U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 2-96455-LA
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WATER CHEF, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 86-0515678
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7707 E. Acoma Dr. Suite 109, Scottsdale, Arizona 85260
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(Address of principal executive offices)
602-991-4534
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class June 30, 1997
----- -----------------
Common
Par Value $.001 per share 19,769,645
<PAGE>
WATER CHEF, INC.
FORM 10-QSB/A
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996............................................. 3
Consolidated Statements of Operations for the three and six
month periods ended June 30, 1997 and 1996........................ 5
Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1997 and 1996........................ 6
Notes to Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition............................. 8
PART II - OTHER INFORMATION
Item 3. Exhibits and Reports on Form 8-K.................................. 11
Signatures................................................................. 12
2
<PAGE>
WATER CHEF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,1997 December 31,1996
------------ ----------------
(Unaudited)
CURRENT ASSETS:
Cash ......................................... $ 825,516 $ 18,553
Accounts receivable, net of allowance for
doubtful accounts of $51,940 at June 30,
1997 and $51,940 at December 31, 1996 ....... 64,632 91,985
Inventories, net ............................. 953,022 495,910
Deposits and other ........................... 232,126 452,138
----------- ----------
Total Current Assets ................... 2,075,296 1,058,586
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation of $494,469,
at June 30, 1997 and $278,375 at
December 31, 1996 ............................ 433,363 679,690
PATENTS, DESIGNS AND TRADEMARKS, at
cost less accumulated amortization of
$21,640 at June 30, 1997 and $18,943
at December 31, 1996 ......................... 184,396 39,297
Franchise-Sale ............................... 500,000
INVESTMENT IN CHINA JOINT VENTURE (Note 3) ..... 148,000 148,000
OTHER .......................................... (51,255) 104,999
----------- ----------
$ 3,289,800 $2,030,572
=========== ==========
The accompanying notes are an integral part
of these consolidated balance sheets.
3
<PAGE>
WATER CHEF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
June 30,1997 December 31,1996
------------ ----------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable:
Trade ...................................... $ 825,502 $ 852,407
Other ...................................... 276,163 54,396
Accrued expenses and other ................... 568,450 879,966
Current portion of notes payable ............. 623,221 233,739
----------- -----------
Total Current Liabilities .............. 2,293,336 2,020,508
----------- -----------
NOTES PAYABLE, net of current portion .......... 2,614,637 2,789,600
----------- -----------
MINORITY INTEREST IN CONSOLIDATED JOINT
VENTURE (Note 3) .............................. 253,000 253,000
----------- -----------
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.001 par value, 10,000,000
shares authorized; 93,000 shares issued
and outstanding at June 30, 1997 and
52,500 shares issued or outstanding
at December 31, 1996 ........................ 93 215
Common Stock, $.001 par value, 40,000,000
shares authorized; 19,769,645 shares issued
and 19,769,645 outstanding at June 30, 1997
and 19,769,574 shares issued and 16,836,574
outstanding at December 31, 1996 ............ 19,769 16,836
Comon Stock to be issued: ..................... 2,044,744 397,342
Additional paid-in capital .................... 2,874,383 2,892,961
Preferred Stock D to be issued ................ 0
Treasury stock, at cost........................ (5,768) (5,768)
Accumulated deficit ........................... (6,804,394) (6,334,122)
----------- -----------
Total Stockholders' Deficit ............. (1,871,173) (3,032,536)
----------- -----------
$ 3,289,800 $ 2,030,572
=========== ===========
The accompanying notes are an integral part
of these consolidated balance sheets.
4
<PAGE>
WATER CHEF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales 194,554 $200,017 $234,579 $218,630
Cost of sales 178,308 68,447 228,997 129,820
----------- ----------- ----------- -----------
Gross margin 16,246 131,570 5,602 (88,810)
Selling, general &
administrative expenses 406,850 19,609 695,284 226,223
----------- ----------- ----------- -----------
Profit (Loss) from
operations 390,604 111,961 (689,682) (137,413)
Sale of WaterChef-Franchise 266,175
Other income (expense):
Interest expense (39,266) (61,200) (68,381) (7,262)
----------- ----------- ----------- -----------
Net Profit (Loss) before
provision for income taxes (429,870) 50,761 (491,888) (144,675)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
NET Profit (Loss) $ (429,807) $ 50,761 $ (491,888) $ (144,675)
=========== =========== =========== ===========
Profit (Loss) per common
share and common share
equivalent $ (0.02) $ .00 $ (0.02) $ (.01)
=========== =========== =========== ===========
Weighted average number
of common shares and
common share equivalents
outstanding 19,769,645 15,836,574 19,769,645 15,836,574
=========== =========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
WATER CHEF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $(491,888) $ 144,675
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization ...................... (147,290) (107,666)
Non-operating cash flow adjustments ................ 0 0
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable, net .... 27,353 60,982
Decrease (increase) in inventories ................. (457,112) (167,814)
(Increase) decrease in prepaid expenses and
other assets ..................................... (232,126) 0
Increase in accounts payable-China joint venture ... (148,000) (148,000)
Increase (decrease) in accounts payable ............ 186,243 230,034
Increase (decrease) in accrued expenses and
other liabilities.................................. 459,516 109,376
----------- ---------
Net cash used in operating activities ........... $ (803,304) $(167,763)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............... 338,220 $ 689,009
Acquisition of patents, designs and trademarks ...... $ (145,099) $ (60,393)
----------- ---------
Net cash used in investing activities ........... $ 193,121 $ 628,616
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes payable ........... $ (214,519) $(664,486)
Payments on notes payable ........................... 16,983 (71,887)
Proceeds from preferred and common stock, net ....... 1,614,682 199,899
Net cash provided by financing activities ....... $ 1,417,146 $(536,474)
----------- ---------
Net increase (decrease) in cash ...................... $ 806,963 $ (75,621)
CASH, beginning of period ............................ $ 18,553 $ 94,174
CASH, end of period .................................. $ 825,516 $ 18,553
=========== =========
Supplemental Cash Flow Information:
Cash paid during the period for interest ............. $ 0 $ 0
=========== =========
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
WATER CHEF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented have been made. The results of operations
for the six-month period ended June 30, 1997, are not necessarily indicative of
the operating results that may be expected for the year ending December 31,
1997. These financial statements should be read in conjunction with the
Company's December 31, 1996 Form 10-KSB, financial statements and accompanying
notes thereto.
Pursuant to a Merger Agreement and Plan of Reorganization between the Company
and Water Chef-Nevada dated June 4, 1993 ("the Agreement"), the Company issued
3,800,000 shares of its common stock to Water Chef-Nevada's three stockholders,
in exchange for all issued and outstanding common stock of Water Chef-Nevada.
The common stock issued represented 62% of the issued and outstanding shares of
its common stock after the merger. In connection with this transaction, Water
Chef-Nevada's officers and its director became officers and a director of the
Company. This resulted in Water Chef-Nevada's officers and director, and
directors appointed by Water Chef-Nevada, controlling the Company's day-to-day
operations.
In accordance with Accounting Principles Board Opinion No.16, the Water
Chef-Nevada acquisition has been accounted for as a reverse acquisition. The
historical financial statements prior to June 4, 1993 are those of Water
Chef-Nevada (Water Chef-Nevada was formed on January 25, 1993, therefore, no
financial statements are presented prior to that date). For financial statement
presentation purposes, the Company is considered to be the predecessor.
(2) As of June 30, 1997, Inventories consist of the following:
Raw Material 914,395
Work in Progress 1,539
Finished Goods 37,088
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$953,022
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7
<PAGE>
(3) In February 1994, the Company entered into an agreement (the "Agreement") to
form a joint venture, Tianjin Tahoe Cooler Co., Ltd. (the "Joint Venture") to
establish and operate a facility to manufacture the Company's Series I water
coolers in the People's Republic of China. The Company's contribution to the
Joint Venture, in which it has a 55% interest, will be in the form of machinery
and other equipment in the approximate value of $144,000 (based on the price of
the equipment to be supplied by the Company to the joint venture), $140,000 cash
and designs and technology with an agreed upon value of $156,000. The minority
interest of $253,000 reflected in the consolidated balance sheet represents the
minority shareholder's proportionate share of the equity of the Joint Venture.
(4) In December 1996 the company purchased all of the outstanding common stock
of Natural Water Systems Inc. Boulder, Co for 1 Million shares of Water Chef
common. The company supplies water dispensing systems for Natural Water stores
and a shower filter of patented design that removes 95% of the chlorine.
Chlorine causes dry skin, split ends, scalp flaking and red eyes. Chlorine
absorbed by the body during a shower has been known to cause cancer of the colon
and bladder. It is believed this shower filter product can grow into a $100
Million business. This subsidiary currently accounts for 15% of the companies
revenue.
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the quarter and six month periods ended June 30, 1997 were
$194,554 and $234,579 respectively. Cost of sales for the quarter and six month
periods were $178,308 and $228,977, or 91% and 97% of sales, respectively. The
high cost of sales percentage resulted primarily from the low level of
manufactuing operations due to lack of working capital. This condition has
change in the 3rd quarter.
Selling, general and administrative expenses for the quarter and six month
periods were $406,850 and $695,284,or 209% and 296% of sales, respectively. This
reflects the increase in activity in preparation for larger sales in the third
quarter both from China and U.S. facilities.
Net Profit for the quarter and the loss for six month periods were $(429,807)
and $(491,888), or $0.02 per share loss respectively. The first quarter is
traditionally a low sales period for water coolers, and in this case the 2nd
quarter was restricted by cash of working capital. This has been corrected for
the 3rd quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit decreased from approximately $962,000 at
December 31, 1996 to $218,000 at June 30, 1997. The deficit decreased primarily
because of the infusion of $1.5 Million in working capital. The companies
current ratio .9 to 1 on June 30, 1997, and .52 to 1 at December 31, 1996.
8
<PAGE>
In January 1994, the Company commenced a private placement of Units (each Unit
consisting of one share of the Company's Series A Preferred Stock, one share of
the Company's common stock and one Series A Warrant to purchase four shares of
the Company's common stock at a price of $1.00 per share) at a Unit purchase
price of $10.00.
The Series A Preferred Stock provides for a 10% cumulative dividend, payable
annually in the Company's common stock or cash, at the Company's option, based
upon the $10.00 Unit purchase price. The Series A Preferred Stock is not
convertible, and is callable by the Company at any time following January 17,
1997 at a price of $11.00 per share. In total, the Company sold 52,500 Units and
received net proceeds of approximately $335,000, after deduction of offering
expenses of approximately $190,000. The private placement expired in April 1994.
In January and February 1994, Canaccord Capital Corporation loaned the Company a
total of $170,000 to meet the temporary working capital needs of the Company.
These notes bear interest at 10% and were payable on February 28, 1994. The
notes are secured by substantially all the assets of the Company and are
guaranteed by an officer and director of the Company.
During February and March 1994, the Chairman and Chief Executive Officer of the
Company, and affiliate of his advanced the Company a total of $26,000 to meet
the temporary working capital needs of the Company. A portion of these loans
($13,000) was repaid out of the proceeds of the Company's private placement in
March 1994.
In September 1994, the Company completed a private placement of 2,578,750 units
at $0.80 per unit, each unit consisting of two shares of common stock and one
Series C warrant to purchase one share of common stock at a price of $1.00 per
share. Net proceeds to the Company were $2,000,442 plus the conversion of
$25,000 of debt then outstanding into 62,500 shares of the Company's common
stock. A partnership in which the Company's former Executive Vice-President is a
controlling partner purchased 350,000 shares of common stock in the offering.
In October 1994, the Company commenced efforts to raise up to $1,200,000 in debt
funding through several sources. As part of this effort, the Company is
attempting to raise $800,000 in debt funding (the "Note" or "Notes") through
private sources. The Notes would be unsecured and payable in one year, including
interest at 10% per annum. Each Note holder would receive Series D Warrants
entitling the Note holder to purchase, at a purchase price of $0.60 per share,
one share of the Company's common stock for each dollar of note principal.
Through September 30, 1996 the Company raised approximately $485,000 through
this funding source. No further funds were solicited from this offering.
In August 1996, the Montana Department of Commerce amended its open Community
Development Block Grant project to assist the Company with an additional loan of
$340,000. The Company borrowed $200,000 of these funds through November 20, 1996
to meet working capital requirements. The balance was drawn in January 06, 1997.
9
<PAGE>
In December 1996 the company commenced efforts to raise $2, Million from private
placement of $5pfd 12% with 5 shares of common stock as of the end of the first
quarter $400,000 had been raised. This private placement has been modified as of
July 1, 1997 by adding an addition 5 shares of incentive stock.
The company's operations and cash flow have been hampered due to an inability to
raise sufficient capital with which to fund its operations. This lack of capital
has prevented the Company from being able to purchase sufficient inventory with
which to fill sales orders.
To carry the companies operations until the working capital program was
completed a bridge loan in the amount of $375,000 was negotiated. The loan will
be repaid by the end of 1997.
The company raised $1.5 Million in working capital late in June 1997. Funds to
purchase parts for coolers from China and US sources were immediately released.
These parts will be used to fill the company's backlog of orders for delivery in
the 3rd quarter. The funds were not made available in time to affect the
company's 2nd quarter operations.
Management of the Company believes that the marketing and distribution network
it has created along with the creation of new markets (such as retail and
international), will produce a volume of sales sufficient to operate profitably
during 1997. There can be no assurance that additional debt or equity funding
will be available to the Company. The Company's management believes that with
anticipated cash flow from operations, along with the funding just received the
Company will have sufficient working capital with which to fund its operations
for the next twelve months.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
Exhibit 11 Statement re: Computation of earnings per share
Exhibit 27 Financial Data Schedule (Incorporated by reference to
Form 10-QSB filed on August 22, 1997)
B. Reports on Form 8-K:
The company filed Form 8-K, dated February 27, 1997, to report that Arthur
Andersen resigned as auditor for the Company.
The company filed Form 8-K, dated May 30, 1997, to report that the Company
had engaged Semple and Cooper, LLP. as auditor for the Company.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATER CHEF, INC.
Date: September 5, 1997 /s/ C. GUS GRANT
-----------------------------
C. Gus Grant
President, Director and Chief
Executive Officer
(Principal Operating Officer)
12
EXHIBIT 11
WATER CHEF, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
JUNE 30, 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common Shares
outstanding beginning
of period 16,836,574 15,836,574 19,769,645 15,836,574
Weighted Shares 19,769,574 15,836,574 19,769,645 15,836,574
=========== =========== =========== ===========
The net profit or loss per share was calculated as follows:
Net Profit (Loss) $ (429,807) $ 212,379 $ (491,888) $ (144,675)
=========== =========== =========== ===========
NET PROFIT (LOSS) PER COMMON AND COMMON EQUIVALENT SHARES
Net profit (loss) per share $ (.02) $ -- $ (.02) $ (.01)
=========== =========== =========== ===========
</TABLE>
