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PureSafe Water Systems, Inc. – ‘10SB12G’ on 2/2/00

On: Wednesday, 2/2/00 · Accession #: 1015769-0-12 · File #: 0-13764

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/02/00  PureSafe Water Systems, Inc.      10SB12G                2:58K                                    Grassi & Co/FA

Registration of Securities of a Small-Business Issuer — Form 10-SB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10SB12G     Registration of Securities of a Small-Business        32    109K 
                          Issuer                                                 
 2: EX-27       Financial Data Schedule                                1      6K

10SB12G — Registration of Securities of a Small-Business Issuer
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Balance Sheet Business Changes in and Disagreement With Accountants on Accounting and Financial Disclosure Directors and Executive Officers of the Registrant Executive Compensation Exhibits and Reports on Form 8-K Financial Statements and Supplementary Data Independent Auditors' Report Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Common Equity and Related Stockholder Notes to Financial Statements Properties Related Party Transactions Security Ownership of Certain Beneficial Owners And Statements of Cash Flows Statements of Operations Submission of Matter to Vote
1	1st Page - Filing Submission
2	Item 7. Financial Statements and Supplementary Data
"	Item 10. Executive Compensation
"	Item 13. Exhibits and Reports on Form 8-K
3	Item I. Business
8	Item 2. Properties
9	Item 3. Legal Proceedings
"	Item 4. Submission of Matter to Vote
"	Item 5. Market for Common Equity and Related Stockholder
10	Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations
13	Item 8. Changes in and Disagreement With Accountants on Accounting and Financial Disclosure
"	Item 9. Directors and Executive Officers of the Registrant
17	Item 11. Security Ownership of Certain Beneficial Owners And
18	Item 12. Related Party Transactions
20	Independent Auditors' Report
21	Balance Sheet
22	Statements of Operations
24	Statements of Cash Flows
25	Notes to Financial Statements

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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-SB

GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS

UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 2-96455-LA

WATER CHEF, INC.

(Exact name of business issuer in its charter)

DELAWARE 86-0515678
(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization)

14555 N. Scottsdale Rd. Ste. 220
Scottsdale, Arizona 85254
(602) 991-4534

(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)

Securities registered pursuant to Section 12(b) of the Act:
Securities to be registered pursuant to 12(b) of the Act: None

Securities to be registered pursuant to 12(g) of the Act:

COMMON STOCK $.001 PAR VALUE

(Title of Class)

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WATER CHEF, INC.

ANNUAL REPORT ON FORM 10-KSB

YEAR ENDED DECEMBER 31, 1998

TABLE OF CONTENTS

PART I PAGE

ITEM 1. BUSINESS 2
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO VOTE 8

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED 8
STOCKHOLDER MATTERS.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 10

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH 11

ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE 11
REGISTRANT.

ITEM 10. EXECUTIVE COMPENSATION. 13

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 14
OWNERS AND MANAGEMENT.

ITEM 12. RELATED PARTY TRANSACTIONS 15

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

SIGNATURES

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PART I

ITEM I. BUSINESS

OVERVIEW

Water Chef, Inc. (the "Company"), is a Delaware Corporation design,
manufacturing and marketing company engaged in the manufacture and marketing of
water dispensers and purification equipment through the use of its equipment,
patents and other assets and its 55% owned joint venture, Tianjin Tahoe Cooler
Co., Ltd. (the "Joint Venture") in the Republic of China.

The Company designs and markets its products primarily to capitalize on the
growing demand for pure water dispensing appliances, which is driven by the
increasing market for purified water.

The market growth for bottled water is at a 10% per year rate.

In the water market, WaterChef offers three lines of products designed to make
available purified water in the home, in offices, retail stores, and residential
areas. These are water dispensers (commonly called coolers) small filter
systems, and village water systems. The units have a capacity of between 6 &
5,000 gallons per day.

Because of this increasing demand for purified water, the Company believes that
it is positioned to experience growth as a result of the patented features that
have been incorporated into its products, in addition to their design and
presentation.

DEVELOPMENT OF THE COMPANY

As a result of the transaction discussed below, on July 14, 1993 the Board of
Directors approved a name change from Auto Swap U.S.A., Inc. to Water Chef, Inc.

The company was incorporated under Arizona law in 1985, but was subsequently
merged into a Delaware corporation in 1987. Prior management had operated and
sold several enterprises, including the last enterprise disposed of in March
1993.

Pursuant to a Merger Agreement and Plan of Reorganization between the Company
and Water Chef, a Nevada corporation ("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.

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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 for the Company prior to that date). For
financial statement presentation purposes, the Company is considered to be the
predecessor.

PRODUCTS AND TECHNOLOGY

In May 1993, the Company began the construction of a facility to produce
TAHOE(R) "Traditional" model water dispensers in which the bottle of water rests
upside down on top of the dispenser cabinet with its neck protruding downward
into the cabinet. The first production occurred in July 1993. In November 1993
the Company also began limited production of its TAHOE(R) "New Century" model in
which the bottle rests inside of and on the bottom of the dispenser cabinet,
with the neck upwards.

The Company's present models are or will be equipped with various combinations
of tepid, cool, hot and carbonated water. In February 1994, the Company entered
into an agreement (the "Agreement") to form a joint venture, Tianjin Tahoe
Cooler Co., Ltd. to establish and operate a facility to manufacture the
Company's TAHOE(R) Series I (Infinity) water coolers in the People's Republic of
China. The Company's contribution to the Joint Venture, in which it has a 55%
interest, was in the form of machinery and other equipment in the approximate
value of $144,000 (based on the price of the equipment supplied by the Company
to the joint venture), $140,000 cash and design and technology with an agreed
upon value of $156,000. The Joint Venture commenced limited parts production in
May 1996, and the first significant import of finished product and parts kits
for assembly in Havre, Montana occurred in the second half of 1997.

The Agreement also calls for a transfer of certain advanced production
technology from the Company to the Joint Venture and the payment of royalties by
the Joint Venture to Water Chef, Inc. for sales in the China Market. The
transfer of technology agreement is for a term of 15 years.

In addition to the above, the Company has entered into a Distributor Agreement
with the Joint Venture, whereby the Company becomes the exclusive sales and
distribution company of products manufactured by the Joint Venture for all parts
of the world except the People's Republic of China, Taiwan and Hong Kong.

As a result of the formation of the joint venture, a new design water dispenser
using updated technology and advanced composite materials was designed in the
United States and tooled by the Joint Venture in the Republic of China. The
molds are owned by the Joint Venture. All plastic parts for the Infinity model
dispenser are sourced from China and finished goods and parts kits for United
States assembly are shipped to WaterChef's Havre facility to meet market needs
in the U.S. and assigned export markets. Standard models will be assembled and
shipped directly from China to meet market needs. Variations of this product
line will be assembled and sold int the

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China Bloc. Licensees of WaterChef will also buy parts from the Joint Venture.

The Company also produces custom water filtration systems for installation in
various models of the Series I (Infinity) series of water coolers. Such systems
are connected directly to the water supply of the premises in which the cooler
is located, thus eliminating the need for the use of bottled water. This same
purification system can be used for an under counter installation where cooling
or heating of the water is not required.

The Company through its acquisition of Natural Water Systems, Inc. (acquired
December 1995) offers a line of shower filters, counter top filters and
under-counter filter products.

MANUFACTURING FACILITIES

The Company's manufacturing facilities are located in Havre, Montana, and
Tianjin, China. The Company's U.S. manufacturing facilities consist of two
buildings - Plant 1 is 18,800 sq. ft. and Plant 2 is 35,000 sq. ft. Plant 1 is
owned by the Company. Plant 2 is leased at $0.10 per sq. ft. for 10 years. The
27,000 sq. ft. manufacturing facility in Tianjin, China is leased by the Joint
Venture.

The Company's water dispensers include a one year warranty, requiring the
Company to repair or replace, at its option, all defective parts on such
products. The refrigeration system included in the coolers includes a 5 year
limited warranty which is provided by the manufacturer of the system.

MARKETS AND COMPETITION

Based on market studies conducted by others, the Company estimates that
approximately 750,000 water dispensers were produced in 1997 in the United
States. The water dispenser market in 1998 grew to about $135 million with a 10%
per year growth rate. There are three privately-owned companies which the
Company estimates account for approximately 75% of these sales. The Company will
be at a competitive disadvantage with these companies as they are better
financed, have greater depth of management and have established channels of
distribution for their products.

The traditional market for water dispensers has been the bottled water
companies, which lease the water dispensers to their customers for use in
connection with delivery of the bottle water companies' products, and coffee
service businesses, which provide coffee and other hot drink appliances to
offices and frequently provide water dispensers and purified water as well.

Sales of the Company's products to the small water companies and coffee service
companies are presently made through direct sales and independent sales
representatives in the United States who are paid on a commission basis. A new
market that has recently developed in the "water store," which is a retail store
that sells purified water and water dispensers directly to consumers.

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Sales of water dispensers by water stores have increased as consumers elect to
purchase, rather than lease, a water dispenser. Further, mass merchandisers such
as The Home Depot and Sam's are entering the market. The Company's line of
Infinity WaterChef water dispensers was designed to be user friendly with
styling along appliance lines. This and other features make the line attractive
to mass merchandisers who are expected to sell a significant share of water
dispensers over the next five years.

The Company, via its acquisition of Natural Water Systems, has entered the
lifestyle products market. The product lines are shower filters, counter-top and
under-counter filters and purifiers and water coolers. Market data shows that
over 12 million of these products were sold in 1998, mostly through mass
merchandising outlets. The public is becoming aware of the need for these
products and increasing the purchases about 11% per year.

WaterChef began the development of its Village Water Center product in 1997,
responding to the world-wide need for an affordable, local solution for the
potable water needs of smaller populations in emerging economies. Development
and advanced engineering continued into 1998 and a systems patent application
was filed in October, 1998.

In June 1997, the Company received a memorandum of understanding from a
Philippine Building Contractor to provide water center systems for a series of
low-income housing developments. The product is designed to produce 5,000
gallons per day of purified water. The Philippine government agency, PITC, was
appointed as Water Chef's sales representative. Although the need for housing
and water systems persists Water Chef to date has received no purchase order for
this project.

In 1998, Washington D.C. based Counterpart International selected Water Chef's
Village Water Center as the potable water system for its planned housing
development in the Phillippines.

Originally planned for 1999, the project has not yet begun.

As part of the Company's licensing program to gain access to otherwise
restricted markets for the Company's products, a licensee agreement was signed
with a Philippine company and a company in India. Both licensees have ordered
limited quantities from the Company's Joint Venture in the Republic of China.
Neither licensee is expected to meet established sales targets.

BACKLOG

Because of the Company's practice to immediately fill water dispenser orders for
shipment in the U.S. there is no significant backlog.

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RAW MATERIALS

The Company believes that there are alternative sources of supply for most of
the materials used in manufacturing its products. Some of these materials,
however, must be obtained from foreign suppliers, which subjects the Company to
the risks inherent in obtaining materials from foreign sources, including supply
interruptions. The Company's suppliers are adequately meeting the requirements
of the Company.

PATENTS

The Company owns and holds eight patents that are or will be used in connection
with the manufacture of its water dispensers. The issued patents, two of which
expire in 2006, three of which expire in 2007, and three in 2008 cover such
items as the designs for cabinets for the "new Century" water dispenser, certain
methods of providing carbonated water through a water cooler, and the
refrigeration unit for the water dispensers which features the use of ice as a
thermal storage medium to extend the peak draw capacity of a water dispenser,
e.g., the number of cups of cold water that may be drawn from the water coolers
in an hour. There can be no assurance that any of its issued patents will afford
protection against a competitor or that any patents issued to the Company could
not be designed around or invalidated. In addition, the Company has filed for
patent protection for its Village Water Center (October, 1998).

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, would be available on
favorable terms. Furthermore, there can be no assurance that challenges will not
be instituted against the validity or enforceability of any patent owned by the
Company, or, if instituted, that such challenge will not be successful. The cost
of litigation to uphold the validity of a patent and prevent infringement can be
substantial and may have a material adverse effect on the Company's financial
position.

SEASONALITY

The Company expects to experience seasonal fluctuations in the level of sales in
the North American market for water dispensers. In particular, the Company
anticipates that the first and, to a lesser extent, the fourth calendar quarters
will be characterized by lower sales, due to the winter season. As the
international market grows, the Company expects these seasonal fluctuations to
be offset in part by sales in foreign markets, such as Australia, that
experience their summer season while North America is experiencing its winter
season. Further, the Company is seeking retail outlets in the U.S. whose sales
are not as seasonal as the bottled water companies.

Large purification systems such as Village Water Systems and point-of-use water
dispensers have very little seasonal variation. Shower filters and counter top
filter products are gift type items which typically results in about 40% of
their sales in the 4th calendar quarter.

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RESEARCH AND DEVELOPMENT

Product design is coordinated from Glen Head, New York and accomplished by
engineering personnel in New York, Havre, Montana and Tianjin, People's Republic
of China.

All of the Company's products have been designed to offer the broadest appeal to
the markets they serve.

ENVIRONMENTAL LIABILITY

The Company's manufacturing process does not generate any hazardous waste in its
operations.

INSURANCE

The Company maintains a $1,000,000 umbrella liability 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

The Company (as of December 31, 1998) employed a core of two management
personnel in the Havre, Montana plant. The number of hourly personnel employed
on the production line fluctuates with demand schedules.

The Company (as of December 31, 1998) employed five people in its headquarters
operations, of whom one is engaged in management, three in administration, sales
and marketing and one in operations and engineering management.

The Company believes that its relations with its employees are good. The Company
also believes there is a sufficient number of persons available at prevailing
wage rates in or near Havre, Montana 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.

ITEM 2. PROPERTIES

The company's manufacturing facilities are located in Havre, Montana and at the
Tianjin, Tahoe Joint Venture facility located at Electronic Park, Tianjin
Economic and Technology Development Zone, Tianjin, People's Republic of China.

At year end, 1998, the Company owned an 18,800 square foot facility which is
leased to the BIG Equipment Co. LLC and leased a 35,000 square foot facility
from unrelated third parties in which all production activities are located.

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ITEM 3. LEGAL PROCEEDINGS

The Company was involved in no significant legal proceedings in 1998.

ITEM 4. SUBMISSION OF MATTER TO VOTE

No matters were submitted to the shareholders for vote during 1998.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER

MATTERS.

PRICE RANGE OF COMMON STOCK

Trading activity with respect to common stock, and the fact that certain shares
of common stock have been registered under the Exchange Act which may be and are
traded in the over-the-counter market, should not of itself be deemed to
constitute an "established trading market." A public trading market having the
characteristics of depth, liquidity and orderliness, depends upon the existence
of market-makers as well as the presence of willing buyers and sellers, which
are circumstances over which the Company has no control.

The Company's common stock was included on NASDAQ under the symbol SWAP, until
July 31, 1992. Subsequent to that date, the common stock has been quoted through
the NASD "Electronic Bulletin Board" under the symbol WTER.

The chart below sets forth the range of high and low bid prices for the
Company's common stock based on closing transactions during each specified
period as reported by the National Quotation Bureau, Inc. The prices reflect
inter-dealer prices without retail mark-up, mark-down, quotation or commission
and do not necessarily represent actual transactions.

1996 HIGH LOW

First Quarter .11 .08
Second Quarter .10 .06
Third Quarter .34 .09
Fourth Quarter .25 .10

1997 HIGH LOW

First Quarter .23 .10.5

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Second Quarter .29 .14
Third Quarter .28 .11.5
Fourth Quarter .39 .13

1998

First Quarter .21 .10
Second Quarter .13 .10
Third Quarter .04 .07
Fourth Quarter .03 .01

1999

First Quarter .02 .01
Second Quarter .02 .17
Third Quarter .04 .08
Fourth Quarter .03 .07

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

INTRODUCTION

Water Chef, Inc. (the "Company") is a manufacturing and marketing company
engaged in the manufacture and marketing of water dispensers and purification
equipment, patents and other assets of its wholly-owned subsidiary, Water Chef
(a Nevada Corporation) ("Water Chef Nevada").

DEVELOPMENT OF THE COMPANY

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 it 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 which was formed on January 25, 1993.

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For financial statement presentation purposed, the Company is considered to be
the predecessor.

RESULTS OF OPERATIONS

REVENUES FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 were
$238,548 AND $242,678 respectively. Revenues decreased $4,130 or 2%, from the
earlier period.

Cost of sales decreased from $204,465 in 1997 to $176,233 in 1998, a decrease of
$28,232, or 14%. Gross margins improved to 26% in 1998 compared to 16% in 1997
primarily caused by improved product mix and productivity gains.

Selling, general and administrative expenses for fiscal 1998 were $1,021,355 as
compared to $1,638,365 for fiscal 1997. The decrease of $617,010, or 38%, was
primarily due to lower compensation and related expenses. The Company also
reduced its advertising and promotion expense and business travel expenses in
1998 as compared to 1997.

The loss from continuing operations was $1,409,671 in 1998 compared to a loss of
$2,388,334 in 1997, a reduction of $978,633, or 41%, which was primarily
attributable to the above factors.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998 the Company had a stockholder's deficit of $5,084,000 and a
working capital deficit of $5,542,000.

In 1997 the Company, in a private placement under Rule 4(2) of the SEC sold
10,000,000 shares of Common Stock to an Officer and Director for an aggregate
price of $1,500,000.

In 1998 the Company, in private offerings under Rule 4(2) of the SEC sold
2,077,770 shares of Common Stock to two Officers and a Consultant for an
aggregate value of $207,777.

Management intends to restructure its existing debt and to raise additional
capital through future issuances of stock and/or debentures to finance the
growth of the Company.

Management is presently in active discussion with its major lenders with a view
toward negotiating the restructuring of the existing debt.

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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

At year-end 1998 the Company's Directors and Executive officers are:

NAME AGE POSITION(S) WITH COMPANY

David A. Conway 57 Director, Chairman, President, and
Chief Executive Officer

John J. Clarke 57 Director

Richard P. Farkas 75 Director

Rudolf W. Schindler 46 Vice President Marketing & Sales

Thomas J. Smith 46 Sr. Vice President of Operations

DAVID A. CONWAY

Was elected to the Board in July of 1997 and joined the Company as President and
CEO in early 1998. Previous experience includes President and CEO of a privately
held public relations and marketing company; Director and Vice President,
Administration of KDI Corporation, a NYSE conglomerate until taken private by
management; Vice President Administration, Keene Corporation and earlier
positions with Goldman Sachs & Co. and CBS, Inc. Mr Conway holds undergraduate
and graduate degrees from Fordham University and is listed in Who's Who in
American Business.

JOHN J. CLARKE

Jack Clarke is co-founder of Baldwin & Clarke Corporate Finance, Inc. and
Baldwin & Clarke Capital Markets, Inc. and a principal and co-founder of The
Baldwin & Clarke Companies, a diversified financial services organization made
up of five independent companies. Jack has a broad industry background with
special emphasis on banking, healthcare and manufacturing. He

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is a registered securities principal of the National Association of Securities
Dealers.

A graduate of Northeastern University, Jack is a founding Director of two New
Hampshire commercial banks, a principal of several substantial commercial real
estate ventures and has served as a trustee and member of a number of non-profit
and civic organizations.

RICHARD P. FARKAS

Founder and Chairman of IMC Corporation, Inc. an international business
consultancy providing broad based business services to multi-national
corporations.

Mr. Farkas is a graduate of Princeton and Yale Universities, attended New Jersey
Law School and served as a line officer in the U.S. Navy for four years.

After holding a number of corporate executive and operating positions with
international companies such as Owens Illinois, ACF Industries, American
Standard and Westvaco, Mr. Farkas acquired, and later sold, a major paper
products company.

In addition to WaterChef, Mr. Farkas currently serves on the boards of Arista
Insurance Company, Environmental Solutions, Inc. and T.A. Lehman Corporation.

RUDOLF W. SCHINDLER

Vice President Sales and Marketing - Joined WaterChef, Inc. in September of 1998
after making a significant investment in the Company. Prior to WaterChef he
served as Executive Vice President and CEO of Stocko Connectors Corp., a
subsidiary of a leading European connector manufacturer for the appliance
industry since 1995. He served as Director of Sales and Marketing for Stocko in
the U.S. for 5 years and prior to that, 9 years as Manager, Special Projects and
application engineer for Schenck, the world leading manufacturer of vibrations
technology equipment. He hold an MS in Mechanical Engineering from the Technical
University of Darmstadt, Germany and an MBA from Adelphi University.

THOMAS J. SMITH

Senior Vice President - Joined WaterChef in May 1998, after making a significant
investment in the Company. He has an extensive background in Operations,
Engineering and Project Management at large and small companies in a variety of
industries. From 1988 to 1998 he was Executive Vice President/COO, Director and
major shareholder of CSM Systems, Inc. a manufacturer of capital equipment for
the air handling and air pollution control industries. Before that, he was
Project Manager at Engelhard Corporation and previous to that he was a Process
Engineer for Colloids, Inc. (now part of Rhone Poulenc). Mr. Smith holds a B.S.
in

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Chemical Engineering from Newark College of Engineering.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

Name Year Salary Bonus Non - Cash Total
Principal Position Compensation Compensation

David A. Conway 1998 $150,000 0 0 $150,000

DIRECTORS' COMPENSATION

Directors of the Company do not receive compensation for serving as members of
the Company's Board of Directors. All directors are reimbursed for their
expenses in attending meetings of the Board.

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 of the Company for
monetary damages for breach of their fiduciary duty as Directors. 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.

The Company's Bylaws provide that the Company may indemnify, to the fullest
extent permitted under Delaware law, any person, including officers and
directors, with regard to any action or proceeding.

The Company believes that it is the position of the Securities and Exchange
Commission that insofar as the foregoing provisions may be invoked to disclaim
liability for damages arising under the Securities Act, those provisions are
against public policy as expressed in the Securities Act and are therefore
unenforceable.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT

Set forth below is information as of December 31, 1999, 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, the
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
the date of this Offering Memorandum. 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.

[Enlarge/Download Table]

Name and Address of Number of Shares of Voting Percentage of
BENEFICIAL OWNER OF SHARES STOCK BENEFICIALLY OWNED (1) CLASS/TOTAL VOTING

David A. Conway (2) (3) 3,333,334 Common 9.5%
c/o Water Chef, Inc. 6,936,666 Preferred E 87.0%
1007 Glen Cove Ave. % of Total Voting
Glen Head, NY 11545 23.8%

John J. Clarke 433,334 Common 1.2%
c/o Baldwin & Clarke Corp. Finance % of Total Voting
116B South River Road 1.0%
Bedford, New Hampshire 03110

Richard P. Farkas 250,000 __
IMC, Inc.
121 Highway #38
West Long Branch, NJ 07764

Rudolf W. Schindler (4) 1,166,666 Common 3.3%
c/o WaterChef, Inc. 1,000,000 Preferred E 12.6%
1007 Glen Cove Avenue % of Total Voting
Glen Head, NY 11545 5.0%

All Executive Officers and 5,183,334 Common 14.8%
Directors as a Group (5) 7,936,666 Preferred E 100%
(Four -4- Persons) % of Total Voting
30.4%

(1) All shares of Voting Stock are comprised of Common Stock and Preferred
Class E, with full voting rights and convertible into Common at the
discretion of the Company.

(2) Includes 2,666,666 Preferred E Shares held by affiliates and 3,333,334
Shares of Common

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held in an IRA Trust.

(3) 6,666,666 Shares of Preferred E and 3,333,334 Shares of Common held by
Mr. Conway and affiliates are subject to anti-dilution provisions to
insure that said shareholders maintain 32.6% ownership of the Total
Voting Shares.

(4) 1,000,000 Shares of Preferred E held by Mr. Schindler are subject to
anti-dilution provisions to insure that the shareholder maintains
ownership of 2.46% of the Total Voting Shares.

(5) Does not include Officers or Directors of the Company who were not such
as of the date of record.

ITEM 12. RELATED PARTY TRANSACTIONS

None.

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WATER CHEF, INC.

INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report .................................... F-2

Balance Sheet . ................................................ F-3

Statements of Operations ........................................ F-4

Statements of Stockholders' Deficit.............................. F-5

Statements of Cash Flows ........................................ F-6

Notes to Financial Statements ................................... F-7 - F-14

F-1

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Water Chef, Inc.
Glen Cove, New York

We have audited the accompanying balance sheet of Water Chef,
Inc. as of December 31, 1998 and the related statements of operations, changes
in stockholders' deficit and cash flows for the years ended December 31, 1998
and 1997. 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 audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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. as of December 31, 1998 and the results of their operations and cash flows
for the years ended December 31, 1998 and 1997 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company incurred operating losses of
approximately $1,409,000 and $2,568,000 in 1998 and 1997, respectively.
Additionally, the Company had a working capital and capital deficiency of
approximately $5,542,000 and $5,084,000 at December 31, 1998. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with respect to these matters are also described in
Note 2 to the financial statements. The accompanying financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.

/s/Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants

November 8, 1999
New York, New York

F-2

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WATER CHEF INC.

BALANCE SHEET

DECEMBER 31, 1998

ASSETS

CURRENT ASSETS:
Cash ...................................................... $ 7,994
Accounts receivable ....................................... 8,050
Inventories ............................................... 220,316
Other current assets ...................................... 3,867
--------------
TOTAL CURRENT ASSETS ................................... 240,227

PROPERTY, PLANT & EQUIPMENT .................................... 279,045

INVESTMENT IN JOINT VENTURE .................................... 125,941

INTANGIBLE AND OTHER ASSETS .................................... 52,967
--------------
$ 698,180
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Notes payable ............................................. $ 3,540,249
Accounts payable .......................................... 1,105,197
Accrued expenses .......................................... 626,154
Preferred dividends payable ............................... 341,206
Loan payable-shareholder .................................. 169,413
--------------
TOTAL CURRENT LIABILITIES .............................. 5,782,219
--------------

STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value; 10,000,00 shares authorized;
8,082,166 shares issued and outstanding ................ 8,082
Common stock, $.001 par value; 40,000,000 shares authorized;
32,339,015 shares issued and outstanding .............. 32,339
Additional paid-in capital ................................ 7,103,507
Treasury stock, 4,400 common shares, at cost .............. (5,768)
Accumulated deficit ....................................... (12,222,199)
--------------
TOTAL STOCKHOLDERS' DEFICIT ........................... (5,084,039)
--------------
$ 698,180
==============

See Notes to financial statements.
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WATER CHEF INC.

STATEMENTS OF OPERATIONS

Years Ended December 31
---------------------------
1998 1997
------------ --------------
NET SALES ................................. $ 238,548 $ 242,678
------------ --------------
COSTS AND EXPENSES:
Cost of sales ........................ 176,233 204,465
Selling, general, and administrative . 1,021,355 1,638,365
Depreciation and amortization ........ 57,387 75,344
Interest expense ..................... 233,075 242,122
Write-down of inventories ............ -- 345,007
------------ --------------
1,488,050 2,505,303
------------ --------------
Loss before equity in loss of joint venture (1,249,502) (2,262,625)
Equity in loss of joint venture ........... (160,169) (125,709)
------------ --------------
Loss from continuing operations ........... (1,409,671) (2,388,334)

Loss from discontinued operations ......... -- (180,261)
------------ --------------
Net loss .................................. (1,409,671) (2,568,595)
------------ --------------
Preferred stock dividends ................. (108,300) (108,300)
------------ --------------
Net loss applicable to common stock ....... $ (1,517,971)$ (2,676,895)
============ ==============

Basic and diluted loss per common share:

Loss from continuing operations ...... $ (0.05) $ (0.09)

Loss from discontinued operations .... -- (0.01)

Preferred stock dividends ............ -- --
------------ --------------
Net loss per common share-basic and diluted $ (0.05) $ (0.10)
============ ==============
Weighted average common shares outstanding 33,257,256 27,366,321
============ ==============

See notes to financial statements.
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[Enlarge/Download Table]

Water Chef, Inc.
Statements of Stockholders' Deficit

Additional Retained
Preferred Stock Common Stock Paid-in Treasury Earnings
Shares Amount Shares Amount Capital Stock (Deficit) Total
---------- -------- ----------- -------- ----------- -------- ------------- ------------

BALANCE - JANUARY 1, 1997 ............... 142,500 $ 142 18,250,496 $ 18,250 $ 3,704,919 $ (5,768)$ (8,027,333) $(4,309,790)

Shares issued for:
Cash ............................. 3,000 3 10,655,000 10,655 1,326,593 -- 1,337,251
Services ......................... -- -- 4,839,663 4,840 622,877 -- 627,717
Extinguishment of Debt ........... -- -- 1,291,078 1,291 668,425 -- 669,716
Preferred stock dividend ............ -- -- -- -- -- (108,300) (108,300)
Net Loss ............................ -- -- -- -- -- -- (2,568,595) (2,568,595)
---------- -------- ----------- -------- ----------- -------- ------------- ------------
BALANCE - DECEMBER 31, 1997 ............. 145,500 145 35,036,237 35,036 6,322,814 (5,768) (10,704,228) (4,352,001)

Exchange of common to preferred stock 7,936,666 7,937 (7,936,666) (7,937) -- -- -- --
Shares issued for:
Cash ............................. -- 2,077,778 2,078 205,700 -- -- 207,778
Services ......................... -- 270,000 270 47,730 -- -- 48,000
Extinguishment of Debt ........... -- 2,891,666 2,892 527,263 -- -- 530,155
Preferred stock dividend ............ -- -- -- -- (108,300) (108,300)
Net Loss ............................ -- -- -- -- -- -- (1,409,671) (1,409,671)
---------- -------- ----------- -------- ----------- -------- ------------- ------------
BALANCE - DECEMBER 31, 1998 ............. 8,082,166 $ 8,082 32,339,015 $ 32,339 $ 7,103,507 $ (5,768)$(12,222,199)$ (5,084,039)
========== ======== =========== ======== =========== ======== ============= ============

See notes to financial statements.
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WATERCHEF INC.

STATEMENTS OF CASH FLOWS

------------------------
Year ended December 31,
------------------------
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................... $ (1,409,671) $(2,568,595)
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization ............ 57,387 75,344
Issuance of shares for services .......... 48,000 627,717
Loss on disposal of discontinued operation -- 141,355
Equity in loss of joint venture .......... 160,169 125,709

Change in assets and liabilities
Accounts receivable ......................... 86,779 (54,064)
Inventories ................................. 205,644 (141,132)
Other assets ................................ 26,263 (1,523)
Accounts payable and accrued expenses ....... (9,820) 452,074
---------- ----------
CASH USED IN OPERATING ACTIVITIES .............. (835,249) (1,343,115)
---------- ----------

CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property, plant and equipment ...... (5,693) (366)
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable ...................... 468,622 6,284
Increase in loan payable - shareholder ......... 169,413 --
Proceeds from sale of common stock ............. 207,778 1,337,250
---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES ....... 845,813 1,343,534
---------- ----------

NET INCREASE IN CASH ................................ 4,871 53

CASH - Beginning of year ............................ 3,123 3,070

========== ==========
CASH - end of year .................................. $ 7,994 $ 3,123
========== ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................... $ - $ --
========== ==========
Income taxes ................................ $ - $ --
========== ==========

Non-cash financing and investing activities:

(1) Common stock issued for debt 530,155 669,716
(2) Common stock issued for services 48,000 627,717

See notes to financial statements.
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WATER CHEF, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1998 AND 1997

1. THE COMPANY

Water Chef, Inc. (The "Company"), is a Delaware Corporation currently
engaged in the design and marketing of water dispensers and
purification equipment both in the United States and internationally.

In June 1993, the Company issued 3,800,000 common shares in exchange
for all of the outstanding shares of Water Chef, a Nevada Corporation,
thus acquiring the water purification and dispensing business and net
assets of Water Chef (Nevada).

In February 1994, the Company formed Tianjin Tahoe Cooler Co., Ltd.
("Tianjin Tahoe") a joint venture with Tianjin Electronics &
Instruments Import and Export Corporation ("TEIIEC") for the purpose of
manufacturing certain Company designed water coolers in Tianjin,
Peoples Republic of China.

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.

2. GOING CONCERN

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company incurred
losses of $1,409,000 and $2,568,000 for the years ended December 31,
1998 and 1997. Additionally, the Company had a working capital and a
total capital deficiency of $5,542,000 and $5,084,000 at December 31,
1998. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans with respect
to these matters include restructuring its existing debt, raising
additional capital through future issuances of stock and or debentures
and ultimately developing a viable business. The accompanying financial
statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. INVENTORIES - Inventories are stated at the lower of cost
(average) or net realizable value.

B. PROPERTY AND EQUIPMENT - Property and equipment are stated at
cost. Depreciation is calculated using the straight-line
method over estimated useful lives of seven to thirty years.

C. INVESTMENT IN JOINT VENTURE - The Company is unable to
exercise economic control over the joint venture's operations,
and accordingly, the investment is carried at equity in the
financial statements.

D. INTANGIBLE ASSETS - Patents and trademarks are amortized
ratably over five to fourteen years.

E. STOCK-BASED COMPENSATION - The Company accounts for stock
transactions in accordance with APB No. 25, "Accounting for
Stock Issued to Employees". In accordance with Statement of
Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", the Company adopted
the pro forma disclosure requirements of SFAS 123.

F. WARRANTIES - The Company provides limited warranties of one
year on its coolers and five years on its compressors. No
reserve for future warranty costs has been provided due to
limited sales volume.

G. REVENUE RECOGNITION - Revenues are recognized when products
are shipped and collectibility is reasonably assured.

H. INCOME TAXES - Income taxes are accounted for under Statement
of Financial Accounting Standards 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.

I. LOSS PER SHARE - Basic loss per share was computed using the
weighted average number of outstanding common shares. Diluted
per share amounts when applicable include the effect of
dilutive common stock equivalents from the assumed exercise of
options and warrants.

J. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
disclosure of contingent assets and liabilities at the date of
the financial statements.

Actual results could differ from those estimates.

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K. 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.

L. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS - The Company has
adopted the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ("SFAS 121"). The standard requires, among
other things, that entities identify events or changes in
circumstances which indicate that the carrying amount of a
long-lived asset may not be recoverable.

The Company has adopted SFAS 130, Reporting Comprehensive
Income, which establishes a standard for reporting and
displaying comprehensive income and its components within the
financial statements. The above standards had no significant
effect on the Company's financial position or results of
operations.

4. RECEIVABLES

Certain customer receivables are factored without recourse with respect
to credit risk. Factored receivables at December 31, 1998 were $6,317.
An allowance for losses was provided for known and potential losses
arising from quality claims and for customers not factored based on a
review of these accounts. The allowance for such losses was $12,661 at
December 31, 1998.

5. INVENTORIES

Inventories consisted primarily of parts and supplies which, at
December 31, 1998, amounted to $220,316.

6. INVESTMENT IN JOINT VENTURE

In February 1994, the Company formed Tianjin Tahoe "Cap" Cooler Co.,
Ltd. ("Tianjin Tahoe") a joint venture with Tianjin Electronics &
Instruments Import and Export Corporation ("TEIIEC") for the purpose of
manufacturing certain Company designed water coolers in Tianjin,
Peoples Republic of China. The Company contributed $440,000, inclusive
of cash, machinery and equipment and engineering designs in exchange
for a fifty-five percent interest in the joint venture. Limited
production commenced in May 1996. The first significant importation of
finished products and parts kits occurred in 1997.

The agreement calls for a transfer by the Company of certain advanced
production technology to the joint venture in exchange for royalties on
sales made by the joint venture to the China market for a term of
fifteen years. The Company also has a distribution agreement with the
joint venture whereby the Company

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is the exclusive sales agent for products manufactured by the joint
venture. The exclusive territory covers all parts of the world, except
the People's Republic of China, Taiwan and Hong Kong.

The Company is unable to exercise economic control over the joint
venture's operations, and accordingly, the investment is carried at
equity which, at December 31, 1998, was $125,941.

7. PROPERTY PLANT AND EQUIPMENT

At December 31, 1998, property, plant and equipment consisted of the
following:

Land and building $ 300,000
Machinery and equipment 278,888
Furniture, fixtures and equipment 102,036
------------------
680,924

Less: accumulated depreciation 401,879
------------------
$ 279,045
==================

Depreciation of property, plant and equipment in 1998 and 1997 was
$51,463 and $69,533, respectively.

8. INTANGIBLE AND OTHER ASSETS

At December 31, 1998, intangible and other assets consisted of the
following:

Patents and trademarks, less accumulated

amortization of $29,678 $ 48,505
Deposits 4,462
------------------
$ 52,967
==================

Amortization of patents and trademarks in 1998 and 1997 was $5,924 and
$5,811, respectively.

9. NOTES PAYABLE

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[Enlarge/Download Table]

Mortgage payable - Hill County, Montana, interest payable at 5% per annum; the
loan is secured by real property located in Havre,

Montana; amounts due inclusive of $30,000 interest were: $ 330,000
Notes payable - Bear Paw Development Corporation of Northern Montana, interest
payable at 5% per annum; the loans are secured by the general assets of Water
Chef, Inc; amounts due inclusive of

$294,200 interest were: 1,755,155
Notes payable - U.S. Small Business Administration, interest payable at 9.75%
per annum; the loan is secured by real property located in Havre, Montana and
additionally by certain machinery, equipment, furniture, fixtures, receivables
and inventory. A former officer has personally guaranteed the loan; amounts due
inclusive of $58,851 interest were: 442,068

Bridge loan - unsecured, interest payable at 12% per annum;
amounts due inclusive of $26,250 interest were: 401,250
Loans payable - other - unsecured, interest ranging from 10% to

12% per annum - amounts due inclusive of $125,888 interest were: 611,776
-----------------
$ 3,540,249
=================

All of the above notes are in default and, accordingly, are due and
payable on demand. Management, with the forbearance of the noteholders,
intends to restructure the debt and is currently in the process of
formulating a plan for submission to the various creditors.

10. ACCRUED EXPENSES

At December 31, 1998, accrued expenses were as follows:

Payroll $ 418,858
Property taxes 52,139
Rent 18,664
Other 136,493
------------------
$ 626,154
==================

11. PREFERRED STOCK

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The Company is authorized to issue 10,000,000 shares of preferred
stock, issuable in series with rights, preferences, privileges and
restrictions as determined by the board of directors.

At December 31, 1998, outstanding preferred shares were as follows:

Shares Amount

------------------ -----------------
Series A 52,500 $ 52
Series D 93,000 93
Series E 7,936,666 7,937
------------------ -----------------
8,082,166 $ 8,082
================== =================

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 callable by the Company at a
price of $11 per share.

SERIES D:

The Series D preferred stock provides for a 12% cumulative dividend,
based on the $5 per share purchase price, payable twice 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 at the Company's
option.

SERIES E:

The Series E preferred stock is convertible into common stock on a one
for one basis, at the option of the Company and provides voting rights
to its holders. No interest or dividends are payable to such holders.
In May 1998, the Company issued 7,936,666 Series E preferred shares to
an officer in exchange for a like number of common shares.

At December 31, 1998, dividends in arrears on the Series A and Series D
preferred shares were $202,606 and $138,600, respectively.

12. WARRANTS

All outstanding warrants issued prior to 1997 have expired as of
December 31, 1998. The Company issued 3,083,338 warrants in 1997 in
connection with private placements. The warrants entitle the holders to
a like number of common shares if exercised prior to May 2002 as
follows: 750,000 warrants are exercisable at $0.30 each through June
30, 1999 and

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2,333,338 warrants are exercisable at $0.15 each through May 2002.

13. STOCK OPTIONS

In 1994, the Company instituted a stock option plan which is available
to selected directors, officers, employees and consultants of the
Company ("Participants").

The term of each option is ten years from the date of grant or a
shorter term as determined by the Stock Option Committee (the
"Committee"). The exercise price is determinable by the Committee and
cannot be less than 110% of the fair market value of the shares on the
date of the grant. The terms, conditions and restrictions of the
options are determinable by the Committee as of the date of grant.

Options to purchase up to 75,000 shares of common stock at $0.10 per
share were granted to two employees prior to 1997. Such options remain
unexercised at December 31, 1998 and expire in the year 2002.

14. MAJOR CUSTOMERS

Sales to a single customer approximated 15% and 38% in 1998 and 1997,
respectively.

15. LEASES

The Company is obligated under leases for its manufacturing and
administrative facilities located in Havre, Montana and Glen Cove, New
York. The leases expire in June 2004 and September 2001, respectively.
Rent expense for 1998 and 1997 were $28,270 and $64,972.

Minimum annual lease payments are as follows:

Year Ending
December 31,

----------------------
1999 $ 58,291
2000 59,556
2001 55,129
2002 39,000
2003 39,000
2004 19,500
-----------------
$ 270,476
=================

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16. INCOME TAXES

The following is a reconciliation of income taxes and amounts computed
using the U.S. Federal statutory rate and the effective tax rate for
the years ended December 31, 1998 and 1997:

[Enlarge/Download Table]

1998 1997
----------------- -----------------

Pre-tax loss $ 1,409,000 $ 2,568,000
----------------- -----------------
Tax benefit at Federal statutory rate (35%) 493,000 899,000
Temporary differences (56,000) (61,000)
Tax benefit not recognized (437,000) (838,000)
----------------- -----------------
Taxes per financial statements $ - $ -
================= =================

The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". Under this standard, the Company
records as an asset its net operating loss carryforward ("NOL") based
upon current tax returns, and establishes a valuation allowance to the
extent of any NOL which will not be utilized in the foreseeable future.
At this time, the Company cannot reliably predict future profitability.
Accordingly, the deferred tax asset has been reduced in its entirety by
the valuation allowance. As of December 31, 1998, the Company had net
operating loss carry forwards of approximately $10,500,000 expiring
variously through 2013.

A significant portion of these carry forwards may be subject to
limitations on annual utilization due to "equity structure shifts" or
"owner shifts" involving "5 percent stockholders" (as defined in the
Internal Revenue Code), which resulted in more than a 50% change in
ownership.

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10SB12G’ Filing	Date	First	Last	Other Filings

Filed on:	2/2/00
	12/31/99	17		10KSB, NT 10-K
	11/8/99	20
	6/30/99	30		10QSB
	12/31/98	2	32
	12/31/97	11	32
	1/1/97	23
	7/14/93	3
	6/4/93	3	10
	1/25/93	4	10
	7/31/92	9
				List all Filings

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Filing Submission 0001015769-00-000012 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

PureSafe Water Systems, Inc. – ‘10SB12G’ on 2/2/00

On: Wednesday, 2/2/00 · Accession #: 1015769-0-12 · File #: 0-13764

Registration of Securities of a Small-Business Issuer — Form 10-SBFiling Table of Contents

10SB12G — Registration of Securities of a Small-Business IssuerDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Registration of Securities of a Small-Business Issuer — Form 10-SB
Filing Table of Contents

10SB12G — Registration of Securities of a Small-Business Issuer
Document Table of Contents