U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 0R 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR
15 (D) OF THE EXCHANGE ACT
For the transition period from.....................to.......................
Commission file number 0-30544
WATER CHEF, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 86-0515678
-------- ----------
(State of other jurisdiction (IRS Employer
of incorporation or organization) identification No.)
1007 GLEN COVE AVENUE, SUITE 1, GLEN HEAD, NEW YORK 11545
(Address of principal executive offices)
516-656-0059
(Issuer's telephone number)
-----------------------------------------------------
(Former name,former address and former fiscal year,if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange act during the past 12 months (or for such
shorter period that the registrant was required to file such REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES__X__No___
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, 1999
--------
Common
Par value $0.001 per share 33,060,019
1
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WATER CHEF, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
PAGE
Item 1 Financial Statements:
Balance Sheets as of June 30,1999
and March 31, 1999......................................3
Statement of Operations for the three and six month
periods ended June 30, 1999 and 1998....................4
Statement of Stockholders' Deficit......................5
Statements of Cash Flow for the six month periods
ended June 30, 1999 and 1998...........................6
Notes to Consolidated Financial Statements..............7
Item 2 Managements Discussion and Analysis of Results
of Operations and Financial Condition...................8
PART II - OTHER INFORMATION
Item 3 Exhibits and Reports on Form 8-K..................................9
Signatures................................................................11
2
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WATER CHEF, INC.
Balance Sheet
June 30 December 31
1999 1998
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash $ 476 $ 7,994
Accounts receivable 58,306 8,050
Inventory 161,374 220,316
Other current assets 1,356 3,867
------------ ------------
Total Current Assets 221,612 240,227
Property Plant and Equipment 268,154 279,045
Investment in joint venture 94,048 125,941
Intangible and other assets 50,005 52,967
------------ ------------
$633,719 $698,180
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable $3,629,236 $3,540,249
Bank overdraft 7,061 -
Accounts payable 1,092,347 1,105,197
Accrued expenses 766,494 626,154
Preferred dividends payable 395,356 341,206
Loans payable - shareholder 169,413 169,413
------------ ------------
Total Current Liabilities 6,059,907 5,782,219
------------ ------------
Stockholders Deficit:
Preferred stock, $.001 par value;
10,000,000 shares authorized;
8,082,166 shares issued and outstanding 8,082 8,082
Common stock, $.001 par value;
40,000,000 shares authorized;
33,060,019 shares issued and outstanding 33,060 32,339
Additional paid-in capital 7,166,886 7,103,507
Treasury stock; 4,400 common shares at cost (5,768) (5,768)
Accumulated deficit (12,628,448) (12,222,199)
------------ ------------
Total Stockholders' Deficit (5,426,188) (5,084,039)
------------ ------------
$633,719 $698,180
3
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WATER CHEF, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 139,140 $ 61,632 $ 242,473 $ 110,985
------------ ----------- ------------ -------------
Costs and Expenses:
Cost of sales 44,355 27,990 96,707 66,769
Selling, general and administrative 192,959 203,401 359,639 460,197
Depreciation and amortization 6,926 14,430 13,853 29,132
Provision for inventory write-down - 31,250 - 62,500
------------ ----------- ------------ -------------
244,240 277,071 470,199 618,598
------------ ----------- ------------ -------------
Loss Before Equity in Loss of Joint Venture (105,100) (215,439) (227,726) (507,613)
EQUITY IN LOSS OF JOINT VENTURE (17,305) (60,500) (31,893) (299,200)
------------- ------------ ------------ -------------
Net Loss From Operations (122,405) (275,939) (259,619) (806,813)
Other Income and Expense:
Interest expense (51,805) (45,428) (92,480) (85,962)
Preferred stock dividends (27,075) (27,075) (54,150) (54,150)
------------- ------------ ------------ -------------
Net Loss $ (201,285) $ (348,442) $ (406,249) $ (946,925)
Net Loss Per Common Share
(basic and diluted) $ (0.006) $ (0.010) $ (0.012) $ (0.027)
Weighted Average Common Shares
Outstanding 32,717,433 35,964,472 32,620,285 35,540,212
</TABLE>
4
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<TABLE>
WATER CHEF, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
Preferred Stock Common Stock Additional Retained
----------------------------------- Paid-in Treasury Earnings
Shares Amt. Shares AMT. Capital Stock (Deficit) Total
------ ---- ------ ---- ------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1998 8,082,166 $8,082 32,339,015 $32,339 $7,103,507 $(5,768) $(12,222,199) $(5,084,039)
Common Stock Issues For:
Services 421,000 421 13,679 14,100
Extinguishment of debt 300,000 300 49,700 50,000
Preferred stock dividend (54,150) (54,150)
Net loss (352,099) (352,099)
--------- ------ ---------- ------- ---------- -------- ------------- ------------
Balance at June 30, 1999 8,082,166 $8,082 33,060,015 $33,060 $7,166,886 $(5,768) $(12,628,448) $(5,426,188)
</TABLE>
5
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<TABLE>
WATER CHEF, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (406,249) $ (946,925)
Adjustments to reconcile net (loss) earnings to
net cash used in operating activities:
Depreciation and amortization 13,853 29,132
Issuance of shares for services 14,100 -
Equity in loss of joint venture 31,893 299,200
(Increase) decrease in operating liabilities:
Accounts receivable (50,256) 48,632
Inventory 58,942 112,125
Prepaid expense 2,511 1,884
Increase (decrease) in operating liabilities:
Accounts payable 7,150 108,398
Bank overdraft 7,061 -
Accrued liabilities 140,340 145,227
Accrued preferred stock dividends 54,150 54,150
-------- ---------
Net cash used in operating activities (126,505) (148,177)
Cash Flows From Investing Activities:
Purchase of plant and equipment - (1,765)
-------- ---------
Net cash provided by financing activities - (1,765)
-------- ---------
Cash Flows From Financing Activities:
Proceeds from sale of common stock - 170,778
Proceeds from notes payable - 50,000
Principle payments on notes payable - (50,000)
Increase in notes payable accrued interest 118,987 78,445
-------- ---------
Net cash provided by financing activities 118,987 186,223
-------- ---------
Net Increase In Cash (7,518) 36,281
Cash, Beginning of Period 7,994 3,123
-------- ---------
Cash, End of Period $ 476 $ 39,404
======== =========
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES
Common stock issued for services $ 14,100 $ -
======== =========
Common stock issued for debt $ 50,000 $ 232,656
</TABLE>
6
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WATER CHEF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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 three month period ended June 30, 1999, are not necessarily indicative
of the operations results that may be expected for the year ending December 31,
1999. These financial statements should be read in conjunction with the Company'
December 31, 1998 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, 1999, Inventories consist of the following:
Raw Material 21,413
FINISHED GOODS 139,961
-------
$ 161,374
==========
(3) In February 1994 the Company formed Tianjin Tahoe Cooler Co. LTD. ("Tianjin
Tahoe") a joint venture with Tianjin Electronics and Instrument Import and
Export Corporation (TEIIEC") for the purpose of manufacturing certain Company
designed water coolers in Tianjin, Peoples Republic of China. Water Chef own 55%
of the joint venture company.
7
<PAGE>
(4) In December, 1995 the Company issued one million shares of common stock to
acquire Natural Water Systems, Inc. a company producing and marketing a variety
of water filters. Such activities were discontinued in 1997.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Net sales for the quarter ending June 30, 1999 were $139,140 compared to net
sales of $61,632 for the quarter ended June 30, 1998. Revenues increased
$77,508, or 126% over the earlier period.
Net sales for the six months ending June 30, 1999 were $242,473, an increase of
$131,488, or 119%, over the $110,985 reported for the first six months of 1998.
Cost of sales for the second quarter and first six months of 1999 were $44,355
and $96,707 respectively, compared to $27,990 and $66,769 for the second quarter
and first six months of 1998. Gross margins for the first six months of 1999
were 60% compared to 40% in the year earlier period.
Selling, general and administrative expenses for the quarter ending June 30,
1999 were $192,959 compared to $203,401 for the quarter ended June 30, 1998, a
decrease of $10,442, or 5%.
The net loss from continuing operations was $122,405 in second quarter, 1999
compared to a loss of $275,939 in the second quarter, 1998, a decrease of
$153,534, or 56%. For the first six months, 1999 the loss from operations was
$259,619 compared to $806,813 in the year earlier, a reduction of $547,194, or
68%.
The loss reduction is primarily due to improved overhead absorption, reduced
compensation expense and improved product mix.
LIQUIDITY AND CAPITAL RESOURCES
At the end of second quarter, 1999, the Company had a stockholders' deficit of
$5,426,188 and a working capital deficit of $5,838,295.
In the second quarter, 1999, management reached preliminary agreement to sell
its redundant production facility and opened negotiations with its major
creditor groups to restructure their debt. Management intends to raise
additional capital through future issuances of stock and/or debentures to
finance the growth of the Company.
8
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PART II - OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits: Statement re: Computation of earnings per share
B. Reports on Form 8-K
9
<PAGE>
EXHIBIT 1
WATER CHEF, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNING
JUNE 30, 1999
Common and Common Equivalent shares outstanding beginning of period...32,560,019
EFFECT OF WEIGHTING SHARES ISSUED........................................157,414
Weighted shares.......................................................32,717,433
The net loss per share was calculated as follows:
Net loss..............................................................($201,285)
Weighted shares.......................................................32,717,433
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARES
Net loss per share....................................................($ 0.006)
10
<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: March 10, 2000
David A. Conway
President, Director and Chief
Executive Officer
(Principal Operating Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000764839
<NAME> Water Chef Inc.,
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 476
<SECURITIES> 0
<RECEIVABLES> 75006
<ALLOWANCES> 16,700
<INVENTORY> 161,374
<CURRENT-ASSETS> 221,612
<PP&E> 680,925
<DEPRECIATION> 412,771
<TOTAL-ASSETS> 633,719
<CURRENT-LIABILITIES> 6,059,907
<BONDS> 0
0
8,082
<COMMON> 33,060
<OTHER-SE> (5,467,330)
<TOTAL-LIABILITY-AND-EQUITY> 633,719
<SALES> 242,473
<TOTAL-REVENUES> 242,473
<CGS> 96,707
<TOTAL-COSTS> 96,707
<OTHER-EXPENSES> 405,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,480
<INCOME-PRETAX> (352,099)
<INCOME-TAX> 0
<INCOME-CONTINUING> (352,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (352,099)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
