U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB/A-1
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 0R 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from..............to................
Commission file number 0-30544
WATER CHEF, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 86-0515678
------------------------------ -----------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
1007 Glen Cove Avenue, Suite 1, Glen Head, New York 11545
--------------------------------------
(Address of principal executive offices)
516-656-0059
-------------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange act during the past 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AS OF
CLASS August 23, 2002
----- ---------------
Common
Par value $0.001 per share 89,564,286
WATERCHEF, INC.
INDEX
PART I - FINANCIAL INFORMATION: Page
----
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET (UNAUDITED) 2
At June 30, 2002
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) 3
For the Three Months Ended June 30, 2002 and 2001
For the Six Months Ended June 30, 2002 and 2001
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) 4
For the Six Months Ended June 30, 2002 and 2001
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 5 - 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11 - 12
ITEM 3 - CONTROLS AND PROCEDURES 12
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS 13
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS N/A
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES N/A
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS N/A
ITEM 5 - OTHER INFORMATION N/A
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
CERTIFICATION 16
EXHIBIT
1
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
CONDENSED BALANCE SHEET
JUNE 30, 2002
(Unaudited)
ASSETS
(As Restated
See Note 2)
------------
CURRENT ASSETS:
Cash $ 75,089
Inventories 146,000
Prepaid expenses and other current assets 9,662
------------
TOTAL CURRENT ASSETS 230,751
PATENTS AND TRADEMARKS (net of
accumulated amortization of $2,308) 23,747
------------
$ 254,498
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 193,747
Accrued expenses and other current liabilities 116,642
Notes payable (including accrued interest of $214,412) 1,382,905
Common stock to be issued 1,316,358
------------
TOTAL CURRENT LIABILITIES 3,009,652
LONG-TERM LIABILITIES
Loans payable to shareholder (including accrued interest of $45,550) 418,332
------------
TOTAL LIABILITIES 3,427,984
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value;
10,000,000 shares authorized;
145,500 shares issued and outstanding 146
Common stock, $.001 par value;
90,000,000 shares authorized;
89,564,286 shares issued and outstanding 89,564
Additional paid in capital 12,583,518
Stock subscription receivable (45,500)
Treasury stock, 4,400 common shares, at cost (5,768)
Accumulated deficit through December 31, 2001 (14,531,596)
Accumulated deficit (1,263,850)
------------
TOTAL STOCKHOLDERS' DEFICIT (3,173,486)
------------
$ 254,498
============
See notes to condensed financial statements.
2
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(As Restated (As Restated (As Restated (As Restated
See Note 2) See Note 2) See Note 2) See Note 2)
Sales $ -- $ -- $ 40,000 $ --
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of sales 26,200 -- 51,680 --
Selling, general and administrative 226,989 140,328 368,337 310,294
Research and development -- 53,125 -- 106,250
Non-dilution agreement termination cost 596,958 -- 596,958 --
Loss (Gain) on settlement of debt 184,250 (65,631) 184,250 (65,631)
Interest expense 65,257 80,373 102,625 89,832
Loss contingency -- 242,035 -- 242,035
------------ ------------ ------------ ------------
1,099,654 450,230 1,303,850 682,780
------------ ------------ ------------ ------------
Loss from continuing operations (1,099,654) (450,230) (1,263,850) (682,780)
------------ ------------ ------------ ------------
Gain from discontinued operations -- 48,744 -- 13,174
------------ ------------ ------------ ------------
Net loss (1,099,654) (401,486) (1,263,850) (669,606)
Preferred stock dividends (27,075) (27,075) (54,150) (54,150)
------------ ------------ ------------ ------------
Net loss applicable to
common stock $ (1,126,729) $ (428,561) $ (1,318,000) $ (723,756)
============ ============ ============ ============
Basic and Diluted Loss Per Common Share:
Continuing operations $ (0.01) $ (0.00) $ (0.01) $ (0.01)
Discontinued operations -- 0.00 -- 0.00
------------ ------------ ------------ ------------
$ (0.01) $ (0.01) $ (0.01) $ (0.01)
============ ============ ============ ============
Weighted Average Common Shares Outstanding -
Basic and Diluted 88,591,759 80,872,830 87,608,485 76,570,859
============ ============ ============ ============
See notes to condensed financial statements.
3
WATER CHEF INC.
(A Development-Stage Company Commencing January 1, 2002)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
--------------------------
2002 2001
----------- -----------
(As Restated (As Restated
See Note 2) See Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,263,850) $ (669,606)
Adjustments to reconcile net loss to
net cash used in operating activities
Loss from discontinued operations -- (13,174)
Depreciation and amortization 926 176
Non-cash compensation and other services 36,000 36,750
Loss (Gain) on settlement of debt 184,250 (65,631)
Non-dilution agreement termination cost 596,958 --
Amortization of debt discount -- 31,000
Write-off of note-payable -- (104,081)
Change in assets and liabilitie
Inventories 13,250 (497,000)
Other current assets 50,000 (26,464)
Accounts payable and accrued expenses 100,043 920,702
----------- -----------
Net cash used in continuing operations (282,423) (387,328)
Net cash provided by (used in) discontinued operations -- (463,271)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (282,423) (850,599)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment -- (551)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES -- (551)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable -- 450,000
Repayment of note payable -- (25,000)
Proceeds from sale of common stock and exercise of warrants 322,000 621,426
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 322,000 1,046,426
----------- -----------
NET INCREASE IN CASH 39,577 195,276
CASH AT BEGINNING OF PERIOD 35,512 158,100
----------- -----------
CASH AT END OF PERIOD $ 75,089 $ 353,376
=========== ===========
Non-cash financing and investing activities:
Common stock issued for debt $ -- $ 110,995
=========== ===========
Common stock issued for accrued expenses $ -- $ --
=========== ===========
See notes to condensed financial statements.
4
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-QSB. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows for all periods
presented have been made. The results of operations for the six month-period
ended June 30, 2002, are not necessarily indicative of the operating results
that may be expected for the year ending December 31, 2002. These financial
statements should be read in conjunction with the Company's December 31, 2001
Form 10-KSB, financial statements and accompanying notes thereto.
In November 2001, the Company's sold their water cooler and filter operations
segment. Accordingly, this segment of the Company's business is reported as
discontinued Operations for the three and six months ended June 30, 2002 and
2001. The three and six months ended June 30, 2001 has been restated to reflect
such operations as discontinued.
The Company's condensed statements of operations and cash flows for the three
and six months ended June 30, 2002 represent the cumulative from inception
information required by Statement of Financial Accounting Standards ("SFAS") No.
7, "Development Stage
Enterprises."
2. RESTATEMENT
As a result of certain adjustments to the annual 10-KSB financial statements for
the years ended December 31, 2002 and 2001, the Company is restating its Form
10-QSB filings included in those periods. The June 30, 2002 and 2001 results
were restated as a result of such adjustments.
The Company has corrected an error relating to the accrual of non-dilution
agreement termination cost and recording certain other expenses and adjustments.
The Company recorded reduction expenses of $336,330 and $410,616 for the three
and six months period ended June 30, 2002 as a result of these adjustments,
respectively.
The Company has corrected an error relating to the accrual of loss (gain) on
settlement of debt and recording of certain other expenses and adjustments. The
Company recorded additional expenses of $151,656 for the three and six months
ended June 30, 2001 as a result of these adjustments.
The effect of the preceding adjustments on net loss and net loss per share for
the three and six-month periods ended June 30, 2002 and 2001 are as follows:
Three Months Ended June 30,
------------------------------------------------------
2002 2001
------------------------- -------------------------
As As
Previously As Previously As
Reported Adjusted Reported Adjusted
----------- ----------- ----------- -----------
Net loss applicable to common stock $(1,463,059) $(1,126,729) $ (276,905) $ (428,561)
=========== =========== =========== ===========
Net loss per share $ (0.02) $ (0.01) $ (0.00) $ (0.00)
=========== =========== =========== ===========
Six Months Ended June 30,
------------------------------------------------------
2002 2001
------------------------- -------------------------
As As
Previously As Previously As
Reported Adjusted Reported Adjusted
----------- ----------- ----------- -----------
Net loss applicable to common stock $(1,728,616) $(1,318,000) $ (572,100) $ (723,756)
=========== =========== =========== ===========
Net loss per share $ (0.02) $ (0.01) $ (0.01) $ (0.01)
=========== =========== =========== ===========
5
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has had recurring losses.
Additionally, the Company had working capital and total capital deficiencies of
approximately $2,779,000 and $3,173,000, respectively, at June 30, 2002. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with respect to these matters include
restructuring its existing debt, settling its existing debt by issuing shares of
its common stock, raising additional capital through future issuances of stock
and or debentures. The accompanying financial statements do not include any
adjustments that might be necessary should the Company be unable to continue as
a going concern.
4. RECENT ACCOUNTING PRONOUNCEMENTS
a. Effective January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and
Other Intangible Assets". Under SFAS No. 142, goodwill acquired in the
acquisition will not be amortized but instead be tested annually for impairment.
The adoption of SFAS No. 142 had no impact on the Company's financial position
or results of operations.
b. In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-lived
Assets". SFAS 144 superceded Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed of" and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". SFAS 144 also
amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
to eliminate the exception to consolidation for a subsidiary for which control
is likely to be temporary. The provisions of SFAS 144 are effective for fiscal
years beginning after December 15, 2001.
The most significant changes made by SFAS No. 144 are (1) goodwill is removed
from its scope and, therefore, it eliminates the requirements of SFAS 121 to
allocate goodwill to long lived assets to be tested for impairment, and (2) it
describes a probability-weighted cash flow estimation approach to apply to
situations in which alternative courses of action to recover the carrying amount
of long-lived assets is under consideration or a range is estimated for the
amount of possible future cash flows. The Company's adoption of SFAS No. 144 on
January 1, 2002 did not have a material effect on its financial position or
results of operations.
c. On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No.13, and Technical
Corrections." The rescission of SFAS No.4, "Reporting Gains and Losses from
Extinguishments", and SFAS No.64, "Extinguishments of Debt made to Satisfy
Sinking Fund Requirements," which amended SFAS No.4 will affect income statement
classification of gains and losses from extinguishment of debt. SFAS No.4
requires that gains and losses from extinguishment of debt be classified as an
extraordinary item, if material. Under SFAS No. 145, extinguishment of debt is
now considered a risk management strategy by the reporting enterprise and the
FASB does not believe it should be considered extraordinary under the criteria
in APB Opinion No.30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", unless the debt extinguishment
meets the unusual in nature and infrequency of occurrence criteria in APB
Opinion No. 30. SFAS No. 145 will be effective for fiscal years beginning after
May 15, 2002. The Company has not yet determined the impact of SFAS No.145 on
its financial position and results of operations, if any.
6
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
d. In June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullified Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). " SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. A fundamental conclusion reached by
the FASB in this statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company has not yet determined the
impact of SFAS No.146 on its financial position and results of operations, if
any.
5. DIVIDENDS ON PREFERRED STOCK
At June 30, 2002, dividends in arrears on preferred stock was $720,256.
6. COMMON STOCK
In February 2002, the Company's Board of Directors approved the increase in the
number of authorized common shares to 190,000,000 pending shareholders'
approval.
During the six months ended June 30, 2002, the Company sold 2,500,000 shares of
its common stock, for net proceeds of $100,000.
During the six months ended June 30, 2002, the Company issued an aggregate of
450,000 shares of its common stock for consulting services totaling $36,000.
During the six months ended June 30, 2002, the Company received $200,000 for
4,000,000 shares of its common stock to be sold, which shall be issued upon the
approval of the shareholders on the increase of the authorized capital shares of
the Company. Such amount has been recorded as "Common stock to be issued" in the
accompanying financial statements.
During the six months ended June 2002, the Company collected $22,000 of the
stock subscription receivable.
7
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
7. COMMON STOCK TO BE ISSUED
During the quarter ended June 30, 2002, the Company recorded a liability for
common stock to be issued for the following transactions:
a. Cash
During the year end December 31, 2002, the Company received $200,000 for
4,000,000 shares of its common stock. These shares, will be issued upon the
approval by the stockholders on the increase in the number of authorized common
shares of the Company. These shares are not included in the loss per share
calculations.
b. Non-Dilution Agreement Termination Cost
In May 2002, the Company agreed to issue to the Company's President and Chief
Executive Officer, and to related parties of such, an aggregate of 14,923,958
shares of its common Stock in connection with the voluntary surrender of a
non-dilution agreement that the President had entered into with the Company in
June 1997. These shares are not included in the loss per share calculations.
Since the issuance of these shares is subject to stockholder approval, the
measurement date for purposes of valuation will be established when such
stockholder approval has been obtained. Accordingly, the Company is utilizing
variable accounting to determine the value of these shares and the related
liability is included in common stock to be issued. The Company has recorded the
liability of approximately $597,000 based upon the market price of its shares as
of June 30, 2002.
c. Settlement of Debt
The Company was a defendant in an action brought by certain debenture holders
(The "Bridge Loans") in New Hampshire Superior Court seeking repayment of
$300,000 of debenture principal together with interest from 1997, and the
issuance of penalty shares for non payment of principal and interest. In
addition, the plaintiff's claim that they had suffered by the Company's failure
to register the shares issued under the warrant agreement.
The Company had interposed defenses and counterclaims. In June 1997, in
connection with the debentures, the Company had issued 6,667 shares of common
stock for every $1,000 of debt at a price of $0.15 per share. The Company
claimed that it was owed the $300,000 consideration for such shares. In
addition, the Company had issued warrants for the purchase of 2,500,000 shares
of common stock at an exercise price of $0.15 per share exercisable until March
2002.
8
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
7. COMMON STOCK TO BE ISSUED (Continued)
Furthermore, the Company had issued another 100,000 shares of common stock to
each debenture holder, or 1,300,000 shares, at a price of $0.15 per share.
In the second quarter of 2002, the Company and the Bridge Lenders participating
in the legal action, settled this dispute requiring the Company to: (i) Issue
3,000,000 shares of common stock valued at $497,500 in lieu of the principal and
interest owed to the debenture holders who participated ("participants") in this
legal action. The Company prior to the settlement had recorded the debentures at
$300,000, plus accrued interest of $39,400, for a total of $339,400. The
difference between the $497,500 settlement and the $339,400, or $158,100, is
recorded as a loss on settlement of debt. (ii) Extend the warrants attached to
the participants' debentures for another two years until March 2004, for which
the Company has recorded a non-cash expense charge of $111,000 and (iii) Issue
additional shares if the product of the $497,500, as valued for the 3,000,000
shares above, divided by the average daily trading price for the 30 days
subsequent to the settlement, is greater than the original 3,000,000 shares. Due
to these requirements the Company is obligated to issue an additional 14,037,671
shares, due to the average trading price of $0.0292 in the 30 days subsequent to
the settlement. As of June 30, 2002, neither the 3,000,000 nor the additional
shares of 14,037,671 have been issued, and accordingly the Company has recorded
these shares as common stock to be issued valued at $497,500. These shares are
not included in the loss per share calculations.
The debenture holders that did not participate ("non-participating debentures")
in the above legal action had total debentures of $75,000, plus accrued interest
of $9,850 as of the settlement date, totaling $84,850. In conjunction with the
above settlement, the Company settled these outstanding non-participating
debentures, plus accrued interest, with the issuance of 750,000 shares of common
stock valued at $0.0292 per share, or $21,900. The terms of their warrants were
not extended, nor are they entitled to receive additional shares based on the
Company's common stock achieving a certain average trading price 30 days
subsequent to the settlement with the participating debenture holders. The
Company has recorded a $62,950 gain with regard to the settlement of the
non-participating debentures. As of June 30, 2002, the 750,000 shares have not
been issued, and accordingly the Company has recorded these shares as common
stock to be issued valued at $21,900. These shares are not included in the loss
per share calculations.
The total shares to be issued upon stockholder approval of the increase in the
authorized stock of the Company as a result of the transactions described above
aggregate 36,711,629.
9
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
9. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in an action, brought by a customer, relating to a
series of contracts that the Company entered into. These contracts were with the
Company's discontinued water cooler and filter operation. Such operations were
sold in November 2001, however legal actions with regards to the operations
prior to the sale, remain the Company's responsibility. The customer claims that
the Company breached these contracts by shipping certain goods that did not
conform to the contract. Most of the damages that the customer seeks consist of
lost business profits. Company management, and legal counsel, believe that the
action is without merit. The Company has made a $5,000 settlement offer to the
customer, for the nuisance value of the lawsuit. The customer has rejected such
offer, and has proposed a $75,000 settlement. No provision has been provided for
at June 30, 2002.
In May 2001, the Company entered a distribution agreement with a company (the
"Sub distributor") based in the State of Jordan. The Sub distributor has agreed
to purchase no fewer than 100 units of the Company's "Pure Safe Water Station",
in the calendar year commencing January 1, 2001. A minimum purchase of 50 units
are required to be purchased in each of the subsequent years commencing January
1, 2002 and 2003, respectively. During the year ended December 31, 2001, 18
units have been shipped under this agreement. The sale will be recognized when
the Company receives payments. The Company has recorded the costs of the
inventory shipped in operating costs, since return of the items is uncertain.
The Company is a plaintiff in a criminal action brought before the court in the
Kingdom of Jordan, claiming the full payment for PureSafe Water Stations
shipped, its related costs and damages. Criminal charges have been brought
against a former sub-distributor and against two management employees of the
Jordan National Bank and against the Jordan National Bank. A trial date has not
yet been set.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OR PLAN OF OPERATIONS.
INTRODUCTION
Until the fourth quarter of 2001, WaterChef was engaged in the manufacture and
marketing of water coolers and water purification and filtration products. In
the fourth quarter of 2001, the Company negotiated the sale of this business in
order to focus its activities on its PureSafe line of business. The PureSafe
Water Station has been designed by the Company to meet the needs of communities
who either do not have access to municipal water treatment systems, or for those
whose systems have been compromised, either by environmental factors or by
faulty design or maintenance.
RESULTS OF OPERATIONS
During 2001, WaterChef made the strategic decision to exit the water cooler and
consumer filter segments of its business in order to concentrate its resources
on the development of the market for the PureSafe Water Station. With the sale
of these assets consummated in December 2001, the Company's water cooler and
consumer filter businesses are reported as discontinued operations for the three
months and six-month periods ended June 30, 2002, resulting in a gain from
discontinued operations of $48,744 and $13,174 for the three and six month
periods respectively.
For the three months ended June 30, 2002 and June 30, 2001, WaterChef reported
no revenues. For the six months periods ended June 30, 2002 and June 30, 2001
the Company reported revenues of $40,000 and $0 respectively.
Cost of sales for the three and six month periods ended June 30, 2002 were
$26,200 and $51,680 respectively, compared to $0 in the three and six-month
periods ended June 30, 2001.
Selling, general and administrative expenses for the three months ended June 30,
2002 were $226,989, compared to $140,328 for the year earlier period, an
increase of 62%; and $368,337 for the six months ended June 30, 2002 compared to
$310,294 for the six months ended June 30, 2001, an increase of 19%, primarily
due to higher factory rent and overhead expenses in the current period.
The Company has incurred no research and development expenses in 2002, compared
to $53,125 and $106,250 for the three and six month periods ended June 30,
2001.During the first six months of 2002 the Company negotiated the settlement
of debt and accrued interest for shares of the Company's stock, which resulted
in a reported loss of $184,250 in the six months ended June 30, 2002.
11
A gain from discontinued operations of $ 48,744 and $13,174 respectively was
reported for the three and six month periods ended June 30, 2001, compared to $0
for the comparable periods in 2002. The discontinued operations were sold in
December 2001, and no operations existed for these businesses in 2002.
During the second quarter of 2002, the Company has agreed to issue to the
Company's President and Chief Executive Officer, and the related parties of
such, an aggregate of 14,923,958 shares of its common stock in connection with
the voluntary surrender of a non-dilution agreement that the Company and the
President had entered into in June, 1997. This non-cash event of approximately
$597,000 was valued at the then-current market price of $0.04 per share, and
represents a non-cash cost to the Company.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002 the Company had a stockholders' deficit of approximately
$3,173,000 and a working capital deficit of approximately $2,779,000. In
addition the Company has incurred losses from continuing operations of
approximately $1,100,000 and $1,264,000 for the three and six months periods
ended June 30, 2002. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. However, these
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with respect to these matters include
restructuring its existing debt, raising additional capital through future
issuances of stock and/or equity, and finding sufficient profitable markets for
its products to generate sufficient cash to satisfy its obligations. The
accompanying financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
Management is currently attempting to settle or restructure the remaining debt,
including that debt related to the discontinued operations. In the quarter ended
June 30, 2002 the Company reached a negotiated settlement concerning notes
payable and accrued interest aggregating $423,750. The terms of the settlement
agreement called for the issuance of 3,000,000 shares of common stock. As a
further condition of the settlement agreement, the Company must file a
registration statement with the Securities and Exchange Commission within 180
days to register these shares. In addition, an aggregate of 750,000 shares of
common stock were issued to the debenture holders who were not party to the
settlement.
During the six months ended June 30, 2002, the Company raised $300,000 from the
sale of 6,500,000 shares of common stock. However, the Company has issued
2,500,000 shares of common stock so far for $100,000. Since the Company cannot
issue the shares of common stock due to pending approval of shareholders on the
increase of authorized share capital, 4,000,000 shares of common stock for
$200,000 is appropriately disclosed as "Common stock to be issued" under
Stockholders' deficit. In addition, the Company received payment of $22,000 for
shares issued during 2001 which was accounted for as a stock subscription
receivable. The Company also issued 450,000 shares of common stock, in lieu of
cash for consulting services performed. During the six month period ended June
30, 2001 the Company raised $584,770 through the sale of 11,536,246 shares of
common stock and settled accounts payable, notes payable and accrued interest of
$120,595 with the issuance of 1,210,000 shares of common stock.
In May 2002, the Company agreed to issue to the Company's President and Chief
Executive Officer, and related parties of such, an aggregate 14,923,958 shares
of common stock in connection with the voluntary surrender of a non-dilution
agreement that the Company and the President had entered into in June 1997.
ITEM 3 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures conducted
within 90 days of the date of filing this quarterly report on Form 10-QSB, our
Chief Executive Officer and the Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-(c) and 15d-(c)
promulgated under the Securities Exchange Act of 1934 are effective.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, and no corrective actions with regard to significant deficiencies
and material weaknesses were taken.
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PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is a defendant in an action, brought by a customer, relating to a
series of contracts the Company entered into. These contracts were with the
Company's discontinued water cooler and consumer filter operation. These
segments were sold in December 2001. However, legal actions with regard to these
operations prior to the sale remain the Company's responsibility. The customer
claims breach of contract, maintaining that the Company shipped goods that did
not meet the customer's specification. The customer seeks damages in the form of
lost opportunity and lost business profits. The Company's management and legal
counsel believe that the action is without merit. The Company has made a $5,000
settlement offer for the nuisance value of the lawsuit. The customer rejected
the offer and has proposed a $75,000 settlement. No provision has been provided
for at June 30, 2002.
The Company is a plaintiff in a criminal action brought before the court in the
Kingdom of Jordan, claiming the full payment for PureSafe Water Stations
shipped, its related costs and also the damages from a customer in Jordan.
Jordanian counsel has been retained and is confident that the Company will
prevail.
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ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 2002, the Company's Board of Director approved the increase
in the number of authorized common shares to 190,000,000 pending
shareholders' approval.
During the six months ended June 30, 2002, the Company sold 2,500,000
shares of its common stock, for net proceeds of $100,000.
During the six months ended June 30, 2002, the Company issued an
aggregate of 450,000 shares of its common stock for consulting services
totaling $36,000.
During the six months ended June 30, 2002, the Company received $200,000
for 4,000,000 shares of its common stock to be sold, which shall be
issued upon the approval of the shareholders on the increase of the
authorized capital shares of the Company. Such amount has been recorded
as "Common stock to be issued" in the accompanying financial statements.
During the six months ended June 2002, the Company collected $22,000 of
the stock subscription receivable.
During the six months ended June 2002, the Company agreed to issue an
aggregate of 1,175,000 shares of its common stock for consulting services
totaling $92,000.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
99.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C.ss.1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended June 30, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATER CHEF, INC.
Date: July 10, 2003 /s/ David A. Conway
---------------------------------
David A. Conway
President, and Chief Executive
Officer and Chief Financial
Officer
(Principal Operating Officer)
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CERTIFICATION
I, David A. Conway, certify that:
I have reviewed this quarterly report on Form 10-QSB of WaterChef, Inc.;
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
Based on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects the
financial condition and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared; Evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in our financial controls; and Any fraud,
whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ David A. Conway
-----------------------
David A. Conway
President and Chief Executive Officer
and Chief Financial Officer
July 10, 2003
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