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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 16, 1998
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ELECTROPURE, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 0-16416 33-0056212
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State or other jurisdiction (Commission (IRS Employer
of Incorporation file number) Identification No.)
23456 SOUTH POINTE DRIVE, LAGUNA HILLS, CALIFORNIA 92653
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code (949) 770-9347
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NONE
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(Former name or former address, if changed since last report)
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ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANTS
On June 16, 1998, the Company retained the independent accounting firm of Kelly
& Company to conduct an audit of its financial statements for the fiscal years
ended October 31, 1997 and 1998. For the Company's fiscal years ended October
31, 1996 and 1997, the financial statements were subject to going concern
qualifications and an uncertainty as to the outcome of certain litigation and
claims, but were not otherwise qualified or modified as to audit scope, or
accounting principles by Alex N. Chaplan & Associates. During the two fiscal
years ended October 31, 1996 and 1997, and since October 31, 1997, there were
not any disagreements with Alex N. Chaplan & Associates on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Alex N. Chaplan & Associates, would have caused it to make a reference to the
subject matter of the disagreements in connection with its report, nor were
there any "reportable events" as defined in Item 304(a)(1)(v) of Regulation S-K.
During the two fiscal years ended October 31, 1996 and 1997, and between October
31, 1997 and June 16, 1998, Registrant did not consult with Kelly & Company on
the application of accounting principles to a specified transaction, or the type
of audit opinion that might be rendered on the Registrant's financial statements
or any disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as defined above).
The change in independent public accountants has delayed the Company's ability
to finalize the audit for the October 31, 1998 fiscal year and the filing of the
Form 10-KSB for such year as well as the Form 10-QSB for the first quarter of
fiscal 1999. The Company expects to file the form 10-KSB on or before April 26,
1999 and then promptly arrange for the annual meeting of shareholders.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
On January 15, 1999, the Company sold one million shares of its Series B
Convertible Preferred Stock ("Series B Preferred Stock") to Anthony M. Frank who
was and is a major shareholder of the Company in a private transaction for
$1,000,000. The Series B Preferred Stock is convertible into one million shares
of the Company's common stock in whole or in part at any time by its holder. The
Series B Preferred Stock is automatically convertible on the same basis if
either of two events occur: a) the Company makes a public offering of any of its
securities, or b) the Company's securities are admitted for listing on a
national securities exchange market system or the NASDAQ system. In the event
the number of shares of the Company's common stock is increased or decreased as
a result of a stock split, stock dividend, reverse stock split, or otherwise,
the number of shares of common stock into which each share of Series B Preferred
Stock may be converted shall concurrently be proportionately issued or
decreased. The Series B Preferred Stock has not rights for participation in any
new or additional issuances of any Company equity instruments.
Each share of Series B Preferred Stock is entitled to four votes on all matters,
including the election of directors and shall vote as a single class along with
the Common Stock, Class B
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Common Stock and Convertible Preferred Stock. Currently, Mr. Frank has 34.3% of
the outstanding voting power of all classes of the Company's stock.
In any liquidation or dissolution of the Company, the holders of the Series B
Preferred Stock will be entitled to a liquidation preference of $1 per share.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
On or about February 15, 1999, the Company filed a complaint in the Orange
County Superior Court of California, Case No. 805529, against Wyatt Technology
Corporation ("Wyatt Technology") for breach of the October, 1997 Technology
Transfer Agreement (the "Agreement") by which the Company obtained a license to
use and develop certain laser-based technology and patents held by Wyatt
Technology. On or about March 9, 1999, the parties entered into a stipulation
providing, among other things, that pending the final resolution of the
Company's lawsuit against Wyatt Technology, neither Wyatt Technology, nor any of
its agents, servants, employees, representatives or other persons acting in
concert or participating with them, will engage in negotiations with any third
party regarding the licensing, use, dissemination, sale or transfer of any of
the technology which is the subject of the Technology Transfer Agreement; nor
provide the use of or disseminate in any way, any of that technology to any
third party.
On or about February 23, 1999, Wyatt Technology filed a cross-complaint against
the Company, Anthony M. Frank, individually; and 25 unnamed "Doe" defendants for
relief based on alleged (1) breach of contract; (2) rescission of contract; (3)
fraud; (4) declaratory relief; and (5) intentional interference with economic
relationship. The Company was unaware of the filing of this cross-complaint
until several days after it was served on the Company, through the Company's
counsel, on or about March 11, 1999.
Clifford J. Wyatt, who was appointed to the Company's Board of Directors on or
about August 3, 1998 as a direct result of the Agreement, is an executive
officer of Wyatt Technology and owns 7.47% of its shares. Immediately prior to
and since this litigation was filed, repeated demands have been made for the
Company's financial information by Mr. Wyatt personally and through his counsel,
which counsel also represents Wyatt Technology Corporation in the referenced
litigation. In view of the current legal controversy, the Company has suggested
to such counsel that Mr. Wyatt's position as a Director of the Company appears
to be in direct conflict with his employment by and ownership interests in Wyatt
Technology. Still, Mr. Wyatt continued to demand financial information of the
Company citing his rights as a Director to such information.
In acquiescence to these repeated demands, on or about March 3, 1999, the
Company provided Mr. Wyatt with a draft (dated as of February 11, 1999) of its
Form 10-KSB for the fiscal year ended October 31, 1998. Although the Company
believes that such draft was accurate as of such February 11, 1999 date, the
draft was not intended for dissemination and Mr. Wyatt was clearly advised that
the financial statements and disclosures were subject to adjustment and
updating.
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A second draft (dated March 5, 1999) was provided to Mr. Wyatt and reflected
current information known to the Company as of such date. This draft was sent to
Mr. Wyatt on or about March 12, 1999 at which time the Company's management had
not yet been informed by its counsel of the cross-complaint filed by Wyatt
Technology.
On or about April 14, 1999, after normal business hours, Mr. Wyatt sent a letter
by facsimile transmission to the Company whereby he finally resigned as a
Director of Electropure, Inc. citing, as reasons for doing so, many of the same
allegations contained in the cross-complaint filed by Wyatt Technology against
the Company, including alleged misstatements in the draft Form 10-KSB about the
Company's business and in particular, the technology acquired from Wyatt
Technology. In fact, the Company has funded substantial research and development
efforts for such technology. The Company believes that Mr. Wyatt's comments are
without merit. Mr. Wyatt's resignation was effectively received by the Company
on April 15, 1999 and is hereby being disclosed in accordance with his request.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS
(b) EXHIBITS:
16.1 Letter from Alex N. Chaplan & Associates dated
April 8, 1999.
17.1 Letter of resignation from Clifford D. Wyatt dated
April 14, 1999.
Pursuant to the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
ELECTROPURE, INC.
(Registrant)
/S/ CATHERINE PATTERSON
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Catherine Patterson
Chief Financial Officer
April 19, 1999
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EXHIBIT INDEX
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Exhibit
Number Description
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16.1 Letter from Alex N. Chaplan & Associates dated
April 8, 1999.
17.1 Letter of resignation from Clifford D. Wyatt dated
April 14, 1999.
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EXHIBIT 16.1
ALEX N. CHAPLAN & ASSOCIATES
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Certified Public Accountant 23622 Calabasas Road, Suite 107 A
Calabasas, California 91302
(818) 591-1901
FAX (818) 222-0727
April 8, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
We were previously principal accountants for Electropure, Inc. and, under the
date of January 29, 1998, we reported on the financial statements of
Electropure, Inc. as of and for the years ended October 31, 1996 and 1997. On or
about June 16, 1998, the Company retained the independent accounting firm of
Kelly & Company to conduct an audit of its books and records. We have read
Electropure, Inc.'s statements included under Item 8 of its Form 10-KSB for the
fiscal year ended October 31, 1998, and we agree with such statements, except
that we are not in a position to agree or disagree with Electropure, Inc.'s
statement that they have not consulted with any other accounting firm on the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on Electropure, Inc.'s financial
statements, any disagreements, or a reportable event.
Very truly yours,
ALEX N. CHAPLAN & ASSOCIATES
/S/ ALEX N. CHAPLAN
Alex N. Chaplan, CPA
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EXHIBIT 17.1
[WYATT TECHNOLOGY CORPORATION LETTERHEAD]
04/14/99
Mr. Floyd Panning, President
Electropure, Inc.
23456 South Point Drive
Laguna Hills, CA 92653
fax: (949) 770-9209
Dear Mr. Panning:
I hereby submit my resignation as a member of the Board of Directors of
Electropure, Inc. to be effective immediately.
The reason for my resignation is because of my profound disagreement with the
Company's operations, policies and practices. I request that the matters covered
by this letter be disclosed, in accordance with Item 6(a) of the rules as to the
use of Form 8-K.
As you know, I first became a director during August 1998. Since that time I
have become increasingly concerned about the quality of management, and
particularly the nature of the company's disclosures under the Securities laws.
From time to time I have communicated my concerns without any adequate response.
My disagreements include the following:
1. I have become increasingly concerned by the fact that the Company is
seemingly unable to finalize its audit with respect to its financial statements
for Fiscal October 1998, and accordingly is unable to issue a 10-K in compliance
with the Federal securities laws. Since the end of the fiscal year, several
months have passed, including the end of the first quarter of fiscal 1999, and I
have yet to receive any financial statements for any period of the current year.
2. It was only after repeated requests and having a call made to the Company's
counsel for corporate matters that I finally received a draft 10-K.
3. The draft 10-K contained numerous material misstatements and omissions which
I found quite shocking. For example, it did not mention the cross-complaint
filed by Wyatt Technology against the Company, although it did mention the
action filed by the Company against Wyatt Technology. Further it appears that
the Company had not informed its auditors that Wyatt's position was that it was
entitled to obtain rescission or termination of the technology license described
at length in the draft 10-K. Further examples are set forth below.
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EXHIBIT 17.1
4. The draft 10-K also failed to mention that Mr. Anthony Frank had purchased
shares of preferred stock pursuant to an agreement which gave him effective and
perhaps absolute control of the Company. To the best of my knowledge, no Form
8-K was filed with respect to Mr. Frank's acquisition of such stock, despite a
clear requirement for such filing.
5. The draft 10-K contained a lengthy description of the potential market for
water purification devices relating to the technology transferred from Wyatt
Technology, despite the fact that the Company's rights to the use of the
technology were being challenged and the Company, in over a year of having the
license, had not begun in any meaningful way the development of the technology
to the point where there might be a viable and saleable product.
6. The Company has persisted in portraying itself, in the 10-K, on the Internet,
in other media and in direct communications with investors as seriously engaged
in the development of laser technology for water purification purposes. However,
the Company has allocated scant funds to that endeavor, it has failed to make
any meaningful attempt to raise the necessary capital and it is now apparent
that the Company does not in fact have the capacity to raise the $10 to $15
million which it committed to raise in the contract covering the technology
license. Further, much of whatever the Company has been able to raise has gone
largely either to unrelated acquisitions or for purposes other than the above
technology development. Additionally, the Company discharged the person who,
under the Technology Transfer Agreement, was to have been given an employment
agreement and was specifically designated to run the project.
7. As far as I know, the Company has not scheduled an annual stockholders'
meeting. In fact it is not clear to me that the Company has had a stockholders
meeting at any time during the past three years.
The foregoing represent among the most significant examples of my concerns. In
summary, I am resigning from the Company's Board of Directors because the
Company does not keep its directors informed, it does not file legally required
reports with the Securities & Exchange Commission on a timely basis (if at all),
it publishes materially misleading information about its operations in what I
believe to be an attempt to manipulate the value of its stock and it pays
little, if any, attention to giving accurate information to its stockholders
even extending to the point of not having annual stockholder meetings.
In accordance with Item 6(c) of the rules to the use of Form 8-K, you are
required to file a copy of this letter as an exhibit to the Form 8-K filing.
Sincerely yours,
/S/ CLIFFORD WYATT
Clifford Wyatt
CC: Ms. Cathy Patterson
