UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(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, 2005
( ) 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 it 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the last practicable date.
OUTSTANDING AS OF August 12, 2005
CLASS Common
----- ------
Par value $0.001 per share 163,922,112
WATER CHEF, INC.
INDEX
PART I - FINANCIAL INFORMATION: Page
----
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET (UNAUDITED) 2
At June 30, 2005
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) 3
For the Three Months Ended June 30, 2005 and 2004
For the Six Months Ended June 30, 2005 and 2004
For the Period January 1, 2002 to
June 30, 2005
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY (UNAUDITED) 4
For the Six Months Ended June 30, 2005
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) 5
For the Six Months Ended June 30, 2005 and 2004
For the Period January 1, 2002 to June 30, 2005
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 6 - 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 9 - 10
OF OPERATION
ITEM 3 - CONTROLS AND PROCEDURES 10 - 11
PART II - OTHER INFORMATION:
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 11
ITEM 6 - EXHIBITS 11
SIGNATURE 12
CERTIFICATIONS
i
WATER CHEF, INC.
(A Development-Stage Company Commencing January 1, 2002)
CONDENSED BALANCE SHEET
AT JUNE 30, 2005
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash $ 992
Inventory 30,000
Prepaid expenses 10,294
------------
TOTAL CURRENT ASSETS 41,286
------------
OTHER ASSETS:
Patents and trademarks - net of accumulated
amortization of $7,871 18,184
Other assets 3,162
------------
TOTAL OTHER ASSETS 21,346
------------
TOTAL ASSETS $ 62,632
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES:
Accounts payable (including related party payable of $18,875) $ 232,869
Accrued expenses and other current liabilities 1,245,188
Notes payable (including accrued interest of $512,635) 1,195,857
Accrued dividends payable 91,003
Customer deposits 115,000
------------
TOTAL CURRENT LIABILITIES 2,879,917
LONG-TERM LIABILITIES:
Loans payable to stockholder (including accrued interest
of $117,155) 489,936
------------
TOTAL LIABILITIES 3,369,853
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred stock - $.001 par value; 10,000,000 shares authorized; 524,423 shares
issued and outstanding,
(liquidation preference $1,112,250) 525
Common stock - $.001 par value; 190,000,000 shares
authorized; 160,899,727 shares issued and 160,895,327
shares outstanding 160,896
Additional paid-in capital 20,386,429
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 (9,317,707)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (3,307,221)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 62,632
============
See notes to condensed financial statements.
2
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,
2005 2004 2005 2004 2005
------------- ------------- ------------- ------------- -------------
SALES $ -- $ -- $ 260,000 $ 56,290 $ 356,290
COST OF SALES 21,000 24,000 21,000 53,250 417,680
------------- ------------- ------------- ------------- -------------
GROSS (LOSS) PROFIT (21,000) (24,000) 239,000 3,040 (61,390)
SELLING, GENERAL AND ADMINISTRATIVE -
including stock based compensation of
$0, and $0 for the three months ended
June 30, 2005 and 2004 and $18,000 and
$182,387 for the six months ended
June 30, 2005 and 2004, and $741,563
for the period January 1, 2002 to
June 30, 2005, respectively 297,227 270,974 645,206 556,680 3,548,216
NON-DILUTION AGREEMENT TERMINATION COST -- (522,339) -- (223,860) 2,462,453
INTEREST EXPENSE (Including interest expense to
related party of $5,970 and $11,930 for the
three and six months ended June 30, 2005
and 2004, respectively and $83,538 for the
period January 1, 2002 to June 30, 2005 37,557 37,557 75,114 75,114 556,931
LOSS ON SETTLEMENT OF DEBT -- 2,313,716 -- 2,313,716 2,519,866
FINANCING COST - EXTENSION OF WARRANTS 74,700 94,151 74,700 94,151 168,851
STOCK APPRECIATION RIGHTS - REDUCTION IN VALUE -- -- (121,340) -- --
------------- ------------- ------------- ------------- -------------
NET LOSS (430,484) (2,218,059) (434,680) (2,812,761) (9,317,707)
DEEMED DIVIDEND ON PREFERRED STOCK -- (2,072,296) -- (2,072,296) (2,072,296)
PREFERRED STOCK DIVIDENDS (42,758) (70,320) (86,643) (125,958) (486,873)
------------- ------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (473,242) $ (4,360,675) $ (521,323) $ (5,011,015) $ (11,876,876)
============= ============= ============= ============= =============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.00) $ (0.04) $ (0.00) $ (0.05)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 160,077,510 102,347,964 158,595,814 96,066,414
============= ============= ============= =============
See notes to condensed financial statements.
3
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, 2005
BALANCE - JANUARY 1, 2005 614,413 $ 615 155,885,727 $ 155,886 $ 20,258,617
Proceeds from sale of common stock
($0.05 per share) March 21, 2005 -- -- 200,000 200 9,800
Preferred stock converted to common stock
During the quarter ended March 31, 2005 (55,970) (56) 2,518,800 2,519 (2,463)
Extension of 1,666,667 warrants June 7, 2005 -- -- -- -- 74,700
Proceeds from sale of common stock
($0.06 per share) May 12, 2005 -- -- 500,000 500 29,500
($0.05 per share) May 12, 2005 -- -- 200,000 200 9,800
Common stock issued for services
($0.05-$0.10 Per share) March 21, 2005 -- -- 230,000 230 17,770
Preferred stock converted to common stock
during the quarter ended June 30, 2005 (34,020) (34) 1,360,800 1,361 (1,327)
Preferred stock dividend -- -- -- -- (9,968)
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - JUNE 30, 2005 524,423 $ 525 160,895,327 $ 160,896 $ 20,386,429
============ ============ ============ ============ ============
See notes to condensed financial statements.
4
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 Development Stockholders'
-at cost 31, 2001 Stage Deficiency
------------ ------------ ------------ ------------
FOR THE SIX MONTHS ENDED JUNE 30, 2005
BALANCE - JANUARY 1, 2005 $ (5,768) $(14,531,596) $ (8,883,027) $ (3,005,273)
Proceeds from sale of common stock
($0.05 per share) March 21, 2005 -- -- -- 10,000
Preferred stock converted to common stock
during the quarter ended March 31, 2005 -- -- -- --
Extension of 1,666,667 warrants June 7, 2005 -- -- -- 74,700
Proceeds from sale of common stock
($0.05 per share) May 12, 2005 -- -- -- 30,000
($0.06 per share) May 12, 2005 -- -- -- 10,000
Common stock issued for services
($0.05-$0.10 per share)March 21, 2005 -- -- -- 18,000
Preferred stock converted to common stock
During the quarter ended June 30, 2005 -- -- -- --
Preferred stock dividend -- -- -- (9,968)
Net loss -- -- (434,680) (434,680)
------------ ------------ ------------ ------------
BALANCE - JUNE 30, 2005 $ (5,768) $(14,531,596) $ (9,317,707) $ (3,307,221)
============ ============ ============ ============
See notes to condensed financial statements.
4
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
2005 2004 June 30, 2005
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (434,680) $(2,812,761) $(9,317,707)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of patents 927 927 6,489
Non-cash stock-based compensation 18,000 182,387 741,563
Non-dilution agreement termination cost -- (223,860) 2,462,453
Financing cost - warrant extension 74,700 94,151 168,851
Loss on settlement of debt -- 2,313,716 2,519,866
Inventory reserve -- -- 159,250
Write-off of stock subscription receivable -- -- 21,800
Changes in assets and liabilities:
Inventory (30,000) 13,250 (30,000)
Prepaid expenses 6,819 (41,912) 46,206
Accounts payable, accrued expenses, accrued
dividends and customer deposits 213,494 60,389 1,263,283
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (150,740) (413,713) (1,957,946)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock subscription receivable 20,000 -- 65,700
Proceeds from sale of preferred stock -- 412,756 1,130,127
Proceeds from sale of common stock 50,000 -- 527,600
Proceeds from sale of common stock
to be issued -- -- 200,000
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 70,000 412,756 1,923,427
----------- ----------- -----------
NET DECREASE IN CASH (80,740) (957) (34,519)
CASH AT BEGINNING OF PERIOD 81,732 102,831 35,511
----------- ----------- -----------
CASH AT END OF PERIOD $ 992 $ 101,874 $ 992
=========== =========== ===========
See notes to condensed financial statements.
5
WATERCHEF, 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 dispensers and purification equipment both
inside and outside the United States. The Company's corporate headquarters are
located in Glen Head, New York.
NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying unaudited condensed interim 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, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. 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 April 6, 2005, for the year ended December 31,
2004.
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
In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company will continue to account for stock-based compensation
according to the Accounting Principles Board ("APB") Opinion No. 25.
The following table summarizes relevant information as to reported results under
the Company's intrinsic value method of accounting for stock awards, with
supplemental information as if the fair value recognition provisions of SFAS
No.123 had been applied for the periods ended June 30, 2005 and 2004 as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net loss applicable to common stockholder
as reported $ (473,242) $(4,360,675) $ (521,323) $(5,011,015)
Add:
Stock-based employee compensation adjustment,
included in reported net loss -- -- -- --
Less:
Stock-based employee compensation cost
net of tax effect under fair-value
accounting -- 44,656 -- 79,274
----------- ----------- ----------- -----------
Pro-forma net loss under fair value method $ (473,242) $(4,405,331) $ (521,323) $(5,090,289)
=========== =========== =========== ===========
Loss per share - basic and diluted,
as reported $ (0.00)$ (0.04) $ (0.00)$ (0.05)
Pro-forma loss per share - basic and diluted $ (0.00)$ (0.04) $ (0.00)$ (0.05)
=========== =========== =========== ===========
6
WATERCHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - GOING CONCERN
The accompanying interim 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
inception of approximately $23,849,000 and has a working capital deficiency of
approximately $2,839,000 at June 30, 2005. 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 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 May 2005, the FASB issued SFAS 154--Accounting Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3. This
statement replaces APB Opinion No. 20, "Accounting Changes," and FASB Statement
No. 3, "Reporting Accounting Changes in Interim Financial Statements," and
changes the requirements for the accounting for and reporting of a change in
accounting principle. This statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This statement is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. Management is evaluating the impact of this
pronouncement on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment." This
statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS No.123R addresses all
forms of share based payment ("SBP") awards including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS No.123R, SBP awards result in a cost that will
be measured at fair value on the awards' grant dates, based on the estimated
number of awards that are expected to vest. This statement is effective for
public entities that file as small business issuers - as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The adoption of this pronouncement is not expected to have a material effect on
the Company's financial statements.
NOTE 5 - 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
and convertible preferred stock. 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 options, warrants and
conversion of preferred stock for the six months ended June 30, 2005 and 2004
were 30,638,912 and 46,863,796, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases its administrative facilities, located in Glen Head, New
York, on a month-to-month basis.
NOTE 7 - COMMON STOCK ISSUED
Cash
----
During the six months ended June 30, 2005, the Company raised $50,000 through
the sale of 900,000 shares of common stock.
Services
--------
During the six months ended June 30, 2005, the Company issued 230,000 shares of
common stock for services for a value of $18,000.
7
Conversion of preferred stock into common stock
-----------------------------------------------
During the six months ended June 30, 2005, the Company issued to various parties
3,879,600 shares of common stock in connection with the conversion of preferred
stock.
Extension of warrants
---------------------
During the quarter ended June 30, 2005, the Company extended the life of
1,666,667 warrants for a period of 12 months. The warrants will expire in June
2006. The Company recorded a finance charge of $74,700 for the three and six
months ended June 30, 2005.
NOTE 8- MAJOR CUSTOMERS / CREDIT RISK
During the six month period ended June 30, 2005, the Company sold five units to
two customers and recognized revenues of $260,000. During the six month period
ended June 30, 2004, the Company sold one unit to one customer and recognized
revenues of $56,290. During the three month period June 30, 2005 and 2004, there
were no units sold.
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.
At June 30, 2005 the Company did not have cash balances on deposit that exceeded
the federally insured limits.
NOTE 9- SUBSEQUENT EVENTS
o Subsequent to June 30, 2005, the Company issued 2,455,357 shares of
restricted common stock for gross proceeds of $205,000. The restricted
common stock was issued to various parties at an average share price
of $0.09 per share.
o Subsequent to June 30, 2005, the Company issued 571,428 shares of
restricted common stock for the settlement of approximately $40,000 of
notes payable.
8
ITEM 2 - MANAGEMENTS 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
--------------------------
Management's discussion and analysis of financial condition and results of
operations and other sections of this Report contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
intend for the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. 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.
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
---------------------
Revenue for the six months ended June 30, 2005 and June 30, 2004 was $260,000
and $56,290, respectively. During the six months ended June 30, 2005, the
Company recognized the sale of five PureSafe Water Station Systems. Four of
these systems are to be used in Ecuador, and the fifth system was purchased by a
humanitarian buyer to be used as part of the tsunami relief effort in Sri Lanka.
In addition, Water Chef received deposits of $115,000 during the first three
months of 2005 for relief effort systems that will be shipped in 2005.
Cost of sales for the six month periods ended June 30, 2005 and June 30, 2004
were $21,000 and $53,250 respectively. The costs of the units sold during 2005
were previously written off. An analysis of the components of cost of sales in
the 2005 and 2004 periods follows:
Cost of Sales Product Rent and Overhead
Period CGS Payments to Manufacturer Total
For the six months
ended June 30, 2005 $ -- $ 21,000 $ 21,000
For the six months
ended June 30, 2004 $13,250 $ 40,000 $ 53,250
Selling, general and administrative expenses for the six months ended June 30,
2005 were $645,206, compared to $556,680 for the six months ended June 30, 2004,
an increase of 16% primarily caused by an increase in commissions associated
with the sales of PureSafe Water Station Systems as described above. During the
quarter ended June 30, 2005, the Company extended the life of 1,666,667 warrants
for a period of 12 months. Their warrants will expire in June 2006. The Company
recorded a finance charge of $74,700 for the three and six months ended June 30,
2005.
The net loss for the six months ended June 30, 2005 was $434,680 compared to
$2,812,761 in the same period ended June 30, 2004.
9
Liquidity and Capital Resources
-------------------------------
At June 30, 2005, the Company had a working capital deficiency of approximately
$2,839,000. In addition, the Company continues to incur recurring losses from
operations and has an accumulated deficit since inception of approximately
$23,849,000. 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.
Recent Accounting Standards
---------------------------
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Accounting Standards ("SFAS") No. 154--"Accounting Changes and Error
Corrections"--a replacement of Accounting Principles Board ("APB") Opinion No.
20 and SFAS No. 3. This statement replaces APB Opinion No. 20, "Accounting
Changes", and FASB Statement No. 3, "Reporting Accounting Changes in Interim
Financial Statements," and changes the requirements for the accounting for and
reporting of a change in accounting principle. This statement applies to all
voluntary changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. When a pronouncement includes
specific transition provisions, those provisions should be followed. This
statement is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. Management is evaluating the
impact of this pronouncement on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share Based Payment." This
statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. SFAS No.123R addresses all
forms of share based payment ("SBP") awards including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS No.123R, SBP awards result in a cost that will
be measured at fair value on the awards' grant dates, based on the estimated
number of awards that are expected to vest. This statement is effective for
public entities that file as small business issuers - as of the beginning of the
first interim or annual reporting period that begins after December 15, 2005.
The adoption of this pronouncement is not expected to have a material effect on
the Company's financial statements.
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, 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 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.
Management is aware that there is a lack of segregation of duties at the Company
due to the small number of employees dealing with general administrative and
financial matters. This constitutes a material weakness in the financial
reporting. However, at this time management has decided that considering the
employees involved and the control procedures in place, the risks associated
with such lack of segregation are insignificant and the potential benefits of
adding additional employees to clearly segregate duties do not justify the
expenses associated with such increases. Management will periodically reevaluate
this situation. If the volume of the business increases and sufficient capital
is secured, it is the Company's intention to increase staffing to mitigate the
current lack of segregation of duties within the general administrative and
financial functions.
Changes in Internal Controls
----------------------------
There have been no changes in internal controls or in other factors that could
significantly affect those controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
10
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.
PART 11 - OTHER INFORMATION
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the six months ended June 30, 2005, the Company raised $50,000 through
the sale of 900,000 shares of common stock.
During the six months ended June 30, 2005, the Company issued an aggregate of
230,000 shares of its Common stock for professional services totaling $18,000.
During the six months ended June 30, 2005, the Company issued various parties
3,879,600 shares of common stock in connection with the conversion of preferred
stock.
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.
ITEM 6 - EXHIBITS
Exhibit No. Description
----------- -----------
14.1 Code of Ethics
31 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of 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.
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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.
/s/ David A. Conway
Date 8/12/05 -----------------------------------
David A. Conway
President, Chief Executive
Officer, and Chief Financial
Officer
(Principal Operating Officer)
12