UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                      For the Year Ended December 31, 2001

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                For the transition period from _______ to _______

         Commission file number:            0-30544
                                            -------

                                    WATERCHEF
        (Exact Name of Small Business Issuer as specified in its charter)

                  Delaware                                        86-0515678
         (State or other jurisdiction of                      (I.R.S. Employer
         incorporation or organization)                      Identification No.)

                              1007 Glen Cove Avenue
                               Glen Head, NY 11545
                    (Address of principal executive offices)

                                  (516)656-0059
                           (Issuer's telephone number)

      Securities registered under section 12(b) of the Exchange Act: None.
         Securities registered under section 12 (g) of the Exchange Act:
                          Common stock, Par value $.001
                   Redeemable Common Stock Purchase Warrants.

         Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
                       -------------                     -----------

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
                  YES                                  NO        X
                       -------------                      --------------

         The issuer's net sales for the most recent fiscal year were $34,750.

The aggregate market value of the voting stock held by non-affiliates based upon
the last sale price on April 10, 2002 was approximately $ 7,000,000.

As of April 10, 2002, the Registrant had 86,614,286 shares of its Common
Stock, $0.001 par value, issued and outstanding.


<PAGE>

                                 WATERCHEF, INC.

                          ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS

PART I
                                                                          PAGE
                                                                        --------


         ITEM 1.  DESCRIPTION OF BUSINESS                                     2
         ITEM 2.  DESCRIPTION OF PROPERTY                                     7
         ITEM 3.  LEGAL PROCEEDINGS                                           7
         ITEM 4.  SUBMISSION OF MATTERS TO A
                          VOTE OF SECURITY HOLDERS                            8

PART II

         ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
                               STOCKHOLDER MATTERS.                           8
         ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION                             9
         ITEM 7.  FINANCIAL STATEMENTS                                       11
         ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH
                           ACCOUNTANTS ON ACCOUNTING AND
                           FINANCIAL DISCLOSURE.                             12

PART III

         ITEM 9.   DIRECTORS, EXCEUTIVE OFFICERS,  PROMOTERS
                            AND CONTROL PERSONS; COMPLIANCE WITH
                            SECTION 16(a) OF THE EXCHANGE ACT                12
         ITEM 10.  EXECUTIVE COMPENSATION                                    15
         ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                                  OWNERS AND MANAGEMENT.                     16
         ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED
                           TRANSACTIONS                                      17
         ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.                         17


SIGNATURES                                                                   18

                                       1
<PAGE>





                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

The Company

WaterChef, Inc. (the "Company") manufactures and markets water purification
equipment. Water coolers and filters were a substantial part of the Company's
business from 1993 until the fourth quarter of 2001, at which time this business
was sold so that Waterchef could concentrate on the further development,
manufacturing and marketing of their patented line of "PureSafe" water systems.

Background

The Company was originally incorporated under Arizona law in 1985 and merged
into a Delaware corporation in 1987. In 1993 the Company, then known as Auto
Swap, U.S.A., entered into a reverse merger with WaterChef, Inc., a Nevada
corporation which manufactured and marketed water coolers and filters. The
financial statements prior to June 4, 1993 are those of WaterChef (Nevada),
which is considered to be the Predecessor Company.

In 1994 the Company established a Joint Venture (the "JV") in the Peoples
Republic of China ("China") in which it held a 55% interest for an investment of
$475,000, funded by cash, machinery and equipment, and transferred technology.
The Chinese investment provided a manufacturing and development site for
WaterChef's water cooler line. Product was shipped for further assembly to
WaterChef's leased facilities in Montana. In the year ended December 31, 2000,
all remaining valuation attributed to the joint venture was written off. With
the sale of the cooler, filter and accessory line in the fourth quarter of 2001,
WaterChef's ownership interest in the joint venture was assigned to the
purchaser and the Montana facility was closed.

Products

Prior to the fourth quarter of 2001 when the Company decided to concentrate
their efforts on the further development, manufacturing and marketing of their
PureSafe Water Station (the "PureSafe"), WaterChef believed that its water
dispensers and its wide variety of consumer oriented water filtration products
met or exceeded the design, quality and performance of competitive products.
Market considerations were such however as to limit the opportunities for profit
and growth. Management determined that in order to build considerable
shareholder value they would transition out of the commodity dispenser and
filter businesses and develop products that they felt were unique to the
marketplace.





                                        2

<PAGE>

In 1998, searching for a "killer application", management focused on the
worldwide need for safe drinking water for populations who were unserved by
municipal water treatment facilities. The result of that activity is the
PureSafe, a turn-key unit that converts "grey", or bathing grade water into
United States Environmental Protection Agency ("EPA") grade drinking water. The
PureSafe effectively eliminates all living pathogens that pollute non-processed
water - bacteria, cysts, viruses, parasites and protozoa - at a affordable cost
for the emerging economies of the world.

The PureSafe is a self-contained, six stage water purification center. It is
housed in the equivalent of a small storage container- approximately four feet
wide, seven feet long, and six and one-half feet high. The unit weighs
approximately eleven hundred pounds (without water) and was configured for
portability, durability, and easy access to its essentially off-the-shelf
components. It is constructed with weather resistant fiberglass, aluminum and
steel, and is equipped with internal and external lighting.

The PureSafe can purify and dispense at least 10,000 gallons per day for an
all-inclusive cost (labor, power, water, amortization, replacement media and
filters) at approximately one and one-half cents per gallon. The process wastes
very little water, producing approximately one gallon of water for every gallon
processed. The unit can be moved with a single fork-lift and is transportable by
truck or helicopter. Operating the unit is simple and straightforward. Turn-key
in design, minimum wage personnel can be trained to operate the unit. A system
of fail-safes is built into the operation, and aside from easily installable
spares such as filters and cartridges, a maintenance and oversight program
established by WaterChef should maintain the operating efficiencies built into
the system. WaterChef warrantee's each unit and plans to have periodic
inspections by field agents.

While each unit is configured for the special water needs of a particular site,
such as arsenic removal, seawater desalination, oil separation, etc., the
typical unit is made up of the following components:

a.   Inlet  connection  with  macrofilter-  strains  input water,  removes large
     particles and directs water into the system.
b.   Inlet pump- self-  priming  pump which  maintains  water  pressure at 40psi
     throughout the system.
c.   Pre-depth  media  filter- a  multi-media  mixed  bed to remove  pollutants.
     Pressure  gauges on the  exterior  front panel of the unit allow for visual
     monitoring of system performance.
d.   Ozone  generator-  provides  a rich  oxygen  source  that  kills all living
     pathogens  such as  bacteria,  viruses,  cysts,  and  parasites.  It is not
     hazardous to the environment.
e.   Ozone mixing tank- WaterChef's  proprietary  process for effectively mixing
     the water and ozone.
f.   Process pump- provides optimal operation of the ozone processing.
g.   Post-depth  media  filter-  a  redundant   feature  which  adds  additional
     filtering by removing remaining metals, organics and inorganics. A pressure
     gauge on the front panel will  indicate  when  additional  back-washing  is
     necessary to maintain optimum performance.






                                        3
<PAGE>

h.   Ultraviolet  treatment- provided by a UV lamp in the treatment process as a
     further precaution to eliminate any surviving pathogens or micro-organisms.
i.   KDF/carbon  bed filter- a process that contains a proprietary  ion-exchange
     media   consisting  of  copper  and  zinc  alloy.  It  safely  filters  and
     neutralizes  chlorine and biological,  inorganic and metallic  contaminants
     (including lead and fluoride).  The filter  prevents  bacteria growth while
     the carbon component removes organic compounds and improves water taste and
     eliminates odor.
j.   Mixer- sends ozone treated water to the bottle washing stations.
k.   Bottle washing  stations-  incorporated on the outside of the unit for easy
     access in order to effectively clean bottles used to carry water treated at
     the site.
l.   Dispensing  stations-  four  individual  dispensing  lines,  each with flow
     adjusting  valves to help regulate a smooth,  steady flow of water into the
     clean bottles.

Manufacturing-

Prior to the sale of its dispenser products, the Company manufactured its water
coolers in Montana and through a Joint Venture ("JV") in China. With the sale of
this line WaterChef negotiated an early termination of the Montana lease and,
with the consent of its JV partner, transferred its interest in the JV to the
purchaser of the water cooler and filters business in the fourth quarter of
2001. .

In 2000 the Company entered into a subcontracting arrangement with Davis
Aircraft Products Inc. ("Davis") for the manufacture of the PureSafe water
system. Based upon the experience and the resources of Davis, Company management
believes that Davis can provide the services necessary to supply WaterChef's
requirements over the foreseeable future at a price, and with the quality and
standards necessary, to meet the needs of the markets that the Company expects
to serve.

Raw materials-

The PureSafe has been designed to use, for the most part, readily available
off-the-shelf components, sub-systems and equipment. Inasmuch as these are
available from multiple vendors, the Company does not believe that obtaining
these for its sub-contractor, for itself, or for others if it chooses to
manufacture elsewhere, will be a problem. WaterChef has also incorporated
patented and proprietary technology in the PureSafe and is confident that it can
protect this intellectual capital throughout the manufacturing and distribution
cycle.

Competition-

While the Company believed that its coolers and filters were competitive,
substantial competition existed in the marketplace with almost all of its
competitors possessing significantly greater financial resources. Recognizing
that this would not allow the revenues and margins required to give adequate
value to its shareholders, the Company wound-down the water cooler and filter
business, in the fourth quarter of 2001, and redirected their efforts to produce
a product that addressed the needs of a substantial marketplace in which they
could be competitive.



                                        4
<PAGE>

While there are many excellent water purification systems, management believes
that the PureSafe is a unique product, which specifically addresses the water
needs of those environs, which are highly unlikely to enjoy access to municipal
water. The Company has produced a turnkey solution which produces pure water to
meet U.S. EPA standards. This is a far different market than that addressed by
the industry today which has concentrated on the multi-billion dollar municipal
water treatment sector or the equally large residential sector. The municipal
solution requires significant investment for infrastructure development
(building a plant and laying pipe), and products for residential markets do not
meet the needs of the underdeveloped nations of the world.

Management does recognize that its potential competitors have far more
resources, and that being first in the marketplace is no assurance of success.
It must be assumed that others are working on systems which, if successfully
brought to market, could seriously impact the viability of the Company.

Marketing-

The market for the Pure Safe is substantial and is both world-wide and domestic.
Major parts of Africa, the Middle East, Southeast Asia, the Indian
sub-continent, Latin and South America, the Caribbean, and much of Eastern
Europe is in need of adequate supplies of pure water, just as is Florida and
other regions in the United States. In part, solving this problem has been a
question of appropriate technology. Secondarily, but just as important, in a
vast portion of the world is the need to finance this activity for the local
populace.

The Company believes it has proven that it possesses the technology. The Company
also believes that financing is available for third world economies from a
variety of sources. The challenge for the Company, a virtual unknown in the
industry and with limited capital, is in getting their message in front of
decision makers. To this end, WaterChef has enlisted the aid of some of the
world's most outstanding experts in water purification, especially as it relates
to the needs of underdeveloped countries.

The Company's Scientific Advisory Board is chaired by Dr. Ronald Hart, former
director of The National Center for Toxicological Research and a U.S. Food and
Drug "Distinguished Scientist in Residence". The Board also includes Dr. Mohamed
M. Salem, Professor of Occupational and Environmental Medicine, Cairo
University; Dr. Richard Wilson, Mallinckrodt Research  Professor  of
Physics,  Harvard  University; _ Dr.  Mostafa  K.  Tolba,
former Under-Secretary-General of the United Nations and Director of the U.N.'s
Environmental Program; and Lord John Gilbert, former Minister of State for
Defence for the United Kingdom under three Prime Ministers and
Secretary/Treasurer of the Tri-Lateral Commission.

Not only have the members of the Scientific Advisory Board given valuable input
to the Company with respect to systems design, technology input, remediation
approaches and a plethora of information relative to the unique problems facing
many areas of the world, but they also have been active in introducing the
Company to commercial opportunities.


                                        5
<PAGE>

During 2000 the Company entered into a master distributor agreement with
4CleanWaters Ltd., a newly formed Hong Kong corporation to market the PureSafe
internationally. In addition to lending the Company money, with an option to
convert to the Company's common stock, 4CleanWaters had certain threshold sales
requirements necessary to retain their exclusivity. In addition to cash
incentives, there were provisions that would allow 4CleanWaters to purchase
additional shares in WaterChef from commissions earned. While there are a number
of sales initiatives that have been instituted world-wide by 4CleanWaters, and
the relationship has been cooperative and ongoing, 4CleanWaters has not been
able to produce sales for the Company as anticipated during the term of the
agreement. Notwithstanding the agreement with 4CleanWaters, the Company can
market the PureSafe Water Station itself, with the understanding that sales made
directly by WaterChef, with the exception of certain "grand-fathered" accounts,
will count towards the minimum sales required in the year for 4CleanWaters to
retain their sales exclusivity. The limited sales of the PureSafe thus far have
been a result of the Company's own marketing activities.

Until the September 11, 2001 attack on the World Trade Center and Pentagon, the
Company had not considered the U.S. market an important part of their marketing
strategy. However, with the newly created Homeland Security Agency, focusing on
possible terrorist attacks in the U.S. and creating programs to ensure the
protection and preservation of water resources as part of their initiative,
opportunities have opened up for our products. The Company has been in
discussion with political and governmental contacts to explore the sale of the
PureSafe as a back-up water system in case of damage to municipal water systems.
On the basis of these discussions and other information relative to homeland
security, the Company will be pursuing various options for sales to this market.

Patents-

Included in the disposal of assets from discontinued operations, were eight
patents that related to the manufacture of its water dispensers. These patents
covered the design of a new water dispenser, dispensing carbonated water through
a water cooler, and the use of ice as a thermal storage medium. As of December
31, 2001, the Company attributes no value to these patents as they relate to the
business sold in November 2001. The water dispensing patents will be assigned to
the buyer of the water cooler business, upon the payment of the last scheduled
payment under the sale contract.

The Company filed for a patent on its Pure Safe Water Station in October of 1998
and received formal notification that the patent was issued in March, 2002. In
addition to its U.S. patent, WaterChef has filed for patent protection in the
countries of the European Union, and in Canada, China, India, Korea, Japan and
Mexico.

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 made against the validity of the Company's patent, or that defenses
instituted to protect against patent violation will be successful.



                                        6
<PAGE>

Seasonality-

The Company does not expect sales of the PureSafe to be influenced by
seasonality.

Research and Development-

Research and development takes place at the Company's office. Testing, modeling,
simulation and prototype manufacturing are outsourced with much of the ongoing
development taking place at facilities under the supervision of Davis Water
Products.

Insurance-

The Company maintains a $1,000,000 umbrella policy, in addition to a $2,000,000
general and product liability policy, which covers the manufacture and marketing
of its products. The Company believes its insurance coverage to be adequate.

Employees-

As of December 31, 2001 the Company employed four executive personnel at its
headquarters. All manufacturing and other personnel related to the water cooler
line have been terminated. The Company has no collective bargaining agreement
with any of its employees.


ITEM 2.  DESCRIPTION OF PROPERTY

In the fourth quarter of 2001, the Company closed its manufacturing facility in
Montana, and sold it's water cooler and filer business and has transferred its
relationship with its JV in China to the buyer of this discontinued operation.
It presently has no manufacturing facilities nor any plans to manufacture for
itself. The Company manufactures its PureSafe under a contract with Davis.

The Company leases office space in Glen Head, New York.

ITEM 3.  LEGAL PROCEEDINGS

-        The Company is a defendant in an action brought by certain
         debenture holders ("Bridge Loans") in New Hampshire Superior Court
         seeking repayment of $375,000 of debenture principal together with
         interest from 1997, and the issuance of penalty shares for non payment
         of principal and interest. In addition, the plaintiff's claim that they
         have suffered by the Company's failure to register the shares issued
         under the debenture, the warrants issued under the debenture and the
         shares issuable under the warrant agreement.



                                        7
<PAGE>

         The Company has interposed defenses and counterclaims, which the
         Company and its legal counsel believe, have strong merit. In connection
         with the debentures, the Company issued 6,667 shares of common stock
         for every $1,000 of debt at a price of $0.15 per share. The Company
         claims that it is owed the $375,000 consideration for such shares. In
         addition, the Company issued warrants for the purchase of 2,500,000
         shares of common stock at an exercise price of $0.15 per share
         exercisable until April 2002. Furthermore, the Company issued another
         100,000 shares of common stock to each debenture holder, or 1,300,000
         shares, at a price of $0.15 per share. The Company claims that it is
         owed an additional $195,000 in consideration for such shares.

         The Company and the plaintiffs, in this dispute, have reached an
         agreement in principal to settle their differences. If the agreement is
         finalized, WaterChef will issue additional Company shares in lieu of
         the principal and interest owed to settle the dispute. Management does
         not expect total shares to be issued under the agreement to be less
         than 3,000,000, with the final number being dependent upon the trading
         price of WaterChef's shares, when the Company completes their next
         Registration Statement. Management does not believe that this
         settlement will have a material adverse effect upon the Company.

-        The Company is a defendant in an action, brought by a
         customer, relating to a series of contracts that the Company entered
         into. The customer claims that the Company breached these contracts by
         shipping certain goods that did not conform to the contract. Most of
         the damages that the customer seeks consist of lost business profits.
         Company management, and legal counsel, believe that the action is
         without merit. The Company has made a $5,000 settlement offer to the
         customer, for the nuisance value of the lawsuit. The customer has
         rejected such offer. The Company has not made a provision for this
         lawsuit as of December 31, 2001.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters other than the usual vote for directors and auditors were submitted
to the shareholders for vote during 2001.

                                     PART II


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

The price range of common stock-

The Company's common stock is traded on the NASDAQ Electronic Bulletin board
under the symbol WTER.OB. This market is characterized as being "thin" which
means that there is generally a paucity of buyers and sellers as found in the
more heavily traded Small Cap and NASDAQ markets. The Bulletin Board stocks
generally do not have the trading characteristics of more seasoned Companies as
they lack the market-makers that will make orderly markets as well as the buyers
and sellers that give depth, liquidity and orderliness to those markets. In
addition, the solicitation of orders and/or the recommendation for purchase of
Bulletin Board stocks is restricted by in many circumstances by the National
Association of Securities Dealers (the "NASD") and by individual brokerage firms
as well.

                                       8
<PAGE>

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, markdown, quotation or commission
and do not necessarily represent actual transactions.

2000                                   High                       Low
                                      --------                   ---------
First Quarter                           .86                        .04
Second Quarter                          .37                        .08
Third Quarter                           .19                        .06
Fourth Quarter                          .17                        .04

2001

First Quarter                           .17                        .06
Second Quarter                          .46                        .13
Third Quarter                           .33                        .11
Fourth Quarter                          .18                        .07


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

INTRODUCTION

Until the fourth quarter of 2001 WaterChef was engaged in the manufacture and
marketing of water coolers and water purification and filtration equipment. In
the fourth quarter of 2001, the Company negotiated the sale of this business in
order to focus its activities on its PureSafe business line. The PureSafe had
been designed by the company to meet the needs of communities who either did not
have access to municipal water purification systems, or to those whose systems
had been compromised, either by environmental factors or by faulty design or
maintenance.

RESULTS OF OPERATIONS

During 2001 WaterChef made the strategic decision to exit the water cooler and
consumer filter segments of its business in order to concentrate its resources
on the development of the market for the PureSafe Water Station. With the sale
of these assets consummated in December 2001, the Company's water cooler and
consumer filter businesses are reported as discontinued operations for 2001 and
2000, resulting in a loss from discontinued operations of $40,412 and $126,679,
respectively. These losses are offset by an extraordinary item, a gain on the
early extinguishment of debt from discontinued operations of $213,747 and
$2,236,606 for the years ended December 31, 2001, and 2000, respectively. In
addition, a gain on the disposal of the discontinued assets in the year ended
December 31, 2001 resulted in a gain on disposal of discontinued operations of
$38,791.
                                       9
<PAGE>


For the year ended December 31, 2001 Water Chef reported sales of
$34,750, to an importer of water system products, compared to no sales reported
for the year ended December 31,2000, as it relates to the Company's continuing
operation, the marketing and sales of the PureSafe water system. Sales in 2001
do not include the 18 units shipped to Jordan. The sale of 18 PureSafe units to
Jordan will be recognized when the Company receives payment. The Company has
recorded cost of sales of $270,035 in 2001, for the unit sold to the importer,
as well as for the 18 units shipped to Jordan, since return of the items from
Jordan is uncertain. Selling, general and administrative expenses were $804,230
for the twelve months ended December 31, 2001 compared to $1,337,961 for the
year earlier period, a reduction of $533,731, or 40%.

Research and development expense was $212,500 in the year ended December 31,2001
compared to $33,815 in the year earlier, an increase of $178,685 or 528%, as the
company continued development of the PureSafe family of products.

The loss from continuing operations for the twelve months ended December 31,
2001 was $1,469,845 compared to a loss of $1,457,275 for the previous year. The
net loss for the year ended December 31, 2001 was $1,257,719, after a gain of
$212,126 from the discontinued operations, compared to net income of $652,652,
after a $2,109,927 gain from discontinued operations in the year earlier period.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000 the Company had a stockholders' deficit of approximately
$2,821,000 and a working capital deficit of approximately $2,439,000. In
addition, the Company has incurred losses from continuing operations of
$1,469,845 and $1,457,275 for the years ended December 31, 2001 and 2000,
respectively. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with respect to these matters include restructuring its
existing debt, raising additional capital through future issuances of stock and
/ or debt. The accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

During the year ended December 31, 2000 the Company reduced their outstanding
debt as it related to discontinued operations by $2,650,606, which included
obligations to Bear Paw Development Corp. and to the Small Business
Administration, by payment of cash of $234,000, the issuance of 2,000,000 shares
of common stock with a value of $180,000, and the extinguishment of $2,236,606
of debt recorded as an extraordinary item. Also, during the year ended December
31, 2000, the Company issued an aggregate of 1,614,550 shares of common stock to
settle payables and notes payable with accrued interest of $394,798 which
related to continuing operations.

In the year ended 2001, management continued it debt restructuring activities
and issued 710,000 shares of common stock to settle $58,595 in debt, of which
$$48,994 related to discontinued operations. In addition, trade payables related
to discontinued operations of $213,747, were settled and accounted for as
extraordinary gain form extinguishment of debt.

                                       10
<PAGE>

The Company, during 2001 and 2000, raised $513,000 and $612,392, respectively
through the sale of stock and the exercise of warrants.

Management is currently attempting to settle or restructure the remaining debt,
as it relates to the discontinued operations, and plans to raise additional
capital through future issuances of stock and/or debentures to finance the
growth of the Company.

ITEM 7.           FINANCIAL STATEMENTS

         The Company's financial statements for the fiscal year ended December
31, 2001 and 2000 are included herein and consist of:

         Independent Auditor's Report                                    F-1

         Balance Sheet                                                   F-2

         Statements of Operations                                        F-3

         Statement of Changes in Stockholders' Equity                    F-4

         Statements of Cash Flows                                        F-5

         Notes to Financial Statements                                   F-6-16










                                       11
<PAGE>




                          INDEPENDENT AUDITORS' REPORT



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


We have  audited  the  accompanying  balance  sheet of Water Chef,  Inc.,  as of
December  31,  2001 and the  related  statements  of  operations,  stockholders'
deficit and cash flows for the years  ended  December  31, 2001 and 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatements.  An audit 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, 2001 and the results of their  operations and their cash flows for the years
ended  December  31,  2001 and 2000 in  conformity  with  accounting  principles
generally accepted in the United States of America.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue as a going  concern.  As discussed in Note 3(a) to the  financial
statements, the Company has suffered recurring losses, and has a working capital
and a total capital deficiency, which raises substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described in Note 3(a).  The  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.


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

New York, New York
April 12, 2002


                                       F-1



<PAGE>


                                 WATER CHEF INC.

                                  BALANCE SHEET

                                DECEMBER 31, 2001


                                     ASSETS

CURRENT ASSETS:
     Cash                                                    $           33,797
     Inventories                                                        159,250
     Prepaid expenses and other current assets                            9,662
                                                               -----------------

        TOTAL CURRENT ASSETS                                            202,709

PATENTS AND TRADEMARKS (net of
     accumulated amortization of $1,198)                                 24,673
                                                               -----------------
                                                             $          227,382
                                                               =================


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
     Accounts payable                                        $          253,100
     Accrued expenses and other current liabilities                     229,773
     Notes payable (including accrued interest of $156,308)           1,214,031
     Preferred dividends payable                                        666,106
     Net liabilities of discontinued operations                         279,112
                                                               -----------------
        TOTAL CURRENT LIABILITIES                                     2,642,122
                                                               -----------------

LONG-TERM LIABILITIES:
     Loans payable to shareholder
     (including accrued interest of $33,617)                            406,398
                                                               -----------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
     Preferred stock, $.001 par value;
        10,000,000 shares authorized;
        145,500 shares issued and outstanding                               146
     Common stock, $.001 par value;
        90,000,000 shares authorized;
        86,614,286 shares issued and outstanding                         86,614
     Additional paid in capital                                      10,049,884
     Stock subscription receivable                                      (67,500)
     Treasury stock, 4,400 common shares, at cost                        (5,768)
     Accumulated deficit                                            (12,884,514)
                                                               -----------------
        TOTAL STOCKHOLDERS'  DEFICIT                                 (2,821,138)
                                                               -----------------

                                                             $          227,382
                                                               =================

                       See notes to financial statements.

                                      F-2
<PAGE>


                                 WATER CHEF INC.

                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                                            Year Ended December 31,
                                                                                  ----------------------------------------
                                                                                        2001                   2000
                                                                                  ------------------     -----------------
<S>                                                                           <C>                    <C>
Sales                                                                         $              34,750  $                  -
                                                                                  ------------------     -----------------
Costs and Expenses:
      Cost of sales                                                                         270,035                     -
      Selling, general and administrative                                                   804,230             1,337,961
      Research and development                                                              212,500                33,815
      Interest expense                                                                      217,830                85,499
                                                                                  ------------------     -----------------
                                                                                          1,504,595             1,457,275
                                                                                  ------------------     -----------------
Loss from continuing operations                                                          (1,469,845)           (1,457,275)
                                                                                  ------------------     -----------------
Discontinued operations:
      Loss from discontinued operations                                                     (40,412)             (126,679)
      Extraordinary item - gain on early
         extinguishment of debt                                                             213,747             2,236,606
      Gain on disposal of discontinued operations                                            38,791                     -
                                                                                  ------------------     -----------------
Gain from discontinued operations                                                           212,126             2,109,927
                                                                                  ------------------     -----------------
Net (loss) income                                                                        (1,257,719)              652,652

Preferred stock dividends                                                                  (108,300)             (108,300)
                                                                                  ------------------     -----------------
Net (loss) income applicable to
      common stock                                                            $          (1,366,019) $            544,352
                                                                                  ==================     =================

Basic and Diluted (Loss) Income Per Common Share:
      Continuing operations                                                   $               (0.02) $              (0.03)
      Discontinued operations                                                                     -                  0.04
                                                                                  ------------------     -----------------
                                                                              $               (0.02) $               0.01
                                                                                  ==================     =================
Weighted Average Common Shares Outstanding -
      Basic and Diluted                                                                  80,657,519            55,044,957
                                                                                  ==================     =================

</TABLE>

                       See notes to financial statements.

                                       F-3
<PAGE>
                                WATER CHEF, INC.

                       STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
                                         Preferred Stock             Common Stock               Additional
                                        --------------------------  -------------------------    Paid-in
                                           Shares        Amount        Shares        Amount      Capital
                                        -------------  -----------  -------------  ----------  ------------

<S>                <C> <C>                 <C>        <C>             <C>         <C>         <C>
BALANCE - DECEMBER 31, 1999                8,082,166  $     8,082     35,254,181  $   35,254  $  7,266,138

    Shares issued for:
       Cash                                        -            -     10,543,330      10,543       452,457
       Services                                    -            -      2,564,836       2,565       583,935
       Non dilution agreement                      -            -      8,931,390       8,932       142,902
       Conversion of debt                          -            -      3,614,550       3,615       571,183
       Exercise of Class "B" Warrants              -            -        333,334         333        49,667
       Exchange of Preferred shares
          for Common shares               (7,936,666)      (7,936)     7,936,666       7,936             -
    Preferred stock dividend
    Net Income                                     -         -                 -           -             -
                                        -------------  -----------  -------------  ----------  ------------
BALANCE - DECEMBER 31, 2000                  145,500          146     69,178,287      69,178     9,066,282

    Shares issued for:
       Cash                                        -            -     13,413,749      13,414       598,979
       Services                                    -            -      1,680,000       1,680       174,570
       Debt                                        -            -        600,000         600        85,700
       Conversion of debt                          -            -        710,000         710        57,885
       Receivable                                  -            -      1,032,250       1,032        66,468
    Preferred stock dividend
    Net loss                                       -            -              -           -             -
                                        -------------  -----------  -------------  ----------  ------------
BALANCE - DECEMBER 31, 2001                  145,500  $       146     86,614,286  $   86,614  $ 10,049,884
                                        =============  ===========  =============  ==========  ============
</TABLE>
                                WATER CHEF, INC.

                       STATEMENT OF STOCKHOLDERS' DEFICIT
                                   (Continued)
<TABLE>
<CAPTION>
                                                Stock                                      Total
                                             Subscription   Treasury    Accumulated     Stockholders'
                                              Receivable      Stock        Deficit         Deficit
                                            -------------  ----------  --------------  --------------
<S>                <C> <C>                  <C>            <C>         <C>             <C>
BALANCE - DECEMBER 31, 1999                 $           -  $   (5,768) $  (12,062,847) $   (4,759,141)
    Shares issued for:
       Cash                                             -           -               -         463,000
       Services                                         -           -               -         586,500
       Non dilution agreement                                                                 151,834
       Conversion of debt                                                                     574,798
       Exercise of Class "B" Warrants                                                          50,000
       Exchange of Preferred shares
          for Common shares                             -                                           -
    Preferred stock dividend                                                 (108,300)       (108,300)
    Net Income                                                                652,652         652,652
                                            -------------  ----------  --------------  --------------
BALANCE - DECEMBER 31, 2000                             -      (5,768)    (11,518,495)     (2,388,657)
    Shares issued for:
       Cash                                                                                   612,393
       Services                                                                               176,250
       Debt                                                                                    86,300
       Conversion of debt                                                                      58,595
       Receivable                                 (67,500)                                          -
    Preferred stock dividend                                                 (108,300)       (108,300)
    Net loss                                                               (1,257,719)     (1,257,719)
                                            -------------  ----------  --------------  --------------
BALANCE - DECEMBER 31, 2001                 $     (67,500) $   (5,768) $  (12,884,514) $   (2,821,138)
                                            =============  ==========  ==============  ==============
</TABLE>
                       See notes to financial statements.

                                       F-4
<PAGE>
                                 WATERCHEF INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                                              Years Ended December 31,
                                                                                            ------------------------------
                                                                                                 2001             2000
                                                                                            --------------   -------------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                            <C>                <C>
    Net (loss) income                                                                          (1,257,719)        652,652
       Adjustments to reconcile net (loss) income to
         net cash used in operating activities
            Loss from discontinued operations                                                      40,412         126,679
            Extraordinary item - gain on early  extingiuishment
              of debt  from discontinued operations                                              (213,747)     (2,236,606)
            Gain on disposal of discontinued operations                                           (38,791)              -
            Depreciation and amortization                                                           1,264           9,319
            Non-cash compensation                                                                 176,250         738,334
            Amortization of debt discount                                                          74,000               -
            Common stock issued for non-payment
              of note and interest payable                                                         12,300               -
       Change in assets and liabilities
         Cash held in escrow                                                                            -         161,988
         Inventories                                                                             (159,250)              -
         Other current assets                                                                         283          (9,945)
         Accounts payable and accrued expenses                                                    256,815         185,012
                                                                                            --------------   -------------
       Net cash used in continuing operations                                                  (1,108,183)       (372,567)
       Net cash used in discontinued operations                                                   (28,461)       (136,354)
                                                                                            --------------   -------------
NET CASH USED IN OPERATING ACTIVITIES                                                          (1,136,644)       (508,921)
                                                                                            --------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                                               (551)           (405)
    Purchase of patents                                                                           (24,500)              -
                                                                                            --------------   -------------
NET CASH USED IN INVESTING ACTIVITIES                                                             (25,051)           (405)
                                                                                            --------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from notes payable                                                                   450,000         150,000
    Repayment of note payable                                                                     (25,000)              -
    Proceeds from sale of common stock and exercise of warrants                                   612,392         513,000
                                                                                            --------------   -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                       1,037,392         663,000
                                                                                            --------------   -------------

NET (DECREASE) INCREASE IN CASH                                                                  (124,303)        153,674

CASH AT BEGINNING OF YEAR                                                                         158,100           4,426

                                                                                            --------------   -------------
CASH AT END OF YEAR                                                                       $        33,797         158,100
                                                                                            ==============   =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for:
       Interest                                                                          $              - $             -
                                                                                            ==============   =============
       Income taxes                                                                      $              - $             -
                                                                                            ==============   =============
    Non-cash financing and investing activities:
       Common stock issued for debt                                                      $         48,994 $             -
                                                                                            ==============   =============
       Common stock issued for debt - discontinued operations                            $          9,600 $       574,798
                                                                                            ==============   =============
       Common stock issued with debt                                                     $         74,000 $             -
                                                                                            ==============   =============
       Accounts payable converted to note payable                                        $         20,000 $             -
                                                                                            ==============   =============
</TABLE>

                       See notes to financial statements.

                                       F-5
<PAGE>

                                WATER CHEF, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 and 2000


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 and outside the United States.

2.        DISCONTINUED OPERATIONS

          In November  2001,  the  Company's  sold their water cooler and filter
          operations  for  $100,000,  of which  $50,000 has been  received as of
          December 31, 2001. Accordingly, this segment of the Company's business
          is reported as discontinued operations for the year ended December 31,
          2001.  The year ended  December 31, 2000 has been  restated to reflect
          such operations as discontinued.

         The following assets were disposed of:

                  Inventory                                              20,000
                  Fixed assets (net of accumulated
                           depreciation of $281,612)                     10,834
                  Patents and trademarks (net of
                           accumulated amortization of $46,251)          30,377
                                                                 ---------------
                                                                 $       61,211
                                                                 ===============

         Net liabilities from discontinued operations at December 31, 2001
         include the following:

                  Trade payables                                 $      154,095
                  Accrued compensation                                  175,017
                  Balance due on sale of discontinued  operation        (50,000)
                                                                 ---------------
                                                                 $      279,112
                                                                 ===============






                                      F-6
<PAGE>

         Gain from discontinued operations consists of the following:
<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                                              -------------------------------------
                                                                                   2001                 2000
                                                                              ---------------     -----------------

         Net sales                                                         $         152,040  $            257,197
                                                                              ---------------     -----------------
<S>                                                                                 <C>                  <C>
         Cost of sales                                                              (84,029)             (169,163)
         Selling, general and administrative expenses                              (108,423)             (105,624)
         Write-down of investment in joint venture                                         -              (52,184)
         Inventory write-down                                                              -              (56,904)
         Extraordinary item - gain on early
                  extinguishment of debt                                             213,747             2,236,605
         Gain on disposal of discontinued operations                                  38,791                     -
                                                                              ---------------     -----------------
                                                                                      60,086             1,852,730
                                                                              ---------------     -----------------
         Gain from discontinued operations                                 $         212,126  $          2,109,927
                                                                              ===============     =================
</TABLE>

         Included in the disposed of assets of the discontinued operations, is
         the Company's fifty-five percent interest in a joint venture formed in
         February 1994, with the a Chinese manufacturer of water coolers and
         consumer filters. The Company also has a distribution agreement with
         this manufacturer, whereby the Company was the exclusive sales agent
         for products manufactured by the joint venture. The exclusive territory
         covered all parts of the world, except the People's Republic of China,
         Taiwan and Hong Kong. The Company was unable to exercise economic
         control over the joint venture's operations,  and accordingly, the
         investment which was accounted for under the equity method of
         accounting, was fully written down in the year ended December 31, 2000.

         During the year ended December 31, 2000, the Company reduced their
         outstanding debt as it related to its discontinued operations by
         $2,650,606, which included obligations to Bear Paw Development Corp.
         and to the Small Business Administration, by payment of cash of
         $234,000, the issuance of 2,000,000 shares of common stock with a value
         of $180,000, and the extinguishment of $2,236,606 of debt recorded as
         an extraordinary item.



3.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Basis of  Presentation - The  accompanying  financial  statements have
          been  prepared  assuming  that the  Company  will  continue as a going
          concern.  The Company  incurred losses from  continuing  operations of
          $1,469,845  and  $1,457,275  for the years ended December 31, 2001 and
          2000,  respectively.  Additionally,  the Company has a working capital
          and  total  capital  deficiencies  of  $2,439,414  and  $2,821,138  at
          December 31, 2001. 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

                                      F-7
<PAGE>

          existing debt,  raising additional capital through future issuances of
          stock and / or debt.  The  accompanying  financial  statements  do not
          include any adjustments  that might be necessary should the Company be
          unable to continue as a going concern.

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

     c.   Patents and Trademarks - Patents and trademarks are amortized  ratably
          over 9 to 14 years.


     d.   Research and Development - Research and development  expenditures  are
          charged to operations as incurred.

     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.   Revenue  Recognition  - Revenues  are  recognized  when  products  are
          shipped and  collectibility  is  reasonably  assured.  Allowances  for
          estimated bad debts,  sales  allowance and discounts are provided when
          the sales are recorded.

     g.   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.   Valuation  allowances  are
          established  when necessary to reduce  deferred  assets to the amounts
          expected to be realized.

     h.   Income (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.
          Diluted  per  share  amounts  are  computed   excluding  common  stock
          equivalents since their inclusion would be anti-dilutive.

     i.   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 reported
          amounts of assets and liabilities and disclosure of contingent  assets
          and  liabilities at the date of the financial  statements and revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.


     j.   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.

                                      F-8
<PAGE>

     k.   Impairment  of  Long-Lived  Assets  - In  the  event  that  facts  and
          circumstances  indicate that the cost of an asset may be impaired,  an
          evaluation of recoverability  would be performed.  If an evaluation is
          required, the estimated future undiscounted cash flows associated with
          the  asset  would  be  compared  to the  asset's  carrying  amount  to
          determine if a write-down to market value is required. At December 31,
          2001, the Company does not believe that any impairment has occurred.

     l.   New-Accounting Standards

             (i)    In July  2001,  the  Financial  Accounting  Standards  Board
                    issued Statement of Financial  Accounting Standards ("SFAS")
                    No. 141 "Business  Combinations"  and SFAS No. 142 "Goodwill
                    and  Intangible  Assets  ("SFAS  No.  142").  SFAS  No.  141
                    requires that all business combinations initiated after June
                    30,  2001 be  accounted  for  using the  purchase  method of
                    accounting and prohibits the use of the pooling-of-interests
                    method for such  transactions.  SFAS No. 142  applies to all
                    goodwill  and  intangible  assets  acquired  in  a  business
                    combination. Under the new standard, all goodwill, including
                    goodwill   acquired   before  initial   application  of  the
                    standard,  should not be amortized  but should be tested for
                    impairment  at least  annually at the  reporting  level,  as
                    defined  in  the  standard.  Intangible  assets  other  than
                    goodwill  should be  amortized  over their  useful lives and
                    reviewed for impairment in accordance with SFAS no. 121. The
                    new standard is effective for fiscal years  beginning  after
                    December 15, 2001.  The Company must adopt this  standard on
                    December 29 2001.  As of December 28, 2001,  the Company had
                    no unamortized goodwill.

          (ii)      In August  2001,  the FASB  issued  Statement  of  Financial
                    Accounting  Standards No. 144 ("SFAS 144"),  "accounting for
                    the Impairment or Disposal of Long-lived  Assets".  SFAS 144
                    superceded  Statement of Financial  Accounting Standards No.
                    121, "accounting for the Impairment of Long-lived Assets and
                    Assets to be Disposed of" and the  accounting  and reporting
                    provisions  of Accounting  Principles  Board Opinion No. 30,
                    "reporting the Results of Operations - Reporting the Effects
                    of Disposal of a Segment of a Business,  and  Extraordinary,
                    Unusual and Infrequently  Occurring Events and Transaction".
                    SFAS 144 also amends  Accounting  Research  Bulletin No. 51,
                    "Consolidated   Financial   Statements,"  to  eliminate  the
                    exception  to  consolidation  for  a  subsidiary  for  which
                    control is likely to be temporary. The provision of SFAS 144
                    will be effective for fiscal years  beginning after December
                    15, 2001. The Company has not yet determined the effect SFAS
                    144  will  have on its  financial  position  or  results  of
                    operations in future periods.

3.       INVENTORIES

         At December 31, 2001, inventories consisted of 18 units of the
         Company's water purification units.


                                      F-9
<PAGE>

4.       NOTES PAYABLE

         Notes payable at December 31, 2001 consist of the following:

                  (a)       $         401,250
                  (b)                 130,248
                  (c)                 462,533
                  (d)                 220,000
                                --------------
                            $       1,214,031
                                ==============

         (a)   Bridge loans - These loans,  which  originated  in May 1997,  are
               unsecured and bear interest payable at 12% per annum. The Company
               is currently in litigation with these note holders (see Note 18).
               Amounts due on this note,  inclusive  of $26,250 in interest  are
               $401,250, at December 31, 2001.

         (b)   Loans payable - other: These are unsecured notes bearing interest
               ranging from 10% to 12% per annum,  with no specific due date for
               repayment.  Amounts  due on this  note,  inclusive  of $47,525 in
               interest are $130,248, at December 31, 2001.

         (c)   In April 2001, the Company issued a $400,000  promissory  note at
               an  interest  rate  of 2% per  month.  In  consideration  for the
               issuance of this note,  500,000  shares of the  Company's  common
               stock were issued to the note holder and a $74,000 debt  discount
               was recorded.  As of December 31, 2001,  the entire debt discount
               has been amortized.  The principal  balance and accrued  interest
               were payable on September 1, 2001.  The Company did not make such
               payment and was required to issue  additional  100,000  shares of
               its  common  stock  to the  note  holder.  The  Company  recorded
               additional interest expense of $12,300 related to the issuance of
               the  shares.  Amounts due on this note,  inclusive  of $62,533 in
               interest are  $462,533,  at December  31,  2001.  As of April 12,
               2002, the note holder has not demanded payment, although there is
               no assurance  that the note holder will  continue to defer demand
               for repayment.

         (d)   In  November  2000,  the  Company   entered  into  a  Convertible
               Promissory Note agreement,  whereby the Company may be advanced a
               maximum of  $300,000.  The Company was  advanced  the  following:
               $100,000 in November  2000,  $50,000 in December 2000 and $50,000
               in January  2002.  No further  advances were made to the Company.
               The advances bear interest at 10% per annum and were to have been
               repaid as of January 15, 2002. Further, if any payments due after
               the original due date remain  unpaid,  a late charge of 4% of the
               amount due is assessed.  The advances,  accrued interest and late
               charges can be  converted  into the  Company's  common  stock.  A
               maximum of 6,000,000 shares may be issued upon conversion.  As of
               December 31, 2001,  the Company owed $220,000 on these  advances,
               inclusive  of  $20,000  in  interest.  The  Company  and the note
               holder, by mutual consent,  have agreed to extend the due date of
               the note to May 1, 2002.  All other terms and  provisions  of the
               note are unchanged.

                                      F-10
<PAGE>

5.       ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

         At December 31, 2001, accrued expenses and other current liabilities
         were as follows:

                   Payroll                    $           132,727
                   Consulting                              36,333
                   Other                                   60,714
                                                -----------------
                                              $           229,774
                                                =================

6.       LOAN PAYABLE - SHAREHOLDER

         At December 31, 2001, the Company is obligated to its Chief Executive
         Officer for loans and advances made to the Company totaling $372,781,
         plus accrued interest of $33,617. Such executive has agreed to not
         request repayment prior to January 1, 2003.

7.       PREFERRED STOCK

         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, 2001, outstanding preferred shares were as follows:

                                                                     Current
                                                                     Dividend
                           Shares                Amount              Accrued
                      -----------------     ---------------     ---------------
          Series A            52,500     $             53       $       52,500
          Series D            93,000                   93               55,800
                      -----------------     ---------------     ---------------
                             145,500     $            146       $      108,300
                      =================     ===============     ===============

         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 semi-annually in the
         Company's common stock or cash, at the Company's option. The Series D
         preferred stock is not convertible, and is redeemable at the Company's
         option.

         At December 31, 2001, dividends in arrears on the Series A and Series D
         preferred shares were $360,106 and $306,000, respectively.

                                      F-11
<PAGE>

         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 Series E
         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. In
         March 2000, the Company issued 7,936,666 common shares for all of the
         issued Series E preferred stock.

8.       COMMON STOCK

         During the years ended December 31, 2001 and 2000, the following common
         stock transactions occurred:

         a.       Cash -
                  ----

                  In the year ended December 31, 2000, the Company sold an
                  aggregate of 10,543,330 shares of its common stock at prices
                  ranging from $.03 to $.15 depending on the market price on the
                  dates of issue. Net proceeds from such sales were $463,000. In
                  addition, warrants to purchase 333,334 shares of common stock
                  at $.15 per share were exercised for net proceeds of $50,000.

                  In the year ended December 31, 2001, the Company sold an
                  aggregate of 13,413,749 shares of its common stock at prices
                  ranging from $.04 to $.08 depending on the market price on the
                  dates of issue. Net proceeds from such sales were $612,392.
                  Included in these shares are 370,000 shares issued in lieu of
                  commissions.

         b.       Services -
                  -----------------

                  In the year ended December 31, 2000, the Company issued an
                  aggregate of 2,564,836 shares of its common stock for
                  consulting services provided to the Company, valued at
                  $586,500. Such shares were issued throughout the year at
                  prices ranging from $.03 to $.08 depending on market prices on
                  the dates of issue.

                  In the year ended December 31, 2001, the Company issued an
                  aggregate of 1,680,000 shares of its common stock for
                  consulting services provided to the Company, valued at
                  $176,250. Such shares were issued throughout the year at
                  prices ranging from $.06 to $.16 depending on market prices on
                  the dates of issue.

         c.       Debt -
                  ----

                  In April 2001, the Company, in connection the issuance of a
                  $400,000 promissory note payable, was required to issue
                  500,000 shares of its common stock to the note holder. The
                  Company has recorded a debt discount of $74,000 for such
                  shares. In September 2001, the Company was to have repaid this
                  note payable, which did not occur.

                                      F-12
<PAGE>

                  As a penalty for such non-payment, the Company was required to
                  issue 100,000 additional shares of  common stock. The Company
                  has recorded a $12,000 charge for these shares.

         d.       Conversion of Debt -
                  ------------------

                  The Company, during the year ended December 31, 2000, issued
                  an aggregate of 1,614,550 shares of common stock to settle
                  payables and notes payable with accrued interest of $394,798
                  for continuing operations, and 2,000,000 shares of common
                  stock were issued to settle notes with accrued interest from
                  discontinued operations.

                  The Company, during the year ended December 31, 2001, issued
                  an aggregate of 710,000 shares of common stock to settle notes
                  payable with accrued interest of $48,994 for continuing
                  operations, and 60,000 shares of common stock were issued to
                  settle payable of $9,600 for their discontinued operations.

         e.       Subscription Receivable -
                  -----------------------

                  During December 2001, the Company sold 1,032,250 shares of
                  common stock for $67,500. This has been recorded as a stock
                  subscription receivable as of December 31, 2001.

         f.       Non Dilution Agreement -
                  ----------------------

                  The Company, during June 2000, issued 8,931,390 shares of
                  common stock valued at $.017 per share, or $151,834 in
                  conjunction with a non-dilution agreement.


9.       STOCK OPTION AND WARRANT GRANT PLAN

         In 1994, the Company instituted a stock option plan, which is available
         to selected directors, officers, employees and consultants of the
         Company (the "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 determined by the
         Committee and cannot be less than 110% of the fair market value of the
         shares on the date of the grant. The Committee as of the date of grant
         determines the terms, conditions and restrictions of the options.

         Prior to 1997, the Company granted options to purchase up to 50,000
         shares of common stock at $0.10 per share to one employee. Such options
         remain unexercised at December 31, 2001 and expire in the year 2002.

         In 1997, the Company, in connection with private placements, issued
         warrants to purchase 3,083,338 shares of common stock at $.15 per
         share. Of such warrants, 750,000 expired in June 1999, and 333,334 were
         exercised June 2000. The remaining 2,000,004 warrants expire in May
         2002.


                                      F-13
<PAGE>
         The following tables illustrates the Company's stock option and
         warrant issuances and balances outstanding for the years ended December
         31, 2001 and 2000.
<TABLE>
<CAPTION>

                                                                OPTIONS                            WARRANTS
                                                      ------------------------------    ------------------------------
                                                                         Weighted                          Weighted
                                                         Shares           Average          Shares           Average
                                                       Underlying        Exercise        Underlying        Exercise
                                                        Options            Price          Warrants           Price
                                                      -------------     ------------    -------------     ------------
<S>                              <C> <C>                    <C>      <C>                               <C>
         Outstanding at December 31, 1999                   50,000   $          .10       2,333,338   $          .15
                  Exercised                                                                (333,334)             .15
                                                      -------------     ------------    -------------     ------------
         Outstanding at December 31, 2000 and               50,000   $          .10        2,000,004             .15
         December 31, 2001                                                                             $
                                                      =============     ============    =============     ============
</TABLE>

10.      MAJOR CUSTOMERS

         Sales to one customer in 2001 accounted for all sales from continuing
         operations.

11.      LEASES

         The Company's lease for its administrative facilities located in Glen
         Head, New York expired in September 2001. The Company has been leasing
         such facilities since the expiration on a month to month basis.

         In November 1999, the Company entered into a new factory lease used in
         the Company's discontinued operations that was to operate through
         November 2002. The Company, in February 2002, was released from its
         remaining obligation. All lease payments, required subsequent to
         December 31, 2001, have been accrued in net liabilities of discontinued
         operations.

         Rent expense, from continuing operations, for the years ended December
         31, 2001 and 2000 was $22,320 and $21,156, respectively.

12.      INCOME TAXES

         The  Company  accounts  for income  taxes under Statement of  Financial
         Accounting  Standards  No. 109, Accounting  for Income Taxes ("SFAS No.
         109").  SFAS No. 109  requires  the  recognition  of deferred tax
         assets  and liabilities for  both the expected  impact of differences
         between the  financial  statements  and  tax  basis  of  assets  and
         liabilities,  and for  the  expected  future tax benefit to be derived
         from  tax  loss  and  tax  credit  carry  forwards.  SFAS No. 109
         additionally  requires  the  establishment  of a valuation allowance
         to reflect the likelihood of realization of deferred tax assets.



                                      F-14
<PAGE>




         The income tax benefit differs from the amount computed by applying the
         statutory federal income tax rate to the loss before the income taxes
         income as follows:
<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                              ---------------    --------------
                                                                                   2001              2000
                                                                              ---------------    --------------
<S>                                                                        <C>                 <C>
               Benefit (provision) computed at
                      the Federal statutory rate                           $      428,000      $      (222,000)
               Benefit of net operating losses                                          -              222,000
               Deductions for which no benefit is recognized                     (428,000)                   -
                                                                              ---------------    --------------
                                                                           $            -      $             -
                                                                              ===============    ==============
</TABLE>

         The Company has a net operating loss carryforward for tax purposes
         totaling approximately $11,920,000 at December 31, 2001 expiring
         between the years 2009 through 2021. The resulting deferred tax asset
         of approximately $4,053,000 has been offset by a corresponding
         valuation allowance.

13.      COMMITMENTS AND CONTINGENCIES

         -        The Company is a defendant in an action brought by
                  certain debenture holders ("Bridge Loans") in New Hampshire
                  Superior Court seeking repayment of $375,000 of debenture
                  principal together with interest from 1997, and the issuance
                  of penalty shares for non payment of principal and interest.
                  In addition, the plaintiff's claim that they have suffered by
                  the Company's failure to register the shares issued under the
                  debenture, the warrants issued under the debenture and the
                  shares issuable under the warrant agreement.

                  The Company has interposed defenses and counterclaims, which
                  the Company and its legal counsel believe, have strong merit.
                  In connection with the debentures, the Company issued 6,667
                  shares of common stock for every $1,000 of debt at a price of
                  $0.15 per share. The Company claims that it is owed the
                  $375,000 consideration for such shares. In addition, the
                  Company issued warrants for the purchase of 2,500,000 shares
                  of common stock at an exercise price of $0.15 per share
                  exercisable until April 2002. Furthermore, the Company issued
                  another 100,000 shares of common stock to each debenture
                  holder, or 1,300,000 shares, at a price of $0.15 per share.

                  The Company and the plaintiffs, in this dispute, have reached
                  an agreement in principal to settle their differences. If the
                  agreement is finalized, the Company will issue additional
                  shares of common stock in lieu of the principal and interest
                  owed to settle the dispute. Management does not expect total
                  shares to be issued under the agreement to be less than
                  3,000,000, nor does it believe that this settlement will have
                  a material adverse effect upon the Company.

         -        The Company is a defendant in an action, brought by a
                  customer, relating to a series of contracts that the Company
                  entered into. The customer claims that the Company breached
                  these contracts by shipping certain goods that did not conform
                  to the contract. Most of the damages that the customer seeks
                  consist of lost business profits. Company management, and
                  legal counsel, believe that the action is without merit. The
                  Company has made a $5,000 settlement offer to the customer,

                                      F-15
<PAGE>

                  for the nuisance value of the lawsuit. The customer has
                  rejected such offer, and has proposed a $75,000 settlement.
                  The Company has not made  a  provision for  this lawsuit as of
                  December 31, 2001.

         -        In May 2001, the Company  entered a distribution
                  agreement with a company (the "Sub distributor") based in
                  the State of Jordan. The Sub distributor has agreed to
                  purchase no fewer than 100 units of the Company's "Pure Safe
                  Water Station", in the calendar year commencing January 1,
                  2001. A minimum purchase of 50 units are required to be
                  purchased in each of the subsequent years commencing January
                  1, 2002 and 2003, respectively. During the year ended December
                  31, 2001, 18 units have been shipped under this agreement. The
                  sale will be recognized when the Company receives payments.
                  The Company has recorded the costs of the inventory shipped in
                  costs of sales, since return of the items is uncertain.

         -        The Company entered into a three year master
                  distribution agreement for their "Pure Safe Water Station"
                  with a distributor based out of Hong Kong ("the distributor").
                  Under this agreement, upon meeting minimum quantities of sales
                  in each of the years of agreement, the distributor will
                  receive a rebate of 20% of the total price for all products,
                  parts and supplies purchased from the Company. Furthermore,
                  the distributor, upon meeting these minimum sales quantities
                  will have the right to purchase up to 30,000,000 shares of the
                  Company's common stock at $0.20 per share.





                                      F-16

<PAGE>





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

                  None


                                    PART III

ITEM 9.

          DIRECTORS,   EXCEUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

At year-end 2001 the Company's Directors, Executive Officers and Scientific
Advisory Board Members are:

Name                             Age                Position

David A. Conway                  60                  Director Chairman President
                                                     And Chief Executive Officer

Rudolf W. Schindler              49                  Executive Vice President
                                                     and Chief Operating Officer

Martin Clare (1)                 68                  Director

Richard P. Farkas (2)            78                  Director

Marshall S. Sterman  (3)         70                  Director

Dr. Ronald W. Hart (4)           59                  Chairman, Scientific
                                                     Advisory Board

Dr. Mohamed M. Salem (4)         50                  Scientific Advisory Board

Dr. Richard Wilson (4)           76                  Scientific Advisory Board

Dr. Mostafa K. Tolba             79                  Scientific Advisory Board

Lord John Gilbert                75                  Scientific Advisory Board

(1)  Member- Audit committee
(2)  Deceased, March 2002; Member- Audit committee
(3)  Member- Compensation committee
(4)  Members of the Scientific Advisory Board have received an initial
     grant of 50,000 shares of common stock. In addition the Chairman receives
     $3,000 per month and each of the other members $1,500 per month for their
     services.

                                       12
<PAGE>

David A. Conway

Mr.  Conway  was  elected to the board in 1997 and  became  President  and Chief
Executive  Officer  in  1998.  He had  been  the  President  and COO of a public
relations and marketing  company,  Director and officer of two New York exchange
companies (KDI and Keene),  and was an executive with CBS and Goldman Sachs. Mr.
Conway,  was an  officer  in the US  Army,  and  has a BA and MBA  from  Fordham
University.

Martin Clare

Mr. Clare was elected to the Board in 2000.  He is the Principal of M. Clare and
Company,  a financial  advisory company,  and a former principal of Civilization
Communications,  a financial  and  marketing  consulting  group.  He  previously
founded two NASD brokerage firms- Harris,  Clare & Co. and Dougherty  Clifford &
Wadsworth.  Mr.  Clare  served in the U.S.  Army and received his BA from Ithaca
College.

Richard P. Farkas

Mr.  Farkas was  deceased in March of 2002.  He was elected to the Board in 1997
and had been an  active  participant  in both the  financial  and  manufacturing
aspects of the company. His wise guidance and experience will be sorely missed.

Mr. Farkas was the Chairman of IMC Corporation  Inc., an international  business
consultancy   providing   broad-based   business   services  to   multi-national
corporations.  Previously  he had  held a number  of  executive  positions  with
multi-national  corporations  such  as  Illinois  and ACF  Industries,  American
Standard  and  Westvaco.  Mr.  Farkas  was a  graduate  of  Princeton  and  Yale
Universities and attended New Jersey Law School.  He served as an officer in the
US Navy.


Sir. John Gilbert

Lord Gilbert served as Minister of State for  Transportation,  Minister of State
for Finance,  and as Minister of state for Defence in the United  Kingdom  under
three Prime Ministers.  Lord Gilbert is  Secretary/Treasurer  of the Tri-Lateral
Commission  and a member of the  House of Lords.  He was  educated  at  Merchant
Taylors'  School  and  St.  John's  College,   Oxford,  and  holds  a  Ph.D.  in
International Economics and Statistics from New York University.

Ronald W. Hart (Ph.D.)

Dr.  Hart  is  Chairman  of  the  Board  of  Scientific   Advisors.   He  is  an
internationally  recognized  scientist  and  scholar  who  was  Director  of the
National  Center  for  Toxicological   Research  and  was  named  "Distinguished
Scientist  in  Residence"  by the US  Food  and  Drug  Administration  in  1992.
Recognized  for his  pioneering  work on aging and his studies on nutrition  and
health,  Dr. Hart is a visiting  professor at Cairo  University,  Seoul National
University and Guangzhou University. He received his doctorate in physiology and
biophysics from the University of Illinois.


                                       13
<PAGE>

Mohamed M. Salem (MD/Ph.D.)

Dr. Salem joined the  Scientific  Advisory  Board in early 2001. He is currently
Professor of Occupational and  Environmental  Medicine at Cairo  University.  An
internationally  recognized  expert on the health effects of  environmental  and
water contaminants,  including pesticides,  lead and other metals, Dr. Salem has
established  infectious  disease control programs at medical centers  throughout
the Middle East.  Dr. Salem is also a principal of Salem  Industries,  a leading
supplier of chemicals  and oil field  equipment  in the Middle  East.  Dr. Salem
holds a M.D and Ph.D. from Cairo University.

Rudolf W. Schindler

Executive Vice President and Chief Operating  Officer of the Company since 2000,
Mr.  Schindler  formerly was an executive of Stocko  Connectors and Schenck.  He
holds an MS in Mechanical Engineering from the Technical University,  Darmstadt,
Germany, and an MBA from Adelphi University.

Marshall S. Sterman

Elected to the Board in 2000, Mr. Sterman is President of the Mayflower Group, a
Massachusetts based merchant bank holding company. Mr. Sterman has over 35 years
of merchant banking and corporate finance  experience as principal  investor and
consultant,  including  Managing  Partner  of  Cheverie & Company  and  founding
principal of Sterman & Gowell  Securities  and  M.S.Sterman  &  Associates.  Mr.
Sterman  served as an officer in the US Navy and received  his BA from  Brandeis
University and his MBA from Harvard University.

Mostafa K. Tolba (Ph.D.)

Dr. Tolba served as Under-Secretary-General of the United Nations, and Executive
Director of the United  Nations  Environmental  Program  from 1976 to 1992.  Dr.
Tolba is currently  President of the  International  Center for  Environment and
Development  headquartered  in Geneva,  Switzerland,  and Emeritus  Professor of
Science at the Kasr El-Aini School of Medicine at Cairo University.  He received
his Ph.D. in Microbiology from Imperial College, London, England.

Richard Wilson (Ph.D.)

Dr. Wilson  joined the  Scientific  Advisory  Board in 2001. He is currently the
Professor,  Energy  Research  Group,  University of California,  and is also the
Mallinckrodt Research Professor of Physics at Harvard University.  Dr. Wilson is
one of the  foremost  scientific  authorities  in the  fields  of water  quality
remediation  and  purification,  is on the Advisory  Board of the Atlantic Legal
Foundation, and is one of the principal scientists working on the water problems
in Chernobyl and Bangladesh where arsenic has contaminated the water supply. Dr.
Wilson holds his Ph.D. from Oxford University.



                                       14
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

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

David A. Conway      2001      $165,000(1)    0            0        $165,000
President/CEO

(1) During 2001 the company was unable to make all payments due its officers and
is accruing these expenses.

DIRECTORS' AND SCIENTIFIC ADVISORY BOARD COMPENSATION

Directors of the Company do not receive cash compensation for serving as
members; they are reimbursed for their out of pocket expenses related to
meetings and any other Company related activity for which they are called upon.
In the past they have received common stock for service to the Company. It is
the intention of the company to adopt an option plan for Officers, Directors and
Scientific Advisory Board members during 2002.

As of January 1, 2002 Mr. Sterman has provided consulting services to the
Company at the rate of $6,000 per month. The company may pay for these services
in cash or in common stock and may terminate these services at its option.

Company Director's have been paid success fees for helping the Company in
various equity and debt financings over the years. These payments have been both
in cash and common stock, such payments being made based on industry-wide, third
party standards.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The  Company's  Amended and Restated  Certificate  of  Incorporation  and Bylaws
eliminate,  in certain  circumstances,  the liability of Directors for breach of
their  fiduciary  duty.  This  provision  does not  eliminate the liability of a
Director (i) for breach of the Director's  duty of loyalty to the Company or its
stockholders  (ii) for acts of  omissions  by the  Director not in good faith or
which involve  intentional  misconduct or a knowing  violation of law; (iii) for
willful or negligent  declaration  of an unlawful  dividend,  stock  purchase or
redemption;  (iv) for  transactions  from which the Director derived an improper
personal  benefit;  or (v)  for  any  act or  omission  occurring  prior  to the
effective date of the Amended and Restated Certificate of Incorporation.


                                       15
<PAGE>

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,  if
against public policy as expressed in the Securities Act, will be unenforceable.


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Set forth  below is  information  as of  December  31,  2001,  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.  This  includes  all
Directors,  Executive  Officers and  Scientific  Advisory  Board  members,  both
individually  and  as a  group.  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.

Name and Address of         Number of Shares of                   Percentage of
Beneficial Owner of Shares  Voting Stock Beneficially Owned (1)   Total Voting
-------------------------   -----------------------------------   --------------

David A. Conway (2) (3)                 19,201,390                    22.2%
WaterChef, Inc.
1007 Glen Cove Ave.
Glen Head, NY  11545

Martin Clare                               499,999                    ---
Civilization Communications Inc.
W. Hawthorne
Valley Stream, NY

Richard P. Farkas (4)                      250,000                    ---
IMC
33 Baruch Dr.
Long Branch, NJ  07740



                                       16
<PAGE>


Rudolf W. Schindler                      2,300,000                     2.7%
WaterChef, Inc.
1007 Glen Cove Ave.
Glen Head, NY  11545

Marshall S. Sterman                        250,000                     ---
The Mayflower Group
68 Phillips Beach Road
Swampscott, MA 01907

All executive officers and
Directors as a Group (5)                22,501,289                   26.0%
===================================================
(Five-5-Persons)

1.     Total  Voting  Shares  are  comprised  of  all  common shares  issued and
       outstanding.

2.     Includes 5,044,794 shares held by  affiliates  and 6,310,464  shares held
       in an IRA Trust.

3.     The shares held by Mr. Conway  and  his  affiliates  have  anti-dilution
       provisions  to  insure  32.6%  ownership  of  the  voting  shares.  In
       February, 2002  Mr. Conway  voluntarily  surrendered  his  anti-dilution
       rights.

4.     Deceased, March 2002.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                           None.

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Exhibits

                           None

                  (b)      Reports on Form 8-K

                           None




                                       17
<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.


April 16, 2002                            /s/David A. Conway
----------------                             -----------------------------------
Date:                                        David A. Conway
                                             President, Chief Executive Officer
                                             (Principal Operating Officer)





                                       18