exhibits and schedules to the Agreement will be updated at a later date to ensure their accuracy as of the closing date.  

Building Sale

In February 1998, the Company entered into a three-year lease, with option to purchase, with an unaffiliated third party for 30,201 square feet of office, manufacturing and warehousing space located at 23456 South Pointe Drive, Laguna Hills, CA (the "building").  In January 2001, the Company exercised its purchase option and formed Electropure Holdings, LLC, a wholly-owned California limited liability company, for the purpose of the building transaction.   We financed substantially the entire $2,454,552 purchase price with a loan of $1,375,000 from a real estate mortgage lender and a $1,000,000 private loan from our majority stockholder, Mr. Anthony M. Frank.  

The Company has since refinanced the building mortgage on two additional occasions in order to utilize the appreciation in equity for working capital.   In June 2002, we refinanced the first mortgage for $2 million and realized net proceeds of approximately $550,000.  In May 2004, we again refinanced the building for $2,425,000, whereby we realized approximately $500,000 in net proceeds.   In addition to a first trust deed granted to the mortgage lender in the May 2004 financing, the Company has granted a second security interest in the building to our majority stockholder, Mr. Anthony M. Frank, as collateral for $300,000 in short-term loans he made between February and May 2005.  In July 2005, Mr. Frank subordinated his security interest in the building in favor of the George A Boukather Trust, our prospective building buyer which loaned the Company $250,000 on July 15, 2005.  Mr. Frank has been a co-guarantor on each of the building financings conducted by the Company.

The Company and its subsidiaries currently occupy approximately 18,201 sq. ft. of the building and sub-lease 12,000 sq. ft. to an unaffiliated tenant.  Once the sale of the EDI business has been concluded and the operation is subsequently moved by the new owner, the Company's need for operating space will be greatly diminished.  Moreover, the current market for commercial buildings in the area is such that a sale of the building at this time would provide the Company with additional working capital and the ability to relocate to more suitable offices and laboratory space for the Company's Micro Imaging Technology subsidiary.

On June 3, 2005, the Company accepted an offer to purchase the building from the George A Boukather Trust ("Boukather"), an unaffiliated third party for the sum of $3,925,000.  The parties executed a Purchase and Sale Agreement (the "Building Agreement") which was filed with the Securities and Exchange Commission on June 9, 2005 as an Exhibit on Form 8-K.  



19



To understand the terms of the transaction, the Agreement, including the exhibits and schedules to the Agreement, should be read in its entirety.  

On July 15, 2005, the George A Boukather Trust loaned the Company $250,000.  The loan is collateralized by a second trust deed on the building and is to be repaid by December 31, 2005 or from the proceeds of the building sale, whichever occurs first.  As partial consideration for the loan, the Company granted warrants to purchase 100,000 shares of its common stock and agreed to reduce the purchase price of the building to $3,875,000.

The majority of the proceeds of the sale will be used to pay off the senior mortgage (approximately $2,372,500 at July 31, 2005) on the building held by Farmers Insurance Group Federal Credit Union c/o Business Partners LLC ("Senior Mortgage").  In addition, proceeds from the sale will be used to repay the $250,000 Boukather loan and junior liens held by Mr. Anthony M. Frank for loans made to the Company on and since February 18, 2005, which as of July 31, 2005 aggregated $308,333, including interest.  In addition, from the sale proceeds, the Company will pay one-half of all escrow charges and all usual recording fees and required documentary transfer taxes.  The Company must also pay the premium for a standard coverage owner's title insurance policy.  The Company estimates such fees and expenses will amount to approximately $6,000.

Use of Sales Proceeds

The net remaining cash proceeds from the sales of assets described above will be utilized as working capital and may be used to pay administrative expenses and other liabilities, including but not limited to current and accrued salaries, legal expenses, and costs associated with relocating the Company's remaining operations to a smaller facility.  A portion of the proceeds will also be used to further the development and commercialization of the Company's Micro Imaging Technology.  As of July 31, 2005, after allowing for the payments and expenses described above for each transactions, the Company estimates that it will realize approximately $253,000 and $925,000 in net proceeds from the sale of the EDI assets and the building sale, respectively.

Item 6.    Exhibits and Reports on Form 8-K

(a)

Exhibits:


10.10.BS

Debt Conversion Agreement (Keogh) - - 01/27/05 - Face Sheet Only (incorporated by reference to Exhibit 10.10.BS to Schedule 13D/A-23 of Anthony M. Frank filed on January 31, 2005).

10.10.BT

Debt Conversion Agreement (Pension - - 01/27/05 - Face Sheet Only (incorporated by reference to Exhibit 10.10.BT to Schedule 13D/A-23 of Anthony M. Frank filed on January 31, 2005).

10.10.BU

8% Convertible Term Note by and between Electropure, Inc. and Anthony M. Frank dated February 18, 2005 (incorporated by reference to Exhibit 10.57 to Form 8-K filed on April 26, 2005).



20



10.10.BV

Second Deed of Trust and Security Agreement by and between Electropure, Inc., Electropure Holdings, LLC and Anthony M. Frank dated February 18, 2005. (incorporated by reference to Exhibit 10.58 to Form 8-K filed on April 26, 2005).

10.10.BW

8% Convertible Term Note by and between Electropure, Inc. and Anthony M. Frank dated April 21, 2005 (face sheet only). (incorporated by reference to Exhibit 10.59 to Form 8-K filed on April 26, 2005).

10.10.BX

Second Deed of Trust and Security Agreement by and between Electropure, Inc., Electropure Holdings, LLC and Anthony M. Frank dated April 21, 2005 (face sheet only). (incorporated by reference to Exhibit 10.57 to Form 8-K filed on April 26, 2005).

10.10.BY

8% Convertible Term Note by and between Electropure, Inc. and Anthony M. Frank dated May 24, 2005  (incorporated by reference to Exhibit 10.64 to Form 8-K filed on June 9, 2005).

10.10.BZ

Second Deed of Trust and Security Agreement by and between Electropure, Inc., Electropure Holdings, LLC and Anthony M. Frank dated May 24, 2005 (incorporated by reference to Exhibit 10.65 to Form 8-K filed on June 9, 2005).

10.54.A

Promissory Note Secured by Trust Deed - - 06/30/05 (Second Source Solutions) (incorporated by reference to Exhibit 10.67.1 to Form 10-KSB filed on September 26, 2005).

10.61

Loan Agreement by and between Electropure, Inc., Electropure EDI, Inc. and SnowPure, LLC dated December 9, 2004 (incorporated by reference to Exhibit 10.61 to Form 8-K filed on April 26, 2005).

10.62

Security Agreement by and between Electropure, Inc., Electropure EDI, Inc. and SnowPure, LLC dated December 9, 2004 (incorporated by reference to Exhibit 10.62 to Form 8-K filed on April 26, 2005).

10.66

Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated June 3, 2005 (incorporated by reference to Exhibit 10.66 to Form 8-K filed on June 9, 2005).

10.66.A

Promissory Note Secured by Deed of Trust - - 07/15/05 (Boukather) (incorporated by reference to Exhibit 10.66.A to Form 10-KSB filed on September 26, 2005).

10.66.B

Escrow Amendment to June 3, 2005 Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (incorporated by reference to Exhibit 10.66.A to Form 10-KSB filed on September 26, 2005).

10.67

Agreement for Purchase and Sale of Assets by and between Electropure, Inc., Electropure EDI, Inc. and SnowPure, LLC dated April 15, 2005 as approved



21



by the Board of Directors on April 19, 2005 (incorporated by reference to Exhibit 10.67 to Form 8-K filed on April 26, 2005).

10.67.A

Amendment of Purchase and Sale Agreement dated April 15, 2005 (incorporated by reference to Exhibit 10.67.A to Form 10-KSB filed on September 26, 2005).

      31.1

Certification of Chief Executive Officer

      31.2

Certification of Chief Financial Officer

32

906 Certification of Principal Executive Officers

__________________________________________________________

 

         Reports on Form 8-K.


 

 

 

 

 

 

(b)

A report on Form 8-K was filed on April 26, 2005 to report the receipt of loans from SnowPure, LLC and from Anthony M. Frank and to report entry into the Purchase and Sale Agreement with SnowPure, LLC for the sale of the EDI assets.

A report on Form 8-K was filed on June 9, 2005 to report entry into the a purchase and sale agreement with the George A Boukather Trust to sell the land and building owned by Electropure Holdings, LLC., the Company wholly-owned subsidiary.



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 3, 2005

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)

 

22



EXHIBIT 31.1


CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Floyd H. Panning, Chief Executive Officer of Electropure, Inc., certify that:

1.      

I have reviewed this annual report on Form 10-KSB of Electropure, Inc.;

2.    

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 report;

3.     

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

4.      The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

a)

designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such; and

d)

disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting;

5.    The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Dated:  September 3, 2005

                                                                                 /s/ Floyd H. Panning

Floyd H. Panning

Chief Executive Officer



23



EXHIBIT 31.2


CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Catherine Patterson, Chief Financial Officer of Electropure, Inc., certify that:

1.   

I have reviewed this annual report on Form 10-KSB of Electropure, Inc.;

2.    

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 report;

3.      

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

4.     The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

a)

designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such; and

d)

disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting.

5.    The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Dated:  September 3, 2005

                                                                                 /s/ Catherine Patterson

Catherine Patterson

Chief Financial Officer



24



EXHIBIT 32


CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICERS

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)


We, Floyd H. Panning, the President and Chief Executive Officer, and Catherine Patterson, the Chief Financial Officer of Electropure, Inc. (the "Company"), certify that to the best of our knowledge, based upon a review of the Company's Annual Report on Form 10-KSB for the period ended October 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):


(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.


 

/S/ FLOYD H. PANNING

Floyd H. Panning

President and Chief Executive Officer

September 3, 2005

 


/S/ CATHERINE PATTERSON

Catherine Patterson

Secretary and Chief Financial Officer

September 3, 2005





25


-----END PRIVACY-ENHANCED MESSAGE-----