sec document
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2005
Registration No. 333-122252
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WATER CHEF, INC.
(Name of small business issuer in its charter)
Delaware 3850 86-0515678
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
1007 Glen Cove Avenue, Suite 1
Glen Head, New York 11545
(516) 656-0059
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(Address and telephone number of principal executive offices)
David A. Conway
President
Water Chef, Inc.
1007 Glen Cove Avenue, Suite 1
Glen Head, New York 11545
(516) 656-0059
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(Name, address and telephone number of agent for service)
-----------------------------------
Copies to:
Robert H. Friedman, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, New York 10022
(212) 451-2300
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Approximate Date of Proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. The
selling securityholders may not sell these securities or accept any offer to buy
these securities until the registration statement filed with the Securities and
Exchange Commission becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 5, 2005
PROSPECTUS
97,291,136 SHARES OF COMMON STOCK
WATER CHEF, INC.
This prospectus relates to the resale of up to 97,291,136 shares of
our common stock, including the resale of up to 20,100,472 shares which may be
issued from time to time as follows:
o up to 1,666,667 shares of our common stock are issuable upon
exercise of warrants at an initial exercise price of $0.15 per
share; these warrants were issued to certain shareholders in
connection with a settlement agreement dated as of June 20,
2002;
o up to 2,916,375 shares of our common stock are issuable upon
conversion of our Series C convertible preferred stock;
o up to 2,499,750 shares of our common stock are issuable upon
exercise of rights to acquire our common stock; these rights are
only exercisable at the time of conversion of certain shares of
our Series C convertible preferred stock and such rights were
issued as an inducement to purchase certain shares of our Series
C convertible preferred stock; and
o up to 13,017,680 shares of our common stock are issuable upon
conversion of our Series F convertible preferred stock.
This prospectus also relates to the registering of 77,190,664 shares
of our common stock for offer or sale by the selling security holders named in
this prospectus.
The selling security holders may offer or sell all or a portion of
their shares publicly or through private transactions at prevailing market
prices or at negotiated prices. We will not receive any of the proceeds from the
sale of the securities owned by the selling security holders. We may receive
proceeds in connection with the issuance of our common stock from the exercise
of the warrants, the underlying shares of which may in turn be sold by the
selling security holders under this prospectus. There is no assurance that any
of the preferred stock will ever be converted or the warrants will ever be
exercised for cash, if at all.
Our common stock is traded and quoted on the Over the Counter
Bulletin Board (the "OTCBB") under the symbol "WTER.OB ". On May 4, 2005, the
last reported sale price of our common stock was $0.15 per share. As of March
31, 2005 we had 158,834,527 shares of common stock issued and outstanding.
Our executive offices are located at 1007 Glen Cove Avenue, Suite 1,
Glen Head, NY 11545 and our telephone number is (516) 656-0059.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 4, WHICH DESCRIBES THE MATERIAL RISKS.
-----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
The date of this prospectus is May , 2005.
TABLE OF CONTENTS
Prospectus Summary 2
Risk Factors 4
Special Note Regarding Forward Looking Statements 8
Use of Proceeds 9
Market for Our Common Stock and Related Shareholder Matters 9
Management Discussion and Analysis or Plan of Operation 10
Selling Securityholders 11
Plan of Distribution 18
Business 21
Legal Proceedings 25
Directors, Executive Officers, Promoters and Control Persons 25
Security Ownership of Certain Beneficial Owners and Management 29
Description of Capital Stock 32
Legal Matters 35
Experts 35
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 36
Where You Can Find More Information 36
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. BECAUSE THIS IS A SUMMARY, IT
MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD
READ THIS PROSPECTUS CAREFULLY AND SHOULD CONSIDER, AMONG OTHER THINGS, THE
MATTERS DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 4 BEFORE MAKING AN
INVESTMENT DECISION. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS
PROSPECTUS TO "THE COMPANY," "OUR COMPANY," "WE," "OUR," "US" AND SIMILAR
EXPRESSIONS REFER TO WATER CHEF, INC., A DELAWARE CORPORATION, AND ITS
PREDECESSORS AND ITS SUBSIDIARIES.
THE COMPANY
Water Chef, Inc. ("Water Chef") designs and markets water
purification equipment. The Company was originally incorporated under Arizona
law in 1985 and merged into a Delaware corporation in 1987. In 1993, the
Company, then known as Auto Swap, U.S.A., entered into a reverse merger with
Water Chef, Inc., a Nevada corporation, which manufactured and marketed water
coolers and filters. Water coolers and filters were a substantial part of the
Company's business from 1993 until the fourth quarter of 2001, at which time
this business was sold so that Water Chef could concentrate on the further
development, manufacturing and marketing of the PureSafe Water Station (the
"PureSafe"), its patented line of water purification systems. The PureSafe is a
turn-key unit that converts "gray," or bathing grade, water into United States
Environmental Protection Agency ("EPA")-grade drinking water.
An investment in our stock involves a substantial degree of risk.
See "Risk Factors."
Our principal executive offices are located at 1007 Glen Cove
Avenue, Suite 1, Glen Head, NY 11545 and our telephone number is (516) 656-0059.
RECENT DEVELOPMENTS
On June 5, 2004, Water Chef convened a special meeting of its
common, Series A Preferred, Series C convertible preferred, Series D Preferred
and Series F convertible preferred stockholders (together the "Stockholders").
The Stockholders, voting as a single class, voted on a proposal to amend the
Certificate of Incorporation to increase the Company's authorized capital stock
from 100,000,000 shares to 200,000,000 shares, consisting of 190,000,000 shares
of common stock and 10,000,000 shares of preferred stock. The Stockholders,
voting as a single class, approved the proposal authorizing the amendment to the
Certificate of Incorporation increasing the Company's authorized capital stock
by a vote of 76,060,283 shares for, 593,869 shares against, and 189,215 shares
abstained.
On September 20, 2004, Water Chef entered into an agreement with
International Multiracial Shared Cultural Organization ("IMSCO"), a global
financial consulting group representing developing business cultures. IMSCO has
been working in a specialized status under a mandate from the Economic and
Social Council of the United Nations. The agreement establishes a working
relationship for Water Chef and IMSCO to cooperatively market and develop the
funding for pure water projects that will use the Company's PureSafe Water
Station products.
On September 22, 2004, Water Chef's application for certification
and consultative status with IMSCO was granted in accordance with Article 2(e)
of the IMSCO Constitution and in compliance with the relevant provisions of the
United Nations Charter regarding appropriate relations with United Nations
non-governmental organizations. As a consequence of this approval, Water Chef
has received United Nations certification for its proposals to deploy the
PureSafe Water Station to alleviate drinking water problems in Bangladesh and
Honduras, which certification is required for Water Chef to apply to
humanitarian funding sources. Application has been made to humanitarian funding
sources for the funds needed for the successful execution of these projects, and
though UN certification was required for the application process, to date there
has been no commitment for funding from any funding source.
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THE OFFERING
SECURITIES OFFERED: We are registering the resale of up
to 97,291,136 shares of our common
stock, including the resale of up to
20,100,472 shares which may be issued
from time to time of:
o Up to 1,666,667 shares of common
stock issuable upon exercise of
warrants, at an initial price of
$0.15 per share, that we issued to
certain shareholders in connection
with a settlement agreement.
o Up to 2,916,375 shares of common
stock issuable upon conversion of
our Series C convertible preferred
stock.
o Up to 2,499,750 shares of common
stock issuable upon exercise of
rights to acquire our common stock
exercisable at the time of
conversion of certain shares of
our Series C preferred stock that
we issued as an inducement to
purchase certain shares of our
Series C convertible preferred
stock.
o Up to 13,017,680 shares of common
stock issuable upon conversion of
our Series F convertible preferred
stock.
In addition, we are registering the
resale of 17,037,671 shares of common
stock issued to certain shareholders
in connection with a settlement
agreement.
We are also registering the resale of
60,152,993 shares of common stock
that may be sold by the selling
security holders.
COMMON STOCK OUTSTANDING AFTER 178,934,999 shares, based on
OFFERING: 158,834,527 shares outstanding as of
March 31, 2005 and assuming exercise
of all of the warrants and conversion
of all of the preferred stock.
PROCEEDS: We expect to use the net proceeds for
general corporate purposes including
working capital, repayment of debt,
repurchase of common stock, temporary
investment and/or the financing of
possible acquisitions or business
expansion.
TICKER SYMBOL:
Common Stock WTER.OB
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION IN THIS PROSPECTUS, INCLUDING UNDER "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS," BEFORE MAKING AN INVESTMENT IN OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES. WE COULD CONTINUE TO INCUR LOSSES IN THE FUTURE,
AND WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
We had net losses of $3.8 million and $3.5 million for the years
ended December 31, 2004 and 2003, respectively. Our accumulated deficit as of
December 31, 2004 was approximately $23.4 million. We were not profitable during
the last two years and we do not expect to be profitable in fiscal 2005.
Uncertainties still exist regarding whether or not we will attain profitability.
We can provide no assurance that we will be able to achieve profitable
operations in the future.
WE MAY NEED ADDITIONAL CAPITAL TO FINANCE EXISTING OBLIGATIONS AND TO FUND OUR
OPERATIONS AND GROWTH, AND WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL UNDER
TERMS ACCEPTABLE TO US OR AT ALL.
Our capital requirements in connection with our marketing efforts,
continuing product development and purchases of inventory and parts are expected
to be significant for the foreseeable future. In addition, unanticipated events
could cause our revenues to be lower and our costs to be higher than expected,
therefore creating the need for additional capital. Historically, cash generated
from operations has not been sufficient to fund our capital requirements, and we
have relied upon sales of securities to fund our operations. We have no current
arrangements with respect to, or sources of, additional financing, and we cannot
assure you that we will have sufficient funds available to meet our working
capital requirements, or that we will be able to obtain capital to finance
operations on favorable terms or at all. If we do not have, or are otherwise
unable to secure, necessary working capital, we may be unable to fund the
manufacture of PureSafe units, and we may have to delay or abandon some or all
of our development and expansion plans or otherwise forego market opportunities,
any of which could harm our business.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS HAVE STATED IN THEIR REPORT THAT
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have limited cash resources and have a working capital deficit.
Our independent registered public accountants have stated in their report that
there is substantial doubt about our ability to continue as a going concern. By
being categorized in this manner, we may find it more difficult in the short
term to either locate financing for future projects or to identify lenders
willing to provide loans at attractive rates, which may require us to use our
cash reserves in order to expand. Should this occur, and unforeseen events also
require greater cash expenditures than expected, we could be forced to cease all
or a part of our operations. As a result, you could lose your total investment.
OUR REVENUES ARE DEPENDENT UPON SALES OF A SINGLE PRODUCT, AND OUR BUSINESS WILL
FAIL IF WE DO NOT INCREASE SALES OF THAT PRODUCT.
Our revenues are derived from sales of a single product, the
PureSafe. If we are not able to increase sales of this product, our business
will fail. The PureSafe is a relatively new product in the emerging market for
water purification systems and it is difficult to predict when or if sales of
the PureSafe will increase substantially or at all. We face a substantial risk
that our sales will continue to not cover our operating expenses and that we
will continue to incur operating losses.
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WE HAVE NOT BEEN PAID FOR A SIGNIFICANT NUMBER OF PURESAFE UNITS THAT HAVE BEEN
SHIPPED TO A CUSTOMER, AND WE MAY NEVER RECEIVE PAYMENT FOR THESE ITEMS.
In May 2001, the Company entered into a distribution agreement with
a company (the "Sub Distributor") based in Jordan. The Sub Distributor agreed to
purchase no fewer than 100 PureSafe units during 2001 and a minimum of 50 units
in each of 2002 and 2003. During the year ended December 31, 2001, 18 units were
shipped under this agreement. The Company has not received payment for this
shipment. The Company has recorded the cost of the inventory shipped as a loss
contingency of $242,035 during the year ended December 31, 2001, since return of
the items is uncertain. The Company engaged legal counsel in Jordan to pursue
legal remedies and obtain payment for all units shipped. There can be no
assurance that either the Company will obtain payment for units shipped or that
the items will be returned.
WE DEPEND ON OUR KEY PERSONNEL AND THE LOSS OF THEIR SERVICES WOULD ADVERSELY
AFFECT OUR OPERATIONS.
If we are unable to maintain our key personnel and attract new
employees with high levels of expertise in those areas in which we propose to
engage, without unreasonably increasing our labor costs, the execution of our
business strategy may be hindered and our growth limited. We believe that our
success is largely dependent on the continued employment of our senior
management and the hiring of strategic key personnel at reasonable costs. If our
current chief executive officer were unable or unwilling to continue in his
present position, or we were unable to attract a sufficient number of qualified
employees at reasonable rates, our business, results of operations and financial
condition may be materially adversely affected.
WE PLAN TO EXPAND AND WE MAY BE UNABLE TO MANAGE OUR GROWTH.
We intend to grow our business, but we cannot be sure that we will
successfully manage our growth. In order to successfully manage our growth, we
must:
o expand and enhance our administrative infrastructure;
o improve our management, financial and information systems and
controls;
o expand, train and manage our employees effectively; and
o successfully retain and recruit additional employees.
Continued growth could place a further strain on our management,
operations and financial resources. We cannot assure you that our operating and
financial control systems, administrative infrastructure, facilities and
personnel will be adequate to support our future operations or to effectively
adapt to future growth. If we cannot manage our growth effectively, our business
may be harmed.
DIFFICULTIES PRESENTED BY INTERNATIONAL FACTORS COULD NEGATIVELY AFFECT OUR
BUSINESS.
A component of our strategy is to expand our international sales
revenues. We believe that we face risks in doing business abroad that we do not
face domestically. Among the international risks we believe are most likely to
affect us are:
o export license requirements for our products;
o exchange rate fluctuations or currency controls;
o the difficulty in managing a direct sales force from abroad;
o the financial condition, expertise and performance of our
international distributors and any future international
distributors;
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o domestic or international trade restrictions; or
o changes in tariffs.
Any of these factors could damage our business results.
TECHNOLOGICAL CHANGE AND COMPETITION MAY RENDER OUR POTENTIAL PRODUCTS OBSOLETE.
The water purification industry continues to undergo rapid change,
competition is intense and we expect it to increase. Competitors may succeed in
developing technologies and products that are more effective or affordable than
any that we are developing or that would render our technology and products
obsolete or noncompetitive. Many of our competitors have substantially greater
experience, financial and technical resources and production and development
capabilities than us. Accordingly, some of our competitors may succeed in
obtaining regulatory approval for products more rapidly or effectively than we
can for technologies and products that are more effective and/or affordable than
any that we are developing.
IF OUR SOLE-SOURCE SUPPLIER IS UNABLE TO MEET OUR DEMANDS, OUR BUSINESS RESULTS
WILL SUFFER.
We purchase certain key components for some of our products from a
single contract management supplier. For some of these components, there are
relatively few alternative sources of supply. Establishing additional or
replacement suppliers for any of the numerous components used in our products,
if required, may not be accomplished quickly and could involve significant
additional costs. Any supply interruption from our supplier or failure to obtain
alternative vendors for any of the components used to manufacture our products
would limit our ability to manufacture our products. Any such limitation on our
ability to manufacture our products would cause our business results to suffer.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY.
We face an inherent business risk of exposure to product liability
and other claims and lawsuits in the event that the development or use of our
technology or prospective products is alleged to have resulted in adverse
effects. We may not be able to avoid significant liability exposure. We maintain
a $1,000,000 umbrella policy, in addition to a $2,000,000 general and product
liability policy, which covers the manufacture and marketing of our products.
Although we believe our insurance coverage to be adequate, we may not have
sufficient insurance coverage, and we may not be able to obtain sufficient
coverage at a reasonable cost. An inability to obtain product liability
insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of our products.
A product liability claim could hurt our financial performance. Even if we avoid
liability exposure, significant costs could be incurred that could hurt our
financial performance and condition.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS MAY FORCE US TO INCUR
UNANTICIPATED COSTS.
Our success will depend, in part, on our ability to obtain and
maintain protection in the United States and other countries for certain
intellectual property incorporated into our water purification systems and our
proprietary methodologies. We may be unable to obtain patents relating to our
technology. Even if issued, patents may be challenged, narrowed, invalidated or
circumvented, which could limit our ability to prevent competitors from
marketing similar solutions that limit the effectiveness of our patent
protection and force us to incur unanticipated costs. In addition, existing laws
of some countries in which we may provide services or solutions may offer only
limited protection of our intellectual property rights.
OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, AND
THIRD PARTIES MAY INFRINGE OUR PROPRIETARY RIGHTS, EITHER OF WHICH MAY RESULT IN
LAWSUITS, DISTRACTION OF MANAGEMENT AND THE IMPAIRMENT OF OUR BUSINESS.
As the number of patents, copyrights, trademarks and other
intellectual property rights in our industry increases, products based on our
technology may increasingly become the subject of infringement claims. Third
parties could assert infringement claims against us in the future. Infringement
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claims with or without merit could be time consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if required, might not be
available on terms acceptable to us. We may initiate claims or litigation
against third parties for infringement of our proprietary rights or to establish
the validity of our proprietary rights. Litigation to determine the validity of
any claims, whether or not the litigation is resolved in our favor, could result
in significant expense to us and divert the efforts of our technical and
management personnel from productive tasks. If there is an adverse ruling
against us in any litigation, we may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. Our failure to develop or license a substitute technology could
prevent us from selling our products.
RISK FACTORS RELATING TO OUR COMMON STOCK
EXERCISE OF THE WARRANTS OR CONVERSION OF OUR CONVERTIBLE PREFERRED STOCK WILL
DILUTE THE OWNERSHIP INTEREST OF EXISTING STOCKHOLDERS.
The exercise of the warrants into shares of our common stock will
dilute the ownership interests of existing stockholders. Any sales in the public
market of the shares of our common stock issuable upon exercise of the warrants
or conversion of our convertible preferred stock could adversely affect
prevailing market prices of our common stock. In addition, the existence of the
warrants or the convertible preferred stock may encourage short selling by
market participants due to this dilution or facilitate trading strategies
involving the notes and our common stock.
FUTURE SALES OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY
AFFECT THE TRADING PRICE OF SHARES OF OUR COMMON STOCK AND OUR ABILITY TO RAISE
FUNDS IN NEW STOCK OFFERINGS.
Future sales of substantial amounts of shares of our common stock in
the public market, or the perception that such sales are likely to occur, could
affect prevailing trading prices of our common stock and, as a result, the value
of the notes. As of March 31, 2005, we had 158,834,527 shares of common stock
outstanding.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE, WHICH
COULD ADVERSELY AFFECT THE PRICE OF OUR STOCK.
We, by reason of our anticipated financial status and our
contemplated financial requirements, do not contemplate or anticipate paying any
dividends upon our common stock in the foreseeable future. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available, the earnings, financial conditions, capital requirements and other
factors that the board of directors may think are relevant. As a result, you may
never receive a stream of cash payments from dividends, which could adversely
affect the price of our stock.
ALTHOUGH WE ARE SUBJECT TO THE INFORMATION AND REPORTING REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, OUR COMMON STOCK IS NOT QUOTED OR TRADED ON A
NATIONAL EXCHANGE AND INVESTORS IN OUR COMMON STOCK WILL BE SUBJECT TO RISKS
ASSOCIATED WITH THE PUBLIC TRADING MARKET GENERALLY.
We cannot predict the extent to which a trading market will develop
or how liquid that market might become. If you exercise your warrants and
receive common stock, you will pay a price that was not established in the
public trading markets. You may suffer a loss of your investment.
A SIGNIFICANT NUMBER OF OUR SHARES WILL BE AVAILABLE FOR FUTURE SALE AND COULD
DEPRESS THE MARKET PRICE OF OUR STOCK.
As of March 31, 2005, there were 158,834,527 shares of common stock
outstanding, outstanding warrants to purchase 1,666,667 shares of our common
stock at an exercise price of $0.15 per share, all of them fully vested,
18,433,805 shares of common stock issuable upon conversion of our Series C and
Series F convertible preferred stock and shares of our common stock issuable
pursuant to rights to acquire our common stock that are exercisable upon
conversion of certain shares of our Series C convertible preferred stock and
6,000,000 stock appreciation rights. Sales of large amounts of our common stock
in the market could adversely affect the market price of the common stock and
could impair our future ability to raise capital through offerings of our equity
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securities. A large volume of sales by holders exercising the warrants or stock
appreciation rights could have a significant adverse impact on the market price
of our common stock.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE, LEADING TO THE POSSIBILITY OF
ITS VALUE BEING DEPRESSED AT A TIME WHEN YOU WANT TO SELL YOUR HOLDINGS.
The market price of our common stock has in the past been, and may
in the future continue to be, volatile. For instance, between January 1, 2002
and May 4, 2005, the closing bid price of our common stock has ranged between
$0.01 and $0.34. Many factors could cause the market price of our common stock
to fluctuate substantially, including:
o future announcements concerning us, our competitors or other
companies with whom we have business relationships;
o changes in government regulations applicable to our business;
o changes in market conditions for our industry;
o overall volatility of the stock market and general economic
conditions;
o changes in our earnings estimates or recommendations by
analysts; and
o changes in our operating results from quarter to quarter.
In addition, the stock market in recent years has experienced
significant price and volume fluctuations for reasons unrelated to operating
performance. These market fluctuations may adversely affect the price of our
common stock at a time when you want to sell your interest in us.
YOUR ABILITY TO INFLUENCE CORPORATE DECISIONS MAY BE LIMITED BECAUSE OUR MAJOR
STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR COMMON STOCK.
Our significant stockholders own a substantial portion of our
outstanding stock. As a result of their stock ownership, if these stockholders
were to choose to act together, they would be able to control all matters
submitted to our stockholders for approval, including the election of directors
and approval of any merger, consolidation or sale of all or substantially all of
our assets. This concentration of voting power could delay or prevent an
acquisition of our company on terms that other stockholders may desire. In
addition, as the interests of our majority and minority stockholders may not
always be the same, this large concentration of voting power may lead to
stockholder votes that are inconsistent with your best interests or the best
interests of us as a whole.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference
forward-looking statements within the meaning of Section 27A(i)(1) of the
Securities Act, as amended and Section 21E(i)(1) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). When used or incorporated by reference
in this prospectus, statements which are not historical in nature, including the
words "may," "will," "should," "continue," "future," "potential," "believe,"
"expect," "anticipate," "project," "plan," "intend," "seek," "estimate" and
similar expressions are intended to identify forward-looking statements.
The forward-looking statements in this prospectus are based upon our
management's beliefs, assumptions and expectations of our future operations and
economic performance, taking into account the information currently available to
us. These statements are not statements of historical fact. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or financial
condition to be materially different from any future results expressed or
implied by these statements. Such factors include, among other things, the risks
discussed in this prospectus under the caption "Risk Factors."
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In light of these and other uncertainties, the forward-looking
statements included or incorporated by reference in this prospectus should not
be regarded as a representation by us that our plans and objectives will be
achieved. You should not place undue reliance on any forward-looking statements,
and we undertake no obligation to publicly update or revise any forward-looking
statements after the date of this prospectus, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares
owned by the selling securityholders. We may receive proceeds of up to $250,000
less expenses in connection with the exercise of warrants, the underlying shares
of which may in turn be sold by selling securityholders. Although the amount and
timing of our receipt of any such proceeds are uncertain, such proceeds, if
received, will be used for general corporate purposes, including, without
limitation, the following (in order of priority):
o working capital;
o the repayment of debt;
o the repurchase of our common stock;
o temporary investment; and/or
o the financing of possible acquisitions or business expansion.
To the extent that proceeds are available following repayment of our
debt, we reserve the right to reallocate or change the specific use of the net
proceeds to respond to fluctuations in our business and to take advantage of
opportunities which may be complementary to our operations.
MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our Common Stock is quoted on the OTC Bulletin Board under the
symbol WTER.OB. As of March 31, 2005, there were approximately 816 holders of
record of our common stock. The following table sets forth the high and low bid
prices for our common stock for the periods indicated as reported by the OTC
Bulletin Board. The prices state inter-dealer quotations, which do not include
retail mark-ups, mark-downs or commissions. Such prices do not necessarily
represent actual transactions.
Fiscal Year-Ended December 31, 2005 High Low
---- ---
First Quarter $ 0.28 $ 0.14
Second Quarter (through May 4, 2005) 0.18 0.14
Fiscal Year-Ended December 31, 2004
First Quarter $ 0.36 $ 0.16
Second Quarter 0.37 0.14
Third Quarter 0.34 0.14
Fourth Quarter 0.29 0.14
Fiscal Year-Ended December 31, 2003
First Quarter $ 0.07 $ 0.01
Second Quarter 0.07 0.03
Third Quarter 0.17 0.04
Fourth Quarter 0.22 0.09
9
We have not paid any dividends on our common stock and do not
anticipate declaring or paying any cash dividends in the foreseeable future. We
currently expect to retain future earnings, if any, to finance the growth and
development of our business. Subject to our obligations to the holders of our
Series A and Series D Preferred shares, and to the holders of our convertible
preferred stock (See "Description of Securities"), the holders of our common
stock are entitled to dividends when and if declared by our Board of Directors
from legally available funds.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
DEVELOPMENT OF THE COMPANY
The Company was originally incorporated under Arizona law in 1985 and merged
into a Delaware corporation in 1987. In 1993 the Company, then known as Auto
Swap, U.S.A., entered into a reverse merger with Water Chef, Inc., a Nevada
corporation that manufactured and marketed water coolers and filters.
RESULTS OF OPERATIONS
Sales for the years ended December 31, 2004 and 2003 were $56,290 and $0,
respectively. During the year ended December 31, 2004, the Company sold one
PureSafe Water Station unit for $56,290 to a domestic account. Cost of sales
decreased from $88,000 for the year ended December 31, 2003, to $62,250 for the
year ended December 31, 2004, a decrease of $25,750, or 29%. An analysis of the
components of cost of sales follows:
Cost of Sales Product Rent and Overhead Total Cost
Period CGS Payments to Manufacturer of sales
2003 $ 0 $88,000 $88,000
2004 $13,250 $49,000 $62,250
Selling, general and administrative expenses for the year ended December 31,
2004 were $1,296,265 compared to $817,625 for the year ended December 31, 2003,
an increase of $478,640 or 58%. The increase in expense is primarily due to
higher professional fees (approximately $187,000), marketing expenses
(approximately $70,000) and payroll expenses and related taxes (approximately
$168,000). In 2004, expenses included $125,000 paid to IMSCO (International
Multiracial Shared Cultural Organization) upon approval of the Company's
application for certification and consultant status with IMSCO, an NGO in
Specialized status with the Economic and Social Council of the United Nations.
The Company believes that the United Nations certification of its humanitarian
water projects will enhance its ability to secure the funding needed for the
successful completion of its projects.
Interest expense for the year ended December 31, 2004 was $150,228, compared to
$152,478 for the year ended December 31, 2003, a decrease of $2,250, or 1%.
In 2004, the Company recognized a loss on settlement of debt of $2,407,867.
The net loss for the year ended December 31, 2004 was $3,757,802 compared to
$3,535,479 for the year ended December 31, 2003, an increase of $222,323.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, the Company had a stockholders' deficiency of
approximately $3,005,000 and a working capital deficiency of approximately
$2,550,000. In addition, the Company has a net loss of approximately $3,758,000
and $3,535,000 for the years ended December 31, 2004 and 2003, respectively.
These conditions raise substantial doubt about the Company's ability to continue
10
as a going concern. The financial statements have been prepared assuming that
the Company will continue as a going concern. The auditor's report on its
financial statements included elsewhere herein contains an explanatory paragraph
about the Company's ability to continue as a going concern. Management's plans
with respect to these matters include restructuring its existing debt and
raising additional capital through future issuances of stock and/or debt. The
financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
The Company, during 2004 and 2003, raised $790,356 and $599,871,
respectively, through the sale of its common and preferred stock.
Water Chef was a defendant in a legal action brought by certain
debenture holders (the "Bridge Lenders") in New Hampshire Superior Court seeking
repayment of debenture principal of $300,000 and accrued interest from 1997. On
June 22, 2002, a settlement was reached whereby the Company agreed to (i) issue
a minimum of 3,000,000 shares of common stock valued at $497,500 in lieu of the
principal and interest owed to the debenture holders who participated in this
legal action. The Company recorded the debentures at $300,000, plus accrued
interest of $39,400, for a total of $339,400. The difference between the
$497,500, as valued for the 3,000,000 shares, divided by the average daily
trading price for the 30 days subsequent to the settlement, was greater than the
original 3,000,000 shares. Due to these requirements, the Company was obligated
to issue an additional 14,037,671 shares. As of December 31, 2004, the Company
has issued the 3,000,000 shares and the additional 14,037,671 shares originally
valued at $497,500. Attached to the original loans issued to the Bridge Lenders
were warrants for the purchase of 1,666,667 shares of the Company's common stock
at $0.15 per share. The debenture holders that participated in the legal action
had the lives of their warrants extended from March 2002 to March 2004. In
connection with the issuance of the Bridge Lenders' shares, the Company further
extended the expiration date of the warrants to a date twelve months after the
effective date of this Registration Statement.
In addition to the above settlement with Bridge Lenders who
participated in the legal action, the Company settled its obligation with
debenture holders that did not participate ("non-participating debenture
holders") in the legal action. These non-participating debenture holders had
total debentures of $75,000, plus accrued interest of $9,850, totaling $84,850
as of the settlement date. In conjunction with the above settlement, the Company
settled these outstanding non-participating debentures, plus accrued interest,
with the issuance of 750,000 shares of common stock valued at $0.0292 per share,
or $21,900. The terms of their warrants were not extended, nor are they entitled
to receive additional shares based of the Company's common stock achieving a
certain average trading price 30 days subsequent to the settlement with the
participating debenture holders. During 2004, the Company issued the 750,000
settlement shares.
Management is currently attempting to settle or restructure the
remaining debt, and plans to satisfy its existing obligations with the cash
derived from the profitable sale of its products.
SELLING SECURITYHOLDERS
The following table sets forth the name of each of the selling
securityholders, the number of shares beneficially owned by each of the selling
securityholders, the number of shares that may be offered under this prospectus
and the number of shares of common stock owned by each of the selling
securityholders after the offering is completed. Except for David A. Conway,
John J. Clarke, Marshall S. Sterman and Rudolf W. Schindler, none of the selling
securityholders has been an officer, director or had any material relationship
with us within the past three years.
Number of Common
Shares/Percentage
Class to Be Owned After
Owned Prior to Number of Common Completion of the
the Offering Shares to be Offered Offering
------------ -------------------- ---------
Alliancetrade Inc (1) 40,000 40,000 0/0%
Jaime Asaro 179,375 175,000 4,375 / *
Bear Paw Development Corporation of
Northern Montana (2) 2,000,000 2,000,000 0/0%
11
Number of Common
Shares/Percentage
Class to Be Owned After
Owned Prior to Number of Common Completion of the
the Offering Shares to be Offered Offering
------------ -------------------- ---------
Stanley Bergenfeld 37,500 37,500 0/0%
Moneesh K Bakshi (1) 2,000 2,000 0/0%
Patrick Brady (1) 300,000 300,000 0/0%
C Trade Inc (1) 375,000 375,000 0/0%
Gladys L. Cady 166,667 166,667 0/0%
Layla M. Cady 250,000 250,000 0/0%
William A. Cady 1,000,000 1,000,000 0/0%
William A. Cady II 250,000 250,000 0/0%
Canaccord Capital Corporation (3) 666,666 666,666 0/0%
Juan E. Canon Sr. 400,000 400,000 0/0%
Randy Chalom 20,000 20,000 0/0%
Gino Ciarniello (1) 20,000 20,000 0/0%
John J. Clarke Jr.(4) 1,500,000 1,500,000 0/0%
Leonard Cohen 1,350,000 1,350,000 0/0%
Francis L. Collins & Marilyn Collins JTWROS 1,000,000 1,000,000 0/0%
Caroline S. Conway 4,507,283 4,507,283 0/0%
David A. Conway (5) 270,000 270,000 0/0%
David A. Conway & Rosanne K. Conway
J. JTWROS (5) 14,345,715 14,345,715 0/0%
David A. Conway IRA ACCT
#01-01-002-2052306 (5) 10,495,067 10,495,067 0/0%
Jennifer S. Conway 4,507,283 4,507,283 0/0%
William J Cooney III (6) 399,960 399,960 0/0%
Carlos Coreas (1) 25,000 25,000 0/0%
Douglas Davis (1) 1,000,000 1,000,000 0/0%
Michael S Davis (1) 600,000 600,000 0/0%
K. Thomas Decoster (7) 1,308,695 1,308,695 0/0%
K. Thomas Decoster & Callaway
W. Decoster (8) 1,570,440 1,570,440 0/0%
Adir Elizier (1) 113,920 113,920 0/0%
Jennifer Elliott (9) 327,176 327,176 0/0%
Earl E. Ellis 2,000,000 2,000,000 0/0%
Ellis International (10) 66,667 66,667 0/0%
Eliezer Ely (1) 80,000 80,000 0/0%
Haichel Esther (11) 400,000 400,000 0/0%
Anthony A. Famighetti 37,500 37,500 0/0%
George I. Feinsod 100,000 100,000 0/0%
Joseph R. Fichtl TTEE Joseph
R. Fichtl 1995 Trust (12) 2,617,389 2,617,389 0/0%
George F. Frank Jr. 1,000,000 1,000,000 0/0%
David Fried (1) 106,020 106,020 0/0%
Harrold Friedman (1) 25,000 25,000 0/0%
Global Ocean (13) 416,625 416,625 0/0%
Gordon T. Freeman 20,000 20,000 0/0%
Leonard Fuchs (1) 350,000 350,000 0/0%
Michael P. Gaudette & Roberta
S. Gaudette JT TEN (14) 1,308,695 1,308,695 0/0%
Claudette L. Gelfand TTEE Claudette
L. Gelfand Rev Tr (15) 1,308,695 1,308,695 0/0%
12
Number of Common
Shares/Percentage
Class to Be Owned After
Owned Prior to Number of Common Completion of the
the Offering Shares to be Offered Offering
------------ -------------------- ---------
Henry Glickman 12,500 12,500 0/0%
Charles R. Grader 46,667 46,667 0/0%
Dwight W. Grader 1,033,333 1,033,333 0/0%
Catherine C. Griffin (16) 1,308,695 1,308,695 0/0%
Aaron Groner (1) 10,000 10,000 0/0%
Florence Gut (1) 13,760 13,760 0/0%
Meryl Hagler (1) 35,720 35,720 0/0%
Peter G. Hall (17) 350,000 350,000 0/0%
Alexander Harris (18) 523,476 523,476 0/0%
Holly O. Harris (19) 523,476 523,476 0/0%
Michael B. Hayden & Diane
L. Hayden JT TEN (20) 1,308,695 1,308,695 0/0%
Nina W. Held 250,000 250,000 0/0%
Alden Hertzka (21) 389,673 327,173 62,500 / *
Alexander Hertzka (22) 389,673 327,173 62,500 / *
Robert Hertzka (23) 389,673 327,173 62,500 / *
HIF Enterprises (24) 10,000 10,000 0/0%
Hill County (25) 100,000 100,000 0/0%
Peter Hoffman (1) 125,040 125,040 0/0%
Annette Hunter 100,000 100,000 0/0%
Wedbush Morgan Securities FBO
Bernie Iantosca 166,666 166,666 0/0%
John R. Ing 60,000 60,000 0/0%
Raimond Irni 310,000 310,000 0/0%
H Jacobwitz 11,428 11,428 0/0%
Robert E. Jordan & Betsy P. Jordan JTWROS 666,667 666,667 0/0%
Robert Kaszovitz (1) 400,000 400,000 0/0%
Abraham Kiplinsky (1) 25,000 25,000 0/0%
John W. Knipf 40,000 40,000 0/0%
Phillip Koch 6,000 6,000 0/0%
Moische Koffman (1) 75,000 75,000 0/0%
Kollel Metzioynim Lhoroah (26) 650,000 650,000 0/0%
Mike Liebhard (1) 12,520 12,520 0/0%
Nachum Lis 800,000 800,000 0/0%
Lockridge Tool Company Inc. (27) 60,000 60,000 0/0%
Jason Lyons 62,500 62,500 0/0%
Lyons Capital Group LLC (28) 625,000 625,000 0/0%
Dror Magori (29) 55,080 55,080 0/0%
Chaim Majerovic (1) 5,000 5,000 0/0%
Eligio Majerovic 170,000 170,000 0/0%
Michael Majerovic 7,800 7,800 0/0%
Mike Majerovic (1) 80,000 80,000 0/0%
Mohammad Ullah Mamaun (1) 2,000 2,000 0/0%
Michael Manfredo (1) 2,000,000 2,000,000 0/0%
Yair Matan (1) 75,000 75,000 0/0%
Jonathan McDernott 100,000 100,000 0/0%
Ellen E Mcinerney (1) 166,720 166,720 0/0%
13
Number of Common
Shares/Percentage
Class to Be Owned After
Owned Prior to Number of Common Completion of the
the Offering Shares to be Offered Offering
------------ -------------------- ---------
Michael P. Swimoff 100,000 100,000 0/0%
Ezra Moas 10,000 10,000 0/0%
Ezra Y. Moas 10,000 10,000 0/0%
Rafael Moas (30) 135,020 135,020 0/0%
Barry Moscowitz 1,784,840 1,784,840 0/0%
Ezra Mosseri 10,000 10,000 0/0%
Jack Neiman 50,000 50,000 0/0%
Max Ollech 250,000 250,000 0/0%
Olshan Grundman Frome & Rosenzweig LLP (1) 200,000 200,000 0/0%
Frazer Pennebaker (31) 399,960 399,960 0/0%
Frazer Pennebaker C/F Mae Pennebaker
Unif Gift Min Act NY (32) 399,960 399,960 0/0%
Frazer Pennebaker C/F Nathaniel Pennebaker
Unif Gift Min Act NY (33) 399,960 399,960 0/0%
The Stock Pit (34) 50,000 50,000 0/0%
Deborah A. Power (35) 419,960 419,960 0/0%
Deborah A. Power C/F Audrey D.
Cooney UGMA MA (36) 419,960 419,960 0/0%
Deborah A. Power C/F Olivia M.
Cooney UGMA MA (37) 419,960 419,960 0/0%
Jeffrey R. Power (38) 3,799,980 3,799,980 0/0%
Jeffrey R. Power, Jr. (39) 499,960 499,960 0/0%
Jeffrey R. Power Jr. C/F Jeffrey
R. Power III UGMA MA (40) 419,960 419,960 0/0%
Jeffrey R. Power Jr. C/F Kerry
E. Power UGMA MA (41) 419,960 419,960 0/0%
Pamela L. Power (42) 419,960 419,960 0/0%
Pamela L. Power C/F Mae L.
Pennebaker UGMA NY 20,000 20,000 0/0%
Pamela L. Power C/F Natahniel
Pennebaker UGMA NY 20,000 20,000 0/0%
Rosemarie Power (43) 199,980 199,980 0/0%
David Rappaport 262,500 262,500 0/0%
Resnick & Company, LLC (44) 683,333 683,333 0/0%
The Resnick Group LLC (1) 325,000 325,000 0/0%
Earl Roberts 50,000 50,000 0/0%
Abraham Rotban (1) 18,600 18,600 0/0%
Morris Sabbagh 20,000 20,000 0/0%
Samaritan Group International Corp. (45) 500,000 500,000 0/0%
Rudolf W. Schindler (46) 411,100 411,100 0/0%
David Schor 22,520 22,520 0/0%
Segoes Trust (47) 900,000 900,000 0/0%
Wedbush Morgan Securities FBO Larry Smith 166,666 166,666 0/0%
Arnold Fonseca Sep (1) 769,240 769,240 0/0%
Gregory W. Simonelli (1) 100,000 100,000 0/0%
Squire Sanders & Dempsey L.L.P. (48) 25,000 25,000 0/0%
14
Number of Common
Shares/Percentage
Class to Be Owned After
Owned Prior to Number of Common Completion of the
the Offering Shares to be Offered Offering
------------ -------------------- ---------
Jac Steinberger (1) 30,800 30,800 0/0%
Marshall S. Sterman (49) 1,450,000 950,000 500,000 / *
Domenic M. Strazzula (50) 2,617,389 2,617,389 0/0%
Robert Swinton (1) 750,000 750,000 0/0%
H. Howard Thomson 125,000 125,000 0/0%
Wedbush Morgan Securities
FBO H. Howard Thomson 166,666 166,666 0/0%
Peter Tingus (1) 12,000 12,000 0/0%
Harold Tishler 40,000 40,000 0/0%
Eugenie D Trott (1) 1,666,720 1,666,720 0/0%
Harris Tunick 50,000 50,000 0/0%
W W Trading International (51) 1,808,937 1,808,937 0/0%
David Van Der Velde (1) 25,000 25,000 0/0%
Richard Van Grouw (1) 400,000 400,000 0/0%
Norman Wax 2,500 2,500 0/0%
Frank Weston 1,000,000 1,000,000 0/0%
John Whelan 60,000 60,000 0/0%
Joseph Whelan 40,000 40,000 0/0%
William Whelan 20,000 20,000 0/0%
Vance R. Wunning 100,000 100,000 0/0%
Seymour Yanofsky (1) 87,520 87,520 0/0%
TOTAL: 97,983,011 97,291,136 691,875/*
----------------------------
* - Less than 1%
(1) Represents shares of common stock to be issued upon conversion of
Series F convertible preferred stock.
(2) Paul Tuss, the Executive Director of Bear Paw Development Corporation
of Northern Montana, has voting and dispositive power over the shares
of common stock held by Bear Paw Development Corporation of Northern
Montana.
(3) Peter M. Brown, the Chairman of Canaccord Capital Corporation, has
voting and dispositive power over the shares of common stock held by
Canaccord Capital Corporation.
(4) John J. Clarke, founder and Managing Director of Baldwin & Clarke
Corporate Finance, served as a member of the Board of Directors from
July 1997 to March 2000, at which time he resigned in order to
concentrate on other responsibilities. Mr. Clarke rejoined the Board
in March 2004.
(5) David A. Conway became a member of the Board of Directors in July
1997, and became President and Chief Executive Officer in 1998. In
addition Mr. Conway currently serves as Chairman of the Board of
Directors.
(6) Includes 199,980 shares of common stock to be issued upon conversion
of Series C convertible preferred stock and 199,980 shares of common
stock to be issued upon exercise of rights to acquire common stock
which may not be exercised until the Series C convertible preferred
stock is converted by such holder.
(7) Includes 1,169,806 shares of common stock currently owned and 138,889
shares of common stock to be issued upon the exercise of warrants.
(8) Includes 1,403,773 shares of common stock currently owned and 166,667
shares of common stock to be issued upon the exercise of warrants.
15
(9) Includes 292,453 shares of common stock currently owned and 34,723
shares of common stock to be issued upon the exercise of warrants.
(10) William Unger, a Director of Ellis International, has voting and
dispositive power over the shares of common stock held by Ellis
International.
(11) Barry Moscowitz, the President of Haichel Esther, has voting and
dispositive power over the shares of common stock held by Haichel
Esther.
(12) Includes 2,339,611 shares of common stock currently owned and 277,778
shares of common stock issuable upon conversion of warrants. Joseph R.
Fichtl, trustee, has voting and dispositive power over the shares of
common stock held by the Joseph R. Fichtl 1995 Trust.
(13) Represents shares of common stock to be issued upon conversion of
Series C convertible preferred stock.
(14) Includes 1,169,806 shares of common stock currently owned and 138,889
shares of common stock to be issued upon the exercise of warrants.
(15) Includes 1,169,806 shares of common stock currently owned and 138,889
shares of common stock to be issued upon the exercise of warrants.
Claudette L. Gelfand, trustee, has voting and dispositive power over
the shares of common stock held by the Claudette L. Gelfand Revocable
Trust.
(16) Includes 1,169,806 shares of common stock currently owned and 138,889
shares of common stock to be issued upon the exercise of warrants.
(17) Includes 50,000 shares of common stock currently owned and 300,000
shares of common stock to be issued upon conversion of Series F
convertible preferred stock.
(18) Includes 467,920 shares of common stock currently owned and 55,556
shares of common stock to be issued upon the exercise of warrants.
(19) Includes 467,920 shares of common stock currently owned and 55,556
shares of common stock to be issued upon the exercise of warrants.
(20) Includes 1,169,806 shares of common stock currently owned and 138,889
shares of common stock to be issued upon the exercise of warrants.
(21) Includes 354,951 shares of common stock currently owned and 34,722
shares of common stock to be issued upon the exercise of warrants.
(22) Includes 354,951 shares of common stock currently owned and 34,722
shares of common stock to be issued upon the exercise of warrants.
(23) Includes 354,951 shares of common stock currently owned and 34,722
shares of common stock to be issued upon the exercise of warrants.
(24) Howard Fine, the President of HIF Enterprises, has voting and
dispositive power over the shares of common stock held by HIF
Enterprises.
(25) Paul Tuss, the Executive Director of Bear Paw Development Corporation
of Northern Montana, has voting and dispositive power over the shares
of common stock held by Hill County.
(26) Includes 450,000 shares of common stock currently owned and 200,000
shares of common stock to be issued upon conversion of Series F
convertible preferred stock. Zalman Gross, the President of Kollel
Metzioynim Lhoroah, has voting and dispositive power over the shares
of common stock held by Kollel Metzioynim Lhoroah.
16
(27) Keith Clark, the Chief Operating Officer of Lockridge Tool Company
LLC, has voting and dispositive power over the shares of common stock
held by Lockridge Tool Company LLC.
(28) Jason Lyons, the President of Lyons Capital Group LLC, has voting and
dispositive power over the shares of common stock held by Lyons
Capital Group LLC.
(29) Includes 10,000 shares of common stock currently owned and 45,080
shares of common stock to be issued upon conversion of Series F
convertible preferred stock.
(30) Includes 72,500 shares of common stock currently owned and 62,520
shares of common stock to be issued upon conversion of Series F
convertible preferred stock.
(31) Includes 199,980 shares of common stock to be issued upon conversion
of Series C convertible preferred stock and 199,980 shares of common
stock to be issued upon exercise of rights to acquire common stock
which may not be exercised until the Series C convertible preferred
stock is converted by such holder.
(32) Includes 199,980 shares of common stock to be issued upon conversion
of Series C convertible preferred stock and 199,980 shares of common
stock to be issued upon exercise of rights to acquire common stock
which may not be exercised until the Series C convertible preferred
stock is converted by such holder.
(33) Includes 199,980 shares of common stock to be issued upon conversion
of Series C convertible preferred stock and 199,980 shares of common
stock to be issued upon exercise of rights to acquire common stock
which may not be exercised until the Series C convertible preferred
stock is converted by such holder.
(34) Earl Roberts, the President of The Stock Pit, has voting and
dispositive power over the shares of common stock held by The Stock
Pit.
(35) Includes 20,000 shares of common stock currently owned, 199,980 shares
of common stock to be issued upon conversion of Series C convertible
preferred stock and 199,980 shares of common stock to be issued upon
exercise of rights to acquire common stock which may not be exercised
until the Series C convertible preferred stock is converted by such
holder.
(36) Includes 20,000 shares of common stock currently owned, 199,980 shares
of common stock to be issued upon conversion of Series C convertible
preferred stock and 199,980 shares of common stock to be issued upon
exercise of rights to acquire common stock which may not be exercised
until the Series C convertible preferred stock is converted by such
holder.
(37) Includes 20,000 shares of common stock currently owned, 199,980 shares
of common stock to be issued upon conversion of Series C convertible
preferred stock and 199,980 shares of common stock to be issued upon
exercise of rights to acquire common stock which may not be exercised
until the Series C convertible preferred stock is converted by such
holder.
(38) Includes 1,600,000 shares of common stock currently owned, 99,990
shares of common stock to be issued upon conversion of Series C
convertible preferred stock, 99,990 shares of common stock to be
issued upon exercise of rights to acquire common stock which may not
be exercised until the Series C convertible preferred stock is
converted by such holder and 2,000,000 shares of common stock to be
issued upon conversion of Series F convertible preferred stock.
(39) Includes 100,000 shares of common stock currently owned, 199,980
shares of common stock to be issued upon conversion of Series C
convertible preferred stock and 199,980 shares of common stock to be
issued upon exercise of rights to acquire common stock which may not
be exercised until the Series C convertible preferred stock is
converted by such holder.
17
(40) Includes 20,000 shares of common stock currently owned, 199,980 shares
of common stock to be issued upon conversion of Series C convertible
preferred stock and 199,980 shares of common stock to be issued upon
exercise of rights to acquire common stock which may not be exercised
until the Series C convertible preferred stock is converted by such
holder.
(41) Includes 20,000 shares of common stock currently owned, 199,980 shares
of common stock to be issued upon conversion of Series C convertible
preferred stock and 199,980 shares of common stock to be issued upon
exercise of rights to acquire common stock which may not be exercised
until the Series C convertible preferred stock is converted by such
holder.
(42) Includes 20,000 shares of common stock currently owned, 199,980 shares
of common stock to be issued upon conversion of Series C convertible
preferred stock and 199,980 shares of common stock to be issued upon
exercise of rights to acquire common stock which may not be exercised
until the Series C convertible preferred stock is converted by such
holder.
(43) Includes 199,980 shares of common stock to be issued upon conversion
of Series C convertible preferred stock and 199,980 shares of common
stock to be issued upon exercise of rights to acquire common stock
which may not be exercised until the Series C convertible preferred
stock is converted by such holder.
(44) Jeffrey Resnick and Barry Resnick, partners of Resnick & Company, LLC,
share voting and dispositive power over the share of common stock held
by Resnick & Company, LLC.
(45) Kurt Mahoney, the President of Samaritan Group International Corp.,
has voting and dispositive power over the shares of common stock held
by Samaritan Group International Corp.
(46) Rudolf W. Schindler served as an officer of the Company from September
1998 to October 2002, at which time he resigned as an officer of the
Company.
(47) James Fontanetta, the Trustee of the Segoes Trust, has voting and
dispositive power over the shares of common stock held by the Segoes
Trust.
(48) James Adler, a partner at Squire Sanders & Dempsey L.L.P., has voting
and dispositive power over the shares of common stock held by Squire
Sanders & Dempsey L.L.P.
(49) Marshall S. Sterman, Chairman of The Mayflower Group, Ltd., joined the
Board of Directors in March 2000.
(50) Includes 2,339,611 shares of common stock currently owned and 277,778
shares of common stock to be issued upon the exercise of warrants.
(51) William Duncan, the President of W W Trading International, has voting
and dispositive power over the shares of common stock held by W W
Trading International.
Our registration of the shares included in this prospectus does not
necessarily mean that each of the selling securityholders will opt to sell any
of the shares offered hereby. The shares covered by this prospectus may be sold
from time to time by the selling securityholders so long as this prospectus
remains in effect.
PLAN OF DISTRIBUTION
We are registering the resale of 1,666,667 shares of our common
stock issuable, otherwise than through underwriters, upon exercise of warrants.
We anticipate we will receive $0.15 per share upon the exercise of the warrants.
The warrants were issued to certain holders in connection with a settlement
agreement dated as of June 20, 2002. The warrants are currently exercisable.
18
Subject to certain conditions contained in the warrants, we have the right to
redeem or call the warrants. We will not receive any proceeds from the
subsequent sale of the common stock, although we may receive up to $250,000
(less expenses) if all the warrants are exercised by the warrant holders. We
will bear all fees and expenses incident to registering the shares of common
stock.
We are also registering the resale of 17,037,671 shares of common
stock previously issued to certain existing shareholders in connection with a
settlement of agreement dated as of June 20, 2002. We will not receive any
proceeds from the subsequent sale of this common stock. We will bear all fees
and expenses incident to registering these shares of common stock.
We are also registering the resale of up to 2,916,375 shares of
common stock issuable upon conversion of our Series C convertible preferred
stock. We will not receive any proceeds from the subsequent sale of this common
stock. We will bear all fees and expenses incident to registering these shares
of common stock.
We are also registering the resale of up to 2,499,750 shares of common
stock issuable upon exercise of rights to acquire common stock exercisable at
the time of conversion of certain shares of our Series C preferred stock issued
as an inducement to purchase certain shares of our Series C convertible
preferred stock. We will not receive any proceeds from the subsequent sale of
this common stock. We will bear all fees and expenses incident to registering
these shares of common stock.
We are also registering the resale of up to 13,017,680 shares of
common stock issuable upon conversion of our Series F convertible preferred
stock. We will not receive any proceeds from the subsequent sale of this common
stock. We will bear all fees and expenses incident to registering these shares
of common stock.
We are also registering the resale of 60,152,993 shares of common
stock on behalf of the selling securityholders, as well as on behalf of their
donees, pledgees, transferees or other successors-in-interest, if any, who may
sell shares received as gifts, pledges, distributions or other non-sale related
transfers. Neither we, nor the selling securityholders, have employed an
underwriter for the sale of common stock by the selling securityholders. The
selling securityholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of the shares by the selling securityholders. We will not receive any proceeds
from the subsequent sale of the shares of common stock. We will bear all
expenses in connection with the preparation of this prospectus and registration
of the shares. The selling securityholders will bear brokerage commissions and
similar selling expenses associated with the sale of their common stock.
If any shares of common stock being registered for resale in the
accompanying registration statement are transferred from the selling
stockholders listed in this prospectus and such transferees wish to rely on this
prospectus to resell these shares, then a prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement of which
this prospectus is a part, would need to be filed with the Securities and
Exchange Commission naming these individuals as selling shareholders.
The selling securityholders may offer their shares of common stock
from time to time directly or through pledgees, donees, transferees or other
successors in interest in one or more of the following transactions (which may
include block transactions):
o On any stock exchange or automated quotation system on which
the shares of common stock may be listed at the time of sale;
o In negotiated transactions;
o In the over-the-counter market;
o Put or call option transactions relating to the shares;
o Short sales relating to the shares; or
19
o In a combination of any of the above transactions.
The selling securityholders may offer their shares of common stock
at any of the following prices, which may reflect discounts from the prevailing
market prices at the time of sale:
o Fixed prices that may be changed;
o Market prices prevailing at the time of sale;
o Prices related to such prevailing market prices;
o At negotiated prices; or
o Varying prices determined at the time of sale.
The selling securityholders may effect such transactions by selling
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions, or commissions from the selling securityholders
and/or the purchasers of shares of common stock for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
Any broker-dealer acquiring common stock from the selling
securityholders may sell the shares either directly, in its normal market-making
activities, through or to other brokers on a principal or agency basis or to its
customers. Any such sales may be at prices then prevailing on the OTCBB or at
prices related to such prevailing market prices or at negotiated prices to its
customers or a combination of such methods. The selling securityholders and any
broker-dealers that act in connection with the sale of the common stock
hereunder might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933, as amended; any commissions received by
such broker-dealers and any profit on the resale of shares sold by them as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act of 1933, as amended. The selling securityholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act of 1933, as amended.
Because selling securityholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as amended,
the selling securityholders will be subject to the prospectus delivery
requirements of such Act.
The selling securityholders also may resell all or a portion of the
shares in open market transactions in reliance upon Rule 144 under the
Securities Act of 1933, as amended, provided they meet the criteria and conform
to the requirements of such Rule.
If we are notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of the
shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
post-effective amendment to the registration statement of which this prospectus
is a part under the Securities Act of 1933, as amended, disclosing:
o the name of each such selling stockholder and of the
participating broker-dealer(s);
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable;
20
o that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in
this prospectus; and
o other facts material to the transaction.
Except for Canaccord Capital Corporation, John J. Clark and Jeffrey
R. Power, none of the selling securityholders is a broker-dealer or an affiliate
of a broker-dealer. Mr. Clark is a principal of Baldwin & Clarke Capital
Markets. Mr. Power is an employee of Detwiler Mitchell Felton & Graves, a
Boston-based broker-dealer firm.
There can be no assurance that the selling securityholders will sell
any or all of the shares offered by them under this prospectus.
BUSINESS
THE COMPANY
Water Chef designs and markets water purification equipment. Water
coolers and filters were a substantial part of the Company's business from 1993
until the fourth quarter of 2001, at which time this business was sold so that
Water Chef could concentrate on the further development, manufacturing, and
marketing of their patented line of "PureSafe" water purification systems. The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. To date, the Company has shipped 21 PureSafe units.
Revenue has been recognized on only 3 PureSafe units, as 18 units that were
shipped to the Kingdom of Jordan have not met the criteria for revenue
recognition due to no reasonable assurance of collectibility.
BACKGROUND
The Company was originally incorporated under Arizona law in 1985
and merged into a Delaware corporation in 1987. In 1993 the Company, then known
as Auto Swap, U.S.A., entered into a reverse merger with Water Chef, Inc., a
Nevada corporation, which manufactured and marketed water coolers and filters.
PRODUCTS
In 2001, the Company decided to concentrate its efforts on the
further development, manufacturing and marketing of the PureSafe since Water
Chef believed that its water dispensers and its wide variety of consumer
oriented water filtration products met or exceeded the design, quality and
performance of competitive products. Market considerations were such, however,
as to limit opportunities for profit and growth.
In 1998, searching for a "killer application," Water Chef management
focused on the worldwide need for safe drinking water for populations who are
not served by municipal water treatment facilities, or are served by municipal
systems that have malfunctioned because of improper maintenance or faulty
design. The result of that activity is the PureSafe Water Station, a turn-key
unit that converts "gray," or bathing grade, water into EPA grade drinking
water. The PureSafe eliminates all living pathogens that pollute non-processed
water - bacteria, cysts, viruses, parasites, etc. - at an affordable cost for
the emerging economies of the world.
The PureSafe was tested by H2M Labs, Inc. which has been approved by
Nassau and Suffolk counties in New York to perform drinking water testing for
the various municipalities in those counties. The specific test performed was a
total and fecal coliform bacteria test, wherein the source water storage tank
which feeds the PureSafe was tested for the presence of total and fecal coliform
bacteria. The source water tank was found to have 50 colonies of coliform
bacteria present. The source water tank was then "spiked" with a three (3) liter
concentration of laboratory grown and cultured bacteria and the storage tank was
measured again with 80,000,000 colonies of bacteria detected. After being
processed through the PureSafe system, the water was tested again, and "FEWER
THAN 2 COLONIES" were detected. In addition to the laboratory test conducted for
Water Chef by H2M Labs, the available scientific literature, in industry
journals such as Water Technology and Water Conditioning and Purification
International, supports the statement that an ozone system such as the one
21
utilized in the PureSafe effectively eliminates all living pathogens. Ozone was
first used in municipal water treatment in Nice, France in 1904, and then in the
Jerome Park Reservoir in the Bronx, New York in 1906.
The PureSafe is a self-contained, six stage water purification
center. It is housed in the equivalent of a small storage container -
approximately four feet wide, seven feet long, and six and one-half feet high.
The unit weighs approximately eleven hundred pounds (without water) and has been
configured for portability, durability, and easy access to its essentially
off-the-shelf components. It is constructed with weather and UV resistant
fiberglass, aluminum and steel, and is equipped with internal and external
lighting.
The core version of the PureSafe can purify and dispense up to
15,000 gallons of water per day for an all-inclusive cost (labor, power,
amortization of the capital cost, replacement filters, cartridges and media) of
approximately one-half cent per gallon. The process wastes very little water,
producing approximately one gallon of pure drinking water for every gallon
processed. The unit can be moved with a single fork-lift and is transportable by
truck or helicopter. Operating the PureSafe is simple and straightforward. Due
to its turn-key design, minimum wage personnel can be trained to operate the
unit. A system of fail-safes is built into the operation, and aside from easily
installable spares such as filters and cartridges, a maintenance and oversight
program established by Water Chef should maintain the operating efficiencies
built into the system. Water Chef warrants each unit for a period of one year so
long as the consumer adheres to required maintenance protocols, using Water Chef
supplied parts, as prescribed in the maintenance manual. The Company also offers
larger versions of the PureSafe to provide pure water in quantities up to 5,000
gallons per hour. To date, there have been no warranty claims for the PureSafe
product operating in the field. Water Chef also plans to have periodic
inspections of installed equipment by the Company's agents.
MANUFACTURING
In 2000, the Company entered into a subcontracting agreement with
Davis Aircraft Products Inc, ("Davis") for the manufacture of the PureSafe.
Based upon the experience and the resources of Davis, Water Chef's management
believes that Davis can provide the production and manufacturing support
services necessary to supply Water Chef's requirements over the foreseeable
future at a price, and with the quality and performance standards necessary to
meet, or exceed, the needs of the markets that the Company expects to serve. In
addition, Davis supervises much of the Company's research and development
activities.
RAW MATERIALS
The PureSafe has been designed to use, for the most part, readily
available off-the-shelf components, sub-systems and equipment. Inasmuch as each
of the components and sub-systems are available from multiple vendors, the
Company does not believe that obtaining these for its sub-contractor, for
itself, or for others if it chooses to manufacture elsewhere, will be a problem.
COMPETITION
Water Chef's modular, turn-key PureSafe Water Station directly
addresses the drinking water needs of those environs which do not today, and are
unlikely to, enjoy access to municipally treated water. The Company has produced
a turnkey solution that produces pure water to meet U.S. EPA drinking water
standards. This is a far different market than that addressed by the segment of
the industry that has concentrated on the multi-billion dollar municipal water
treatment sector, or the equally large residential sector. The municipal
solution requires significant investment for infrastructure development
(building plants and laying miles of distribution pipes), and products for
residential markets do not offer the performance or features to meet the needs
of the underdeveloped nations of the world.
Management does recognize that its potential competitors have far
more resources, and that being first to the marketplace is no assurance of
success. It must be assumed that others are working on systems that, if
successfully brought to market, could seriously impact the viability of the
company.
The Company currently has contracts to sell PureSafe units in Laos
and Ecuador. In addition, the Company is actively marketing its products to
potential customers in Bangladesh, China, El Salvador, Egypt and Honduras, and
to agencies and departments of the U.S. Government.
22
MARKETING
The potential market for the PureSafe is substantial and is both
worldwide and domestic. According to studies performed by the World Health
Organization (WHO) and the United Nations, major parts of Africa, the Middle
East, Southeast Asia, the Indian sub-continent, Latin and South America, the
Caribbean, and much of Eastern Europe is in need of adequate supplies of pure
water. Parts of Florida, Georgia, and other regions in the United States have
also reported fresh water deficits. In part, solving this problem has been a
question of appropriate technology. Secondarily, but just as important, in a
vast part of the world is the need to secure third party financing so that the
local populace can enjoy the benefits of clean water.
Water Chef believes that it has demonstrated that it possesses the
technology. The Company also believes that financing is available for third
world economies from a variety of sources. The challenge for the Company, a
virtual unknown in the industry and with limited capital, is in getting its
message in front of decision makers. To this end, Water Chef has enlisted the
aid of some of the world's most outstanding experts in water purification,
especially as it relates to the needs of underdeveloped countries.
The Company's Scientific Advisory Board is chaired by Dr. Ronald
Hart, former Director of The National Center for Toxicological Research and a
U.S. Food and Drug Administration "Distinguished Scientist in Residence." The
Board also includes Dr. Mohamed M. Salem, Professor of Occupational and
Environmental Medicine, Cairo University; Dr. Richard Wilson, Mallinckrodt
Research Professor of Physics, Harvard University; Dr. Mostafa K. Tolba, former
Under-Secretary-General of the United Nations and Director of the U.N.'s
Environmental Program; and Lord John Gilbert, former Minister of State for
Defense for the United Kingdom under three Prime Ministers and
Secretary/Treasurer of the Tri-Lateral Commission.
Not only have the members of the Scientific Advisory Board provided
valuable input and guidance to the Company with respect to system design,
technological input, remediation approaches and a great deal of information
relative to the unique water problems facing many areas of the world, but they
have also been active in introducing Water Chef to commercial opportunities
During 2004 Water Chef established a relationship with the
International Multiracial Shared Cultural Organization (IMSCO), an NGO
(non-governmental organization) specialized with the Economic and Social Council
of the United Nations. As a result of this relationship Water Chef has received
United Nations certification for its pure water humanitarian projects in
Honduras and Bangladesh, and became eligible to apply for third party funding of
these projects. As of year-end 2004, the Company has submitted these projects
for funding approval, but has received no assurance of funding.
With the recent funding of the Homeland Security Department budget,
and a renewed focus on preparedness in the event of possible future terrorist
attacks in the United States, programs have been initiated to ensure the
protection and preservation of our water resources. Water Chef has been in
discussion with political and government contacts to explore the applications
for the PureSafe as a back-up drinking water system in case of damage to
municipal systems. The Company has also initiated contact with senior government
personnel to explore the use of our technology to safeguard water supplies at
U.S. installations overseas.
PATENTS
The Company filed for patent protection on its PureSafe Water
Station in October of 1998 and received formal notification that the patent had
been issued on February 19, 2002. The Company feels that this patent upholds the
claims that the PureSafe system is a unique product. In addition to its U.S.
patent, the Company has filed for patent protection in the countries of the
European Union, and in Canada, Mexico, China, Hong Kong, Korea and Japan. The
patent application for the European Union (01-126 980.0) was filed on November
13, 2001; Canadian Application No. 2,362,107 was filed on November 3, 2001;
Mexican Application No. PA/a/2001/12042 was filed on November 23, 2001;the
Chinese Application No. 01136187.5 was filed on November 21, 2001, and was found
to be in compliance on June 20, 2003; the Hong Kong Application No. 03107837.9
was filed on October 3, 2003; and the Korean Patent Application No.
10-2001-0070453 was filed on November 20, 2001. Each of the patent applications
23
has been accepted, Requests for Examination have been made, and the Company
currently has patent protection in the requested venues.
The name PureSafe Water Station and the stylized water droplet mark
have been trademarked in the United States.
Water Chef has also incorporated patented and proprietary technology
in the PureSafe and is confident that it can protect this intellectual capital
throughout the manufacturing and distribution cycle.
There can be no assurance that any application of the Company's
technologies will not infringe patent or proprietary rights of others, or that
licenses which might be required for the Company's processes or products will be
available on favorable terms. Furthermore, there can be no assurance that
challenges will not be made against the validity of the Company's patent, or
that defenses instituted to protect against patent violation will be successful.
SEASONALITY
The Company does not expect the Pure Safe to be influenced by
seasonality.
GOVERNMENT APPROVALS
The Company's marketing efforts to date have been directed to
Central and South America, the Asian sub-continent, and the Middle East. No
specific government approvals are required, except for the possibility that
export licenses will be required in specific instances.
RESEARCH AND DEVELOPMENT
Research and development takes place at the Company's office.
Testing, modeling, simulation and prototype manufacturing are outsourced with
much of the ongoing development taking place at the Company's contract
manufacturing facilities under the supervision of Davis Water Products. The
Company estimates to date that the design, prototyping, development and
marketing of the PureSafe Water Station has cost in excess of $2 million.
INSURANCE
The Company maintains a $1,000,000 umbrella policy, in addition to a
$2,000,000 general and product liability policy, which covers the manufacture
and marketing of its products. The Company believes its insurance coverage to be
adequate.
EMPLOYEES
As of March 31, 2005, the Company employed one executive officer and
two administrative personnel in its headquarters.
The Company believes there is a sufficient number of persons
available at prevailing wage rates in or near our manufacturing locations that
should expansion of its production require additional employees, they would be
readily available. The Company has no collective bargaining agreement with any
of its employees.
DESCRIPTION OF PROPERTY
The Company presently has no owned or leased manufacturing
facilities, nor does the Company have a plan to acquire its own manufacturing
facility. The PureSafe Water Station is manufactured for the Company under a
contract by Davis Water Products.
The Company maintains its principal place of business at 1007 Glen
Cove Avenue, Suite 1, Glen Head, New York 11545. The company leases 1,100 square
feet in such building at $2,475 per month on a month-to-month basis.
24
To the extent possible the Company intends to utilize leased space
for its future needs.
LEGAL PROCEEDINGS
In May 2001, the Company entered into a distribution agreement with
a company (the "Sub Distributor") based in Jordan. The Sub Distributor has
agreed to purchase no fewer than 100 units of the Company's "Pure Safe Water
Station" during 2001 and a minimum of 50 units in each of 2002 and 2003. To
date, the Company has shipped 20 PureSafe units. Revenue has been recognized on
only 2 PureSafe units as 18 units which were shipped to the Kingdom of Jordan
have not met the criteria for revenue recognition due to no reasonable assurance
of collectibility. The Company has recorded the cost of the inventory shipped as
a loss contingency of $242,035 during the year ended December 31, 2001, since
return of the items is uncertain. The Company has engaged legal counsel in
Jordan, to pursue legal remedies and obtain payment for all units shipped.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
As of March 31, 2005, the Company's Directors, Executive Officers
and Scientific Advisory Board Members are:
Name Age Position(s) with the Company
David A. Conway 63 Director, Chairman,
President, Chief Executive
Officer and Chief Financial
Officer
John J. Clarke ++ 63 Director
Ronald W. Hart + 62 Chairman, Scientific
Advisory Board
Mohamed M. Salem + 53 Scientific Advisory Board
Marshall S. Sterman++ 73 Director
Richard Wilson + 79 Scientific Advisory Board
Mostafa K. Tolba + 83 Scientific Advisory Board
Lord John Gilbert + 79 Scientific Advisory Board
+ Members of the Scientific Advisory Board will receive an honorarium, in the
form of cash or common stock, for their service at the discretion of the Board
of Directors.
++ Member of Audit Committee and Compensation Committee.
DAVID A. CONWAY
Mr. Conway was elected to the Board in 1997 and joined the Company as President
and Chief Executive Officer in 1998. Previously, he held the positions of
25
President and COO of a privately held public relations and marketing company;
Director and VP Administration of KDI Corporation (NYSE); VP Administration
Keene Corporation (NYSE) and earlier positions with CBS and Goldman Sachs & Co.
Mr. Conway, who served as an infantry officer in the US Army, holds
undergraduate and graduate degrees from Fordham University and is listed in
Who's Who in America.
JOHN J. CLARKE
John J. Clarke rejoined the Water Chef Board of Directors in March 2004. Mr.
Clarke had previously served as a member of the Company's Board of Directors
from July 1997 to February 2000 when he resigned from the Board due to his heavy
workload. Mr. Clarke is a Principal and co-founder of the Baldwin and Clarke
Companies, a diversified financial services organization, and is a founding
director of two New Hampshire commercial banks. Mr. Clarke currently serves as a
Director of Centrix Bank.
RONALD W. HART (PH.D.)
Dr. Hart agreed to form the Board of Scientific Advisors in 2000 and became
Chairman at that time. Dr. Hart is an internationally recognized scientist and
scholar who was Director of the National Center for Toxicological Research and
was named "Distinguished Scientist in Residence" by the US Food and Drug
Administration in 1992. Recognized for his pioneering work on aging and his
studies on nutrition and health, Dr. Hart has been appointed visiting professor
at a number of universities, including Cairo University, Seoul National
University and Gangzhou University. He received his doctorate in physiology and
biophysics from the University of Illinois.
MOHAMED M. SALEM (MD/PH.D.)
Dr. Salem was appointed to the Scientific Advisory Board in early 2001. Dr.
Salem is Professor of Occupational and Environmental Medicine at the Kasr
El-Aini School of Cairo University. An internationally recognized expert on the
health effects of environmental and water contaminants including pesticides,
lead and other metals, Dr. Salem is credited with establishing infectious
disease control programs at medical centers and other public entities throughout
the Middle East. Dr. Salem is a principal of Salem Industries, an import and
export company, which is one of the leading suppliers of chemicals and oil field
equipment in the Middle East. Dr. Salem holds both an M.D. and Ph.D. from Cairo
University.
MARSHALL S. STERMAN
Mr. Sherman was elected to the Board in 2000. Mr. Sterman is President of the
Mayflower Group, a Massachusetts based merchant bank. He previously served as
managing partner of Cheverie and Company and MS Sterman & Associates, merchant
banking firms and principal of Sterman & Gowell Securities, an investment
banking and securities firm. Mr. Sterman served as an officer in the US Navy and
holds his BA from Brandeis University and his MBA from Harvard University.
RICHARD WILSON (Ph.D.)
Dr. Wilson was appointed to the Scientific Advisory Board in February 2001. Dr.
Wilson is the Mallinckrodt Research Professor of Physics at Harvard University.
Dr. Wilson is one of the foremost scientific authorities in the fields of water
quality remediation and purification, and is currently Professor of the Energy
Research Group at the University of California. Dr. Wilson is a member of the
Advisory Board of the Atlantic Legal Foundation, and is one of the principal
scientists studying the resolution of the water problems in Chernobyl and in
Bangladesh where toxic levels of arsenic contaminate the water supply. Dr.
Wilson holds his Ph.D. from Oxford University.
MOSTAFA K. TOLBA (Ph.D.)
Dr. Tolba joined the Scientific Advisory Board in June 2001. Dr. Tolba served as
Under-Secretary-General of the United Nations, and Executive Director of the
26
United Nations Environmental Program from 1976 to 1992. Dr. Tolba is currently
President of the International Center for Environment and Development
headquartered in Geneva, Switzerland, and Emeritus Professor of Science at the
Kasr El-Aini School of Medicine at Cairo University. He received his Ph.D. in
Macrobiology from Imperial College, London, England.
LORD JOHN GILBERT (Ph.D.)
Lord John Gilbert joined the Scientific Advisory Board in 2001. Lord Gilbert
served as Minister of State for Transportation, Minister of State for Finance,
and as Minister of State for Defense in the United Kingdom under three Prime
Ministers. Lord Gilbert is Secretary/Treasurer of the Tri-Lateral Commission and
a member of the House of Lords. He was educated at Marchant Taylors' School and
St. John's College, Oxford, and holds a Ph.D. in International Economics and
Statistics from New York University.
Marshall S. Sterman and John J. Clarke are the members of the Company's Audit
Committee. The Board of Directors has determined that Mr. Sterman is an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-B.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Name and Principal Long Term
Position Annual Compensation Compensation
--------------------- -------------------------------- ----------------------------------
Securities
Restricted Underlying All
Other Annual Stock Options/ Other
Salary Bonus Compensation Award(s) SARs Compensation
Year ($) ($) ($) ($) (#) ($)
---- ------ ----- ------------ -------- -------- --------
David A. Conway 2004 $303,750 -- -- -- 5,000,000 --
President/CEO 2003 $165,000 -- -- -- -- --
2002 $165,000 -- -- -- -- --
Option/SAR Grants in Last Fiscal Year
The following table sets forth information regarding common stock appreciation
rights made to the named executive officers and directors during fiscal 2004:
Number of
Securities Percent of Total SARs
Underlying SARs Granted to Employees Exercise or Base
Name Granted # In Fiscal Year Price ($/Sh) Expiration Date
------------------- --------- -------------- ------------ ---------------
David A. Conway 5,000,000(1) 83% $0.25 January 31, 2009
Marshall S. Sterman 1,000,000(2) 17% $0.25 January 31, 2006
---------------------------
(1) These SARs were originally granted as stock options on January 1, 2004
and were converted to stock appreciation rights in November, 2004.
These SARs vest 20% on each anniversary of such grant.
27
(2) These SARs were originally granted as stock options on January 1, 2004
and were converted to stock appreciation rights in November, 2004.
These SARs vest 50% on each anniversary of such grant.
The Company has no Long-Term Incentive Plans at this time.
DIRECTORS' COMPENSATION
Directors of the Company do not receive cash compensation for
serving as members. They are reimbursed for their out of pocket expenses related
to meetings and other Company related activity for which they are called upon.
In the past certain directors have received common stock for service to the
Company.
Beginning on January 1, 2002, Mr. Sterman was compensated at the
rate of $6,000 per month for consulting services performed for the Company. The
Company may pay for these services in cash or stock, and may terminate these
services at its option.
The Company's directors have been paid success fees for helping the
Company in various equity and debt financings in previous years. These payments
have been both in cash and common stock, such payments being made based on
industry-wide standards and arms-length transactions.
EMPLOYMENT AGREEMENTS
Mr. Conway entered into a five-year employment agreement in January
2004. The agreement provides for base salary of $350,000 per year, participation
in the company's employee benefit programs and a life insurance policy in the
amount of $5,000,000. In addition Mr. Conway was granted a stock appreciation
right, vesting at 20% per year for five years, for 5,000,000 shares of Water
Chef common stock at a strike price of $0.25 per share. Mr. Conway was
originally granted stock options in January 2004, that were later converted to
stock appreciation rights in November 2004.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's amended and restated certificate of incorporation and
bylaws eliminate, in certain circumstances, the liability of Directors for
breach of their fiduciary duty. This provision does not eliminate the liability
of a Director (i) for breach of the Director's duty of loyalty to the Company or
its stockholders (ii) for acts of omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
willful or negligent declaration of an unlawful dividend, stock purchase or
redemption; (iv) for transactions from which the Director derived an improper
personal benefit; or (v) for any act or omission occurring prior to the
effective date of the amended and restated certificate of incorporation.
The Company's amended and restated certificate of incorporation
provides generally for indemnification of the Directors and Officers to the full
extent permitted under Delaware law, and permits indemnification for all other
persons whom the Company is empowered to indemnify.
These provisions do not limit or eliminate our rights or those of
any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a Director's fiduciary duty. These
provisions will not alter a Director's liability under federal securities laws.
Our amended and restated bylaws also contain provisions indemnifying our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. We believe that these provisions are necessary to attract and
retain qualified individuals to serve as Directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to Directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information as of March 31, 2005, concerning
stock ownership of all persons known by the Company to own beneficially 5% or
more of the issued and outstanding common stock of the Company, all Directors,
all Executive Officers, and all Directors and Executive Officers of the Company
as a group based on the number of shares of common stock issued and outstanding
as of March 31, 2005. For purposes of the Memorandum, beneficial ownership is
defined in accordance with the Rules of the Securities and Exchange Commission
and generally means the power to vote and/or dispose of the securities
regardless of any economic interest.
Series C
Common Stock Series A Convertible Series D Series F Convertible
Beneficially Owned(1) Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Beneficially Beneficially Beneficially Beneficially
Owned(1) Owned(1) Owned(1) Owned(1)
SHARES % SHARES % SHARES % SHARES % SHARES %
------ --- ------ --- ------ --- ------ --- ------ ---
David A. Conway(2)(3) 25,110,782 15.8% -- -- -- -- -- -- -- --
Water Chef, Inc.
1007 Glen Cove Ave.,
Suite 1
Glen Head, NY 11545
Marshall S. Sterman 1,450,000 * -- -- -- -- -- -- -- --
46 Neptune Street
Beverly, MA 01915
John J. Clarke 1,500,000 * -- -- -- -- -- -- -- --
116B S. River Rd.
Bedford, NH 03110
Jerome Asher & -- -- 5,000 9.5% -- -- -- -- -- --
Anne Asher JTWROS
2701 N Ocean Blvd
Apt E-202
Boca Raton, FL 33431
Robert D. Asher -- -- 5,000 9.5% -- -- -- -- -- --
72 Old Farm Road
Concord, MA 01742
John A. Borger -- -- -- -- -- -- 10,000 10.8% -- --
806 E Avenida Pico
Suite I PMB #262
San Clemente, CA 92673
29
Series C
Common Stock Series A Convertible Series D Series F Convertible
Beneficially Owned(1) Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Beneficially Beneficially Beneficially Beneficially
Owned(1) Owned(1) Owned(1) Owned(1)
SHARES % SHARES % SHARES % SHARES % SHARES %
------ --- ------ --- ------ --- ------ --- ------ ---
Douglas Davis -- -- -- -- -- -- -- -- 25,000 7.7%
Davis Aircraft Products
1150 Walnut Ave.
Bohemia, NY 11716
Global Ocean -- -- -- -- 12,500 14.3% -- -- -- --
4367 Windergate Dr.
Jacksonville, FL 32257
Michael Manfredo -- -- -- -- -- -- -- -- 50,000 15.4%
4367 Windergate Dr.
Jacksonville, FL 32257
Jeffrey R. Power -- -- -- -- -- -- -- -- 50,000 15.4%
74 Beach St
Cohasset, MA 02025
Frazer Pennebaker -- -- -- -- 24,000 27.4% -- -- -- --
202 W. 85th St.
New York, NY 10024 (4)
Deborah A. Power -- -- -- -- 18,000 20.6% -- -- -- --
959 Concord St.
Carlisle, MA 01741 (5)
Jeffrey R. Power, Jr. -- -- -- -- 24,000 27.4% -- -- -- --
18 Oldwood Road
Wilbraham, MA 01095 (6)
Pamela L. Power -- -- -- -- 24,000 27.4% -- -- -- --
202 W. 85th St.
New York, NY 10024 (7)
Rosemarie Power -- -- -- -- 24,000 27.4% -- -- -- --
18 Oldwood Road
Wilbraham, MA 01095 (8)
30
Series C
Common Stock Series A Convertible Series D Series F Convertible
Beneficially Owned(1) Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Beneficially Beneficially Beneficially Beneficaily
Owned(1) Owned(1) Owned(1) Owned(1)
SHARES % SHARES % SHARES % SHARES % SHARES %
------ --- ------ --- ------ --- ------ --- ------ ---
Arnold Fonseca Sep -- -- -- -- -- -- -- -- 19,231 5.9%
c\o Integrated Financial
Management Inc.
1831 E. Carson St.
Pittsburgh, PA 15203
Eugene D. Trott -- -- -- -- -- -- -- -- 41,668 12.8%
459 12th St, Apt. 3B
Brooklyn, NY 11215
Robert Swinton -- -- -- -- -- -- -- -- 18,750 5.8%
625 Derby Drive South
Oceanside, NY 11572
Shirley M. Wan -- -- -- -- -- -- 6,000 6.5% -- --
5455 Chelsen Wood Dr.
Lawrence, NY 11559
All executive officers 28,060,782 17.7% -- -- -- -- -- -- -- --
and Directors as a Group
(2)(9)
* less than 1%
1. A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days after the record
date upon the exercise of options and warrants and the conversion of
convertible securities. Each beneficial owner's percentage of
ownership is determined by assuming that all options, warrants or
convertible securities held by such person (but not those held by
any other person) that are currently exercisable or convertible
(i.e., that are exercisable or convertible within 60 days after the
record date) have been exercised or converted.
2. Includes 10,495,067 shares held in an IRA Trust.
3. In March, 2002 Mr. Conway voluntarily surrendered the anti-dilution
agreement that insured 32.6% ownership of the voting shares to Mr.
Conway and his affiliates.
31
4. Includes 6,000 held directly by Frazer Pennebaker, 600 shares held
as custodian for Mae Pennebaker UGMA NY, 6,000 shares held as
custodian for Nathaniel Pennebaker UGMA NY and 6,000 shares held by
Pamela L. Power, Frazer Pennebaker's wife. Frazer Pennebaker
disclaims beneficial ownership of all shares held by Pamela L.
Power.
5. Includes 6,000 shares held directly by Deborah A. Power, 6,000
shares held as custodian for Audrey D. Cooney UGMA MA and 6,000
shares as custodian for Olivia M. Cooney UGMA MA.
6. Includes 6,000 held directly by Jeffrey R. Power, Jr., 6,000 shares
held as custodian for Jeffrey R. Power III Cooney UGMA MA, 6,000
shares held as custodian for Kerry E Power UGMA MA and 6,000 shares
held by Rosemarie Power, Jeffrey R. Power, Jr.'s wife. Jeffrey R.
Power, Jr. disclaims beneficial ownership of shares owned Rosemarie
Power.
7. Includes 6,000 shares held directly by Pamela L. Power, 6,000 shares
held directly by Frazer Pennebaker, Pamela L. Power's husband, 6,000
shares held by Frazer Pennebaker as custodian for Mae Pennebaker
UGMA NY and 6,000 shares held by Frazer Pennebaker as custodian for
Nathaniel Pennebaker UGMA NY. Pamela L. Power disclaims beneficial
ownership of shares owned by Frazer Pennebaker.
8. Includes 6,000 shares held directly by Rosemarie Power, 6,000 shares
held directly by Jeffrey R. Power, Jr., Rosemarie Power's husband,
6,000 shares held by Jeffrey R. Power, Jr. as custodian for Jeffrey
R. Power III Cooney UGMA MA Y and 6,000 shares held by Jeffrey R.
Power, Jr. as custodian for Kerry E Power UGMA MA. Rosemarie Power
disclaims beneficial ownership of shares owned by Jeffrey R. Power,
Jr.
9. Does not include Officers or Directors of the Company who were not
such as of the date of record.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 190,000,000 shares of
common stock and 10,000,000 shares of preferred stock, of which 400,000 shares
have been designated Series A Preferred Stock, $.001 par value per share,
400,000 shares have been designated Series C convertible preferred stock, $.001
par value per share, 400,000 shares have been designated Series D Preferred
Stock, $.001 par value per share, and 1,000,000 shares have been designated
Series F convertible preferred stock, $.001 par value per share.
Except as to certain matters discussed below or as proscribed by
applicable law, the holders of shares of all classes of the capital stock of the
Company vote together as a single class. The holders of our capital stock do not
have cumulative voting rights, which means that the holders of more than 50% of
the outstanding shares, voting for the election of directors, can elect all of
the directors to be elected, if they so choose, and, in that event, the holders
of the remaining shares will not be able to elect any of our directors.
The following description of our capital stock is based upon our
restated certificate of incorporation, amended and restated bylaws and
applicable provisions of law. We have summarized portions of our restated
certificate of incorporation and amended and restated bylaws below. The summary
is not complete. You should read our certificate of incorporation and amended
and restated bylaws for the provisions that are important to you.
DESCRIPTION OF THE COMMON STOCK
As of March 31, 2005 there were 158,834,527 shares of common stock
outstanding which were held of record by approximately 816 shareholders.
32
Prior to filing the Certificate of Amendment on March 22, 2002
increasing our authorized capital stock to 200,000,000, we were authorized to
issue up to 100,000,000 shares of capital stock, consisting of up to 90,000,000
shares of common stock, par value $0.001 per share, and up to 10,000,000 shares
of preferred stock. There are presently 158,834,527 shares of common stock
outstanding. The Company is also obligated to issue 1,666,667 shares of common
stock upon the exercise of warrants and 18,433,805 shares of common stock upon
the conversion of other securities outstanding.
VOTING
Each holder of common stock is entitled to one vote for each share
on all matters to be voted upon by the holders of common stock.
RIGHTS AND PREFERENCES
The holders of common stock: (i) have equal ratable rights to
dividends from funds legally available if and when declared by our Board of
Directors after all accrued but unpaid dividends have been paid to the holders
of the outstanding capital stock ranking senior to the common stock as to
dividends; (ii) are entitled to share ratably in all of our assets available for
distribution to the holders of common stock upon liquidation, dissolution or
winding up of our affairs; and (iii) do not have preemptive, subscription or
conversion rights, and there are no redemption or sinking fund provisions or
rights.
Our common stock is admitted for trading on the OTCBB under the
symbol "WTER.OB".
The transfer agent and registrar for our common stock is
Computershare Investor Services.
DESCRIPTION OF WARRANTS
The Company issued 1,666,667 Series D warrants in 1997 to purchase
common stock that are exercisable at $0.15 per share. The warrants were
originally to expire on March 27, 2002, but the exercise period was initially
extended to March 27, 2004, and was extended again in March 2004 to the end of
the twelve-month period immediately following the registration of the shares of
common stock underlying the warrants pursuant to the court actions brought by
certain 12% subordinated debenture holders. The warrants are subject to
adjustment in certain circumstances, including stock splits, dividends,
recapitalizations and issuances of common stock or securities convertible into
common stock. The warrants do not confer upon the holder any voting or other
rights of a stockholder.
SERIES C CONVERTIBLE PREFERRED STOCK
The Certificate of Designation for the Series C convertible
preferred stock provides that no shares of Series C convertible preferred stock
may be converted until the later of (a) shareholder approval of the proposed
increase in the authorized common stock of the Company, and the availability of
a sufficient number of authorized but unissued shares of common stock to allow
for conversion, and (b) a date 120 days following the date of issuance thereof,
following which later date such shares may be converted, at the option of the
holder, into the Company's common stock at the conversion rate of one (1) share
of Series C convertible preferred stock for 33.33 shares of the Company's common
stock. These shares became convertible into shares of Water Chef's common stock
in June 2004 when stockholders of the corporation approved an increase in the
authorized capital stock of the corporation. All dividends on the Series C
convertible preferred stock are cumulative and are payable in shares of the
Company's common stock valued at the then-current market price per share, at the
earlier maturity or conversion. The Series C convertible preferred stockholders
have voting rights equal to the common stockholders. The Series C convertible
preferred stock has no stated rights in the assets of the Company upon
liquidation.
RIGHT TO ACQUIRE COMMON STOCK
Due to the price of our common stock at the time, certain purchasers
of our Series C convertible preferred stock received, as an inducement to
purchase such Series C convertible preferred stock, rights to acquire common
stock that are only exercisable upon conversion of their shares of Series C
33
convertible preferred stock. These rights to acquire common stock have no
additional voting rights other than the voting rights of underlying common stock
upon exercise. The rights to acquire common stock have no stated rights in the
assets of the Company upon liquidation.
SERIES F CONVERTIBLE PREFERRED STOCK
The Certificate of Designation for the Series F convertible
preferred stock provides that no shares of Series F convertible preferred stock
may be converted until the later of (a) shareholder approval of the proposed
increase in the authorized common stock of the Company, and sufficient number of
shares of authorized but unissued shares of common stock are available for
conversion, or (b) a date 120 days following the date of issuance thereof,
following which later date such shares may be converted, at the option of the
holder, into the Company's common stock at the conversion rate of one (1) share
of Series F convertible preferred stock for 40 shares of the Company's common
stock. These shares became convertible into shares of Water Chef's common stock
in June 2004 when stockholders of the corporation approved an increase in the
authorized capital stock of the corporation. All dividends on the Series F
convertible preferred stock are cumulative and are payable in shares of the
Company's common stock valued at the then current market price per share, at the
earlier of maturity or conversion. The Series F convertible preferred
stockholders have voting rights equal to the common stockholders. The Series F
convertible preferred stock has no stated rights in the assets of the company
upon liquidation.
DELAWARE ANTI-TAKEOVER LAW AND PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND BYLAWS
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation
Law. Section 203 generally prohibits a public Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless:
o prior to the date of the transaction, the Board of Directors of
the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder;
o the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of
shares outstanding (i) shares owned by persons who are directors
and also officers and (ii) shares owned by employee stock plans
in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
o on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an annual
or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include:
o any merger or consolidation involving the corporation and the
interested stockholder;
o any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of the assets of the
corporation;
o subject to exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; or
o the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
34
In general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with, or controlling, or
controlled by, the entity or person. The term "owner" is broadly defined to
include any person that, individually, with or through that person's affiliates
or associates, among other things, beneficially owns the stock, or has the right
to acquire the stock, whether or not the right is immediately exercisable, under
any agreement or understanding or upon the exercise of warrants or options or
otherwise or has the right to vote the stock under any agreement or
understanding, or has an agreement or understanding with the beneficial owner of
the stock for the purpose of acquiring, holding, voting or disposing of the
stock.
The restrictions in Section 203 do not apply to corporations that
have elected, in the manner provided in Section 203, not to be subject to
Section 203 of the Delaware General Corporation Law or, with certain exceptions,
which do not have a class of voting stock that is listed on a national
securities exchange or authorized for quotation on the Nasdaq Stock Market or
held of record by more than 2,000 stockholders. Our certificate of incorporation
and amended and restated bylaws do not opt out of Section 203.
Section 203 could delay or prohibit mergers or other takeover or
change in control attempts with respect to us and, accordingly, may discourage
attempts to acquire us even though such a transaction may offer our stockholders
the opportunity to sell their stock at a price above the prevailing market
price.
CERTIFICATE OF INCORPORATION AND BYLAWS
Provisions of our certificate of incorporation and amended and
restated bylaws may delay or discourage transactions involving an actual or
potential change in our control or change in our management, including
transactions in which stockholders might otherwise receive a premium for their
shares, or transactions that our stockholders might otherwise deem to be in
their best interests. Therefore, these provisions could adversely affect the
price of our common stock. Among other things, our restated certificate of
incorporation and amended and restated bylaws:
o provide that the authorized number of directors may be changed
only by resolution of the board of directors;
o provide that all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum; and
o do not provide for cumulative voting rights (therefore allowing
the holders of a majority of the shares of common stock entitled
to vote in any election of directors to elect all of the
directors standing for election, if they should so choose).
LEGAL MATTERS
The validity of the securities offered under this prospectus will be
passed upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York,
New York.
EXPERTS
Our financial statements as of December 31, 2004, and for the year
ended December 31, 2004 included in this registration statement have been
audited by Marcum & Kliegman LLP, an independent registered public accounting
firm, as stated in its report, appearing in this registration statement and have
been so included in reliance upon the report of such firm given upon its
authority as experts in accounting and auditing.
35
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective April 25, 2003, Water Chef dismissed Grassi & Co. CPAs
P.C. ("Grassi") as the Company's independent accountants, which action was
approved by the Audit Committee of the Company's Board of Directors on April 25,
2003.
Feldman, Sherb & Co., P.C., a professional corporation of certified
public accountants ("Feldman") was the independent accounting firm for Water
Chef for the year ended December 31, 2001 and through the period April 17, 2002.
Feldman was merged into Grassi on April 17, 2002 with Grassi as the successor
firm.
Except as described in the following sentence, the reports of
Feldman and/or Grassi on the financial statements of Water Chef for either of
the two fiscal years prior to the dismissal of Grassi did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. The report of Feldman,
prior to their merger into Grassi, on the financial statements of Water Chef for
the fiscal year ended December 31, 2001 does, however, contain an expression of
substantial doubt regarding Water Chef's ability to continue as a going concern.
In addition, during Water Chef's two fiscal years and the interim
period prior to the dismissal of Grassi, there was no disagreement with Feldman
and/or Grassi on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
On April 25, 2003, Marcum & Kliegman LLP ("MKLLP") was engaged as
the Company's new independent accountants, commencing with the audit for the
year ending December 31, 2002. During the two most recent fiscal years and the
interim period preceding the engagement of MKLLP, Water Chef has not consulted
with MKLLP regarding either: (i) the application of accounting principles to a
specified transaction, either completed or proposed or the type of audit opinion
that might be rendered on Water Chef's financial statements, and either a
written report or oral advice was provided to the Company by MKLLP that MKLLP
has concluded was an important factor considered by the Company in reaching a
decision as to the accounting, auditing, or financial reporting issue; or (ii)
any matter that was either the subject of a "disagreement" or event identified
in response to paragraph (a)(1)(iv) of Item 304, as those terms are used in Item
304(a)(1)(iv) of Regulations S-B and S-K and the related instructions to Item
304 of Regulations S-B and S-K.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Public Reference Room of the Securities
and Exchange Commission at 450 Fifth Street NW Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. In addition, the
Securities and Exchange Commission maintains an Internet site at
http://www.sec.gov from which interested persons can access the reports, proxy
and information statements and other information that we electronically file
with the Securities and Exchange Commission.
You may obtain a copy of these filings at no cost, by writing or
telephoning us at the following:
Water Chef, Inc.
Attention: Investor Relations
1007 Glen Cove Avenue, Suite 1
Glen Head, New York 11545
Tel: (845) 794-4100
www.WaterChef.net
36
INDEX TO FINANCIAL STATEMENTS OF WATER CHEF, INC.
Report of Marcum & Kliegman LLP, Independent Registered Public Accounting Firm..... F-2
Balance Sheet as of December 31, 2004.............................................. F-3
Statements of Operations for the years ended December 31, 2004 and 2003 and for
the period January 1, 2002 to December 31, 2004................................. F-4
Statements of Changes in stockholders deficiency for the years ended December
31, 2004, 2003 and 2002......................................................... F-5-6
Statements of Cash Flows for the years ended December 31, 2004 and 2003 and for
the period January 1, 2002 to December 31, 2004................................. F-7
Notes to Financial Statements ..................................................... F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Water Chef, Inc. Glen Head, New York
We have audited the accompanying balance sheet of Water Chef, Inc., (a
development stage company commencing January 1, 2002) as of December 31, 2004
and the related statements of operations, stockholders' deficiency and cash
flows for the years ended December 31, 2004 and 2003. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Water Chef, Inc., (a
development stage company commencing January 1, 2002) as of December 31, 2004
and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2(a) to the financial
statements, the Company has suffered recurring losses, and has working capital
and stockholders' deficiencies, which raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2(a). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Marcum & Kliegman LLP
-----------------------------
Marcum & Kliegman LLP
NEW YORK, NEW YORK
MARCH 11, 2005
F-2
WATER CHEF INC.
(A Development Stage Company Commencing January 1, 2002)
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
CURRENT ASSETS:
Cash $ 81,732
Prepaid expenses 17,113
Subscriptions receivable 20,000
------------
TOTAL CURRENT ASSETS 118,845
PATENTS AND TRADEMARKS (net of
accumulated amortization of $6,944) 19,111
Other assets 3,162
------------
TOTAL ASSETS $ 141,118
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable (including related party of $9,375) $ 222,066
Accrued expenses and other current liabilities 1,112,612
Notes payable (including accrued interest of $499,455) 1,182,677
Accrued dividends payable 81,034
Customer deposit 70,000
------------
TOTAL CURRENT LIABILITIES 2,668,389
LONG-TERM LIABILITIES:
Loans payable to stockholder (including accrued
interest of $105,221) 478,002
------------
TOTAL LIABILITIES 3,146,391
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred stock, $.001 par value;
10,000,000 shares authorized;
614,413 shares issued and outstanding,
(liquidation preference $1,516,000) 615
Common stock, $.001 par value;
190,000,000 shares authorized;
155,885,729 shares issued;
155,881,329 shares outstanding 155,886
Additional paid-in capital 20,258,617
Treasury stock, 4,400 common shares, at cost ( 5,768)
Accumulated deficit through December 31, 2001 ( 14,531,596)
Deficit accumulated during development stage ( 8,883,027)
------------
TOTAL STOCKHOLDERS' DEFICIENCY ( 3,005,273)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 141,118
============
See notes to financial statements.
F-3
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
STATEMENTS OF OPERATIONS
For the Period
Year Ended December 31, January 1, 2002
------------------------------- to December 31,
2004 2003 2004
------------- ------------- -------------
Sales $ 56,290 $ - $ 96,290
------------- ------------- -------------
Costs and Expenses:
Cost of sales 62,250 88,000 396,680
Selling, general and administrative 1,296,265 817,625 2,903,010
Non-dilution agreement termination costs (223,858) 2,477,376 2,462,453
Interest expense (including interest
expense for related party of $23,868
in both years and $71,604 for the period
January 1, 2002 to December 31, 2004) 150,228 152,478 481,817
Loss on settlement of debt 2,407,867 - 2,614,017
Stock appreciation rights 121,340 - 121,340
------------- ------------- -------------
3,814,092 3,535,479 8,979,317
------------- ------------- -------------
Net loss ( 3,757,802) ( 3,535,479) ( 8,883,027)
Deemed dividend on preferred stock ( 2,072,296) - ( 2,072,296)
Preferred stock dividends ( 134,366) ( 152,876) ( 400,230)
------------- ------------- -------------
( 2,206,662) ( 152,876) ( 2,472,526)
Net loss applicable to
common stock $( 5,964,464) $( 3,688,355) $( 11,355,553)
============= ============= =============
Basic and Diluted Loss Per Common Share: $ ( 0.05) $( 0.04)
============= =============
Weighted Average Common Shares Outstanding -
Basic and Diluted 121,549,857 89,559,886
============= =============
See notes to financial statements.
F-4
WATER CHEF, INC.
(A Development Stage Company January 1, 2002)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Preferred Stock Common Stock Additional
---------------------------- --------------------------- Paid-in
Shares Amount Shares Amount Capital
------------ ------------ ------------ ------------ ------------
BALANCE - JANUARY 1, 2002 145,500 $ 146 86,614,286 $ 86,614 $ 12,339,469
Extension of life of warrants -- -- -- -- 111,000
Proceeds from sale preferred stock
($1.00 Per share) 125,000 125 -- -- 117,375
Proceeds from sale of common stock
($0.025 Per share) -- -- 2,500,000 2,500 97,500
Common stock issued for services
($0.08 Per share) -- -- 450,000 450 35,550
Collection of subscription receivable -- -- -- -- --
Net Loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 2002 270,500 $ 271 89,564,286 $ 89,564 $ 12,700,894
Proceeds from sale of preferred stock
March 31, 2003
($1.00-$2.00 Per share) 62,500 63 -- -- 74,937
June 30, 2003
($0.50 Per share) 75,000 75 -- -- 37,425
September 30, 2003
($1.00-$2.40 per share) 163,281 163 -- 228,346
December 31, 2003
($1.33-$2.80 Per share) 145,450 145 -- -- 258,717
Preferred stock issued for services
March 31, 2003
($1.00 Per share) 30,000 30 -- -- 29,970
June 30, 2003
($1.00 Per share) 51,250 51 -- -- 51,199
September 30, 2003
($1.00 per share) 67,035 67 -- 66,968
December 31, 2003
($1.88-$4.00 Per share) 22,150 22 -- -- 65,378
Collection of subscription receivable -- -- -- -- --
Write-off of subscription receivable -- -- -- -- --
Net Loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 2003 887,166 $ 887 89,564,286 $ 89,564 $ 13,513,834
Proceeds from sale of preferred stock
March 31, 2004
($2.40-$4.80 Per share) 130,077 130 -- -- 400,126
June 30, 2004
($0.80 Per share) 15,625 16 -- -- 12,484
Preferred stock issued for services
March 31, 2004
($2.00-$4.80 Per share) 49,433 49 -- -- 158,483
Proceeds from sale of common stock
September 30,2004
($0.03-$0.15 per share) -- -- 2,541,595 2,541 205,059
December 31, 2004
($0.05-$0.10 Per share) -- -- 2,487,500 2,488 187,512
Common stock issued for services
March 31, 2004
($0.05 Per share) -- -- 477,133 477 23,380
September 30,2004
($0.05-$0.15 per share) -- -- 1,857,800 1,858 126,792
December 31, 2004
($0.08-$0.10 Per share) -- -- 532,500 533 40,968
Preferred stock dividend -- -- -- -- (81,034)
Common stock issued for satisfaction of liabilities
June 30, 2004
($0.15 Per share) -- -- 37,786,629 37,787 5,635,934
December 31, 2004
($0.134 Per share) -- -- 411,100 411 54,839
Preferred stock converted to common stock
June 30, 2004 (133,250) (133) 5,108,332 5,108 (4,975)
September 30, 2004 (269,263) (269) 12,103,854 12,104 (11,835)
December 31, 2004 (65,375) (65) 3,015,000 3,015 (2,950)
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 2004 614,413 $ 615 155,885,729 $ 155,886 $ 20,258,617
============ ============ ============ ============ ============
See notes to financial statements.
F-5
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Accumulated Deficit
Deficit Accumulated
Stock Through During Total
Subscription Treasury December Development Stockholders'
Receivable Stock 31, 2001 Stage Deficiency
-continued- ------------ ------------ ------------ ------------ ------------
BALANCE - JANUARY 1, 2002 (67,500) (5,768) (14,531,596) -- (2,178,635)
Extension of life of warrants -- -- -- -- 111,000
Proceeds from sale preferred stock
($1.00 Per share) -- -- -- -- 117,500
Proceeds from sale of common stock
($0.025 Per share) -- -- -- -- 100,000
Common stock issued for services
($0.08 Per share) -- -- -- -- 36,000
Collection of subscription receivable 30,200 -- -- -- 30,200
Net Loss -- -- -- (1,589,746) (1,589,746)
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 2002 (37,300) (5,768) (14,531,596) (1,589,746) (3,373,681)
Proceeds from sale of preferred stock
March 31, 2003
($1.00-$2.00 Per share) -- -- -- -- 75,000
June 30, 2003
($0.50 Per share) -- -- -- -- 37,500
September 30, 2003
($1.00-$2.40 per share) -- -- -- -- 228,509
December 31, 2003
($1.33-$2.80 Per share) -- -- -- -- 258,862
Preferred stock issued for services
March 31, 2003
($1.00 Per share) -- -- -- -- 30,000
June 30, 2003
($1.00 Per share) -- -- -- -- 51,250
September 30, 2003
($1.00 per share) -- -- -- 67,035
December 31, 2003
($1.88-$4.00 Per share) -- -- -- -- 65,400
Collection of subscription receivable 15,500 -- -- -- 15,500
Write-off of subscription receivable 21,800 -- -- -- 21,800
Net Loss -- -- -- (3,535,479) (3,535,479)
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 2003 -- (5,768) ( 14,531,596) ( 5,125,225) (6,058,304)
Proceeds from sale of preferred stock
March 31, 2004
($2.40-$4.80 Per share) -- -- -- -- 400,256
June 30, 2004
($0.80 Per share) -- -- -- -- 12,500
Preferred stock issued for services
March 31, 2004
($2.00-$4.80 Per share) -- -- -- -- 158,532
Proceeds from sale of common stock
September 30,2004
($0.03-$0.15 per share) -- -- -- -- 207,600
December 31, 2004
($0.05-$0.10 Per share) -- -- -- -- 190,000
Common stock issued for services
March 31, 2004
($0.05 Per share) -- -- -- -- 23,857
September 30,2004
($0.05-$0.15 per share) -- -- -- -- 128,650
December 31, 2004
($0.08-$0.10 Per share) -- -- -- -- 41,501
Preferred stock dividend -- -- -- -- (81,034)
Common stock issued for satisfaction of liabilities
June 30, 2004
($0.15 Per share) -- -- -- -- 5,673,721
December 31, 2004
($0.134 Per share) -- -- -- -- 55,250
Preferred stock converted to common stock
June 30, 2004 -- -- -- -- --
September 30, 2004 -- -- -- -- --
December 31, 2004 -- -- -- -- --
Net loss -- -- -- (3,757,802) (3,757,802)
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 2004 -- $ (5,768) $(14,531,596) $ (8,883,027) $ (3,005,273)
============ ============ ============ ============ ============
See notes to financial statements.
F-6
WATER CHEF INC.
(A Development Stage Company Commencing January 1, 2002)
STATEMENTS OF CASH FLOWS
For the period
Years Ended December 31, January 1, 2002
-------------------------- to December 31,
2004 2003 2004
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,757,802) $(3,535,479) $(8,883,027)
Adjustments to reconcile net loss to
net cash used in operating activities
Amortization of patents 1,855 1,854 5,562
Non-cash compensation 473,878 213,685 723,563
Loss on settlement of debt 2,407,867 -- 2,614,017
Non-dilution agreement termination cost (223,858) 2,477,376 2,462,453
Inventory reserve -- -- 159,250
Write-off of stock subscription receivable -- 21,800 21,800
Change in assets and liabilities
Inventory 26,500 -- --
Prepaid expenses and other current assets ( 5,893) (11,220) 39,387
Accounts payable, accrued expenses, accrued dividends
and customer deposits 265,998 296,686 1,049,789
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (811,455) ( 535,298) (1,807,206)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of stock subscription receivable -- 15,500 45,700
Proceeds from sale of preferred stock 412,756 599,871 1,130,127
Proceeds from sale of common stock 377,600 -- 477,600
Proceeds from sale of common stock to be issued -- -- 200,000
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 790,356 615,371 1,853,427
----------- ----------- -----------
NET(DECREASE)INCREASE IN CASH (21,099) 80,073 46,221
CASH AT BEGINNING OF YEAR 102,831 22,758 35,511
----------- ----------- -----------
CASH AT END OF YEAR $ 81,732 $ 102,831 $ 81,732
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 20,000 $ 2,250 $ 20,250
=========== =========== ===========
Income taxes $ -- $ -- $ --
=========== =========== ===========
NON-CASH FINANCING ACTIVITIES
COMPENSATION SATISFIED BY ISSUANCE OF COMMON STOCK $ 55,250 $ -- $ 55,250
=========== =========== ===========
COMMON STOCK ISSUED IN SATISFACTION OF LIABILITIES $ 5,673,721 $ -- $ 5,673,721
=========== =========== ===========
See notes to financial statements.
F-7
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Water Chef, Inc. (the "Company"), is a Delaware Corporation currently engaged in
the design, marketing and sale of water dispensers and purification equipment
both in and outside the United States.
2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
a. Basis of Presentation
The Company discontinued its water cooler and filtration operations in November
2001. As a result, the Company has refocused its efforts on raising capital and
developing markets for its proprietary technology. Therefore, for financial
purposes, the Company has determined that it has re-entered the development
stage commencing January 1, 2002. The Company's statements of operations,
stockholders' deficiency and cash flows for the year ended December 31, 2004
represent the cumulative, from inception information, required by Statement of
Financial Accounting Standards ("SFAS") No. 7, "Development Stage Enterprises".
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred losses from
operations of $3,757,802 and $3,535,479 for the years ended December 31, 2004
and 2003, respectively. Additionally, the Company has working capital and
stockholders' deficiencies of approximately $2,550,000 and $3,005,000 at
December 31, 2004. 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 and raising additional capital through future issuances of stock
and/or debt. The accompanying financial statements do not include any
adjustments that might be necessary should the Company be unable to continue as
a going concern.
b. Patents and Trademarks - Patents and trademarks are amortized ratably over 9
to 14 years.
c. Stock-Based Compensation - In December 2002, the 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 disclosure requirements apply to all companies for fiscal years
ending after December 15, 2002. The Company will continue to account for
stock-based compensation according to 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 provision of FAS 123
had been applied for the following periods ended December 31, 2004 and 2003 as
follows:
F-8
Years ended December 31,
2004 2003
------------- -------------
Net loss applicable to common stock $ ( 5,964,469) $ ( 3,535,479)
Add: Stock -based employee
compensation expense included in
reported net loss 121,340 --
Less: Stock-based employee
compensation cost, net of tax effect
under fair value method (291,210) --
------------- -------------
Pro-forma net loss under fair
value accounting $ ( 6,134,339) $ ( 3,535,479)
============= =============
Loss per share - basic and diluted
as reported $ (0.05) $ (0.04)
============= =============
Pro-forma loss per share -
basic and diluted $ (0.05) $ (0.04)
============= =============
d. Revenue Recognition - Revenues are recognized when product is shipped, title
passes and collectibility is reasonably assured. Allowances for estimated bad
debts, sales allowance and discounts are provided when such sales are recorded.
e. Income Taxes - Income taxes are accounted for under SFAS No. 109, "Accounting
for Income Taxes", which is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Valuation allowances are established when necessary
to reduce deferred assets to the amounts expected to be realized.
f. Loss Per Share - 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
the conversion of preferred stock for the years ended December 31, 2004 and
2003, were 34,230,804 and 35,382,471, respectively.
g. Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-9
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
h. Fair Value of Financial Instruments - The carrying amounts of the financial
instruments reported in the balance sheet approximate their fair market value
due to the short-term maturity of these instruments.
i. Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of an asset may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value is
required.
j. Research and Development - Research and development cost consist of
expenditures incurred during the course of planned research and investigation
aimed at the discovery of new knowledge, which will be useful in developing new
products or processes. The Company expenses all research and development costs
as incurred. There were no research and development expenses incurred in year
2004 and 2003.
k. Recent Accounting Pronouncements In January 2003, Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," provides guidance
for identifying a controlling interest in a variable interest entity ("VIE")
established by means other than voting interest. FIN 46 also required
consolidation of a VIE by an enterprise that holds such controlling interest. In
December 2003, the FASB completed its deliberations regarding the proposed
modifications to FIN No., 46 and issued Interpretation Number 46R,
"Consolidation of Variable Interest Entities - an Interpretation of ARB 51"
("FIN No. 46R"). The decisions reached included a deferral of the effective date
and provisions for additional scope exceptions for certain types of variable
interests. Application of FIN No. 46R is required in financial statements of
public entities that have interests in VIEs, or potential VIEs, commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Application by public small business issuers' entities is required in all
interim and annual financial statements for periods ending after December 15,
2004.
The adoption of this pronouncement did not have a material effect on the
Company's financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 123R, "Share Based Payment." This statement is a revision of SFAS
Statement 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 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 123R,
SBP awards result in a cost that will be measured at fair value on the awards'
grant date, 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.
F-10
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
In December 2004, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 153, "Exchanges of Nonmonetary Assets". This Statement amends
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of this
Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after December
16, 2004. The provisions of this Statement should be applied prospectively.
The adoption of this pronouncement is not expected to have a material effect on
the Company's financial statements.
Emerging Issue Task Force (EITF) Issue 04-8, "The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share." The EITF reached a
consensus that contingently convertible instruments, such as contingently
convertible debt, contingently convertible preferred stock, and other such
securities, should be included in diluted earnings per share (if dilutive)
regardless of whether the market price trigger has been met. The consensus is
effective for reporting periods ending after December 15, 2004.
The adoption of this pronouncement did not have a material effect on the
Company's financial statements.
3. NOTES PAYABLE
Notes payable at December 31, 2004 consist of the following:
(a) 166,756
(b) 750,533
(c) 265,388
--------------
Total $ 1,182,677
(a) Loans payable - other: These are unsecured notes bearing interest ranging
from 10% to 15% per annum, with no specific due date for repayment. An amount
due on these notes, inclusive of $83,535 in interest is $166,756, at December
31, 2004. No demands for repayment have been made by the note holder.
(b) In April 2001, the Company issued a $400,000 promissory note at an interest
rate of 2% per month. In consideration for the issuance of this note, 500,000
shares of the Company's common stock were issued to the note holder and a
$74,000 debt discount was recorded and fully amortized in the year ended
December 31, 2001. The principal balance and accrued interest were payable on
September 1, 2001. The Company did not make such payment and was required to
issue an additional 100,000 penalty shares of its common stock to the note
holder. The Company recorded additional interest expense of $12,300 related to
the issuance of these penalty shares. The amount due on this note, inclusive of
$350,533 in interest, is $750,533 at December 31, 2004. No demands for repayment
have been made by the note holder.
(c) In November 2000, the Company entered into a Convertible Promissory Note
agreement, whereby the Company may be advanced a maximum of $300,000. The
Company was advanced the following: $100,000 in November 2000, $50,000 in
December 2000 and $50,000 in January 2001. No further cash advances were made to
the Company. The Convertible Promissory Note agreement also called for the
payment of $100,000 of Company expenses. The advances bear interest at 10% per
annum and were to have been repaid as of January 15, 2002. A maximum of
6,000,000 shares could have been issued upon conversion had the full $300,000
been advanced. As of December 31, 2004, the Company owed $265,388 on these
advances, inclusive of $65,388 in interest. The Company and the note holder, by
mutual consent, had agreed to extend the due date of the note to May 1, 2002
which has not been further extended. All other terms and provisions of the note
are unchanged. In May 2003, these note holders entered a judgment against the
Company for the principal sum of $200,000 plus interest. During 2004, the
Company paid $20,000 of accrued interest on these notes.
F-11
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
4. LOANS PAYABLE - STOCKHOLDER
At December 31, 2004, the Company is obligated to its Chief Executive Officer
who is also a significant stockholder for loans and advances made to the Company
totaling $372,781, plus accrued interest of $105,221. These advances have been
accruing interest ranging from 6% to 12% per annum. The loans have no repayment
terms and the stockholder has agreed not to demand payment until July 1, 2006 at
the earliest.
5. COMMON STOCK ISSUED
On June 4, 2004, the Company convened a special meeting of its common, Series A
Preferred, Series C Preferred, Series D Preferred, Series F Preferred
stockholders (together the "Stockholders"). The Stockholders, voting as a single
class, voted and approved a proposal to amend the Certificate of Incorporation
to increase the Company's authorized capital stock from 100,000,000 shares to
200,000,000 shares, consisting of 190,000,000 shares of common stock and
10,000,000 shares of preferred stock.
During the year ended December 31, 2004, the Company recorded the following
transactions:
a. Cash and Subscriptions
In 2002, The Company received $100,000 for 2,500,000 shares of its common stock.
The Company also received $200,000 in 2002 for the issuance of 4,000,000 shares
of its common stock. These shares were issued in June 2004 upon approval of the
stockholders of the increase in the number of authorized common shares of the
Company.
During the year ended December 31, 2004, the Company received $377,600 for
4,229,095 shares of its common stock. During the year ended December 31, 2004,
the Company also recorded a subscription for 400,000 shares of its common stock
for $20,000. The $20,000 was received by the Company in January 2005.
b. Non-Dilution Agreement Termination Cost
In May 2002, the Company agreed to issue to the Company's President and Chief
Executive Officer, and to related parties of such, an aggregate of 14,923,958
shares of its common stock in connection with the voluntary surrender of a
non-dilution agreement that the President had entered into with the Company in
1997.
Since the issuance of these shares is subject to stockholder approval, the
measurement date for purposes of valuation is established when such stockholder
approval has been obtained. Accordingly, the Company was utilizing variable
accounting to determine the value of these shares. These shares were issued
during June 2004 upon approval by the stockholders of the increase in the number
of authorized common shares of the Company.
F-12
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
c. Services
During 2002, the Company agreed to issue to various parties an aggregate of
1,075,000 shares of its common stock for a value of $84,000 in connection with
professional services. These shares were issued in June 2004 upon the approval
by the stockholders of the increase in the number of authorized common shares of
the Company.
The Company also issued 450,000 shares of its common stock for services with a
value of $36,000 in 2002.
During 2004, the Company issued to various parties an aggregate of 2,867,433
shares of its common stock for a value of $194,000 in connection with
professional services.
d. Debenture Liabilities
The Company was a defendant in an action brought by certain debenture holders
(The "Bridge Loans") in New Hampshire Superior Court seeking repayment of
$300,000 of debenture principal together with interest from 1997, and the
issuance of penalty shares for non payment of principal and interest. In
addition, the plaintiff's claim that they had suffered by the Company's failure
to register the shares issued under the warrant agreement.
The Company had interposed defenses and counterclaims. In June 1997, in
connection with the debentures, the Company had issued 6,667 shares of common
stock for every $1,000 of debt at a price of $0.15 per share. The Company
claimed that it was owed the $300,000 consideration for such shares. In
addition, the Company had issued warrants for the purchase of 2,500,000 shares
of common stock at an exercise price of $0.15 per share exercisable until March
2002.
Furthermore, the Company had issued another 100,000 shares of common stock to
each debenture holder, or 1,300,000 shares, at a price of $0.15 per share.
In 2002, the Company and the Bridge Lenders participating in the legal action,
settled this dispute requiring the Company to: (i) Issue 3,000,000 shares of
common stock valued at $497,500 in lieu of the principal and interest owed to
the debenture holders who participated ("participants") in this legal action.
The Company recorded the debentures at $300,000, plus accrued interest of
$39,400, for a total of $339,400. The difference between the $497,500 settlement
and the $339,400, or $158,100, was recorded as a loss on settlement of debt.
(ii) Extend the warrants attached to the participants' debentures for another
two years until March 2004, for which the Company has recorded a non cash
expense charge of $111,000 (iii) In 2004, in connection with the issuance of the
Bridge Lender shares, the Company further extended the term of the warrants for
twelve months until March 2005 and recorded $94,151 as a loss on settlement of
debt in connection with such warrant extension; and (iv) Issued additional
shares since the product of the $497,500, as valued for the 3,000,000 shares
above, divided by the average daily trading price for the 30 days subsequent to
the settlement, was grater than the original 3,000,000 shares. Due to these
requirements, the Company was obligated to issue an additional 14,037,671
shares. During June 2004, the Company issued the 3,000,000 shares and the
additional 14,037,761 shares originally valued at $495,500. The Company recorded
a loss on settlement of debt of $2,313,716 since the total value of the shares
on the date of issuance was $2,811,216.
The debenture holders that did not participate ("non-participating debentures")
in the above legal action had total debentures of $75,000, plus accrued interest
of $9,850 as of the settlement date, totaling $84,850. In conjunction with the
above settlement, the Company settled these outstanding non-participating
debentures, plus accrued interest, with the issuance of 750,000 shares of common
stock valued at $0.0292 per share, or $21,900. During 2004, the 750,000 shares
were issued.
e. Conversion of preferred stock into common stock
During year ended December 31, 2004, the Company agreed to issue various parties
an aggregate of 20,227,186 shares of its common stock in connection with the
conversion of preferred stock, The Company recorded the deferred contingent
beneficial conversion adjustment of $2,072,296 as a deemed dividend since the
contingency was resolved in June 2004.
F-13
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
f. Payroll Liability Settlement
During the year ended December 31, 2004, the Company agreed to issue 411,100
shares of its common stock in connection with a settlement of payroll
liabilities of $55,250.
6. PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of $.001 par value
preferred stock, issuable in series with rights, preferences, privileges and
restrictions as determined by the board of directors.
At December 31, 2004, outstanding preferred shares were as follows:
Liquidation
Current Preference
Annual Total Dividend (including
Authorized Issued Par Dividend Dividend Arrearage dividend
Shares Shares Value Requirement Arrearage Per Share arrearage)
Series A 400,000 52,500 $ 53 $ 52,500 $ 517,600 $ 9.86 $1,042,600
Series C 400,000 120,500 121 -- -- --
Series D 2,000,000 93,000 93 55,800 473,400 5.09 473,400
Series F 1,000,000 348,413 348 26,066 82,162 .23 --
---------- ---------- ---------- ---------- ---------- ----------
614,413 $ 615 $ 134,366 $1,073,162 -- $1,516,000
========== ========== ========== ========== ========== ==========
Series A:
The Series A preferred stock provides for a 10% cumulative dividend, based on
the $10 per share purchase price, payable annually in the Company's common stock
or cash, at the Company's option. The Series A preferred stock is not
convertible, and is redeemable solely at the Company's option at a price of $11
per share plus accrued dividends. The Series A preferred stockholders have
voting rights equal to common stockholders.
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of the Series A preferred stock are
entitled to receive out of the assets of the Company the sum of $10.00 per share
of Series A preferred stock then outstanding, plus a sum equal to all dividends
(whether or not earned or declared) on such shares accrued and unpaid thereon to
the date of final payment or distribution, before any payment or distribution
upon dissolution, liquidation or winding up shall be made on any series or class
of capital stock ranking junior to Series A preferred stock as to such payment
or distribution.
F-14
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
Series C:
During the year ended December 31, 2002 the Company sold Series C 15%
Convertible Preferred stock at $1.00 per share. These shares convert in one
year. All dividends are cumulative and are payable in shares of the Company's
common stock valued at the then-current market price per share, or upon
conversion, whichever is earlier. The conversion rate for shares, and accrued
dividends payable, is 33.33 shares of common for each $1.00 of preferred stock
and dividends payable, or $0.03 for each share of common stock. The Series C
Preferred stockholders have voting rights equal to the common stockholders. The
Series C preferred stock has no stated rights in the assets of the Company upon
liquidation. During 2002, the Company sold 125,000 shares of Series C preferred
stock. For each share of preferred stock purchased, the buyers also receive the
right to receive an additional 33.33 shares of common stock upon conversion as
the market value of the stock was $0.015 at issuance. In connection with the
maturity of the Series C Preferred Stock, the Company recorded accrued dividends
of $39,119.
Cash
During 2003, the Company issued 12,500 shares of preferred stock and raised
$25,000 through the sale of Series C Convertible Preferred stock.
Services
During 2003, the Company issued an aggregate of 81,250 shares of its Series C
Convertible Preferred Stock for professional services totaling $81,250.
F-15
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
SERIES D:
The Series D preferred stock provides for a 12% cumulative dividend, based on
the $5 per share purchase price, payable semi-annually in the Company's common
stock or cash, at the Company's option. The Series D preferred stock is not
convertible, and is redeemable solely at the Company's option at a price of
$5.75 per share plus accrued dividends. The Series D Preferred stockholders have
voting rights equal to the common stockholders.
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of the Series D preferred stock are
entitled to receive out of the assets of the Company the sum all dividends
(whether or not earned or declared) on such shares accrued and unpaid thereon to
the date of final payment or distribution, before any payment or distribution
upon dissolution, liquidation or winding up shall be made on any series or class
of capital stock ranking junior to Series D preferred stock as to such payment
or distribution.
SERIES F:
In April 2003, management authorized the Company to raise up to $550,000 through
a private placement by issuing 10% two-year convertible preferred instruments.
The preferred, designated as Series F, and providing for one million shares in
total and can be convertible into shares of Water Chef's common stock at such
time as the stockholders of the corporation approve an increase in the
authorized capital stock of the corporation, which occurred on June 4, 2004. All
dividends are cumulative and are payable in shares of the Company's common stock
valued at the then current market price per share, at the time of maturity, or
upon conversion, whichever is earlier. The conversion rate for shares and
accrued dividends payable is 40 shares of common for each share of preferred
stock. The Series F convertible preferred stockholders have voting rights equal
to the common stockholders. The Series F convertible preferred stock has no
stated rights in the assets of the company upon liquidation.
Although there was a discount upon the issuance of all of the Series F preferred
stock in accordance with Emerging Issue Task Force ("EITF") 98-5, a security is
not yet convertible if certain contingencies exist which are dependent upon the
occurrence of a future event outside the control of the security holder. In this
case, the shares can only be converted into common stock after the stockholders
of the Company approve an increase in the authorized capital stock of the
corporation. In accordance with EITF 98-5, any beneficial conversion (discount)
feature is measured at the commitment date, but will not be recognized as an
adjustment to earnings until the contingency is resolved, (the date the increase
in shares are approved). In June 2004, the Company voted and approved a proposal
to amend the Certificate of Incorporation to increase the Company's authorized
capital stock from 100,000,000 to 200,000,000 shares, consisting of 190,000,000
shares of common stock and 10,000,000 shares of preferred stock. During June
2004, the Company recorded the deferred contingent beneficial conversion
adjustment of $2,072,296 as a deemed dividend since the contingency was
resolved.
In connection with Series F Preferred Stock conversions, the Company recorded
accrued dividends of $41,915.
CASH
During 2003, the Company issued 433,731 shares of preferred stock and raised
$574,872 through the sale of Series F Convertible Preferred stock. During 2004,
the Company issued 145,702 shares and raised $412,756 through the sale of Series
F Convertible Preferred Stock.
SERVICES
During 2003, the Company issued an aggregate of 89,185 shares of its Series F
Preferred Stock for professional services totaling $132,435. During 2004, the
Company issued an aggregate of 49,433 shares of its Series F Convertible
Preferred Stock for professional services totaling $158,530.
F-16
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
7. STOCK OPTION, STOCK APPRECIATION RIGHTS AND WARRANT GRANT PLAN
The Company's president and director were issued 6,000,000 options to purchase
common stock of the Company in January 2004. The total options granted may be
converted to common stock at an exercise price of $ .25 and expire in five
years. Those options were converted to stock appreciation rights in November
2004. It consists of 5,000,000 stock appreciation rights granted to the
President which vest over 5 years and 1,000,000 stock appreciation rights
granted to the director which vest over 2 years.
In March 1997, the Company, in connection with Bridge Loans for $375,000 issued
warrants to purchase 2,500,001 shares of common stock at $.15 per share. These
warrants had a life of five years and were to have expired in March 2002. In the
year ended December 31, 2000, a total of 333,334 common shares were issued upon
the exercise of a like number of warrants, for net proceeds of $50,000. Of the
remaining 2,166,667 un-exercised warrants at March 2002, a total of 1,666,667
warrants had their lives extended for an additional two years until March 2004
and then later for another twelve months until March 2005. The remaining balance
of 500,000 warrants was not extended, and accordingly they have expired. The
extension of the exercise date was part of a settlement that the Company had
reached with certain debenture holders that had brought a legal action against
the Company.
The fair value of each stock option, or warrant granted, is estimated on the
date of grant using the Black-Scholes option-pricing model. The Company did not
grant, nor issue, options or warrants in the year ended December 31, 2004.
The following tables illustrate the Company's stock option and warrant issuances
and balances outstanding as of, and during the years ended December 31, 2004 and
2003:
Shares Underlying Weighted Average
Warrants Exercise Price
----------------- ----------------
Outstanding at December 31, 2002 2,166,667 $ 0.15
Granted - -
Expired ( 500,000) 0.15
Exercised - -
----------------- ---------------
Outstanding at December 31, 2003 1,666,667 $ 0.15
Granted - -
Expired - -
Exercised - -
----------------- ---------------
Outstanding at December 31, 2004 1,666,667 $ 0.15
================= ===============
The following is additional information with respect to the Company's warrants
as of December 31, 2004:
WARRANTS OUTSTANDING WARRANTS EXERCISABLE
----------------------------------------------- -----------------------------
Weighted
Average Weighted
Number of Remaining Average Number of Weighted
Exercise Outstanding Contractual Exercise Exercisable Average
Price Warrants Life Price Warrants Exercise Price
--------- ------------ ------------ ------- ------------ --------------
$ 0.15 1,666,667 3 Months $ 0.15 1,666,667 $ 0.15
========= ============ ============ ======= ============ ============
F-17
WATER CHEF, INC.
(A Development Stage Company Commencing January 1, 2002)
NOTES TO FINANCIAL STATEMENTS
8. LEASES
The Company's lease for its administrative facilities located in Glen Head, New
York on a month to month basis.
Rent expense, for the years ended December 31, 2004 and 2003 was $29,246 and
$25,797, respectively.
9. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, Accounting for Income
Taxes. SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the financial
statements and tax basis of assets and liabilities, and for the expected future
tax benefit to be derived from tax loss and tax credit carry forwards. SFAS No.
109 additionally requires the establishment of a valuation allowance to reflect
the likelihood of realization of deferred tax assets.
For the year ended December 31, 2004 and 2003, no provision for income taxes has
been provided for, as a result of continued net operating losses. The Company is
subject to certain state and local taxes based on capital.
The Company has net operating loss carry-forwards for federal income tax
purposes totaling approximately $18,000,000 at December 31, 2004. These
carry-forwards expire between the years 2009 through 2024. Utilization of these
loss carry-forwards may be limited under Internal Revenue Code Section 382. The
deferred tax asset arising from the net operating loss carry-forwards has been
offset by a corresponding valuation allowance.
The valuation allowance primarily relates to the federal and state net operating
losses for which utilization in future periods is uncertain. 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. Based on projections for future
taxable income over the periods that the deferred tax assets are deductible, the
Company believes it is more likely than not that the Company will not realize
the benefits of these deductible differences in the near future and therefore a
full valuation allowance of $6,900,000 is provided. The valuation allowance
increased approximately $900,000 during 2004 related to increased net operating
losses.
10. MAJOR CUSTOMERS
During the year ended December 31, 2004 the Company's entire sales were to one
customer. During the year December 31, 2003 the Company had no sales.
11. COMMITMENTS AND CONTINGENCIES
In January 1, 2004, the Company entered into a 5 year employee agreement with
its Chief Executive Officer ("Employee"). The Company agreed to pay to employee
for the services to be rendered a base salary at an annual rate of three hundred
and fifty thousand dollars. The Company granted to its employee a five-year
option to 5,000,000 shares of the Company's outstanding common stock for an
option price of $.25 per share. The Option will vest in fifty equal, consecutive
monthly increments of 100,000 shares each on the first day of each month
beginning with January of 2004 and ending with February of 2008. Those options
were converted to stock appreciation rights in November 2004.
In March 9, 2004, The Company extended for two additional years of the
consulting agreement with a director. The Company agreed to increase his monthly
payment to $10,000 per month. The Company also gave him the right to purchase
one million shares of the Company's common stock at a price of $0.25 per share,
such right to vest at the rate of 50% per year. Those options were converted to
stock appreciation rights in November 2004.
In May 2001, the Company entered into a distribution agreement with a company
(the "Sub-distributor") based in the State of Jordan. The Sub- distributor has
agreed to purchase no fewer than 100 units of the Company's "Pure Safe Water
Station", in the calendar year commencing January 1, 2001. A minimum purchase of
50 units is required to be purchased in each of the subsequent years commencing
January 1, 2002 and 2003, respectively. During the year ended December 31, 2001,
18 units had been shipped under this agreement. The sale will be recognized when
the Company receives payments. The Company recorded the cost of the inventory
shipped as a loss contingency of $242,035 during the year ended December 31,
2001, since return of the items is uncertain.
F-18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 5.1 of the Registrant's amended and restated bylaws and Section 8 of our
restated certificate of incorporation provide that the Registrant shall
indemnify its directors and officers, and may indemnify its employees and other
agents, to the fullest extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrant's certificate of incorporation
provides for such limitation of liability.
The Registrant maintains standard policies of insurance under which
coverage is provided (a) to its directors, officers, employees and other agents
against loss rising from claims made by reason of breach of duty or other
wrongful act, and (b) to the Registrant with respect to payments which may be
made by the Registrant to such officers and directors pursuant to the above
indemnification provision or otherwise as a matter of law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than
selling commissions and other fees to be paid to the underwriters) which will be
paid by the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the Securities and Exchange
Commission ("SEC") registration fee, all amounts shown are estimates.
SEC registration fee..................................... $ 2,427.34
Legal fees and expenses.................................. 30,000.00
Accounting fees and expenses............................. 10,000.00
Miscellaneous expenses................................... 2,572.66
-------------
Total.................................. $ 45,000.00
=============
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Marshall Sterman $0.10 Financial Consulting Common 04/19/2002 800,000
- $80,000
Ronald W. Hart $0.08 Compensation Common 04/19/2002 225,000
- $18,000
Richard Wilson $0.08 Compensation Common 04/19/2002 112,500
- $9,000
John Gilbert $0.08 Compensation Common 04/19/2002 112,500
- $9,000
Mohamed Salem $0.08 Compensation Common 04/19/2002 112,500
- $9,000
Mastafa Tolba $0.08 Compensation Common 04/19/2002 112,500
- $9,000
John Clarke $0.05 Commission Common 04/19/2002 100,000
- $5,000
Earl Roberts $0.05 Website Consultant Common 04/19/2002 50,000
- $2,500
Patrick Brady $0.05 $25,000 Common 04/19/2002 500,000
Peter Hall $0.05 $25,000 Common 04/19/2002 500,000
George Frank $0.05 $50,000 Common 04/19/2002 1,000,000
Barry Moscowitz $0.035 $100,000 Common 04/19/2002 2,857,133
David Conway IRA $0.05 Non-Dilution Common 04/19/2002 4,184,693
Agreement
David & Rosanne Conway $0.05 Non-Dilution Common 04/19/2002 6,769,583
Agreement
Jennifer Conway $0.05 Non-Dilution Common 04/19/2002 1,984,886
Agreement
Caroline Conway $0.05 Non-Dilution Common 04/19/2002 1,984,886
Agreement
Earl Ellis $0.05 $100,000 Common 04/25/2002 2,000,000
Ron Breeding $0.03 Mktg Services Common 06/04/2002 125,000
II-2
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Domenic Strazzula $0.029 Settlement Common 06/20/2002 500,000
Felix Hertzka $0.029 Settlement Common 06/20/2002 250,000
Michael and Roberta Guadette $0.029 Settlement Common 06/20/2002 250,000
Claudette Gelfand $0.029 Settlement Common 06/20/2002 250,000
Catherine Griffin $0.029 Settlement Common 06/20/2002 250,000
Joseph Fichtl $0.029 Settlement Common 06/20/2002 500,000
KT and Callaway Decoster $0.029 Settlement Common 06/20/2002 300,000
Holly Harris $0.029 Settlement Common 06/20/2002 100,000
Alexander Harris $0.029 Settlement Common 06/20/2002 100,000
Michael and Diane Hayden $0.029 Settlement Common 06/20/2002 250,000
K. Thomas Decoster $0.029 Settlement Common 06/20/2002 250,000
John J. Clarke $0.029 Settlement Common 06/20/2002 500,000
Edward Brown $0.029 Settlement Common 06/20/2002 250,000
Jeffrey Power $1.00 $22,500 Series C 09/25/2002 25,000
Preferred
William A. Cady Trust $1.00 $22,500 Series C 09/26/2002 25,000
Preferred
Robert and Betsy Jordan $1.00 $9,000 Series C 10/09/2002 10,000
Preferred
Francis L. Collins $1.00 $13,500 Series C 10/30/2002 15,000
Preferred
Jeffrey Power $1.00 $45,000 Series C 12/30/2002 50,000
Preferred
Robert Swinton $1.00 Comp. Marketing Series C 02/13/2003 15,000
Consult. - $15,000 Preferred
Andrew Vito $1.00 Comp. Marketing Series C 02/13/2003 15,000
Consult. - $15,000 Preferred
Daniel Negrila $1.00 $5,000 Series C 04/29/2003 5,000
Preferred
II-3
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Peter Gherasim $1.00 $7,500 Series C 04/29/2003 7,500
Preferred
The Funding Group $1.00 Comp Loan Interest Series C 04/29/2003 6,750
- $11,250 Preferred
Barry Moscowitz $1.00 $47,500 Series F 06/13/2003 47,500
Preferred
Dwight Grader $1.00 $50,000 Series F 07/17/2003 50,000
Preferred
Barry Moscowitz $1.00 $27,500 Series F 07/17/2003 27,500
Preferred
Resnick & Company $1.00 Comp. - Accounting Series F 07/17/2003 26,500
Svcs. -$26,500 Preferred
The Funding Group $1.00 Interest and Series F 07/17/2003 11,250
Late Fees - $14,000 Preferred
Michael Manfredo $1.00 $25,000 Series F 08/04/2003 25,000
Preferred
Jeffrey Power $1.00 $50,000 Series F 08/04/2003 50,000
Preferred
Michael Manfredo $1.00 $25,000 Series F 08/22/2003 25,000
Preferred
Patrick Brady $1.00 $15,000 Series F 08/22/2003 7,500
Preferred
Peter Hall $1.00 $15,000 Series F 08/22/2003 7,500
Preferred
Michael Davis $1.00 $30,000 Series F 08/22/2003 15,000
Preferred
Richard Van Grouw $1.00 $20,000 Series F 08/22/2003 10,000
Preferred
Barnett Fine $1.00 $20,000 Series F 08/22/2003 14,285
Preferred
Alliance Trade $1.00 Fee for Design Series F 08/22/2003 1,000
Svc. - $1,000 Preferred
Robert Swinton $1.00 Fee for Mktg Series F 08/22/2003 18,750
Svc. - $56,250 Preferred
II-4
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Douglas Davis $1.00 Fee for Series F 09/18/2003 25,000
Manufacturing Preferred
/Engin. Svc.
- $55,000
Raimond Irni $1.00 Commission Series F 09/18/2003 6,250
- $17,500 Preferred
Nathan Lis $1.00 $20,000 Series F 09/18/2003 11,250
Preferred
David Rappaport $1.00 $7,500 Series F 09/18/2003 3,125
Preferred
David Van Der Velde $1.00 $1,500 Series F 09/18/2003 625
Preferred
Abraham Hershkowitz $1.00 $1,500 Series F 09/18/2003 781
Preferred
Harold Tishler $1.00 $3,000 Series F 09/18/2003 1,250
Preferred
Leonard Fuchs $1.00 $15,000 Series F 09/18/2003 6,250
Preferred
Mike Majerovic $1.00 Commission Series F 09/18/2003 1,750
- $1,750 Preferred
WWD Trading Int'l $1.00 $100,000 Series F 10/17/2003 65,790
Preferred
David Fried $1.00 $850 Series F 10/17/2003 625
Preferred
David Schor $1.00 $2,075 Series F 10/17/2003 1,563
Preferred
Peter Hoffman $1.00 $2,075 Series F 10/17/2003 1,563
Preferred
Peter Tingus $1.00 Comp. Fee Series F 10/17/2003 390
Editing Svc. Preferred
- $1,000
Nicholas Anagnastopoulos $1.00 $12,750 Series F 11/11/2003 7,500
Preferred
Haralambos Kostopoulos $1.00 $4,250 Series F 11/11/2003 2,500
Preferred
Jonathan McDermott $1.00 $4,000 Series F 11/11/2003 2,500
Preferred
II-5
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Robert Kaszovits $1.00 $20,000 Series F 12/10/2003 10,000
Preferred
Seymour Yanovsky $1.00 $4,040 Series F 12/10/2003 2,188
Preferred
Daniel Alkobi $1.00 $1,155 Series F 12/10/2003 625
Preferred
Yacob Alcoby $1.00 $1,155 Series F 12/10/2003 625
Preferred
Yair Matan $1.00 $3,465 Series F 12/10/2003 1,875
Preferred
Abraham Hershkovitz $1.00 $1,735 Series F 12/10/2003 939
Preferred
David Rappaport $1.00 $5,775 Series F 12/10/2003 3,125
Preferred
Leonard Fuchs $1.00 $4,620 Series F 12/10/2003 2,500
Preferred
Carlos Correas $1.00 $1,155 Series F 12/10/2003 625
Preferred
Mike Liebhard $1.00 $575 Series F 12/10/2003 313
Preferred
Mike Majerovic $1.00 $3,695 Series F 12/10/2003 2,000
Preferred
Dror Magori $1.00 $865 Series F 12/10/2003 469
Preferred
Chaim Majerovic $1.00 $230 Series F 12/10/2003 175
Preferred
Eligio Majerovic $1.00 $8,000 Series F 12/10/2003 4,250
Preferred
Marshall Sterman $1.00 Compensation Board Series F 12/10/2003 12,500
Svc. - $25,000 Preferred
Olshan Grundman $1.00 Compensation Legal Series F 12/10/2003 5,000
Services - $16,000 Preferred
II-6
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Moneesh Bakshi $1.00 Translating Service Series F 12/10/2003 50
- $200 Preferred
Mohammad Mamaun $1.00 Translating Service Series F 12/10/2003 50
- $200 Preferred
Leonard Cohen $1.00 $50,000 Series F 12/30/2003 25,000
Preferred
Kollel Metzioynim Lhoroah $1.00 $12,000 Series F 12/30/2003 5,000
Preferred
Gregory Simonelli $1.00 $7,000 Series F 12/30/2003 2,500
Preferred
Jaime Asaro $1.00 $7,000 Series F 12/30/2003 2,500
Preferred
Jack Neiman $1.00 $3,500 Series F 12/30/2003 1,250
Preferred
Harris Tunick $1.00 $3,500 Series F 12/30/2003 1,250
Preferred
Gian Ciarniello $1.00 $1,400 Series F 12/30/2003 500
Preferred
Barry Moscowitz $1.00 Commission Series F 12/30/2003 3,000
- $6,000 Preferred
Barnett Fine $1.00 $7,000 Series F 01/06/2004 2,500
Preferred
Howard Fine $1.00 $1,400 Series F 01/06/2004 500
Preferred
Haichel Esther $1.00 $60,000 Series F 01/06/2004 30,000
Preferred
The Resnick Group $1.00 Fee for annual Series F 01/06/2004 8,125
acctg. svc.-$26,000 Preferred
Peter Hoffman $1.00 $3,750 Series F 01/15/2004 1,563
Preferred
Rafael Moas $1.00 $3,750 Series F 01/15/2004 1,563
Preferred
David Fried $1.00 $475 Series F 01/15/2004 195
Preferred
II-7
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Dror Magori $1.00 $475 Series F 01/15/2004 195
Preferred
Florence Gut $1.00 $825 Series F 01/15/2004 344
Preferred
Dror Magori $1.00 $1,850 Series F 02/05/2004 463
Preferred
Meryl Hagler $1.00 $3,575 Series F 02/05/2004 893
Preferred
David Fried $1.00 $3,575 Series F 02/05/2004 893
Preferred
Ezra Moas $1.00 $1,000 Series F 02/05/2004 250
Preferred
Morris Sabbach $1.00 $1,000 Series F 02/05/2004 250
Preferred
Jac Steinberger $1.00 $3,075 Series F 02/05/2004 770
Preferred
Abraham Rotban $1.00 $1,855 Series F 02/05/2004 465
Preferred
Raimond Irni $1.00 Compensation Series F 02/05/2004 1,000
Commission - Preferred
$4,000
Arnold Fonseca $1.00 $50,000 Series F 03/30/2004 19,231
Preferred
Eliezer Ely $1.00 $2,480 Series F 03/30/2004 1,240
Preferred
Moische Koffman $1.00 $2,325 Series F 03/30/2004 1,162
Preferred
Harold Friedman $1.00 $775 Series F 03/30/2004 388
Preferred
Aaron Groner $1.00 $310 Series F 03/30/2004 155
Preferred
Abraham Kiplinsky $1.00 $775 Series F 03/30/2004 388
Preferred
Annette Hunter $1.00 $50,000 Series F 03/30/2004 25,000
Preferred
II-8
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Eugenie Trott $1.00 $200,000 Series F 03/30/2004 41,668
Preferred
Marshall Sterman $1.00 Compensation Series F 03/30/2004 6,250
- $20,000 Preferred
John. J. Clarke $1.00 Compensation Series F 03/30/2004 6,250
- $20,000 Preferred
C. Trade Inc. $1.00 Compensation Series F 03/30/2004 9,375
- $40,000 Preferred
A. Elizier $1.00 Comp. Web Series F 03/30/2004 1,765
design - $3,500 Preferred
E. McInerney $1.00 Commission Series F 03/30/2004 4,168
- $20,000 Preferred
T. Mendirotta $1.00 Commission Series F 03/30/2004 12,500
- $25,000 Preferred
Haicel Esther $1.00 $12,500 Series F 05/20/04 15,625
Preferred
Philip Koch $0.1475 $885 Common 08/04/2004 6,000
David Fried $0.1475 $5,530 Common 08/04/2004 37,500
Harold Tishler $0.1475 $3,685 Common 08/04/2004 25,000
David Rappaport $0.1475 $9,215 Common 08/04/2004 62,500
Harold Jacobowitz $0.1475 $1,685 Common 08/04/2004 11,428
Michael Majerovic $0.1475 $1,150 Common 08/04/2004 7,800
Segoes Trust LTD $0.08 $72,000 Common 08/06/2004 900,000
Richard Barsom $0.12 Comp. Marketing Common 08/06/2004 50,000
Svc. - $6,000
Marshall Sterman $0.12 Comp. Fin'l Common 08/06/2004 200,000
Consult. - $24,000
Max Ollech $0.08 $15,400 Common 08/20/2004 200,000
Rafael Moas $0.08 $5,800 Common 08/20/2004 72,500
Dror Magori $0.08 $800 Common 08/20/2004 10,000
II-9
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Morris Sabbach $0.08 $800 Common 08/20/2004 10,000
Randy Chalom $0.08 $1,600 Common 08/20/2004 20,000
Ezra Moas $0.08 $800 Common 08/20/2004 10,000
Ezra Mossieri $0.08 $800 Common 08/20/2004 10,000
Kellel Metzioynim $0.08 $34,600 Common 08/20/2004 450,000
George Feinsod $0.10 Comp. Tax Prep Common 08/20/2004 100,000
Fees - $10,000
Samaritan Group Intl. $0.05 Fee for UN Common 09/08/2004 500,000
Admission
- $25,000
IMSCO/ F. Weston $0.05 Fee for UN Common 09/08/2004 1,000,000
Admission
- $50,000
Ellis International Trust $0.075 $50,000 Common 09/17/2004 666,667
Max Ollech $0.08 $4,000 Common 09/17/2004 50,000
WW Trading Int'l $0.075 Comp. Common 10/06/2004 200,000
Commissions
- $15,000
Annette Hunter $0.075 Comp. Common 10/06/2004 100,000
Commissions
- $7,500
Rudolf Schindler $0.10 Comp. Accrued Common 10/29/2004 311,100
Payroll
- $31,110
WW Trading Int'l $0.08 $25,000 Common 10/29/2004 312,500
Raimind Irni $0.05 Commission Common 11/15/2004 20,000
- $1,000
Nachum Lis $0.05 $40,000 Common 11/16/2004 800,000
Lyons Capital Partners $0.08 $50,000 Common 11/16/2004 625,000
Jason Lyons $0.08 Commission Common 11/24/2004 62,500
- $5,000
Richard Barsom $0.08 Comp. Mktg Common 11/24/2004 150,000
Services - $12,000
Rudolf W. Schindler $0.155 Comp./Accrued Common 12/17/2004 100,000
Payroll - $15,500
Leonard Cohen $0.10 $35,000 Common 12/17/2004 350,000
II-10
Price Per Date of # of
Purchaser Share Purchase Amount Class Purchase Share
--------- ----- --------------- ----- -------- -----
Haichel Esther $0.10 $40,000 Common 12/17/2004 400,000
Lyons Capital Group LLC $0.05 Commission Common 3/21/2005 100,000
- $5,000
Leonard Cohen $0.05 $10,000 Common 3/21/2005 200,000
The Resnick Druckman Group LLC $0.10 Comp. for Common 3/21/2005 130,000
Accounting
Fees - $13,000
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 there under. These shares were offered to less than 35
"non-accredited" investors and were purchased for investment purposes with no
view to resale.
ITEM 27. EXHIBITS.
(a) Exhibits:
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Amended and Restated By-Laws of Water Chef, Inc. -
Incorporated herein by reference to Exhibit 3(ii) to the
Form 10-KSB/A filed November 17, 2003.
3.2* Amended and Restated Certificate of Incorporation of Water
Chef, Inc.
3.3* Certificate of Amendment of Restated Certificate of
Incorporation of Water Chef, Inc. dated August 2, 1993
3.4* Certificate of Amendment of Restated Certificate of
Incorporation of Water Chef, Inc. dated August 2, 1992
3.5* Certificate for Renewal and Revival of Certificate of
Incorporation
3.6* Certificate of Amendment of Restated Certificate of
Incorporation of Water Chef, Inc. dated February 20, 2002
3.7* Certificate of Correction filed to correct a certain error
in the Certificate of Amendment of the Restated
Certificate of Incorporation of Water Chef, Inc. dated May
7, 2004
4.1 Certificate of Designation of Series A Preferred Stock of
Water Chef, Inc. - Incorporated herein by reference to
Exhibit 4.1 to the Form 10-KSB/A filed November 17, 2003.
4.2 Certificate of Designation of Series C convertible
preferred stock of Water Chef, Inc. - Incorporated herein
by reference to Exhibit 4.2 to the Form 10-KSB/A filed
November 17, 2003.
4.3 Certificate of Designation of Series D Preferred Stock of
Water Chef, Inc. - Incorporated herein by reference to
Exhibit 4.3 to the Form 10-KSB/A filed November 17, 2003.
4.4* Certificate of Designation of Series F convertible
preferred stock of Water Chef, Inc.
4.5 Series B Warrant to Purchase Common Stock and Allonge to
and Amendment and Extension of Common Stock Purchase
Warrant - Incorporated herein by reference to Exhibit 4.4
to the Form 10-KSB/A filed November 17, 2003.
4.6* Series B Second Allonge to and Amendment and Extension of
Common Stock Purchase Warrant
4.7 Subordinated Debentures - Incorporated herein by reference
to Exhibit 4.5 to the Form 10-KSB/A filed November 17,
2003.
5.1** Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP
10.1 Mutual Settlement Agreement and General Release, dated
June 20, 2002, by and between the Company; K. Thomas and
Callaway Decoster, as husband and wife; K. Thomas
Decoster, individually; Michael P. and Roberta S.
Gaudette, as husband and wife; Dominic M. Strazzulla; the
Felix A. Hertzka Estate; Claudette L. Gelfand and the
Claudette L. Gelfand Revocable Trust; Catherine C.
Griffin; Michael B. and Diane L. Hayden, as husband and
wife; Alexander Harris; Holly O. Harris; and Joseph R.
II-11
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
Fichtl and the Joseph R. Fichtl 1995 Trust - Incorporated
herein by reference to Exhibit 10.1 to the Form 10-KSB/A
filed April 15, 2004.
10.2 Addendum to Settlement Agreement, dated June 20, 2002, by
and between the Company; K. Thomas and Callaway Decoster,
as husband and wife; K. Thomas Decoster, individually;
Michael P. and Roberta S. Gaudette, as husband and wife;
Dominic M. Strazzulla; the Felix A. Hertzka Estate;
Claudette L. Gelfand and the Claudette L. Gelfand
Revocable Trust; Catherine C. Griffin; Michael B. and
Diane L. Hayden, as husband and wife; Alexander Harris;
Holly O. Harris; and Joseph R. Fichtl and the Joseph R.
Fichtl 1995 Trust Trust - Incorporated herein by reference
to Exhibit 10.2 to the Form 10-KSB/A filed April 15, 2004.
10.3 Subdistributorship Agreement dated May 18, 2001 between 4
Clean Waters LTD. and the Company - Incorporated herein by
reference to Exhibit 10.2 to the Form 10-KSB/A filed
November 17, 2003.
10.4 Convertible Promissory Note dated November 17, 2000 to 4
Clean - Lindh Joint Venture by the Company - Incorporated
herein by reference to Exhibit 10.1 to the Form 10-KSB/A
filed November 21, 2004.
10.5 Preliminary Agreement, dated September 8, 2004 by, and
among, Water Chef, Inc., Samaritan Group International,
and International Multiracial Shared Cultural Organization
(IMSCO) - Incorporated herein by reference to Exhibit 10.1
to the Form 10-QSB filed November 17, 2004.
23.1** Consent of Marcum & Kliegman LLP
23.2** Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(contained in Exhibit 5.1).
24.1* Powers of Attorney (included on the signature page of this
Registration Statement).
* previously filed
** filed herewith
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts
or events which, individually or together, represent a fundamental change
in the information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any additional or changed
material information;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
II-12
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-13
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on May 5, 2005.
WATER CHEF, INC.
By: /s/ David A. Conway
-------------------------------------------
David A. Conway
Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David A. Conway Chairman of the Board, President, May 5, 2005
------------------------------- Chief Executive Officer and Chief
David A. Conway Financial Officer (Principal
Executive Officer and
Principal Financial and
Accounting Officer)
*
------------------------------- Director May 5, 2005
Marshall S. Sterman
*
------------------------------- Director May 5, 2005
John J. Clarke, Jr.
* By: /s/ David A. Conway
----------------------
David A. Conway
Attorney-in-fact
II-14