UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2007
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from____________
to ______________ Commission file number 1-09478
WATER CHEF, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 86-0515678
------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
68 South Service Road, Suite 100, Melville, New York 11747
----------------------------------------------------------
(Address of Principal Executive Offices)
631-577-7915
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
----------------------------------------------------
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date.
OUTSTANDING AS OF AUGUST 7, 2007
CLASS Common
--------- -----------
Par value $0.001 per share 190,191,843
Transitional small business disclosure format (check one) Yes [ ] No [X]
WATER CHEF, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION:
ITEM 1: FINANCIAL STATEMENTS:
Condensed Balance Sheet (Unaudited)
At June 30, 2007 2-3
Condensed Statements of Operations (Unaudited)
For the Three Months Ended June 30, 2007 and 2006
For the Six Months Ended June 30, 2007 and 2006
For the Period January 1, 2002 to June 30, 2007 4
Condensed Statement of Stockholders' Deficiency (Unaudited)
For the Six Months Ended June 30, 2007 and 2006
5-6
Condensed Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2007 and 2006
For the Period January 1, 2002 to June 30, 2007 7-8
Notes to Condensed Financial Statements (Unaudited) 9-16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 17-20
ITEM 3: CONTROLS AND PROCEDURES 21-22
PART II: OTHER INFORMATION:
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
ITEM 6: EXHIBITS 24
SIGNATURE 25
CERTIFICATIONS 26-27
1
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2007
ASSETS
CURRENT ASSETS:
Cash $215,129
Prepaid expenses and other current assets 30,685
--------
Total Current Assets 245,814
--------
FIXED ASSETS:
Property and equipment - net of accumulated
depreciation of $234 13,806
--------
OTHER ASSETS
Patents and trademarks - net of accumulated
amortization of $11,579 14,476
Other assets 6,360
--------
Total Other Assets 20,836
--------
TOTAL ASSETS $280,456
========
See notes to condensed financial statements.
2
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2007
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 401,099
Accrued compensation 135,000
Accrued consulting and director fees 155,833
Notes payable to officer and director (including accrued interest of $2,863) 102,863
Notes payable (including accrued interest of $393,361) 1,001,314
Fair value of detachable warrants and options 501,800
Fair value of embedded conversion options 143,900
Accrued dividends payable 190,084
------------
TOTAL CURRENT LIABILITIES 2,631,893
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIENCY:
Preferred stock - $.001 par value; 10,000,000 shares
Authorized; 185,819 shares issued and outstanding,
(liquidation preference $2,321,500) 186
Common stock - $.001 par value; 340,000,000 shares authorized;
190,196,243 shares issued and 190,191,843 shares outstanding 190,191
Additional paid-in capital 25,333,677
Treasury stock, at cost - 4,400 shares of common stock (5,768)
Deficit accumulated through December 31, 2001 (14,531,596)
Deficit accumulated during development stage (13,338,127)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (2,351,437)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 280,456
============
See notes to condensed financial statements.
3
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended For the period
June 30, June 30, January 1, 2002
-------- -------- to June 30,
2007 2006 2007 2006 2007
------------- ------------- ------------- ------------- -------------
SALES $ -- $ -- $ -- $ 115,000 $ 471,290
------------- ------------- ------------- ------------- -------------
COST OF SALES 8,000 21,000 23,000 72,000 575,680
SELLING, GENERAL AND ADMINISTRATIVE -
Including stock based compensation of
$503,838 and $727,000 for the three months
ended June 30, 2007 and 2006 and $503,838
and $767,699 for the six months ended June
30, 2007 and 2006, and $2,038,927 for the
period January 1, 2002 to June 30, 2007,
respectively 757,718 878,966 920,255 1,163,937 6,577,306
NON-DILUTION AGREEMENT TERMINATION COST -- -- -- -- 2,462,453
INTEREST EXPENSE - Including interest expense
to related parties of $2,466 and $5,967 for
the three months ended June 30, 2007 and
2006 and $2,863 and $11,934 for the six
months ended June 30, 2007 and 2006, and
$122,203 for the period January 1, 2002
through June 30, 2007, respectively 31,925 36,064 139,200 191,864 1,245,761
FINANCING COSTS - EXTENSION OF WARRANTS -- -- -- -- 74,700
LOSS ON SETTLEMENT OF DEBT -- -- -- -- 2,614,017
INTEREST EXPENSE -
CONVERSION PROVISION 113,000 113,000 113,000
CHANGE IN FAIR VALUE OF WARRANTS
AND EMBEDDED CONVERSION OPTION (94,100) 72,400 18,400 186,600 146,500
------------- ------------- ------------- ------------- -------------
816,543 1,008,430 1,213,855 1,614,401 13,809,417
------------- ------------- ------------- ------------- -------------
NET LOSS (816,543) (1,008,430) (1,213,855) 1,499,401) (13,338,127)
------------- ------------- ------------- ------------- -------------
DEEMED DIVIDEND ON PREFERRED STOCK -- -- -- -- (2,072,296)
PREFERRED STOCK DIVIDENDS (74) (42,401) (213) (42,401) (509,280)
------------- ------------- ------------- ------------- -------------
(74) (42,401) (213) (42,401) (2,581,576)
------------- ------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (816,617) $ (1,050,831) $ (1,214,068) $ (1,541,802) $ (15,919,703)
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.00) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 185,852,398 193,303,682 187,799,075 187,869,690
============= ============= ============= =============
See notes to condensed financial statements.
4
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
Preferred Stock Common Stock Additional
---------------------------- ---------------------------- Paid-in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
FOR THE SIX MONTHS ENDED JUNE 30, 2007
BALANCE - JANUARY 1, 2007 188,917 $ 189 198,977,497 $ 198,977 $ 22,836,764
Proceeds from Sale of Common Stock:
($0.090 per share) May 10, 2007 -- -- 1,111,112 1,111 98,889
($0.083 per share) May 10, 2007 -- -- 2,409,640 2,409 197,591
($0.090 per share) May 31, 2007 -- -- 555,555 555 49,445
($0.083 per share) June 26, 2007 -- -- 1,203,080 1,203 98,797
Stock for compensation:
($0.110 per share) May 2, 2007 2,500,000 2,500 272,500
Common stock issued in repayment of debt:
($0.132 per share) February 26, 2007 -- -- 195,212 195 25,534
($0.111 per share) March 8, 2007 -- -- 234,165 234 25,571
($0.107 per share) March 14, 2007 -- -- 256,643 257 25,587
($0.099 per share) March 19, 2007 -- -- 262,650 263 25,608
($0.097 per share) March 23, 2007 -- -- 806,583 807 76,867
($0.095 per share) April 4, 2007 -- -- 546,901 547 51,354
($0.086 per share) May 1, 2007 -- -- 908,885 909 77,345
Stock for late payment penalty:
($0.100 per share) May 22, 2007 -- -- 100,000 100 9,900
Preferred stock converted to common stock:
During the quarter ended March 31, 2007 (2,848) (3) 113,920 114 (111)
During the quarter ended June 30, 2007 (250) -- 10,000 10 (10)
Cancellation of debt for no consideration -- -- -- -- 1,327,321
Surrender and cancellation of common stock -- -- (20,000,000) (20,000) 20,000
Reclassification of derivative liability
to equity upon conversion of debt -- -- -- -- 140,000
Reclassification of options to non employees to
derivative liability -- -- -- -- (247,100)
Reclassification of derivative liability to
equity upon conversion of preferred stock -- -- -- -- 3,200
Amortization of warrants and option over the
vesting period for employees and non employees -- -- -- -- 218,838
Preferred stock dividend -- -- -- -- (213)
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - JUNE 30, 2007 185,819 $ 186 190,191,843 $ 190,191 $ 25,333,677
============ ============ ============ ============ ============
See notes to condensed financial statements.
5
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
(CONTINUED)
Deficit Deficit
Accumulated Accumulated
Treasury through During Total
Stock December 31, Development Stockholders'
- at cost 2001 Stage Deficiency
------------ ------------ ------------ ------------
FOR THE SIX MONTHS ENDED JUNE 30, 2007
BALANCE - JANUARY 1, 2007 $ (5,768) $(14,531,596) $(12,124,272) $ (3,625,706)
Proceeds from Sale of Common Stock:
($0.090 per share) May 10, 2007 -- -- -- 100,000
($0.083 per share) May 10, 2007 -- -- -- 200,000
($0.090 per share) May 31, 2007 -- -- -- 50,000
($0.083 per share) June 26, 2007 -- -- -- 100,000
Stock for compensation:
($0.110 per share) May 2, 2007 -- -- -- 275,000
Common stock issued in repayment of debt:
($0.132 per share) February 26, 2007 -- -- -- 25,729
($0.111 per share) March 8, 2007 -- -- -- 25,805
($0.107 per share) March 14, 2007 -- -- -- 25,844
($0.099 per share) March 19, 2007 -- -- -- 25,871
($0.097 per share) March 23, 2007 -- -- -- 77,674
($0.095 per share) April 4, 2007 -- -- -- 51,901
($0.086 per share) May 1, 2007 -- -- -- 78,254
Stock for late payment penalty:
($0.100 per share) May 22, 2007 -- -- -- 10,000
Preferred stock converted to common stock:
During the quarter ended March 31, 2007 -- -- -- --
During the quarter ended June 30, 2007 -- -- -- --
Cancellation of debt for no consideration -- -- -- 1,327,321
Surrender and cancellation of common stock -- -- -- --
Reclassification of derivative liability
to equity upon conversion of debt -- -- -- 140,000
Reclassification of options to non employees to
derivative liability -- -- -- (247,100)
Reclassification of derivative liability to
equity upon conversion of preferred stock -- -- -- 3,200
Amortization of warrants and option over the
vesting period for employees and non employees -- -- -- 218,838
Preferred stock dividend -- -- -- (213)
Net loss -- -- (1,213,855) (1,213,855)
------------ ------------ ------------ ------------
BALANCE - JUNE 30, 2007 $ (5,768) $(14,531,596) $(13,338,127) $ (2,351,437)
============ ============ ============ ============
See notes to condensed financial statements.
6
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended For the Period
June 30, January 1, 2002
---------------------------- to June 30,
2007 2006 2007
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,213,855) $ (1,499,401) $(13,338,127)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 234 -- 234
Amortization of patents 927 927 10,197
Interest expense - deferred financing 4,687 4,687 15,000
Stock-based compensation 503,838 767,699 2,048,927
Interest expense - conversion provision 113,000 -- 113,000
Accretion of debt discount 69,800 112,800 362,320
Change in fair value of warrants and embedded
conversion option 18,400 186,600 146,500
Loss on settlement of debt -- -- 2,614,017
Non-dilution agreement termination cost -- -- 2,462,453
Inventory reserve -- -- 159,250
Write-off of stock subscription receivable -- -- 21,800
Financing cost - warrant extension -- -- 74,700
Changes in assets and liabilities:
Inventory -- 30,000 --
Prepaid expenses and other current assets (11,403) 2,394 25,815
Security deposits (3,198) -- (3,198)
Accounts payable, accrued expenses and other current
liabilities, accrued compensation, accrued consulting and
director fees, accrued dividends and customer deposits 136,661 (189,381) 1,534,652
------------ ------------ ------------
Net Cash Used in Operating Activities (380,909) (583,675) (3,752,460)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,040) -- (14,040)
------------ ------------ ------------
Net Cash Used in Investing Activities $ (14,040) $ -- $ (14,040)
------------ ------------ ------------
See notes to condensed financial statements.
7
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Period
For the Six Months Ended January 1, 2002
June 30, to June 30,
2007 2006 2007
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock subscription receivable $ -- $ -- $ 65,700
Proceeds from sale of preferred stock -- -- 1,130,127
Proceeds from sale of common stock 450,000 540,000 1,990,560
Proceeds from sale of common stock to be issued -- -- 200,000
Deferred financing costs -- -- (15,000)
Proceeds from convertible promissory notes -- -- 550,000
Proceeds from officers and directors loans 100,000 -- 100,000
Repayment of notes payable (39,638) (15,962) (75,269)
----------- --------- -----------
Net Cash Provided by Financing Activities 510,362 524,038 3,946,118
----------- --------- -----------
NET INCREASE (DECREASE) IN CASH 115,413 (59,637) 179,618
CASH AT BEGINNING OF PERIOD 99,716 244,595 35,511
----------- --------- -----------
CASH AT END OF PERIOD $ 215,129 $ 184,958 $ 215,129
=========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $ -- $ -- $ 356,931
=========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Compensation satisfied by issuance of common stock $ -- $ -- $ 55,250
=========== ========= ===========
Common stock issued in satisfaction of liabilities $ 311,078 $ 48,485 $ 6,675,362
=========== ========= ===========
Reclassification of derivative liabilities upon
conversion of debt $ 140,800 $ -- $ 508,800
=========== ========= ===========
Reclassification of equity instruments to liabilities $ 247,100 $ -- $ 536,000
=========== ========= ===========
Reclassification of derivative liabilities upon
conversion of preferred stock $ 3,200 $ -- $ 3,200
=========== ========= ===========
Cancellation of debt for no consideration $ 1,327,321 $ -- $ 1,327,321
=========== ========= ===========
See notes to condensed financial statements.
8
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: DESCRIPTION OF BUSINESS
Water Chef, Inc. (the "Company"), is a Delaware corporation currently
engaged in the design and marketing of water purification equipment both
inside and outside the United States. The Company's corporate headquarters
are located in Melville, New York.
NOTE 2: BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly,
these interim financial statements do not include all of the information
and footnotes required for annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary to make the financial statements not misleading have
been included.
The operating results for the six-month period ended June 30, 2007 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2007. These financial statements should be read in
conjunction with the financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-KSB, filed on March 30, 2007, for
the year ended December 31, 2006.
DEVELOPMENT STAGE COMPANY
The Company is in the development stage as defined by Statement of
Financial Accounting Standards ("SFAS") Statement No. 7, "Accounting
and Reporting for Development Stage Companies." To date, the Company
has generated limited sales and has devoted its efforts primarily to
developing its products, implementing its business and marketing
strategy and raising working capital through equity financing or
short-term borrowings.
REVENUE RECOGNITION
The Company recognizes its revenues when the product is shipped and or
title passes and collection is reasonably assured.
STOCK BASED COMPENSATION
Effective January 1, 2006, the Company adopted SFAS 123R which
replaces SFAS 123, "Accounting for Stock-Based Compensation" and
supersedes Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to
be recognized in the financial statements based on their fair values.
Pro forma disclosure is no longer an alternative to financial
statement recognition.
9
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3: GOING CONCERN
The accompanying condensed financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
recurring losses from operations, an accumulated deficit since its
inception of approximately $27,870,000 and has a working capital deficiency
of approximately $2,386,000 at June 30, 2007. 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 and raising additional capital through future
issuance of stock and or debentures. However, there can be no assurance
that the Company will be able to obtain sufficient funds to continue the
development of its product, marketing plan and distribution network. The
accompanying condensed financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.
NOTE 4: RECENT ACCOUNTING STANDARDS
In February 2006, the FASB issued SFAS 155, "Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140"
("SFAS 155"). SFAS 155 resolves issues addressed in SFAS 133 Implementation
Issue No. D1, "Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets." The requirements in SFAS 155 are effective
for all financial instruments acquired or issued after the beginning of an
entity's first fiscal year that begins after September 15, 2006. The
adoption of this pronouncement did not have an impact on the Company's
financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally
accepted in the U.S., and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, with earlier application
encouraged. Any cumulative effect will be recorded as an adjustment to the
opening accumulated deficit balance, or other appropriate component of
equity. The adoption of this pronouncement did not have an impact on the
Company's financial position, results of operations or cash flows.
In September 2006, the SEC staff issued Staff Accounting Bulleting ("SAB")
No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements ("SAB 108").
SAB 108 was issued in order to reduce the diversity in practice in how
public companies quantify misstatements of financial statements, including
misstatements that were not material to prior years' financial statements.
SAB 108 is effective for fiscal year 2007. The adoption of this
pronouncement did not have an impact on the Company's financial position,
results of operations, or cash flows.
10
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4: RECENT ACCOUNTING STANDARDS (Continued)
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides
companies with an option to report selected financial assets and
liabilities at fair value. The objective of SFAS 159 is to reduce both
complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently.
Generally accepted accounting principles have required different
measurement attributes for different assets and liabilities that can create
artificial volatility in earnings. The FASB has indicated it believes that
SFAS 159 helps to mitigate this type of accounting-induced volatility by
enabling companies to report related assets and liabilities at fair value,
which would likely reduce the need for companies to comply with detailed
rules for hedge accounting. SFAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types of
assets and liabilities.
SFAS 159 does not eliminate disclosure requirements included in other
accounting standards, including requirements for disclosures about fair
value measurements included in SFAS 157 and SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments." SFAS 159 is effective for the
Company as of the beginning of fiscal year 2009 the adoption of this
pronouncement is not expected to have an impact on the Company's financial
position, results of operations or cash flows.
In December 2006, the FASB approved FASB Staff Position (FSP) No. EITF
00-19-2, "Accounting for Registration Payment Arrangements" ("FSP EITF
00-19-2"), which specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5,
"Accounting for Contingencies." FSP EITF 00-19-2 also requires additional
disclosure regarding the nature of any registration payment arrangements,
alternative settlement methods, the maximum potential amount of
consideration and the current carrying amount of the liability, if any. The
guidance in FSP EITF 00-19-2 amends FASB Statements No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," and FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," to include scope exceptions for
registration payment arrangements.
FSP EITF 00-19-2 is effective immediately for registration payment
arrangements and the financial instruments subject to those arrangements
that are entered into or modified subsequent to the issuance date of this
FSP, or for financial statements issued for fiscal years beginning after
December 15, 2006, and interim periods within those fiscal years, for
registration payment arrangements entered into prior to the issuance date
of this FSP. The adoption of this pronouncement did not have an impact on
the Company's financial position, results of operations or cash flows.
11
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4: RECENT ACCOUNTING STANDARDS (Continued)
Effective January 1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a
recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to
be taken in a tax return. For those benefits to be recognized, a tax
position must be more-likely-than-not to be sustained upon examination by
taxing authorities. Differences between tax positions taken or expected to
be taken in a tax return and the benefit recognized and measured pursuant
to the interpretation are referred to as "unrecognized benefits." A
liability is recognized (or amount of net operating loss carry forward or
amount of tax refundable is reduced) for an unrecognized tax benefit
because it represents an enterprise's potential future obligation to the
taxing authority for a tax position that was not recognized as a result of
applying the provisions of FIN 48.
In accordance with FIN 48, interest costs related to unrecognized tax
benefits are required to be calculated (if applicable) and would be
classified as "Interest expense, net" in the consolidated statements of
operations. Penalties would be recognized as a component of "General and
administrative expenses."
In many cases the Company's uncertain tax positions are related to tax
years that remain subject to examination by relevant tax authorities. The
Company files income tax returns in the United States (federal) and in
various state and local jurisdictions. In most instances, the Company is no
longer subject to federal, state and local income tax examinations by tax
authorities for years prior to 2003.
The adoption of the provisions of FIN 48 did not have a material impact on
the Company's financial position and results of operations. As of June 30,
2007, no liability for unrecognized tax benefits was required to be
recorded.
The Company recognized a deferred tax asset of approximately $8 million as
of June 30, 2007, primarily relating to net operating loss carry-forwards
of approximately $24 million through 2006, available to offset future
taxable income.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. The Company considers projected
future taxable income and tax planning strategies in making this
assessment. At present, the Company does not have a sufficient history of
income to conclude that it is more likely than not that the Company will be
able to realize all of its tax benefits in the near future and therefore a
valuation allowance was established in the full value of the deferred tax
asset.
A valuation allowance will be maintained until sufficient positive evidence
exists to support the reversal of any portion or all of the valuation
allowance net of appropriate reserves.
12
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: CONVERTIBLE PROMISSORY NOTES
On October 17, 2006, the Company entered into a Convertible Promissory Note
for proceeds of $300,000. The loan has a stated interest rate of 8% per
annum and matured on February 17, 2007. The Company issued a warrant for
882,352 shares of the Company's common stock, exercisable at $0.085 per
share and has a life of three years. The warrant has a cashless exercise
provision. The note and accrued interest are convertible at any time after
the maturity date into shares of the Company's common stock at a conversion
price equal to the current market price multiplied by eighty-five percent.
After the maturity date, the lender converted $300,000 of principal and
$11,078 of interest to 3,211,039 shares of common stock during the six
months ended June 30, 2007 in full satisfaction of the note plus accrued
interest
The Convertible Promissory Note agreement required the Company to file a
registration statement no later than thirty business days from the date of
the agreement for no less than the amount of subscribed shares, and to
cause the registration statement relating to the registrable securities to
become effective the earlier of five business days after notice from the
Securities and Exchange Commission that the registration statement may be
declared effective, or one hundred twenty days.
The Convertible Promissory Note agreement included a liquidated damages
clause, which stipulates if the registration statement is not filed by the
filing date or declared effective by the effective date, then upon failure
of either event the subscriber shall be entitled to liquidated damages,
payable in cash, in the sum of one percent (1%) of the principal amount of
the Note:
(a) for each 30 day period after the filing date the transpires until the
date that the Company files the registration statement, and
(b) for each 30 day period after the effective date that transpires until
such date as the registration statement is declared effective.
The Company accounted for the above transaction in accordance with EITF
issue No. 00-19 "Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock." The Company has
determined that there is an embedded conversion option of the warrants and
derivative liabilities. Accordingly, the warrants and the embedded
conversion option are recorded at fair market value and marked to market
through earnings at the end of each reporting period.
The gross proceeds of $300,000 were recorded net of a discount of $174,200.
The debt discount consisted of $12,800 related to the warrants and $161,400
related to the embedded conversion option. During the six months ended June
30, 2007 the Company charged to interest expense $69,800 for the accretion
of the debt discount.
13
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: CONVERTIBLE PROMISSORY NOTES (Continued)
The warrants and the embedded conversion option were accounted for under
EITF issue No. 00-19 "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock" and EITF
05-4, View A "The Effect of a Liquidated Damages Clause on a Freestanding
Financial Instrument." Due to certain factors and the liquidated damage
provision in the registration rights agreement, the Company determined that
the embedded conversion option and the warrants are derivative liabilities.
Accordingly, the warrants and the embedded conversion option were marked to
market through earnings at the end of each reporting period. The Company
determined that the value of the registration rights was deemed to be de
minimis and the related registration statement became effective in January
2007. The warrants and the conversion option are valued using the
Black-Scholes valuation model.
The Convertible Promissory Note was secured by 4,000,000 shares of the
Company's common stock held by an officer of the Company. The security
shares were returned upon the registration of the common stock underlying
the convertible debenture.
Under accounting guidance provide by EITF 00-19, the conversion price of
the convertible promissory note did not have a determinable number of
shares the note could be settled in. As a result, previously granted
warrants as well as the embedded conversion option of the Series F
Convertible Preferred Stock were required to be reclassified from equity
and presented as a derivative liability. Accordingly, the warrants, options
and conversion option will be marked to market through earnings at the end
of each reporting period.
NOTE 6: NET LOSS PER SHARE OF COMMON STOCK
Basic loss per share was computed using the weighted average number of
outstanding common shares. Diluted loss per share includes the effect of
dilutive common stock equivalents from the assumed exercise of options,
warrants, convertible preferred stock and convertible notes. Common stock
equivalents were excluded in the computation of diluted loss per share
since their inclusion would be anti-dilutive. Total shares issuable upon
the exercise of warrants and conversion of preferred stock for the six
months ended June 30, 2007 and 2006 were 20,274,384 and 8,666,720,
respectively.
14
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7: STOCKHOLDERS' DEFICIENCY
Debt
During the six months ended June 30, 2007, the Company issued
3,211,039 shares of common stock for $300,000 of debt principal and
$11,078 of accrued interest.
Conversion of preferred stock into common stock
During the six months ended June 30, 2007, the Company issued 123,920
shares of common stock in connection with the conversion of 3,098
shares of preferred stock.
Cash
During the six months ended June 30, 2007, the Company raised $450,000
through the sale of 5,279,387 shares of common stock.
Services
During the six months ended June 30, 2007, the Company issued 100,000
shares of common stock in satisfaction of a late payment penalty to
one of its note holders. The Company recorded a charge of $10,000.
During the six months ended June 30, 2007, the Company issued
2,500,000 shares of common stock to two management employees for
services. The Company incurred a stock based compensation charge of
$275,000.
During the six months ended June 30, 2007, the Company granted
9,100,000 warrants to various employees and consultants for services.
Of this amount 4,100,000 warrant shares fully vested on the date of
the grant, and the balance vest over the life of the grant. Each of
the warrants has a life of three years, and is exercisable at $0.11 to
$0.1175 per share. The Company incurred a stock based compensation
charge of $218,838.
Relinquishment of common stock
Effective with his resignation as President and Chief Executive
Officer, on January 29, 2007 David Conway returned to the Company
20,000,000 shares of common stock owned by him and his affiliates. The
return of the shares was recorded as a retirement and cancellation of
the common stock.
NOTE 8: RELATED PARTY TRANSACTIONS
On January 29, 2007, the Company's President and Chief Executive Officer
resigned and surrendered his stock appreciation rights, any severance under
his employment agreement, returned 20,000,000 shares of common stock,
forgave $525,738 of notes payable and accrued interest, and relinquished
his rights to $471,583 of unpaid and accrued salary.
The Company reclassified the accrued compensation, notes payable and
accrued interest to equity. The return of the shares was recorded as a
retirement and cancellation of the common stock. The cancellation of the
stock appreciation rights did not have an accounting impact.
15
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8: RELATED PARTY TRANSACTIONS (Continued)
On February 12, 2007, Marshall S. Sterman resigned from the Board of
Directors and waived his rights to any accrued consulting and director fees
owed to him by the Company. The Company reclassified the debt of $330,000
during the six months ended June 30, 2007 to equity.
In January 2007, Leslie J. Kessler was appointed as President of the
Company. In connection with her employment, she is to receive a salary of
$9,000 per month. In addition, Ms. Kessler will be issued 2,000,000 shares
of the Company's common stock and a warrant to purchase 2,000,000 shares of
the Company's common stock. The warrants are exercisable at $0.11 per
share, have a life of three years and vest over two years. In addition, the
employment agreement provides for certain performance-based cash
incentives. During the six months ended June 30, 2007, the Company issued
the 2,000,000 shares of common stock at a value of $220,000 and granted the
warrants at a value of $125,200. The warrants were valued using the
Black-Scholes option valuation model.
In March 2007, the Chief Executive Officer and a Director each made bridge
loans of $50,000 to the Company. The loans pay simple interest at the rate
of 10% per annum and are due and payable in 120 days.
The loans to the Chief Executive Officer and the Director carry an option
that if the loans are not repaid by June 14, 2007 and June 29, 2007,
respectively, such option will entitle the lenders to convert their debt to
common stock at a price equal to 50% of the average closing price of the
Company's common stock over the three previous business days before demand
for conversion is made. The Company recorded a charge of $113,000 during
the second quarter ended June 30, 2007 for the embedded conversion option.
NOTE 9: MAJOR CUSTOMERS / CREDIT RISK
During the six months ended June 30, 2007, the Company had no sales. During
the six months ended June 30, 2006, the Company sold two units to one
customer and recognized revenues of $115,000.
The Company maintains cash deposits with financial institutions, which from
time to time may exceed federally insured limits. The Company has not
experienced any losses and believes it is not exposed to any significant
credit risk from cash.
NOTE 10: CONTINGENCIES
On July 14, 2006, Funding Group, Inc. filed a complaint with the Supreme
Court of the State of New York in New York County seeking damages due to an
alleged breach of contract related to a $25,000 loan made by the plaintiff
to the Company. On October 11, 2006, the Company filed a counter claim
against Funding Group, Inc. with the Supreme Court of the State of New
York. The Company believes the complaint is without merit and intends to
vigorously defend itself in these actions, and believes that the eventual
outcome of these matters will not have a material adverse effect on the
Company. However, the ultimate outcome of these matters cannot be
determined at this time.
16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Company's
Financial Statements and related Footnotes.
Forward-Looking Statements
This quarterly report on Form 10-QSB/A contains "forward-looking
statements" intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995.
All statements regarding the Company's expected financial position,
business and financing plans are forward-looking statements. Such
forward-looking statements are identified by use of forward-looking
words such as "anticipates," "believes," "plans," "estimates,"
"expects," and "intends" or words or phrases of similar expression.
These forward-looking statements are subject to various assumptions,
risks and uncertainties, including but not limited to, changes in
political and economic conditions, demand for the Company's products,
acceptance of new products, technology developments affecting the
Company's products and to those discussed in the Company's filings
with the Securities and Exchange Commission ("SEC"). Accordingly,
actual results could differ materially from those contemplated by the
forward-looking statements.
Introduction
Until the fourth quarter of 2001, Water Chef was engaged in the
manufacture and marketing of water coolers and water purification and
filtration products. In the fourth quarter of 2001, the Company
completed 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 which either
do not have access to municipal water treatment systems, or for those
which systems have been compromised, either by environmental factors
or by faulty design or maintenance.
Results of Operations
Sales for the six months ended June 30, 2007 and 2006 were $0 and
$115,000, respectively. During the six months ended June 30,2006, the
Company recognized the sale of two PureSafe Water Station Systems
Cost of sales for the six month period ended June 30, 2007 and 2006
was $23,000 and $72,000, respectively. An analysis of the components
of cost of sales in the 2007 and 2006 periods follows:
Rent and Overhead
Product Payments to
Costs of Sales Period CGS Manufacturer Total
--------------------- --- ------------ -----
For the six months ended
June 30, 2007 $ -- $ 23,000 $23,000
For the six months ended
June 30, 2006 $30,000 $ 42,000 $72,000
17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Results of Operations (Continued)
Selling, general and administrative expenses for the six months ended
June 30, 2007 were $920,255 compared to $1,163,937 for the six months
ended June 30, 2006, a decrease of 21%.
The net loss for the six months ended June 30, 2007 was $1,213,855
compared to $1,499,401 in the same period ended June 30, 2006.
Liquidity and Capital Resources
At June 30, 2007, the Company had a working capital deficiency of
approximately $2,386,000. In addition, the Company continues to suffer
recurring losses from operations and has an accumulated deficit since
inception of approximately $27,870,000. The accompanying financial
statements have been prepared assuming that that the Company will
continue as a going concern. 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 meet its business
obligations. However, there can be no assurance that the Company will
be able to obtain sufficient funds to continue the development of its
product, marketing plan and distribution network. The accompanying
financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
In March 2007, the Chief Executive Officer and a Director each made
bridge loans of $50,000 to the Company. The loans pay simple interest
at the rate of 10% per annum and are due and payable in 120 days.
Failure to repay the loans on a timely basis will entitle the lenders
to convert their debt to common stock at a price equal to 50% of the
average closing price of the Company common over the three previous
business days before demand for conversion is made.
The loans to the Chief Executive Officer and the Director carry an
option that if the loans are not repaid by June 14, 2007 and June 29,
2007, respectively, such option will entitle the lenders to convert
their debt to common stock at a price equal to 50% of the average
closing price of the Company's common stock over the three previous
business days before demand for conversion is made. The Company
recorded a charge of $113,000 during the second quarter ended June 30,
2007 for the embedded conversion option.
Recent Accounting Standards
In February 2006, the FASB issued SFAS 155, "Accounting for Certain
Hybrid Financial Instruments - an amendment of FASB Statements No. 133
and 140" ("SFAS 155"). SFAS 155 resolves issues addressed in SFAS 133
Implementation Issue No. D1, "Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets." The
requirements in SFAS 155 are effective for all financial instruments
acquired or issued after the beginning of an entity's first fiscal
year that begins after September 15, 2006. The adoption of this
pronouncement did not have an impact on the Company's financial
position, results of operations or cash flows.
18
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Recent Accounting Standards (Continued)
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting
principles generally accepted in the U.S., and expands disclosures
about fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007,
with earlier application encouraged. Any cumulative effect will be
recorded as an adjustment to the opening accumulated deficit balance,
or other appropriate component of equity. The adoption of this
pronouncement did not have an impact on the Company's financial
position, results of operations, or cash flows.
In September 2006, the SEC staff issued Staff Accounting Bulleting
("SAB") No. 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements
("SAB 108"). SAB 108 was issued in order to reduce the diversity in
practice in how public companies quantify misstatements of financial
statements, including misstatements that were not material to prior
years' financial statements. SAB 108 is effective for fiscal year
2007. The adoption of this pronouncement did not have an impact on the
Company's financial position, results of operations, or cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159
provides companies with an option to report selected financial assets
and liabilities at fair value. The objective of SFAS 159 is to reduce
both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and
liabilities differently. Generally accepted accounting principles have
required different measurement attributes for different assets and
liabilities that can create artificial volatility in earnings. The
FASB has indicated it believes that SFAS 159 helps to mitigate this
type of accounting-induced volatility by enabling companies to report
related assets and liabilities at fair value, which would likely
reduce the need for companies to comply with detailed rules for hedge
accounting. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that
choose different measurement attributes for similar types of assets
and liabilities.
SFAS 159 does not eliminate disclosure requirements included in other
accounting standards, including requirements for disclosures about
fair value measurements included in SFAS 157 and SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." SFAS 159 is
effective for the Company as of the beginning of fiscal year 2009. The
adoption of this pronouncement is not expected to have an impact on
the Company's financial position, results of operations or cash flows.
19
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Recent Accounting Standards (Continued)
In December 2006, the FASB approved FASB Staff Position (FSP) No. EITF
00-19-2, "Accounting for Registration Payment Arrangements" ("FSP EITF
00-19-2"), which specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate
agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in
accordance with SFAS No. 5, "Accounting for Contingencies." FSP EITF
00-19-2 also requires additional disclosure regarding the nature of
any registration payment arrangements, alternative settlement methods,
the maximum potential amount of consideration and the current carrying
amount of the liability, if any. The guidance in FSP EITF 00-19-2
amends FASB Statements No. 133, "Accounting for Derivative Instruments
and Hedging Activities," and No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity," and FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others," to include scope exceptions for
registration payment arrangements.
FSP EITF 00-19-2 is effective immediately for registration payment
arrangements and the financial instruments subject to those
arrangements that are entered into or modified subsequent to the
issuance date of this FSP, or for financial statements issued for
fiscal years beginning after December 15, 2006, and interim periods
within those fiscal years, for registration payment arrangements
entered into prior to the issuance date of this FSP. The adoption of
this pronouncement did not have an impact on the Company's financial
position, results of operations or cash flows.
20
ITEM 3: CONTROLS AND PROCEDURES
Evaluation and Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the
design and operation of the Company's "disclosure controls and
procedures," as such term is defined in Rules 13a-15e promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as of this report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer has concluded that the
Company's disclosure controls and procedures were not effective as of
the end of the period covered by this report to provide reasonable
assurance that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified
in SEC rules and forms.
Our auditors in connection with our 2006 annual audit identified
certain deficiencies which were considered to be both material and
significant. Management is aware that there is a lack of segregation
of duties within the Company due to the limited number of employees
responsible for general administrative and financial matters. In the
past, the (former) Chief Executive Officer of the Company performed
substantially all of the duties of a chief executive officer, chief
financial officer and was also responsible for all accounting and
financial reporting matters. This constitutes a significant deficiency
in the financial reporting. Management had previously concluded that,
considering the employees involved and the control procedures in place
and the potential benefits of adding additional employees to clearly
segregate duties, the benefit did not justify the additional expense.
However, subsequent to June 30, 2007, the following steps were taken
to mitigate the identified significant deficiencies: (i) hired an
accountant/bookkeeper, who holds an MS in accounting and who has
nine-years of experience, to review and compile the financial
statements on a quarterly and annual basis, (ii) hired a new Chief
Financial Officer, who is a Certified Public Accountant ("CPA") and
has been a Partner in a CPA firm for many years, (iii) hired a new
Chief Executive Officer, so that the authorities vested in the Chief
Financial Officer and Chief Financial Officer will be separated, and
(iv) The Resnick Druckman Group LLC (outside financial consultants)
review all monthly reporting and all financial transactions, with
emphasis on debt transactions.
The system for eliminating the reported deficiencies includes both a
segregation of duties and multiple reviewers of financial transactions
and financial reporting, with particular attention to debt financing
transactions. The Company's Bookkeeper's functions are now reviewed by
the Company's Chief Financial Officer on a regular basis. Monthly, all
reporting and any debt and equity transactions and black scholes
computations are reviewed by the Company's Chief Financial Officer, as
well as by The Resnick Druckman Group LLC.
The second reportable condition which was identified as a material
weakness, was the inability to ensure that the accounting for our debt
and equity-based transactions is accurate and complete. In recent
years we have consummated a series of complex debt and equity
transactions involving the application of highly specialized
accounting principles. In order to mitigate this condition, The
Resnick Druckman Group LLC now reviews all financial debt transactions
of the Company. We believe this material weakness will be mitigated by
this review process and by the other factors set forth in the third
paragraph.
Changes in Internal Controls
Management has evaluated the effectiveness of the disclosure controls
and procedures as of June 30, 2007. Based on such evaluation,
management has concluded that the disclosure controls and procedures
were not effective for their intended purpose described above. There
were no other changes to the internal controls during the six months
ended June 30, 2007 that have materially affected or that are
reasonably likely to affect the internal controls. The control
improvements identified above were implemented subsequent to June 30,
2007 as described above.
21
ITEM 3: CONTROLS AND PROCEDURES
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within a company have been detected. The Company's disclosure controls
and procedures are designed to provide reasonable assurance of
achieving its objectives. The Company's principal executive officer
and principal financial officer concluded that the Company's
disclosure controls and procedures were not effective at June 30,
2007, at that reasonable assurance level, as described above.
22
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
PART II - OTHER INFORMATION
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the six months ended June 30, 2007, the Company issued 3,211,039
shares of common stock for the settlement of $311,078 of debt and accrued
interest.
During the six months ended June 30, 2007, the Company issued 123,920
shares of common stock in connection with the conversion of 3,098 shares of
preferred stock.
During the six months ended June 30, 2007, the Company raised $450,000
through the sale of 5,279,387 shares of common stock.
During the six months ended June 30, 2007, the Company issued 100,000
shares of common stock in satisfaction of a late payment penalty to one of
its note holders. The Company recorded a charge of $10,000.
During the six months ended June 30, 2007 the Company issued 2,500,000
shares of common stock to two management employees for services. The
Company incurred a stock based compensation charge of $275,000.
During the six months ended June 30, 2007, the Company granted 9,100,000
warrants for services. Of this amount 4,100,000 warrant shares fully vested
on the date of the grant, and the balance vest over the life of the grant.
Each of the warrants has a life of three years, and is exercisable at $0.11
to $0.1175 per share. The Company incurred a stock based compensation
charge of $218,838.
The Company issued these shares in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder. These shares were offered to less than
35 "non-accredited" investors and were purchased for investment purposes
with no view to resale.
23
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS
Exhibit No. Description
----------- -----------
31 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 8 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
Water Chef, Inc.
Date December 19, 2007 /s/ Leslie J. Kessler
------------------------------------
Leslie J. Kessler, President, Chief
President and Chief Executive
Officer
(Principal Executive Officer)
Date December 19, 2007 /s/ Terry R. Lazar
------------------------------------
Terry R. Lazar
Director and Chief Financial Officer
(Principal Financial and
Accounting Officer)
25