U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                                                   FORM 10-KSB

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

         For the fiscal year ended December 31, 1999

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

                         Commission file number 0-30544

                                WATER CHEF, INC.

        (Exact name of small business issuer as specified in its charter)

         DELAWARE                                             86-051678
         (State or Other Jurisdiction of                     (I.R.S. Employer
         Incorporation or Organization)                      Identification No.)

            1007 GLEN COVE AVENUE, SUITE 1, GLEN HEAD, NEW YORK 11545
                    (Address of principal executive offices)

                                  516-656-0059

                           (Issuer's telephone number)

   Securities registered under Section 12(g) of the Securities Exchange Act of
   1934:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE
                                (Title of Class)

     Check whether the issuer (1) filed all reports required to be filed by
 Section 13 or 15(d) of the Exchange act during the past 12 months (or for such
 shorter period that the registrant was required to file such reports), and (2)
 has been subject to such FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES__X__No__

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not 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. [X]

State registrant's revenues for the year ended December 31, 1999 -$354,792

State the aggregate market value of the voting stock held by  non-affiliates  of
the  registrant on March 31, 2000 computed by reference to the closing bid price
of the Water Chef Inc.  Common  Stock as reported by OCTBB on that date  $0.31):
$10,248,606

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                                OUTSTANDING AS OF

CLASS                            MARCH 31, 2000
Common                           --------------
Par value $0.001 per share       33,060,019

Transitional Small Business Disclosure Format (check one):Yes         No     X
                                       2
<PAGE>



                                WATER CHEF, INC.

                          ANNUAL REPORT ON FORM 10-KSB

                          YEAR ENDED DECEMBER 31, 1999

                                TABLE OF CONTENTS

PART I                                                                      PAGE

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

PART II

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

PART III

         ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS OF THE            12
                           REGISTRANT.

         ITEM 10.          EXECUTIVE COMPENSATION.                            13
         ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL           14

                           OWNERS AND MANAGEMENT.

         ITEM 12.          RELATED PARTY TRANSACTIONS                         16

PART IV

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

SIGNATURES

                                     Page 1


<PAGE>



                                     PART I

ITEM I.  BUSINESS

OVERVIEW

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

The Company  designs and markets its  products  primarily to  capitalize  on the
growing  demand for pure  water  dispensing  appliances,  which is driven by the
increasing market for purified water. Themarket growth for bottled water is at a
10% per year rate.

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

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

DEVELOPMENT OF THE COMPANY

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

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

Pursuant to a Merger  Agreement and Plan of  Reorganization  between the Company
and Water Chef, a Nevada corporation  ("Water  Chef-Nevada")  dated June 4, 1993
("the  Agreement"),  the Company issued  3,800,000 shares of its common stock to
Water  Chef-Nevada's  three  stockholders,   in  exchange  for  all  issued  and
outstanding  common  stock  of  Water  Chef-Nevada.   The  common  stock  issued
represented 62% of the issued and  outstanding  shares of its common stock after
the merger. In connection with this transaction,  Water  Chef-Nevada's  officers
and its director became officers and a director of the Company. This resulted in
Water  Chef-Nevada's  officers and director,  and  directors  appointed by Water
Chef-Nevada, controlling the Company's day-to-day operations.

                                     Page 2


<PAGE>




PRODUCTS AND TECHNOLOGY

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

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

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

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

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

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

In late 1999 WaterChef  created a prototype for a revised front panel and quotes
for the  necessary  tooling  have been  requested by the joint  venture  company
engineering  personnel.  The  tooling  will be procured in China and the Company
expects to have the updated design ready for market in Second Quarter, 2000.

                                     Page 3


<PAGE>



During 1999 the Company  entered into an agreement with a Long Island,  New York
manufacturer  to produce its  patent-pending  Community  Water Source  family of
products.  The contract  manufacturers'  proximity to  WaterChef's  headquarters
affords WaterChef's  marketing personnel frequent  opportunity to participate in
design and performance meetings.

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

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

MANUFACTURING FACILITIES

The  Company's  manufacturing  facilities  are  located in Havre,  Montana,  and
Tianjin, China. The Company leases approximately 13,000 sq. ft. of manufacturing
space at $0.21 per sq. ft. per month including utilities. The lease is for three
years and extends to November,  2002. The Company's water  dispensers  include a
one year  warranty,  requiring the Company to repair or replace,  at its option,
all defective parts on such products.  The refrigeration  system included in the
coolers includes a 5 year limited warranty which is provided by the manufacturer
of the system.

MARKETS AND COMPETITION

Based on  market  studies  conducted  by  others,  the  Company  estimates  that
approximately  750,000  water  dispensers  were  produced  in 1997 in the United
States. The water dispenser market in 1999 grew to about $145 million with a 10%
per year  growth  rate.  There are  three  privately-owned  companies  which the
Company estimates account for approximately 75% of these sales. The Company will
be at a  competitive  disadvantage  with  these  companies  as they  are  better
financed,  have greater depth of  management  and have  established  channels of
distribution for their products.

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

Sales of the Company's  products to the small water companies and coffee service
companies  are  presently  made  through  direct  sales  and  independent  sales
representatives  in the United States who are paid on a commission  basis. A new
market that has recently developed is the "water store," which is a retail store
that sells purified water and water dispensers  directly to consumers.  Sales of
water  dispensers by water stores have increased as consumers elect to purchase,
rather than lease, a water dispenser.  Further,  mass  merchandisers such as The
Home Depot and Sam's are entering

                                     Page 4


<PAGE>



the market.  The  Company's  line of Infinity  WaterChef  water  dispensers  was
designed to be user friendly with styling along appliance lines.  This and other
features make the line attractive to mass merchandisers who are expected to sell
a significant share of water dispensers over the next five years.

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

WaterChef  began the  development of its Community Water Source product in 1997,
responding to the  world-wide  need for an  affordable,  local  solution for the
potable water needs of smaller  populations in emerging  economies.  Development
and advanced  engineering  continued into 1998 and a systems patent  application
was filed in October,  1998. The Company has been notified that the U.S.  Patent
and  Trademark  Office  examiner  has upheld  claims made by the Company and the
patent will issue.

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

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

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

In 1999 the  Company  entered  into an  agreement  with First  Argentum,  LLC to
qualify and select  international  distributors to market and sell the Company's
patent pending water purification systems for small communities.

BACKLOG

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

RAW MATERIALS

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

                                     Page 5


<PAGE>




PATENTS

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

There can be no assurance  that any  application  of the Company's  technologies
will not infringe patent or proprietary rights of others or that licenses, which
might be required for the Company's processes or products, would be available on
favorable terms. Furthermore, there can be no assurance that challenges will not
be instituted  against the validity or enforceability of any patent owned by the
Company, or, if instituted, that such challenge will not be successful. The cost
of litigation to uphold the validity of a patent and prevent infringement can be
substantial  and may have a material  adverse effect on the Company's  financial
position.

SEASONALITY

The Company expects to experience seasonal fluctuations in the level of sales in
the North  American  market for water  dispensers.  In  particular,  the Company
anticipates that the first and, to a lesser extent, the fourth calendar quarters
will  be  characterized  by  lower  sales,  due to  the  winter  season.  As the
international  market grows, the Company expects these seasonal  fluctuations to
be  offset  in part by  sales  in  foreign  markets,  such  as  Australia,  that
experience  their summer season while North America is  experiencing  its winter
season. Further, the Company is seeking retail outlets in the U.S.

whose sales are not as seasonal as the bottled water companies.

Large purification  systems such as Village Water Systems and point-of-use water
dispensers have very little seasonal  variation.  Shower filters and counter top
filter  products  are gift type items  which  TYPICALLY  RESULTS IN ABOUT 40% OF
THEIR SALES IN THE 4TH calendar quarter.

RESEARCH AND DEVELOPMENT

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

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

                                     Page 6


<PAGE>



ENVIRONMENTAL LIABILITY

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

INSURANCE

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

Company believes its insurance coverage to be adequate.

EMPLOYEES

The  Company  (as of  December  31,  1999)  employed  a core  of two  management
personnel in the Havre,  Montana plant. The number of hourly personnel  employed
on the production line fluctuates with demand schedules.

The Company (as of December 31, 1999) employed three people in its  headquarters
operations, of whom one is engaged in management,  one in administration,  sales
and marketing and one in operations and engineering management.

The Company believes that its relations with its employees are good. The Company
also believes  there is a sufficient  number of persons  available at prevailing
wage rates in or near Havre,  Montana that should  expansion  of its  production
require additional employees,  they would be readily available.  The Company has
no collective bargaining agreement with any of its employees.

ITEM 2.  PROPERTIES

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

In  November  1999 the  Company  concluded  the sale of its owned  manufacturing
facility in Havre,  Montana to the BIG Equipment  Co., LLC.  Coincidentally  the
Company negotiated its release from a lease agreement with Hill County,  Montana
and became a tenant of the BIG Equipment Company, occupying approximately 13,000
sq. ft. of production space.

ITEM 3.  LEGAL PROCEEDINGS

The Company was involved in no significant legal proceedings in 1999.

ITEM 4.  SUBMISSION OF MATTER TO VOTE

No matters were submitted to the shareholders for vote during 1999.

                                     Page 7


<PAGE>



                                     PART II

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

PRICE RANGE OF COMMON STOCK

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

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

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

         1996                                     HIGH                      LOW

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

         1997                                     HIGH                      LOW

         First Quarter                           .23                       .10.5
         Second Quarter                          .29                       .14
         Third Quarter                           .28                       .11.5
         Fourth Quarter                          .39                       .13

         1998                                     HIGH                      LOW

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

                                     Page 8


<PAGE>




         1999                                     HIGH                      LOW

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

         2000

         First Quarter                           .86                       .04
</TABLE>

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

INTRODUCTION

Water Chef,  Inc. (the  "Company")  is a  manufacturing  and  marketing  company
engaged  in  the  manufacture  and  marketing  of  water  dispensers  and  water
purification and filtration equipment through the use of its equipment,  patents
and other assets.

DEVELOPMENT OF THE COMPANY

Pursuant to a Merger  Agreement and Plan of  Reorganization  between the Company
and Water Chef-Nevada dated June 4, 1993 ("the  Agreement"),  the company issued
3,800,000 shares of its common stock to Water  Chef-Nevada's three stockholders,
in exchange for all issued and  outstanding  common stock of Water  Chef-Nevada.
The common stock issued  represented 62% of the issued and outstanding shares of
its common stock after the merger.  In connection with this  transaction,  Water
Chef-Nevada's  officers  and it director  became  officers and a director of the
Company.  This  resulted  in Water  Chef-Nevada's  officers  and  director,  and
directors appointed by Water Chef-Nevada,  controlling the Company's  day-to-day
operations.

RESULTS OF OPERATIONS

Net revenues for the fiscal years ended  December 31, 1999 and December 31, 1998
were $354,792 and $238,548.  Revenues increased $115,244 or 48% over the earlier
period.

                                     Page 9


<PAGE>



Cost of Sales  increased  from $176,233 in 1998 to $247,416 in 1999, an increase
of $71,183 or 40% from 1998 primarily due to higher unit sales.

Selling general and  administrative  expenses for 1999 were $736,357 compared to
$1,078,742  for  1998,  a  decrease  of  $342,385,   or  32%.  The  decrease  is
attributable to lower staffing and consulting expenses as well as reduced rental
and business travel expenses compared to 1998.

The loss from  operations  for the  fiscal  year  ended  December  31,  1999 was
$628,981  compared to $1,016,427 for the previous year, a reduction of $387,446,
or 38%.

In fiscal year 1999, the Company negotiated the restructuring the major elements
of its debt, resulting in an extraordinary gain of $344,055.

In fiscal year 1999, the Company wrote-off accrued expenses and accounts payable
of $801,875,  which had been  incurred  under prior  management  during the year
ended December 31, 1994, as it was determined that these obligations   would not
have to be paid.

For fiscal year ended  December  31, 1999 the Company had net income of $159,353
compared to a net loss of $1,517,971 for the year ended December 31,1998.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999 the Company had a stockholders' deficit of $4,759,140 and a
working capital deficit of $4,877,661.

In 1999 the Company began the  restructuring  of its debt.  With the sale of its
manufacturing  facility in Havre,  Montana The Company generated proceeds to pay
all outstanding real estate and personal property taxes in Hill County, Montana.
To assist  the  Company in its  restructuring,  Hill  County  forgave a $300,000
mortgage  obligation  and  approximately  $120,000  of  accrued  rental  related
expenses.  The balance of the proceeds were paid, in the First Quarter, 2000, to
U.S. Small Business  Administration to reduce the Company's debt to that agency,
and preliminary agreement was reached with the Bear Paw Development  Corporation
of Northern,  Montana and the Montana  Department of Commerce to convert debt to
equity. These transactions will close in 2000.

In  1999,  the  Company  canceled  425,000  share of  common  stock  which  were
previously issued, in error, to a former officer of the Company.

As part of its  restructuring,  the Company  issued  1,911,666  shares of common
stock to pay certain  accounts  payable and salaries.  In addition,  the Company
issued 1,428,500 shares of common stock for services  preformed on behalf of the
Company.

Early in 2000 the Company  entered into an agreement  with a securities  firm to
raise capital for the Company.

                                     Page 10


<PAGE>




Management has  undertaken a program to restructure  its existing debt 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 AND SUPPLEMENTARY DATA

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

None

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

At year-end 1999 the Company's Directors and Executive officers are:

NAME                                     AGE       POSITION(S) WITH COMPANY

David A. Conway                          58   Director, Chairman, President, and
                                              Chief Executive Officer

John J. Clarke                           58   Director

Richard P. Farkas                        76   Director

Rudolf W. Schindler                      47   Vice President Marketing & Sales

DAVID A. CONWAY

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

                                     Page 11


<PAGE>




JOHN J. CLARKE

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

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

RICHARD P. FARKAS

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

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

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

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

RUDOLF W. SCHINDLER

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

                                     Page 12


<PAGE>




ITEM 10.  EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION


Name                       Year     Salary           Bonus       Non - Cash                Total
Principal Position                                              Compensation            Compensation
<S>                       <C>      <C>                 <C>            <C>              <C>
David A. Conway            1999     $150,000            0              0                $150,000
</TABLE>


DIRECTORS' COMPENSATION

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

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

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

The  Company's  Amended  and  Restated  Certificate  of  Incorporation  provides
generally for  indemnification  of the Directors and Officers to the full extent
permitted under Delaware law, and permits  indemnification for all other persons
whom the Company is empowered to indemnify.

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

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

                                     Page 13


<PAGE>





ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

                    MANAGEMENT

Set forth  below is  information  as of  December  31,  1999,  concerning  stock
ownership of all persons known by the Company to own  beneficially 5% or more of
the issued and  outstanding  common stock of the  Company,  all  Directors,  the
Executive Officers, and all Directors and Executive Officers of the company as a
group based on the number of shares of common stock issued and outstanding as of
the date of this Offering Memorandum. For purposes of the Memorandum, beneficial
ownership is defined in accordance with the Rules of the Securities and Exchange
Commission  and  generally  means  the  power  to  vote  and/or  dispose  of the
securities regardless of any economic interest.
<TABLE>
<CAPTION>
<S>                                        <C>                                         <C>

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

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

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

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

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

All Executive Officers and                  5,183,334 Common                                     14.7%
Directors as a Group   (5)                  7,936,666 Preferred E                                100%
(Four -4- Persons)                                                                      % of Total Voting
                                                                                                 30.4%
</TABLE>

                                     Page 14


<PAGE>



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

(2)      Includes 2,666,666  Preferred E Shares held by affiliates and 3,333,334
         Shares of Common held in an IRA Trust.

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

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

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



ITEM 12.  RELATED PARTY TRANSACTIONS

None.

                                     Page 15
<PAGE>


                                WATER CHEF, INC.

                          INDEX TO FINANCIAL STATEMENTS

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

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

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

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

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

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


























                                       F-1


<PAGE>



                          INDEPENDENT AUDITORS' REPORT

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

                  We have audited the accompanying  balance sheet of Water Chef,
Inc. as of December 31, 1999 and the related  statements of operations,  changes
in  stockholders'  deficit and cash flows for the years ended  December 31, 1999
and 1998.  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 generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material  misstatement.  An audit also  includes  examining  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

                  In our opinion,  the  financial  statements  referred to above
present fairly, in all material  respects the financial  position of Water Chef,
Inc. as of December  31,  1999 and the  results of its  operations  and its cash
flows  for the  years  ended  December  31,  1999  and 1998 in  conformity  with
generally accepted accounting principles.

                  The  accompanying  financial  statements  have  been  prepared
assuming that the Company will continue as a going concern. As discussed in Note
2  to  the  financial  statements  the  Company  incurred  operating  losses  of
approximately   $878,000  and   $1,409,000  in  1999  and  1998,   respectively.
Additionally,  the Company had working capital and total capital deficiencies of
approximately  $4,878,000 and $4,759,000 at December 31, 1999.  These conditions
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these matters are described in Note 2
to the  financial  statements.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.

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

April 6, 2000
New York, New York

                                       F-2





<PAGE>
                                WATER CHEF INC.

                                  BALANCE SHEET

                                DECEMBER 31, 1999

                                     ASSETS

CURRENT ASSETS:

    Cash                                                        $          4,426
    Due from factor                                                        2,073
    Inventories                                                           98,565
    Cash held in escrow                                                  161,988
    Prepaid expenses and other current assets                              3,401
                                                                  --------------
       TOTAL CURRENT ASSETS                                              270,453

PROPERTY AND EQUIPMENT - at cost, net                                     15,194

INVESTMENT IN JOINT VENTURE                                               52,184

INTANGIBLE AND OTHER ASSETS                                               51,143

                                                                  --------------
                                                                $        388,974

                                                                 ===============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:

    Notes payable and accurred interest                         $      3,375,238
    Accounts payable                                                     675,293
    Preferred dividends payable                                          449,506
    Loan payable-shareholder                                             327,781
    Accrued expenses and other current liabilities                       320,296
                                                                  --------------
       TOTAL CURRENT LIABILITIES                                       5,148,114

                                                                  --------------


STOCKHOLDERS' DEFICIT:

    Preferred stock, $.001 par value;
       10,000,000 shares authorized;
       8,082,166 shares issued and outstanding                            8,082
    Common stock, $.001 par value;
       90,000,000 shares authorized;
       35,254,181 shares  issued and outstanding                         35,254
    Additional paid-in capital                                        7,266,138
    Treasury stock, 4,400 common shares, at cost                         (5,768)
    Accumulated deficit                                             (12,062,846)

                                                                 ---------------
       TOTAL STOCKHOLDERS'  DEFICIT                                  (4,759,140)

                                                                 ---------------
                                                                $        388,974

                                                                 ===============





                       See Notes to financial statements.

                                       F-3
<PAGE>

                                WATER CHEF INC.
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>



                                                                                            Years Ended December 31
                                                                                          ---------------------------
                                                                                              1999           1998
                                                                                          -----------      ----------
<S>                                                                                      <C>              <C>

NET SALES                                                                                 $  354,792       $  238,548

COSTS AND EXPENSES:

     Cost of sales                                                                           247,416          176,233
     Selling, general, and administrative                                                    736,357        1,078,742
                                                                                             983,773        1,254,975


LOSS BEFORE OTHER INCOME (EXPENSES) AND
                                                                                            ---------      -----------
     EXTRAORDINARY ITEM                                                                     (628,981)      (1,016,427)
                                                                                            ---------      -----------
OTHER INCOME (EXPENSES)

     Non-recurring income                                                                    801,875                -
     Interest expense                                                                       (179,044)        (233,075)
     Equity in loss of joint venture                                                         (73,757)        (160,169)
     Gain on sale of land and building                                                         3,505                -
                                                                                            ---------      -----------
     Other Income expenses, net                                                              552,579         (393,244)
                                                                                            ---------      -----------
Loss before extraordinary item                                                              (76,402)      (1,409,671)

Extraordinary item - Gain on early extinguishment of debt                                    344,055                -
                                                                                            ---------      -----------
Net income (loss)                                                                            267,653       (1,409,671)

Preferred stock dividends                                                                   (108,300)        (108,300)
                                                                                            ---------      -----------
Net income (loss) applicable to common stock                                            $    159,353     $  (1,517,971)
                                                                                            =========      ===========

Basic and diluted loss per common share:


     Loss before extraordinary item                                                     $      (0.01)     $      (0.05)
                                                                                            ---------      -----------
     Extraordinary item                                                                         0.01                -

Net income (loss) per common share-basic and diluted                                    $       0.00      $      (0.05)
                                                                                        ===============    ==============



                                                                                        ===============    ==============
Weighted average common shares outstanding                                                32,478,507        33,257,256
                                                                                        ===============    ==============

</TABLE>





                       See notes to financial statements.



                                       F-4


<PAGE>


                                Water Chef, Inc.

                       Statements of Stockholders' Deficit

<TABLE>
<CAPTION>


                                                                                 Additional                               Total

                                 Preferred Stock          Common Stock                Paid-in      Treasury   Accumulated Stockholde
                                 ---------------          ------------
                                 Shares       Amount       Shares       Amount       Capital       Stock       Deficit    Deficit
                                 ----------   ---------    -----------  ---------    -----------    --------    ---------  ---------
<S>                            <C>       <C>           <C>         <C>          <C>              <C>         <C>                <C>

BALANCE - JANUARY 1,
1998                     145,500    $    145     35,036,237   $ 35,036     $ 6,322,814   $ (5,768)  $ (10,704,228)$     $(4,352,001)


    Exchange of common
for  preferred stock   7,936,666       7,937     (7,936,666)    (7,937)              -          -               -                 -
    Shares issued for:

       Cash                    -            -      2,077,778      2,078         205,700          -               -           207,778
       Services                -            -        270,000        270          47,730          -               -            48,000
       Extinguishment of
       Debt                    -            -      2,891,666      2,892         527,263          -               -           530,155
    Preferred stock
    dividend                  -            -              -          -               -          -        (108,300)         (108,300)
    Net Loss                  -            -              -          -               -          -      (1,409,671)       (1,409,671)

BALANCE - DECEMBER 31,----------      -----     -----------     ------       ---------     ------     -----------         ----------
1998                  8,082,166       8,082      32,339,015     32,339       7,103,507     (5,768)    (12,222,199)       (5,084,039)
    Cancellation of
shares                        -            -       (425,000)      (425)        (42,075)         -               -           (42,500)
    Shares issued for:

       Services               -            -      1,428,500      1,429          62,971          -               -            64,400
       Payment of Accounts
       Payable and Salaries   -            -      1,911,666      1,911         141,735          -               -           143,646
    Preferred stock dividend  -            -              -          -               -          -        (108,300)         (108,300)
    Net Loss                  -            -              -          -               -          -         267,653           267,653
                      -------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31,
1999                  8,082,166     $  8,082     35,254,181   $  35,254    $  7,266,138  $  (5,768) $  (12,062,846)   $  (4,759,140)
                      ==========     ========     ==========    ========     ===========  ==========  ==============  ==============

</TABLE>

                       See notes to financial statements.

                                      F-5


<PAGE>
                                 WATERCHEF INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                              --------------------------------
                                                                                  Year Ended December 31,
                                                                              --------------------------------
                                                                                  1999              1998
                                                                              --------------   ---------------
<S>                                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

    Net income (loss)                                                      $        267,653  $     (1,409,671)
    Adjustments to reconcile net income (loss) to net cash
       used in operating activities

       Depreciation and amortization                                                 26,502            57,387
       Gain on sale of land and building                                             (3,505)                -
       Issuance of shares for services,
          Salaries and Payment of Accounts Payable                                   64,400            48,000
       Equity in loss of joint venture                                               73,757           160,169
       Extraordinary gain on extinguishment of debt                                (344,055)                -
       Non-recurring income                                                        (801,875)                -

    Change in assets and liabilities

       Due from factor                                                                5,977            86,779
       Cash held in escrow                                                         (161,988)                -
       Prepaid expenses and other current assets                                        466                 -
       Inventories                                                                  121,751           205,644
       Other assets                                                                  (4,100)           26,263
       Accounts payable and accrued expenses                                        346,303            (9,820)
                                                                              --------------   ---------------
       CASH USED IN OPERATING ACTIVITIES                                           (408,714)         (835,249)
                                                                              --------------   ---------------


CASH FLOWS USED IN INVESTING ACTIVITIES

    Net proceeds from the sale of land and building                                 246,778                 -
    Purchase of property and equipment                                                    -            (5,693)
                                                                              --------------   ---------------
       CASH PROVIDED(USED) BY FINANCING ACTIVITIES                                  246,778            (5,693)

CASH FLOWS FROM FINANCING ACTIVITIES

       Increase in notes payable                                                          -           468,622
       Increase in loan payable - shareholder                                       158,368           169,413
       Proceeds from sale of common stock                                                 -           207,778
                                                                              --------------   ---------------
       CASH PROVIDED BY FINANCING ACTIVITIES                                        158,368           845,813
                                                                              --------------   ---------------

NET INCREASE(DECREASE) IN CASH                                                       (3,568)            4,871
CASH - Beginning of year                                                              7,994             3,123
                                                                              ==============   ===============
CASH - End of year                                                         $          4,426 $           7,994
                                                                              ==============   ===============


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                                           143,646           530,155
                                                                              ==============   ===============
             Common stock issued for services                                        64,400            48,000
                                                                              ==============   ===============
</TABLE>


                       See notes to financial statements.

                                       F-6
<PAGE>


                                WATER CHEF, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1999 AND 1998

1.       THE COMPANY

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

          In  December  1999,  the  Company's  board of  directors  approved  an
          increase in the authorized common shares from 40,000,000 to 90,000,000
          shares.

2.        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
          $878,000 and $1,409,00 for the year ended  December 31, 1999 and 1998.
          Additionally,  the  Company  had  working  capital  and total  capital
          deficiencies of $4,878,000 and $4,759,000 at December 31, 1999.  These
          conditions  raise  substantial  doubt about the  Company's  ability to
          continue as a going concern.  Management's plans with respect to these
          matters include  restructuring its existing debt,  raising  additional
          capital  through  future  issuances  of stock and or  debentures.  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.   PROPERTY AND  EQUIPMENT - Property and  equipment  are stated at cost.
          Depreciation  is  calculated  using  the  straight-line   method  over
          estimated useful lives of seven to thirty years.

     d.   INVESTMENT  IN JOINT  VENTURE - The  Company  is  unable  to  exercise
          economic control over the joint venture's operations, and accordingly,
          the investment is accounted for under the equity method of accounting.

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

                                       F-7


<PAGE>




         f.       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.

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

         h.       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.

         i.       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.

         j.       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.

         k.       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.

         l.       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.

         m.       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, 1999,
                  the Company does not believe that any impairment has occurred.

                                       F-8


<PAGE>



         n.       RECENT ACCOUNTING  PRONOUNCEMENTS - Statement of Position 98-5
                  ("SOP 98-5")  "Reporting on the Costs of Start-Up  Activities"
                  was  issued  in April  1998.  SOP 98-5  requires  the costs of
                  start-up  activities,  including  organization  costs,  to  be
                  expensed as  incurred.  SOP 98-5 is  effective  for  financial
                  statements for fiscal years beginning after December 15, 1998.
                  The Company will adopt SOP 98-5 in for calendar  year 2000 and
                  does not expect the adoption to have a material  impact on the
                  consolidated financial statements.

                  In June 1998,  the FASB  issued SFAS No. 133  "Accounting  for
                  Derivative  instruments and Hedging  Activities." SFAS No. 133
                  is effective for all fiscal periods  beginning  after June 15,
                  1999. SFAS No. 133 require that all derivative  instruments be
                  recorded on the balance sheet at their fair value.  Changes in
                  fair value of derivatives  are recorded each period in current
                  earnings or other comprehensive income, depending on whether a
                  derivative is designed as part of a hedge  transaction and, if
                  it is, the type of hedge  transaction.  The  Company  does not
                  expect the  adoption of SFAS No. 133 to have any impact on the
                  consolidated  financial  statements  as they do not  currently
                  hold any derivative  instruments nor have they held any in the
                  past.

3.       DUE FROM FACTOR

         The Company sells a substantial  portion of its trade  receivables to a
         commercial  factor,  without  recourse,  up to  maximum  credit  limits
         established by the factor for each individual account. Receivables sold
         in excess of these  limits  are  subject  to  recourse  in the event of
         nonpayment  by the  customer.  At  December  31,  1999,  there  were no
         significant  receivables  subject to  recourse.  Under the terms of the
         agreement,  advances made by the commercial factor prior to maturity of
         the accounts receivable will charge a discount rate of 3.5% on invoices
         that are  collected  within 34 days. An additional 1% is added when the
         average  collection  days increases by 10 days up to a maximum of 9.5%.
         At December 31, 1999,  factor  advances of  approximately  $16,400 were
         offset against accounts receivable assigned to the factor.

4.       INVENTORIES

         Inventories  consisted  primarily  of  parts  and  supplies  which,  at
         December 31, 1999, amounted to $98,565.

5.       INVESTMENT IN JOINT VENTURE

         In February  1994,  the Company  formed Tianjin Tahoe "Cap" Cooler Co.,
         Ltd.  ("Tianjin  Tahoe") a joint  venture  with Tianjin  Electronics  &
         Instruments Import and Export Corporation ("TEIIEC") for the purpose of
         manufacturing  certain  Company  designed  water  coolers  in  Tianjin,
         Peoples Republic of China. The Company contributed $440,000,  inclusive
         of cash,  machinery and equipment and  engineering  designs in exchange
         for a fifty-five

                                       F-9


<PAGE>



         percent interest in the joint venture.  Limited production commenced in
         May 1996. The first  significant  importation of finished  products and
         parts kits occurred in 1997.

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

         The Company also has a  distribution  agreement  with the joint venture
         whereby  the  Company  is  the  exclusive   sales  agent  for  products
         manufactured by the joint venture.  The exclusive  territory covers all
         parts of the world,  except the People's Republic of China,  Taiwan and
         Hong Kong.

         The  Company  is unable to  exercise  economic  control  over the joint
         venture's operations, and accordingly,  the investment is accounted for
         under the equity method of accounting  which, at December 31, 1999, was
         $52,184. At December 31, 1999, accounts payable included $14,734 due to
         the joint venture. Purchases in 1999 and 1998 were insignificant.

6.       PROPERTY AND EQUIPMENT

         At  December  31,  1999,   property  and  equipment  consisted  of  the
         following:

         Machinery and equipment                            $            278,888
         Furniture, fixtures and equipment                                96,622
                                                              ------------------
                                                                         375,510
         Less: accumulated depreciation                                  360,316
                                                              ------------------
                                                            $             15,194
                                                              ==================


7.       INTANGIBLE AND OTHER ASSETS

         At December 31,  1999,  intangible  and other  assets  consisted of the
         following:

         Patents and trademarks, less accumulated
         amortization of $35,601                        $                 42,581
         Deposits                                                          8,562
                                                              ------------------
                                                        $                 51,143
                                                              ==================

         Amortization  of patents and  trademarks in 1999 and 1998 was $5,924 in
         each year.

                                      F-10


<PAGE>



8.       NOTES PAYABLE

Notes payable - Bear Paw Development Corporation of Northern
Montana, interest payable at 5% per annum; the notes are
secured by the general assets of Water Chef, Inc; amounts
due inclusive of $367,248 interest were:                             $ 1,828,203

Note payable - U.S. Small Business Administration, interest payable
at 11.00% per annum; the note is secured by real property located
in Havre, Montana and additionally by certain machinery,
equipment, furniture, fixtures, receivables and inventory.  A former
officer has personally guaranteed the note payable.

In November 1999, the Company sold land and building for $245,816, net of
closing costs of $11,684. The carrying value of the property was $242,311, net
of accumulated depreciation of $57,689 and resulted in a gain of $3,505. The net
proceeds were used to pay property taxes of $73,028. The balance of proceeds
were held in escrow to pay part of the SBA note payable balance at December 31,
1999. The escrow funds were paid in March 2000 to the holder of the SBA note
payable;amounts due inclusive of $88,219 interest were:              $   482,306

Bridge loans - unsecured, interest payable at 12% per annum;
amounts due inclusive of $26,250 interest were:                          401,250

Loans payable - other - unsecured, interest ranging from 10% to
15% per annum - amounts due inclusive of $177,592 interest were:         663,479
                                                                     -----------
                                                                     $ 3,375,238
                                                                     ===========

          All of the above notes and loans are in default and, accordingly,  are
          due and payable on demand.  Management,  with the  forbearance  of the
          noteholders,  intends to restructure  the debt and is currently in the
          process of formulating a plan for submission to the various  creditors
          (see Note 2 (a)).

9.       ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

         At December 31, 1999, accrued expenses were as follows:

Payroll                                                              $   159,017
Rent                                                                      18,664
Other                                                                    142,615
                                                                      ----------
                                                                     $   320,296
                                                                      ==========
10.      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, 1999, outstanding preferred shares were as follows:

                                               Shares                  Amount

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

         SERIES A:

         The Series A preferred  stock provides for a 10%  cumulative  dividend,
         based on the $10 per share  purchase  price,  payable  annually  in the
         Company's common stock or cash, at the Company's  option.  The Series A
         preferred stock is not convertible, and is callable by the Company at a
         price of $11 per share.

         SERIES D:

         The Series D preferred  stock provides for a 12%  cumulative  dividend,
         based on the $5 per share purchase price, payable twice annually in the
         Company's common stock or cash, at the Company's  option.  The Series D
         preferred stock is not convertible,  and is redeemable at the Company's
         option.

         SERIES E:

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

         At December 31, 1999, dividends in arrears on the Series A and Series D
         preferred shares were $255,106 and $194,400, respectively.

11.      COMMON STOCK

         In 1999, the Company canceled 425,000 shares of common stock which were
         previously issued, in error, to a former officer of the Company.

         In 1999,  as part of the  Company's  restructuring  plan,  they  issued
         1,911,666 shares of common stock to pay  certain  accounts  payable and
         salaries valued at $143,646. In addition,  the Company issued 1,428,500
         shares of common stock for consulting services valued at $64,400.

                                      F-11


<PAGE>



12.      WARRANTS

         All  outstanding  warrants  issued  prior to 1997  have  expired  as of
         December 31, 1998.  The Company  issued  3,083,338  warrants in 1997 in
         connection with private placements of which 750,000 warrants expired in
         June 1999. The remaining  2,333,338  warrants  entitle the holders to a
         like number of common shares and are  exercisable at $0.15 each through
         May 2002.

13.      STOCK OPTIONS

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

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

         Options to  purchase up to 75,000  shares of common  stock at $0.10 per
         share were granted to two employees  prior to 1997. Such options remain
         unexercised at December 31, 1999 and expire in the year 2002.

14.      MAJOR CUSTOMERS

         Sales to two individual customers  approximated 14% and 15% in 1999 and
         15% to a single customer in 1998.

15.      LEASES

         The Company is currently obligated under a lease for its administrative
         facilities  located  in Glen  Head,  New  York.  The lease  expires  in
         September  2001.  Minimum annual lease payments are $20,556 and $16,129
         in 2000 and 2001, respectively.

         On December 9, 1999,  the Company  was  released  from all  obligations
         under their  factory  lease  agreement,  effective  October 1, 1999. In
         November  1999,  the Company  entered  into a new  factory  lease which
         expires in November 2002. The future minimum lease payments are $32,400
         in 2000, 2001, and $29,700 in 2002.

         Rent expense for 1999 and 1998 was $63,306 and $28,270, respectively.

                                      F-13


<PAGE>



16.      INCOME TAXES

         The following is a reconciliation  of income taxes and amounts computed
         using the U.S.  Federal  statutory  rate and the effective tax rate for
         the years ended December 31, 1999 and 1998:

                                                        1999             1998
                                                   ------------    -------------
Pre-tax income(loss)                                    267,000    $ (1,409,000)
                                                   ------------    -------------
Tax (benefit) at Federal statutory rate (35%)            94,000        (493,000)
Temporary differences                                    26,000          56,000
Net operating loss carryforwards                       (120,000)              -
Tax benefit not recognized                                    -         437,000
                                                   ------------    -------------
Taxes per financial statements                                -    $          -
                                                   ============    =============


         The Company has adopted Statement of Financial Accounting Standards No.
         109,  "Accounting for Income Taxes".  Under this standard,  the Company
         records as an asset its net operating loss  carryforward  ("NOL") based
         upon current tax returns,  and establishes a valuation allowance to the
         extent of any NOL which will not be utilized in the foreseeable future.
         At this time, the Company cannot reliably predict future profitability.
         Accordingly, the deferred tax asset has been reduced in its entirety by
         the valuation  allowance.  As of December 31, 1998, the Company had net
         operating loss carry  forwards of  approximately  $10,380,000  expiring
         variously through 2013.

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

17.      NON-RECURRING INCOME AND EXTRAORDINARY ITEM

         Included in non-recurring  income is a write-off of accrued  management
         salaries,  certain trade  payables and accrued rent  totaling  $801,875
         from the year  ended  December  31,  1994.  The  accrued  expenses  and
         accounts  payable were from prior  management and during the year ended
         December 31, 1999, current management wrote-off these liabilities as it
         was determined that they would not be paid.

         On  December  9, 1999,  Hill  County,  State of  Montana,  forgave  the
         Company's  indebtedness  on a note  payable for  $300,000  plus accrued
         interest of $44,055.

                                      F-14