--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 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
----- -----
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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
1
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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
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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 $2,294,425) 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
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WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the period
For the Three Months Ended For the Six Months Ended January 1, 2002
June 30, June 30, 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 $ ( 816,469) $ ( 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
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WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
Additional
Preferred Stock Common Stock 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
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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
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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 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 2,362,289
Interest expense - conversion provision 113,000 -- --
Accretion of debt discount 69,800 112,800 362,320
Change in fair value of warrants and embedded
conversion option 18,400 186,600 178,400
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) 1,534,649
------------ ------------ ------------
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
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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
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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
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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
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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
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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
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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
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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 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
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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
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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
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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
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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
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
significant deficiency in the financial reporting. Management has
mitigated these factors by hiring an outside accountant/bookkeeper
to review and compile the financial statements on a quarterly and
annual basis.
At this time management has decided 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 does not justify the additional expense.
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.
The second reportable condition identified is in our inability to
ensure that the accounting for our debt and equity-based
transactions is accurate and complete. This condition is considered
a material weakness. In recent years we have consummated a series of
complex debt and equity transactions involving the application of
highly specialized accounting principles. Although we believe these
events are unique to our Company, we are evaluating certain
corrective measures we may take including the possibility of hiring
an outside consultant to provide us with the guidance we need at
such times that we may engage in these complex transactions.
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 effective for their intended purpose described
above. There were no 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.
21
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ITEM 3: CONTROLS AND PROCEDURES (Continued)
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 are
effective at that reasonable assurance level.
22
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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 $0.01175 per share. The
Company incurred a stock based compensation charge of $532,200.
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
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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
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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/ Leslie J. Kessler
Date August 13, 2007 -----------------------------------
Leslie J. Kessler,
President,
Chief Executive Officer, and
Chief Financial Officer
(Principal Operating Officer)
25