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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period Commission file
ended January 31, 1998 number 0-16416
ELECTROPURE, INC.
(FORMERLY, HOH WATER TECHNOLOGY CORPORATION)
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0056212
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
23456 South Pointe Drive, Laguna Hills, California 93653
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 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 February 27. 1998, 8,000,479 shares of the
Registrant's stock were outstanding.
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ELECTROPURE, INC.
BALANCE SHEETS
October 31, January 31,
Assets 1997 1998
--------- ---------
(Unaudited)
Current assets:
Cash $ 367,680 $ 360,421
Receivables:
Trade accounts 14,988 77,079
Due from related parties 115,227 78,898
Allowance for doubtful receivables (85,528) (85,528)
--------- ---------
44,687 70,449
Inventory:
Raw materials 7,498 12,857
Other current assets 26,001 69,141
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Total Current Assets 445,865 512,868
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Propery and equipment, at cost:
Office equipment 3,584 15,950
Leasehold improvements -- 2,457
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3,584 18,407
Less accumulated depreciation and amortization 172 687
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3,412 17,720
Acquired technology, net 445,676 423,319
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Total Assets $ 894,953 $ 953,907
========= =========
See accompanying notes to financial statements.
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ELECTROPURE, INC.
BALANCE SHEETS
October 31, January 31,
Liabilities and Stockholders' Equity 1997 1998
------------ ------------
(Unaudited)
Current liabilities:
Notes payable to stockholders $ 29,736 $ 17,740
Accounts payable 37,843 36,743
Accrued liabilities 23,960 8,386
Allowance for loss on lawsuit settlements 23,331 23,331
------------ ------------
Total Current Liabilities 114,870 86,200
Litigation, claims, commitments and contingencies
Redeemable convertible preferred stock, $.01 assigned par
value. Authorized 2,600,000 shares; issued and outstanding
2,600,000 shares in 1997 and 1998 26,000 26,000
Stockholders' equity:
Common stock, $.01 assigned par value. Authorized 20,000,000 shares; 7,774,293
shares issued and 7,734,293 shares outstanding in 1997; 8,040,479 shares
issued and 8,000,479 shares outstanding in 1998 77,343 80,005
Class B common stock, $.01 assigned par value. Authorized
83,983 shares; issued and outstanding 83,983 shares in 1997 and 1998 840 840
Additional paid-in capital 18,075,947 18,370,502
Accumulated deficit (17,197,281) (17,431,874)
Notes receivable on common stock (202,766) (177,766)
------------ ------------
754,083 841,707
------------ ------------
Total Liabilities and Stockholders' Equity $ 894,953 $ 953,907
============ ============
See accompanying notes to financial statements.
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ELECTROPURE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
January 31,
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1997 1998
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License fees received $ 20,300 $ --
Sales -- 125,257
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20,300 125,257
Cost of goods sold -- 69,055
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Gross margin 20,300 56,202
Costs and expenses:
Research and development -- 43,902
Sales and marketing -- 35,172
General and administrative 24,174 113,890
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24,174 192,964
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Loss from operations (3,874) (136,762)
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Other income and (expense):
Interest expense (393) (615)
Financing costs -- (97,217)
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(393) (97,832)
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Net income (loss) $ (4,267) $ (234,594)
=========== =========
Net income (loss) per share of common stock $ -- $ (0.05)
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Weighted average common shares outstanding 1,926,868 4,358,663
=========== =========
See accompanying notes to financial statements.
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ELECTROPURE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Common Stock Class B Common Stock
------------------------------------- ----------------------------------
Amount Amount
Number ---------------------- Number ---------------------
of Per of Per
shares share Total shares share Total
--------- ----- ------------ ------ ----- ------------
Balance at October 31, 1997 7,734,293 $-- $ 77,343 83,983 $-- $ 840
Payment on receivable on common stock -- -- -- -- -- --
Issuance of common stock for option
on building purchase 60,000 -- 600 -- -- --
Issuance of common stock for
conversion of debt 206,186 -- 2,062 -- -- --
Net Loss -- -- -- -- -- --
Balance at January 31, 1998 8,000,479 80,005 83,983 -- 840
============ ============ ============
Notes
Additional receivable Net
paid-in on common Accumulated stockholders'
capital stock deficit equity
------------ ------------ ------------ ------------
Balance at October 31, 1997 $ 18,075,947 $ (202,766) $(17,197,281) $ 754,083
Payment on receivable on common stock -- 25,000 -- 25,000
Issuance of common stock for option
on building purchase 89,400 -- -- 90,000
Issuance of common stock for
conversion of debt 205,155 -- -- 207,217
Net Loss -- -- (234,594) (234,594)
------------ ------------ ------------ ------------
Balance at January 31, 1998 18,370,502 (177,766) (17,431,874) 841,707
============ ============ ============ ============
See accompanying notes to financial statements.
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ELECTROPURE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
January 31,
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1997 1998
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Cash flows from operating activities:
Net loss $ (4,267) $(234,594)
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Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 27 22,872
Financing costs related to issuance of common stock -- 97,217
Change in assets and liabilities, net of noncash transactions:
Decrease (increase) in receivables 236 (25,762)
Decrease (increase) in inventory -- (5,359)
Decrease (increase) in other assets -- (57,964)
Increase (decrease) in notes payable -- (12,429)
Increase (decrease) in accounts payable and accrued expenses 3,391 (16,856)
Increase in interest payable, net 393 615
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Total adjustments 4,047 2,335
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Net cash used in operating activities (220) (232,260)
Cash flows from investing activities: None
Cash flows from financing activities:
Proceeds from issuance of common stock -- 200,000
Proceeds from collection of receivables on common stock -- 25,000
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Net cash provided by financing activities -- 225,000
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Net (decrease) in cash (220) (7,260)
Cash at beginning of period 674 367,680
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Cash at end of period $ 454 $ 360,421
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(1) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements include all
adjustments which management believes are necessary for a fair presentation of
the results of operations for the periods presented, except those which may be
required to adjust assets and liabilities to the net realizable value should the
Company not be able to continue operations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is suggested that the accompanying condensed financial statements be read in
conjunction with the Company's audited financial statements and footnotes as of
and for the year ended October 31, 1997.
In February, 1996, the Company issued 253,334 shares of Common Stock upon the
conversion of $152,000 in loans payable by its former licensee, EDI Components.
Although the shares were issued at a below fair market value of $0.60 per share,
resulting in an expense of $228,000, the Company mistakenly reflected the
expense at $152,000. Pursuant to such error, the Company has made a prior period
adjustment to increase additional paid-in capital and the accumulated deficit by
$76,000. In addition, the Company has made a prior period adjustment for the
fiscal year ended October 31, 1996 to impute a $500 per month rent expense to
account for the expense of occupying offices sub-leased by the Company from EDI
Components until September, 1997. The expense has been credited toward license
fees paid by EDI Components. Similar adjustments have been made for the interim
periods ended January 31, 1997, April 30, 1997 and July 31, 1997, respectively.
The above prior period adjustments did not materially impact the Company's
retained earnings, net shareholders' equity, net loss or net loss per share. The
comparative financial statements contained in this report have been adjusted to
reflect retroactive application of the prior period adjustments discussed above.
LIQUIDITY
As of January 31, 1998, the Company had current assets in excess of current
liabilities of $426,668, an accumulated deficit of $17,431,874 and a
stockholders' equity of $841,707. In July, 1992, the Company entered into a
License Agreement with EDI Components, a California corporation, to grant an
exclusive license to manufacture and market the Company's patented Electropure
("EDI") technology. Since entering into such license relationship, the Company
funded its working capital needs from license fees paid by EDI Components until
the license was terminated in August, 1997. In September, 1997, the Company
began limited manufacturing and sales of its patented EDI product. During the
three months ended January 31, 1998, the Company booked $125,257 in gross sales
of its EDI products and realized therefrom $55,456 in cash and $69,801 in
accounts receivable. The Company also collected $7,710 and $19,500 in
receivables from trade accounts and related parties, respectively, during the
period. The Company received an additional $25,000 payment in January, 1998 on a
note receivable on common stock.
In January 26, 1998, the Company received $200,000 in loans from a principal
shareholder. Such proceeds, along with an additional $200,000 in loans from the
same shareholder, were utilized to purchase the rights to certain proprietary
membrane technology from Hydro Components, Inc., a
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Pennsylvania manufacturer of light commercial water and wastewater treatment
products. See Note (7) - "Subsequent Events." Pursuant to the terms of the loan
agreement, the shareholder elected to convert the $200,000 principal amount of
the loan into 206,186 shares of Common Stock. See Note (5) - "Stockholders'
Equity."
(2) DUE FROM RELATED PARTIES
The Company has balances remaining due, including interest, on notes receivable
from related parties. The balance includes net amounts remaining on a $30,000
loan made to a former shareholder and an $80,000 loan made to a corporation
whose significant stockholder was James E. Cruver, a former officer and director
of the Company. The Company received partial payments representing principal
and/or interest on these loans, however, due to the fact that they are
significantly past due and the uncertainty of when or if they will be collected,
interest income was not being recognized until received and the balances at
January 31, 1998 are offset by an allowance for doubtful accounts.
A total of $23,763 remains due as of January 31, 1998 from former officers and
directors, Harry M. O'Hare, Sr. and David C. Kravitz. Such amount is secured by
37,565 shares of the Company's common stock resulting in an unsecured receivable
in the amount of $23,351, which has been offset by an allowance for doubtful
accounts.
Between August, 1997 (when the license relationship with EDI Components was
terminated) and October 31, 1997, the Company sold products for which the
Company's former licensee, EDI Components, mistakenly received a total of
$36,329 in payments. In January, 1998, EDI Components satisfied the receivable
in full by paying the Company $19,500 in cash and transferring $16,829 in raw
materials it had purchased for the EDI product prior to the license termination.
(3) INVENTORY
Inventory, stated at the lower of cost (determined using the first in, first out
method) or replacement market, consists of components for EDI water purification
modules.
(4) COMMITMENTS AND CONTINGENCIES
The original cost and accumulated depreciation of assets at January 31, 1998 are
as follows.
Furniture and fixtures $15,950
Leasehold improvements 2,457
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18,407
Less accumulated depreciation and amortization 687
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$17,720
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COMMITMENTS
On October 1, 1997, the Company assumed the month-to-month lease obligation from
EDI Components on its previous facility at 23251 Vista Grande, Laguna Hills,
California and is obligated to make monthly lease payments in the sum of $4,086
through April, 1998. For the fiscal quarter ended January 31, 1998, the Company
paid an aggregate of $15,955 in lease payments on such facility.
In November, 1997, the Company entered into a three-year lease agreement on a
30,201 sq. ft. facility located at 23456 South Pointe Drive, Laguna Hills,
California. The lease commenced on February 1, 1998 at a lease rate of $16,000
per month, with pre-negotiated annual increases in the second and third years of
the lease approximating three percent of the then base monthly lease payment. On
November 14, 1997, the Company paid the Lessor $48,000, representing the first
month's lease payment, plus a $32,000 security deposit which shall be applied to
one-half of the monthly lease payments in months 6, 12, 18 and 24 of the initial
lease term. Such first month's rent and security deposit have been recorded as a
prepaid deposit in the sum of $48,000 and will be credited to rent expense when
utilized over the next 24 months.
(5) STOCKHOLDERS' EQUITY
On November 12, 1997, the Company issued 60,000 shares of Common Stock to the
Lessors of its new facility in exchange for a three-year option to purchase the
building for the pre-negotiated purchase price of $2,300,000 through August,
1999. If the option is exercised after August, 1999, the purchase price will be
$2,300,000 plus the cumulative change in Consumer Price Index from February 1,
1998 to the date of exercise. The issuance, which was made at a fair market
value of $1.50 per share, resulted in an increase in common stock and additional
paid in capital and a $90,000 financing expense.
On January 29, 1998, Anthony Frank exercised his option to convert, at a 27.5%
discount to fair market value(1), a $200,000 principal loan made to the Company
on January 26, 1998. The conversion resulted in the issuance of 206,186 shares
of Common Stock at $0.97 per share. Accordingly, the difference between
conversion price and the fair market value of similar restricted common stock
on the date of issuance, aggregating $7,217, was expensed and added to
additional paid-in capital for the fiscal period ended January 31, 1998.
(6) NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is based on the weighted average number of
shares outstanding during each of the respective periods. No effect has been
given to common stock equivalents as the effect to loss per share would be
anti-dilutive.
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(1) The loan agreement with Mr. Frank provided that, upon conversion of the
note, the "fair market value" of common stock would be determined as the
average of the bid and asked prices of such common stock for the thirty
consecutive trading days prior to the conversion date.
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(7) SUBSEQUENT EVENTS
On February 4, 1998, the Company received a loan of $200,000 from Anthony Frank,
the proceeds of which, in addition to a previous $200,000 loan made on January
26, 1998, would be utilized to acquire the rights to certain membrane technology
from Hydro Components, Inc. The January, 1998 loan was converted by Mr. Frank
into common stock on January 29, 1998 [see Note (5) - "Stockholders' Equity].
The February 4, 1998 loan, at 10% annual interest, is due to be repaid on or
before February 4, 2000. Mr. Frank has the right to convert such loan into
Common Stock at a 25% discount to the fair market value, utilizing a 30-day
average of the bid and asked prices of such Common Stock prior to the conversion
date.
On February 11, 1998, the Company entered into a one-year consulting agreement
with Hamilton Partners Incorporated of Newport Beach, California ("Hamilton"),
to provide the Company with consulting services on various administrative,
financial, marketing and/or sales matters. Pursuant to such agreement, the
Company will pay Hamilton a monthly fee of $3,500 and has granted the firm
25,000 three-year warrants to purchase Common Stock at $1.78 per share. The fair
market value of similar Common Stock was equal to the exercise price of such
warrants on the date of issuance.
On February 17, 1998, the Company entered into an Assignment Agreement with
Hydro Components, Inc. ("HCI"), a Pennsylvania manufacturer of light commercial
water and wastewater treatment products, for the exclusive worldwide rights to
proprietary membrane technology. The Company intends to utilize the acquired
technology to develop ion permeable membranes for use with its EDI product. The
agreement provides that HCI will furnish all technical support required by the
Company for the development program. If development efforts are successful, such
membranes would open additional markets for the Company's EDI product in
industry segments which require purity levels of process water which are lower
than that provided by the current EDI design. The Company paid HCI $200,000 for
the above rights and loaned HCI an additional $200,000, secured by all assets of
the borrower. The loan is to be repaid, with interest at 10%, on or before April
17, 1998.
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
References to 1997 and 1998 are for the three months ended January 31, 1997 and
1998, respectively, and reflect the prior period adjustments discussed in Note
(1) - "Interim Financial Statements."
License fees received from EDI Components for fiscal 1997 were $20,300 as
compared to no activity for fiscal 1998. Pursuant to the August, 1997 License
Termination Agreement, the obligation of EDI Components to pay license fees to
the Company terminated at that time.
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The Company realized a gross margin of $56,202 on the sale of EDI products in
fiscal 1998, as compared to no sales activities in fiscal 1997. The Company had
not initiated manufacturing and marketing operations until September, 1997,
after the license agreement with EDI Components had been terminated.
Research and development expenses for fiscal 1998 were $43,902 as compared to no
activity for fiscal 1997. These expenses arise from the research and development
program which the Company initiated in December, 1997 on the drinking water
monitoring technology acquired from Wyatt Technology Corporation in late
October, 1997.
Sales and marketing expenses were $35,172 for fiscal 1998, as compared to no
activity for fiscal 1997. These expenses represent the costs associated with
marketing the Company's EDI product, which activities began in September, 1997.
General and administrative expenses for fiscal 1998 increased by $89,716 as
compared to fiscal 1997. The increase is due to various factors, including the
expenses associated with hiring additional employees in late 1997, the
assumption of lease obligations on the facilities occupied by the Company, and
legal and accounting fees resulting from the audit conducted on the Company's
financial statements for the fiscal year ended October 31, 1997.
Interest expense for fiscal 1998 increased by $222 as compared to fiscal 1997,
due to the additional interest accrued on a note payable issued in settlement of
a lawsuit in May, 1997. Such note was paid in full in January, 1998.
Financing costs for fiscal 1998 were $97,217, as compared to no activity for
fiscal 1997. Of such expense, $90,000 resulted from the issuance of 60,000
shares of common stock to the lessor of the Company's current facility in
exchange for an option to purchase the building during the term of the
three-year lease. An additional $7,217 financing expense was incurred as a
result of the issuance, at below fair market value, of 206,186 common shares in
cancellation of a $200,000 loan made to the Company in January, 1998.
No additional provision for loss on lawsuit settlement has been made in fiscal
1998 as the Company believes that adequate provision has been made to settle
pending lawsuits.
Net loss of $234,594 for fiscal 1998 represents an increase of $230,327 from the
prior year level. This is primarily due to the initiation of research and
development activities on the Company's proposed drinking water monitoring
product and the increase in marketing and administrative activities resulting
from production and sales of the Company's EDI product beginning in late 1997.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company had net working capital (total current assets
less total current liabilities) of $426,668. The increase in working capital,
compared to that reported at October 31, 1997,
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results primarily from financing activities and sales during the period. At
January 31, 1998, the Company had net cash assets of $360,421, of which amount
$200,000 has subsequently been utilized to acquire the rights to certain
membrane technology from Hydro Components, Inc. See Note (7) - "Subsequent
Events."
During fiscal 1998, the Company received $55,456 on the sale of EDI product
during the period and has accrued an additional $69,801 in receivables pursuant
to such product sales. The Company collected $44,039 during the period
(including $16,829 in raw materials transferred by EDI Components) on trade
accounts and related party receivables accrued in connection with products sold
between September and October, 1997.
In February, 1998, the Company relocated to its current 30,201 sq. ft. facility
with a view toward expanding its production capabilities for the EDI product.
The additional space will also be required if the Company's research program for
the drinking water monitoring program proves successful. The Company has
sub-leased, as of March 1, 1998, approximately 10,000 sq. ft. of such facility
at a monthly rental of $6,500, to offset a portion of its $16,000 monthly lease
obligation. The remaining facilities will allow the Company to increase its
production capabilities and, in turn, its marketing efforts for sales of the EDI
product. Recently, the Company received a blanket order from one customer which
will, alone, generate an average of $60,000 in net monthly sales over the next
9-10 months. Since January 31, 1998, exclusive of such "blanket order", the
Company has received orders totaling over $132,000 in net sales. Coupled with
orders from other current customers and those customers which it believes it can
attract in the near term, the Company projects that it can generate net sales of
EDI products in excess of $150,000 monthly until expanded operations can be
implemented at its new facility. However, no assurances can be given that any
such sales will actually occur.
The Company will be required to raise substantial amounts of new financing, in
the form of additional equity investments or loan financing, in order to carry
out its business objectives. There can be no assurance that the Company will be
able to obtain such additional financing on terms that are acceptable to the
Company and at the time required by the Company, or at all. Further, any such
financing may cause dilution of the interests of the current shareholders in the
Company. If the Company is unable to obtain such additional equity or loan
financing, the Company's financial condition and results of operations will be
materially adversely affected. Moreover, the Company's estimates of its cash
requirements to carry out its current business objectives are based upon certain
assumptions, including assumptions as to the Company's revenues, net income
(loss) and other factors, and there can be no assurance that such assumptions
will prove to be accurate or that unbudgeted costs will not be incurred. Future
events, including the problems, delays, expenses and difficulties frequently
encountered by similarly situated companies, as well as changes in economic,
regulatory or competitive conditions, may lead to cost increases that could have
a material adverse effect on the Company and its plans. If the Company is not
successful in obtaining loans or equity financing for future developments, it is
unlikely that the Company will have sufficient cash to continue to conduct
operations as currently planned. The Company believes that in order to raise
needed capital, it may be required to issue debt or equity securities that are
significantly lower than the current market price of the Company's Common Stock.
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PLAN OF OPERATION
Between January and February, 1998, the Company borrowed a total of $400,000
from Anthony M. Frank and utilized such funds in February, 1998 to acquire
certain rights to the proprietary membrane technology of Hydro Components, Inc.
Of such funds, $200,000 was in the form of a loan and is due to be repaid to the
Company, with interest at 8%, on or about April 17, 1998. See Note (7) -
"Subsequent Events."
With the above loan proceeds repaid, together with its current cash assets,
projected sales revenues and collections anticipated on accounts receivable, the
Company believes that it will have adequate sources of working capital for up
six (6) months, although it may need additional working capital prior to said
date, particularly if the Company is not successful in selling sufficient
quantities of EDI products. In addition, the Company may require additional
funding to implement the development of membrane technology recently acquired
from Hydro Components, Inc.
The above discussion is based largely on the Company's expectations; contains
forward looking statements, and is subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially as a result of a variety of factors, including market
acceptance of the Company's products, the success of the Company's research and
development activities, prevailing economic conditions as they effect the water
purification industry in general and the ability to raise sufficient working
capital. In light of these risks and uncertainties, there can be no assurance
that the Company's expectations will, in fact, transpire or prove to be
accurate.
PART II - OTHER INFORMATION
ITEM 1.
In December, 1993, a default judgment was rendered against the Company in the
sum of $20,270 for unpaid corporate credit card charges the majority of which
accrued from 1989. The lawsuit was brought in the Los Angeles County Municipal
Court. During the fiscal year ended October 31, 1994, the Company paid $250 on
this judgment, however, the Company has made no arrangements to satisfy this
obligation as of this writing.
In January, 1998, the Company satisfied the principal and interest due on a
$12,000 promissory note issued in May, 1997 to the Economic Development Bank for
Puerto Rico (the "Bank") under the terms of a settlement reached on a $3 million
default judgment rendered against the Company in June, 1996. The lawsuit, which
was brought by the Bank in February, 1993 in the San Juan Superior Court,
alleged that the Company, its bankrupt Puerto Rico subsidiary (HOH
International, Inc.), and the officers and directors of both, breached their
fiduciary duty in entering into a distribution agreement with HOH/CNM2
Enterprises which ultimately led to the dissolution of the subsidiary. With
payment of such note, the Company believes that it has satisfied all of its
obligations under the settlement and expects to receive a conditional
satisfaction of the judgment within the next sixty (60) days.
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As disclosed in the Company's Form 10-KSB for the fiscal year ended October 31,
1997, the Company is party to one other lawsuit (Case No. 92219, Ventura County
Municipal Court) claiming a total of $13,007 of past due payments. The status of
this matter has not materially changed from that which was previously reported
and the Company and its counsel expect the Company to prevail in this lawsuit.
No assurances can be given as to the ultimate outcome of any such litigation or
legal proceeding.
ITEM 2.
Since November 1, 1997, the Company has issued or sold the following securities:
On November 12, 1997, the Company issued 60,000 shares of Common Stock as
consideration for an option to purchase the building to which it relocated in
February, 1998. The Common Stock was valued at $1.50 per share and resulted in
an expense to the Company during the fiscal quarter ended January 31, 1998 in
the sum of $90,000.
On January 29, 1998, the Company issued 206,186 shares of Common Stock upon the
conversion of a $200,000 loan made by principal shareholder, Anthony Frank. The
shares were issued at the below fair market value of $0.97 per share, resulting
in an expense as of January 31, 1998 in the sum of $7,217.
The issuance of securities in these transactions were exempt from registration
under the Securities Act of 1933, as amended (the "Act"), by virtue of Sections
3(b) and 4(2) of the Act, including Regulation D promulgated thereunder. The
Company believes that the recipients in each case acquired the securities for
investment only and not with a view to the distribution thereof and legends were
affixed to the stock certificates. No underwriters or brokers were involved in
either transaction.
ITEMS 3 THROUGH 6 OMITTED AS NOT APPLICABLE.
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: February 27, 1998
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)
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ELECTROPURE, INC.
INDEX TO EXHIBITS
PAGE
SEQUENTIALLY
NUMBERED
------------
10.53 8% Sixty-Day Term Note from Hydro Components,
Inc. dated February 17, 1998, including Assignment
Agreement, Security Agreement and Unlimited
Personal Guaranty
27 Financial Data Schedule
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