WATERCHEF, INC.

                          ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS

PART I                                                                      PAGE
                                                                            ----

         ITEM 1.  BUSINESS                                                     2
         ITEM 2.  PROPERTIES                                                   6
         ITEM 3.  LEGAL PROCEEDINGS                                            6
         ITEM 4.  SUBMISSION OF MATTERS TO VOTE                                7

PART II

         ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED                         8
                           STOCKHOLDER MATTERS.
         ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF                     10
                           FINANCIAL CONDITIONS AND RESULTS OF
                           OPERATIONS.
         ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY                      11
                           DATA.
         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                                      15
         ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL                    16
                           OWNERS AND MANAGEMENT.
         ITEM 12. RELATED PARTY TRANSACTIONS.                                 17

PART IV

         ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.                           17

         SIGNATURES                                                           17

                                       1
<PAGE>

ITEM 1. BUSINESS

WaterChef, Inc. (the "Company", "WaterChef"),  designs, manufactures and markets
water purification equipment, water dispensers and water filters.

COMPANY HISTORY

The Company  was  incorporated  under  Arizona law in 1985 and was merged into a
Delaware  corporation  in 1987. On June 4, 1993 the Company,  then known as Auto
Swap,  U.S.A.,  entered into a Merger Agreement and Plan of Reorganization  with
WaterChef, Inc., a Nevada corporation ("Water Chef-Nevada), and 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 prior to the merger.

The  Water  Chef-Nevada   acquisition  has  been  accounted  for  as  a  reverse
acquisition. Therefore the historical financial statements prior to June 4, 1993
are those of Water  Chef-Nevada,  which was  formed on  January  25,  1993.  For
financial statement  presentation  purposes,  the Company is   considered  to be
the predecessor compamy.

PRODUCTS AND TECHNOLOGY

In May 1993,  the  Company  built a  manufacturing  plant in Havre,  Montana  to
produce their first commercial line of water dispensers.  This product, referred
to as the TAHOE(R)  line,  was  designed as a  "traditional"  product,  which is
configured so that the bottle of water rests upside down on top of the dispenser
with its neck protruding downward. The first TAHOE(R) unit was sold commercially
in July 1993.

In mid-1993 the Company  entered into a joint venture with a Chinese company for
the  manufacture  of water  dispensers  in the People's  Republic of China.  The
Company  received  55% of the  equity in the  joint  venture  for  approximately
$475,000.  The Company's investment consisted of $140,000 in cash, machinery and
equipment valued at $144,000 and design and technology valued at $156,000.

The Company began production of its TAHOE(R) Series 1 in China in November 1993.
However  it was not until May of 1976 that  components  were  shipped  to Havre.
Finished  product  and parts  kits were  finally  shipped to Havre in late 1997.
Since 1997 the Company,  in concert with its joint venture partner in China, has
upgraded  and   restyled  its  products  and  has  improved  its   manufacturing
capability.

The joint  venture  agreement  also  requires  the Company to  transfer  certain
advanced  production  technology  developed by the Company to the joint venture,
and for the joint  venture to pay the  Company  royalties  for any sales made in
China.  The Company  also entered into a  distributor  agreement  with the joint
venture giving the Company  exclusive sales and distribution  rights to products
manufactured  by the joint  venture in all parts of the world with the exception
of the  People's  Republic  of China,  Taiwan and Hong Kong.  The joint  venture
agreement has approximately 15 more years to run.


                                       2
<PAGE>

Additional  recently  added  products to the company's line include custom water
filtration systems for installation in various models of the Series I (Infinity)
family of water  coolers,  which  connect  directly  to the water  supply  thus,
eliminating the need for bottled water,  and a similar product which can be used
for under-the-counter installation where cooling or heating is not required.

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

While the Company believes that its products meet or exceed the design,  quality
and  performance of  competitive  products,  it became  apparent in 1998 that in
order to build  considerable  shareholder  value,  the Company would have to add
products  to its line that would  qualify as "killer  applications".  Addressing
this  over  the past two  years,  using  in-house  scientific,  engineering  and
manufacturing expertise,  Company's management focused on the worldwide drinking
water  problems  related to the  conversion of harmful or "bad water" into pure,
safe,  drinkable  water,  being  mindful of the need to also provide an economic
solution for third world economies.  The resultant product is the Company's Pure
Safe Water Station,  a portable unit that will effectively  eliminate all living
pathogens--bacteria,  cysts, viruses, parasites and protozoa, which threaten the
safety of drinking water,  at a cost comparable or better being paid today.  The
Pure Safe produces up to 10,000  gallons per day, from any water source,  for as
little as 1 1/2 cents per gallon.

MANUFACTURING FACILITIES

The Company  manufactures in Tianjin,  People's  Republic of China and in Havre,
Montana.  The Montana plant,  encompassing 13,000 square feet, is leased through
October  2002 for $2,700 per month.  The Chinese  facility is owned by the joint
venture. The Company plans to outsource the manufacture of their Pure Safe unit.

The Company  distributes all water dispenser  products from Havre,  and converts
coolers to point-of-use  through  addition of plumbing and electrical  parts and
specialized  filtration  equipment.  All primary  plastic  molding,  sourcing of
purchase parts and basic  assembly and testing is done in the Company's  Chinese
facility.

MARKETING AND COMPETITION

The Company  believes that,  except for its newly introduced Pure Water Station,
substantial competition exists for all of its products. In addition, most of its
competitors  have  significantly  greater  assets and  liquidity.  However,  the
Company  believes  that its products  meet the highest  standards of quality and
styling,  and are  competitively  priced.  While it is the present intent of the
Company to continually  upgrade,  re-engineer and restyle its products,  it will
focus on the further  development,  manufacturing and marketing of its Pure Safe
Water Station.

                                       3
<PAGE>

Using the Company's unique capabilities in developing single unit, high quality,
low cost water  purification  systems,  WaterChef  has  developed,  tested,  and
brought to market a unique and highly  viable  solution  to the  drinking  water
needs of developing nations and emerging economies. The Pure Safe Water Station,
modified as necessary to meet a specific water problem,  can use water from that
source and purify it to U.S. Environmental Protection Agency standards.

While there are many excellent water purification  systems, the Pure Safe is the
only family of products  identified which was developed  specifically to address
the water  needs of those  locations  which will likely  never  enjoy  access to
municipal water. It is a permanent, easily installed;  turnkey solution offering
pure water to the world's  underprivileged  at a price that can't be beaten. The
existing companies in the market have tended to concentrate 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 the  residential  market is
concentrated in the developed nations of the world.

The need for the Pure Safe Water  Station is  significant,  with major  parts of
Africa,  the Middle East,  Southeast Asia, the Indian  sub-continent,  Latin and
South  America  and the  islands of the  Caribbean,  and much of Eastern  Europe
lacking  adequate  supplies of pure water. In the poorer countries of the world,
while the need is evident, the ability to finance the solution is problematical.
With the world price of purified water averaging in the $0.20 to $0.30 range per
gallon,  and with our ability to produce the highest quality water for pennies a
gallon,  WaterChef is confident in assessing the potential market we serve to be
in the multi-billion dollar range.

During 2000 the Company  entered into a master  distributor  agreement with Hong
Kong based 4CleanWaters Ltd., and international marketing company, to market the
Pure Safe product line.

Based on market  studies  commissioned  by industry trade  organizations,  it is
estimated that well over 1,000,000 water  dispensers were produced in the United
States in 2000, with a total market value of $160 million. There are three major
competitors in the industry,  accounting for  approximately  75% of total sales.
WaterChef,  a relatively late entrant to the industry,  remains 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 bottled water  companies'  products,  and coffee
service  businesses,  which  provide  coffee and other hot drink  appliances  to
offices  and,  in an  extension  of their  business,  now  often  provide  water
dispensers and bottled water as well.

                                       4
<PAGE>

With all of its primary water cooler  manufacturing  and plastic molding done at
its  Chinese  Joint  Venture  facility,   WaterChef  enjoys  manufacturing  cost
efficiencies  compared  to its primary  competitors,  but  conversely  lacks the
volume to make full automation  economically feasible. It is in the point-of-use
segment of the business where WaterChef's unit cost advantage  manifests itself,
allowing the Company to be the price leader in this higher gross margin,  higher
value-added segment.

The Company,  via its acquisition of Natural Water Systems,  participates in the
lifestyle  products  consumer  market.  The Company retains a high  performance,
competitively priced line of filter  products--shower  filters,  counter-top and
under-counter filters and purifiers, which are offered for sale on the Company's
websites, waterchef.net and tapdancefilter.com.

BACKLOG

The Company has booked Pure Safe Water Center orders for  Mozambique,  Tanzania,
and Nicaragua,  which are expected to ship in 2001. The Company's practice is to
immediately  fill  orders  for water  dispensers  for  shipment  in the US so no
significant backlog exists.

RAW MATERIALS

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

PATENTS

The Company owns and holds eight  patents that are or will be used in connection
with the manufacture of its water dispensers.  The issued patents,  two of which
expire in 2006,  three of which  expire in 2007,  and three in 2008  cover  such
items as the designs for cabinets for the "new Century" water dispenser, certain
methods  of  providing   carbonated  water  through  a  water  cooler,  and  the
refrigeration unit for the water dispensers,  which features the use of ice as a
thermal  storage  medium to extend the peak draw capacity of a water  dispenser,
e.g.,  the number of cups of cold water that may be drawn from the 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 Pure Safe  Water  Station  (October,  1998),  and is
currently marketing the system "patent pending".

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

                                       5
<PAGE>

be instituted  against 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 does not expect the Pure Safe to be influenced by seasonality. Sales
of water  dispensers  are lower in the winter  months,  adversely  affecting the
first and fourth quarters of the year.

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.

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, 2000 the Company  employed three  executive  personnel in its
headquarters and between five and ten production personnel in Montana.

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 our  manufacturing  locations 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 the
Tianjin  Tahoe  Joint  Venture  facility  located at  Electronic  Park,  Tianjin
Economic and Technology  Development Zone, Tianjin,  People's Republic of China.
The Company manufactures the Pure Safe Water Station in a contract manufacturing
facility in Bohemia, New York.

ITEM 3. LEGAL PROCEEDINGS

The  Company  is  involved  in a civil  proceeding  brought by  individuals  who
participated in a subordinated debenture financing with the Company. The Company

                                       6
<PAGE>

believes  the case is without  merit,  and that there are  significant  defenses
available,  and further,  that should the plaintiffs prevail, it will not have a
material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO VOTE

No matters were submitted to the shareholders for vote during 2000.




















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

1997                                   HIGH                               LOW

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

1998

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

1999

First Quarter                          .02                                .01
Second Quarter                         .17                                .02
Third Quarter                          .08                                .04


                                       8
<PAGE>

Fourth Quarter                         .07                                .03

2000

First Quarter                          .86                                .04
Second Quarter                         .37                                .08
Third Quarter                          .19                                .06
Fourth Quarter                         .17                                .04


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

INTRODUCTION

WaterChef,  Inc.  (the  "Company")  is a  manufacturing  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  WaterChef-Nevada  dated June 4, 1993 ("the Agreement"),  the company issued
3,800,000 shares of its common stock to  WaterChef-Nevada's  three stockholders,
in exchange for all issued and outstanding  shares of its common stock after the
merger. In connection with this transaction, WaterChef-Nevada's officers and its
director  became  officers  and a director  of the  Company.  This  resulted  in
WaterChef-Nevada's   officers  and   director,   and   directors   appointed  by
WaterChef-Nevada, controlling the Company's day-to-day operations.

In   accordance   with   Accounting   Principles   Board  Opinion  No.  16,  the
WaterChef-Nevada  acquisition  has been accounted for as a reverse  acquisition.
The  historical  financial  statements  prior  to  June 4,  1993  are  those  of
WaterChef-Nevada,  which was formed on January 25, 1993. For financial statement
presentation purposes, the Company is considered to be the predecessor.

RESULTS OF OPERATIONS

Revenues for the fiscal years ended December  31,2000 and December 31, 1999 were
$257,197 and $354,792.  Revenues  decreased  $97,595 or 28% from the previous 12
months as the Company withdrew from the retail sale of water dispensers  through
mass merchants. The December 31, 1999 revenues included $106,650 of retail sales
through mass merchants at unacceptable margins.


                                       9
<PAGE>

Cost of sales  decreased  from  $247,416  for the 12 months 1999 to $169,163 for
full year 2000, a decrease of $78,253 or 32%. The decrease is due to lower sales
volume and a mix shift to higher margin products.

Selling general and administrative expenses for the twelve months ended December
31,  2000 were  $1,443,585  compared  to $736,357  for the twelve  months  ended
December  31,  1999,  an increase of $707,228 or 96%. The increase in expense is
primarily  due to higher than  normal  professional  fees  incurred to bring the
Company  current in its  reporting and start up expenses for the Pure Safe Water
Station product line.

The loss from continuing  operations for the fiscal year ended December 31, 2000
was $1,583,953 compared to $878,277 for the fiscal year ended December 31, 1999,
an increase of $705,676, or 80%.

In fiscal year 2000 the Company  negotiated the  restructuring of major elements
of its debt resulting in an extraordinary gain of $2,236,605.

For fiscal year ended December 31, 2000 the Company had a net income of $652,652
compared to a net income of $267,653 for the year ended December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000 the Company had a stockholders' deficit of $2,389,000 and a
working capital deficit of $2,446,000.

During 2000 the Company  continued the  restructuring  of its debt.  The Company
made a final payment to the US Small Business Administration in final settlement
of the  principal  and  accrued  interest  owed to that  agency,  and reached an
agreement with the Bear Paw Development  Corporation of Northern Montana and the
Montana  Department of Commerce to issue  2,000,000  shares of WaterChef  common
stock in satisfaction of $1,867,654 of principal and accrued interest. In total,
during 2000 the Company  reduced its  outstanding  debt payable by $2,748,245 by
payments  of $234,000  in cash and by  issuance  of  3,614,550  shares of common
stock.  These  negotiated   settlements  resulted  in  forgiveness  of  debt  of
$2,236,606.

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

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


                                       10
<PAGE>




ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMETARY DATA















                                WATER CHEF, INC.


                               REPORT ON AUDITS OF
                              FINANCIAL STATEMENTS


                                   YEARS ENDED
                           DECEMBER 31, 2000 AND 1999












<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-15
















                                      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, 2000 and the related  statements of operations,  changes
in  stockholders'  deficit and cash flows for the years ended  December 31, 2000
and 1999.  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,  2000 and the  results of its  operations  and its cash
flows  for the  years  ended  December  31,  2000  and 1999 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 losses before  extraordinary
item of  approximately  $1,584,000 and $878,000 in 2000 and 1999,  respectively.
Additionally,  the Company had working capital and total capital deficiencies of
approximately  $2,446,000 and $2,389,000 at December 31, 2000.  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 & Co., P.C.
                                                    ----------------------------
                                                    Feldman Sherb & Co., P.C.
                                                    Certified Public Accountants
March 27, 2001
New York, New York






                                       F-2
<PAGE>


                                 WATER CHEF INC.

                                  BALANCE SHEET

                                DECEMBER 31, 2000


                                     ASSETS

CURRENT ASSETS:
     Cash, inclusive of $30,720, restricted funds                $      158,100
     Accounts receivable, net of allowance
        for doubtful accounts of $2,000                                   3,224
     Inventories                                                         55,696
     Prepaid insurance                                                    6,783
                                                                 ---------------

        TOTAL CURRENT ASSETS                                            223,803

PROPERTY AND EQUIPMENT                                                   12,174

INTANGIBLE AND OTHER ASSETS                                              45,219
                                                                 ---------------
                                                                 $      281,196
                                                                 ===============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
     Accounts payable                                            $      449,099
     Accrued expenses and other current liabilities                     453,223
     Notes payable and accrued interest                                 881,944
     Loan payable-shareholder                                           327,781
     Preferred dividends payable                                        557,806
                                                                 ---------------
                                                                      2,669,853
                                                                 ---------------


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;
        69,178,287 shares issued and outstanding                         69,178
     Additional paid in capital                                       9,066,282
     Treasury stock, 4,400 common shares, at cost                        (5,768)
     Accumulated deficit                                            (11,518,495)
                                                                 ---------------
        TOTAL STOCKHOLDERS'  DEFICIT                                 (2,388,657)
                                                                 ---------------
                                                                 $      281,196
                                                                 ===============



                       See notes to financial statements.

                                      F-3
<PAGE>
                                WATER CHEF, INC.

                            STATEMENTS OF OPERATIONS


                                                        Year Ended December 31,
                                                 -------------------------------
                                                      2000             1999
                                                 --------------   --------------


Net Sales                                        $      257,197   $     354,792
                                                 --------------   --------------


Costs and Expenses:
     Cost of sales                                      169,163         247,416
     Selling, general and administrative              1,443,585         736,357
     Research and development                            33,815               -
                                                 --------------   --------------
                                                      1,646,563         983,773
                                                 --------------   --------------


Loss Before Other (Expenses) Income
     and Extraordinary Item                          (1,389,366)       (628,981)
                                                 --------------   --------------


Other (Expenses) Income:
     Interest expense                                   (85,499)       (179,044)
     Equity in loss of joint venture                    (52,184)        (73,757)
     Inventory write-down                               (56,904)              -
     Gain on sale of land and building                        -           3,505
                                                 --------------   --------------

        Other (expense) income, net                    (194,587)       (249,296)
                                                 --------------   --------------


Loss Before Extraordinary Item                       (1,583,953)       (878,277)

Extraordinary item - Gain on early
     extinguishment of debt                           2,236,605       1,145,930
                                                 --------------   --------------

Net Income                                              652,652         267,653

Preferred stock dividends                              (108,300)       (108,300)
                                                 --------------   --------------

Net Income Applicable to
     Common Stock                                $      544,352   $     159,353
                                                 ==============   ==============


Basic and Diluted Income (Loss) Per Common Share:
     Loss before extraordinary item              $        (0.03)  $       (0.03)
     Extraordinary item                                    0.04            0.04
                                                 --------------   --------------
                                                 $         0.01   $        0.01
                                                 ==============   ==============


Weighted Average Common Shares Outstanding -
     Basic and Diluted                               55,044,957      32,478,507
                                                 ==============   ==============


                       See notes to financial statements.

                                      F-4
<PAGE>
                                WATER CHEF, INC.

                       STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>



                                            Preferred Stock      Common Stock      Additional                             Total
                                        -------------------- -------------------   Paid-in    Treasury   Accumulated   Stockholders'
                                          Shares    Amount     Shares    Amount    Capital     Stock       Deficit        Deficit
                                        ---------  --------  ---------  -------- ----------- ----------  ------------  -------------

<S>                                   <C>        <C>       <C>        <C>      <C>         <C>        <C>             <C>


BALANCE - JANUARY 1, 1999               8,082,166  $  8,082  32,339,015 $ 32,339 $ 7,103,507 $  (5,768) $(12,222,200)   $(5,084,040)

    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 Income                                  -         -           -        -           -         -       267,653        267,653
                                        ---------  --------  ----------  ------- -----------   --------- ------------   ------------
BALANCE - DECEMBER 31, 1999             8,082,166  $  8,082  35,254,181  $35,254 $ 7,266,138  $ (5,768) $(12,062,847)   $(4,759,141)


    Shares issued for:
        Cash                                                 10,543,330   10,543     452,457                                463,000
        Services                                              2,564,836    2,565     583,935                                586,500
        Non dilution agreement                                8,931,390    8,932     142,902                                151,834
        Conversion of debt                                    3,614,550    3,615     571,183                                574,798
        Exercise of Class "B" Warrants                          333,334      333      49,667                                 50,000
        Exchange of Preferred shares                                                                                              -
          for Common shares            (7,936,666)   (7,936)  7,936,666    7,936           -                                      -
    Preferred stock dividend                                                                                (108,300)      (108,300)
    Net Income                                  -                                                            652,652        652,652
                                       ----------   -------  ----------  ------- ------------ ---------  ------------    -----------
BALANCE - DECEMBER 31, 2000               145,500  $    146  69,178,287  $69,178 $ 9,066,282  $ (5,768) $(11,518,495)   $(2,388,657)
                                       ==========   =======  ==========  ======= ============ ========== ============    ===========
</TABLE>





                       See notes to financial statements.

                                      F-5


<PAGE>
                                     WATERCHEF INC.

                                STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                                               -------------------------------
                                                                       2000             1999
                                                               --------------   --------------
<S>                                                              <C>              <C>

CASH FLOWS FROM OPERATING ACTIVITIES
     Net Income                                                       652,652          267,653
        Adjustments to reconcile net income to net cash
           provided by (used in) operating activities
              Depreciation and amortization                            16,142           26,502
              Gain on sale of land and building                             -           (3,505)
              Non-cash compensation                                   738,334           64,400
              Equity in loss of joint venture                          52,184           73,757
              Extraordinary gain on extinguishment of debt         (2,236,605)      (1,145,930)
              Inventory write-down                                     56,904                -
        Change in assets and liabilities
           Cash held in escrow                                        161,988         (161,988)
           Accounts receivable                                         (1,151)           5,977
           Inventory                                                  (14,035)         121,751
           Other assets                                                 2,542           (3,634)
           Accounts payable and accrued expenses                       74,841          346,303
                                                               --------------   --------------
NET CASH USED IN OPERATING ACTIVITIES                                (496,204)        (408,714)
                                                               --------------   --------------


CASH FLOWS FROM INVESTING ACTIVITIES
     Net proceeds from the sale of land and building                        -          246,778
     Purchase of property, plant and equipment                        (13,122)               -
                                                               --------------   --------------

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                   (13,122)         246,778

CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from notes payable                                      150,000                -
     Increase in loan payable - shareholder                                 -          158,368
     Proceeds from sale of common stock and exercise of warrants      513,000                -
                                                               --------------   --------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                             663,000          158,368
                                                               --------------   --------------


NET INCREASE (DECREASE) IN CASH                                       153,674           (3,568)

CASH AT BEGINNING OF YEAR                                               4,426            7,994

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

CASH AT END OF YEAR                                           $       158,100            4,426
                                                               ==============   ==============



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                          $       574,798   $      143,646
                                                               ==============   ==============


</TABLE>





                       See notes to financial statements.

                                      F-6



<PAGE>

                                WATER CHEF, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2000 AND 1999
                     --------------------------------------



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.

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 before  extraordinary
               item of $1,584,000  and $878,000 for the years ended December 31,
               2000  and  1999,  respectively.  Additionally,  the  Company  had
               working capital and total capital  deficiencies of $2,446,000 and
               $2,389,000  at  December  31,  2000.  Further,  the Company is in
               default on its notes payable.  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 five to seven years.

         D.    INVESTMENT  IN JOINT  VENTURE - The  Company's  investment in its
               joint  venture's  operations  is  accounted  for under the equity
               method of accounting.

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

         F.    STOCK-BASED   COMPENSATION  -  The  Company  accounts  for  stock
               transactions in accordance with APB No. 25, "Accounting for Stock
               Issued to Employees". In

                                      F-7

<PAGE>



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

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

         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, 2000, the Company does not believe that
               any impairment has occurred.

                                       F-8

<PAGE>



         N.    NEW-ACCOUNTING STANDARDS

              (i)   In June  1999,  the  Financial  Accounting  Standards  Board
                    (FASB) issued Statement of Financial Accounting Standard No.
                    137 ("SFAS No. 137"), "Accounting for Derivative Instruments
                    and Hedging  Activities - Deferral of the Effective  Date of
                    FASB  Statement No. 133".  SFAS No. 137 amends SFAS no. 133,
                    "Accounting   for   Derivative   Instruments   and   Hedging
                    Activities",  which was issued in June 1998. SFAS 137 defers
                    the  effective  date of SFAS  No.  133 to all  fiscal  years
                    beginning after June 15,2000.  Accordingly, the Company will
                    adopt  the   provisions  of  SFAS  No.  133  for  2001.  The
                    application  of the  new  pronouncement  should  not  have a
                    material impact on the Company's financial statements.

             (ii)   In December 1999, the United States  Securities and Exchange
                    Commission  released Staff Accounting Bulletin No. 101 ("SAB
                    No. 101"),  "Revenue  Recognition in Financial  Statements".
                    (The  implementation  date  of  SAB  101,  was  subsequently
                    amended by SAB 101A and SAB 101B.) Under SAB 101  additional
                    guidance  on  revenue   recognition   criteria  and  related
                    disclosure requirements are required.  Implementation of SAB
                    No. 101 is required no later than the fourth fiscal  quarter
                    of fiscal years  beginning  after  December 15, 1999, but is
                    effective  retroactively  to the  beginning  of that  fiscal
                    period (per SAB 101B).  Company management has evaluated the
                    standard and the  reporting  implications  thereof,  and has
                    determined  that there will not be a  significant  impact on
                    the Company's operating results.

         O.    RECLASSIFICATION  OF  FINANCIAL   STATEMENTS  -  The  prior  year
               financial statements have been reclassified for comparability.


3.       RESTRICTED FUNDS

         Cash in the amount of  $30,720  was  restricted  to secure an open bank
         letter of credit of like amount as of December 31, 2000. Such letter of
         credit expired in February 2001.

4.       INVENTORIES

         At December 31, 2000, inventories were as follows:

                  Parts and Supplies                                     $35,256
                  Finished product                                        20,440
                                                                         -------
                                                                         $55,696
                                                                         =======
                                       F-9

<PAGE>



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  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, 2000, was
         fully written down.

6.       PROPERTY AND EQUIPMENT

         At  December  31,  2000,   property  and  equipment  consisted  of  the
         following:

          Machinery and equipment                           $            291,605
          Furniture, fixtures and equipment                               97,027
                                                              ------------------
                                                                         388,632

          Less: accumulated depreciation                                 376,458
                                                              ------------------
                                                            $             12,174
                                                              ==================

7.       INTANGIBLE AND OTHER ASSETS

         At December 31,  2000,  intangible  and other  assets  consisted of the
         following:

         Patents and trademarks, less accumulated
         amortization of $41,525                            $             36,657
         Deposits                                                          8,562
                                                              ------------------
                                                            $             45,219
                                                              ==================

         Amortization  of patents and  trademarks in 2000 and 1999 was $5,924 in
         each year.

                                      F-10

<PAGE>



8.       NOTES PAYABLE

         Notes payable at December 31, 2000 were as follows:

         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
         $106,306 interest were:                                         480,694
                                                                 ---------------
                                                                 $       881,944
                                                                 ===============

         The holders of the bridge  loans have  brought suit against the Company
         (Note 18).

         The remaining  loans payable  include $35,000 which were converted into
         shares of common stock in January 2001. The Company issued two notes in
         December, 2000 aggregating $150,000, bearing interest at 10% per annum.
         The balance of  $295,694  represents  obligations  from prior years for
         which management is attempting to negotiate repayment terms.

9.       ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

         At December 31, 2000, accrued expenses were as follows:

          Payroll                                           $            274,184
          Rent                                                            18,664
          Other                                                          160,375
                                                              ------------------
                                                            $            453,223
                                                              ==================


10.      LOAN PAYABLE - SHAREHOLDER

         The Company is obligated to its Chief  Executive  Officer for loans and
         advances made to the Company totaling $327,781 at December 31, 2000.

11.      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.

                                      F-11

<PAGE>



         At December 31, 2000, 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 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.

         At December 31, 2000, dividends in arrears on the Series A and Series D
         preferred shares were $307,606 and $250,200 respectively.

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

12.      WARRANTS

         The  Company  issued  3,083,338  warrants  in 1997 in  connection  with
         private  placements  of which  750,000  warrants  expired in June 1999.
         Warrants for 333,334  shares were exercised for $.15 per share in 2000.
         The  remaining  2,000,004  warrants  at December  31, 2000  entitle the
         holders to a like number of common shares and are  exercisable at $0.15
         each through May 2002.

                                      F-12

<PAGE>



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 50,000  shares of common  stock at $0.10 per
         share were granted to one employee  prior to 1997.  Such options remain
         unexercised at December 31, 2000 and expire in the year 2002.

14.      MAJOR CUSTOMERS

         Sales to one customer in 2000 were approximately 13% of sales. Sales to
         two customers approximated 14% and 15% of total sales in 1999.

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.  Future  minimum  annual lease payments are $16,129 in
         2001.

         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 2001, and $29,700 in 2002.

         Rent expense for 2000 and 1999 was $55,482 and $63,306, respectively.

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, 2000 and 1999:

                                      F-13

<PAGE>




                                                   2000                 1999
                                              ---------------     --------------
          Pre-tax income(loss)                $       653,000     $     267,000
                                              ---------------     --------------
          Tax at Federal statutory rate (35%)         229,000            94,000
          Temporary differences                        18,000            26,000
          Net operating loss carryforwards           (247,000)         (120,000)
                                              ---------------     --------------
          Taxes per financial statements      $             -     $           -
                                              ===============     ==============


         The Company cannot reliably predict future profitability.  Accordingly,
         the deferred tax asset of  $3,300,000  has been reduced in its entirety
         by a valuation allowance.  As of December 31, 2000, the Company had net
         operating loss carry forwards of approximately  $9,675,000  expiring in
         years through 2020.

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

17.      EXTRAORDINARY ITEM

         During  the   year  ended   December  31,  2000  the  Company   reduced
         outstanding  debt of $3,045,403, which included obligations to Bear Paw
         Development Corp. and to the  Small Business Administration, by payment
         of cash of $234,000 and  issuance of 3,614,550  shares of  common stock
         with a  value  of  $574,798.  Accordingly,  the  Company  effected   an
         extraordinary  gain from the extinguishment of  such debt in the amount
         of $2,236,605.

         Extraordinary gain of $1,145,930 in 1999 resulted from the following:

         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.  A gain  of  $801,875  in 1999  resulted  from a
         write-off of accrued  management  salaries,  certain trade payables and
         accrued  rent  from the year  ended  December  31,  1994.  The  accrued
         expenses and accounts  payable were incurred by prior  management  and,
         accordingly, current management determined that they would not be paid.

18.      LITIGATION

         The Company is  presently a defendant  in an action  brought by certain
         debenture  holders  ("Bridge loans")  in New Hampshire Superior  Court,
         seeking repayment of the $375,000 of debenture principal  together with
         interest  from  1997,  the  issuance  of  additional penalty shares and
         damages  which  the  plaintiffs  allege  they  have  suffered  for  the

                                      F-14

<PAGE>



          Company's  failure  to have  registered  the  warrants  issued  to the
          plaintiffs under the terms of the Warrant  Agreement.  The Company has
          interposed  certain  defenses and  counterclaims  which the  Company's
          legal  counsel  believes  has strong  merit.  The  Company  intends to
          contest this matter  vigorously and in counsel's  opinion,  it is more
          probable than not that the Company will prevail.


19.       OTHER

         Commencing  in  March 2001 each of the three  members of the  Company's
         Scientific  Advisory  Board  will  receive an  initial  stock  grant of
         50,000 shares of common stock.  Two such members also receive $1500 per
         month for their services.  The Chairman of the Board is  paid $3000 per
         month.












                                      F-15








<PAGE>


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

        None
















                                       11
<PAGE>




                                    PART III

ITEM 9. DIRECTORS,  EXECUTIVE OFFICERS,  AND MEMBERS OF THE SCIENTIFIC  ADVISORY
        BOARD OF THE REGISTRANT.

At year-end  2000 the Company's  Directors,  Executive  Officers and  Scientific
Advisory Board Members are:

Name                            Age                 Position(s) with the Company

David A. Conway                 59                  Director Chairman President
                                                    And Chief Executive Officer

Martin Clare++                  65                  Director

Richard P. Farkas++             77                  Director

Ronald W. Hart +                58                  Chairman, Scientific
                                                    Advisory Board

Mohamed M. Salem +              49                  Member, Scientific
                                                    Advisory Board

Rudolf W. Schindler             48                  Executive Vice President,
                                                    Chief Operating Officer

Marshall S. Sterman++           69                  Director

Richard Wilson +                75                  Member, Scientific
                                                    Advisory Board

+ Member of the Scientific Advisory Board will receive an initial stock grant of
50,000 shares of common stock. In addition,  the chairman receives $3,000.00 per
month and the other members,  $1,500.00 per month for their services as Advisory
Board members.

++Also Audit Committee (Martin Clare & Richard Farkas)
  Also Compensation Committee (Marshall Sterman)


                                       12
<PAGE>



David A. Conway

Elected  to the Board in 1997 and  joined the  Company  as  President  and Chief
Executive Officer in 1998. Previous experience as President,  CEO of a privately
held public relations and marketing  company;  Director and VP Administration of
KDI Corporation  (NYSE); VP Administration  Keene Corporation (NYSE) and earlier
positions with CBS and Goldman Sachs & Co. Mr. Conway, who served as an infantry
officer in the US Army,  holds  undergraduate  and graduate degrees from Fordham
University and is listed in Who's Who in America.

Martin Clare

Elected  to the  Board in 2000,  Martin  Clare is a  principal  of  Civilization
Communications  Inc., an  international  financial  and  marketing  consultancy.
Previously he was a founder of Harris,  Clare & Co., Inc., a NASD Broker-Dealer;
founder of  Dougherty  Clifford & Wadsworth,  a noted media  banking  firm;  and
founding partner of IIBC, a technology  venture capital and consulting firm. Mr.
Clare is a graduate of Ithaca College, and served in the US Army.


Richard P. Farkas

Elected  to the  Board in 1997,  Mr.  Farkas  is  founder  and  Chairman  of IMC
Corporation Inc., an international  business consultancy  providing  broad-based
business services to multi-national  corporations.  Previously Mr. Farkas held a
number  of  corporate  executive  and  operating  positions  with  international
companies such as Illinois, ACF Industries,  American Standard and Westvaco. Mr.
Farkas also acquired, and later sold, a major paper products company. Mr. Farkas
is a graduate of  Princeton  and Yale  Universities  and attended New Jersey Law
School. He served as a line officer in the US Navy for four years.

Ronald W. Hart (Ph.D.)

Agreed to form the Board of Scientific Advisors in 2000 and became Chairman. Dr.
Hart 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  has  been  appointed  visiting  professor  at  a  number  of
universities, including Cairo University, Seoul National University and Gangzhou
University.  He received his doctorate in  physiology  and  biophysics  from the
University of Illinois.

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

Appointed to the Scientific Advisory Board in early 2001. Dr. Salem is Professor
of  Occupational  and  Environmental  Medicine  at the Kasr  El-Aini  School  of

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<PAGE>

Medicine, Cairo University,  Egypt. An internationally  recognized expert on the
health effects of environmental  and water  contaminants  including  pesticides,
lead and other  metals,  Dr.  Salem is  credited  with  establishing  infectious
disease control programs at medical centers and other public entities throughout
the Middle East.  Dr. Salem is a principal  of Salem  Industries,  an import and
export company, which is one of the leading suppliers of chemicals and oil field
equipment  in the Middle  East.  Dr.  Salem  holds both MD and Ph.D.  from Cairo
University.

Rudolf W. Schindler

Promoted to Executive Vice President and Chief Operating  Officer of the Company
in 2000, Mr.  Schindler  formerly  served as executive Vice President and CEO of
Stocko  Connectors  Corp.,  the US  subsidiary of a leading  European  connector
manufacturer.  He served as Director of Sales and Marketing for Stocko and prior
to that,  Manager,  Special  Projects for  Schenck,  a leading  manufacturer  of
vibration equipment. He holds an MS in Mechanical Engineering from the Technical
University of 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. He previously  served as managing partner of
Cheverie and Company and MS Sterman &  Associates,  merchant  banking  firms and
principal of Sterman & Gowell  Securities,  an investment banking and securities
firm.  Mr.  Sterman  served as an  officer  in the US Navy and holds his BA from
Brandeis University and his MBA from Harvard University.

Richard Wilson (Ph.D.)

Appointed  to  the  Scientific  Advisory  Board  in  2001,  Dr.  Wilson  is  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,  and is currently Professor of the Energy Research
Group at the  University of  California.  Dr. Wilson is a member of the Advisory
Board of the Atlantic Legal Foundation,  and is one of the principal  scientists
of the water  problems in  Chernobyl  and in  Bangladesh  where toxic  levels of
arsenic  contaminate  the water supply.  Dr. Wilson holds his Ph.D.  from Oxford
University.

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<PAGE>




ITEM 10. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION

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

David A. Conway        2000    $150,000     0          0              $150,000
President/CEO

DIRECTORS' COMPENSATION

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

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

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

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

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

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


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<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Set forth  below is  information  as of  December  31,  2000,  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.

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                             28.1%
WaterChef, Inc.
1007 Glen Cove Ave.
Glen Head, NY  11545

Martin Clare                      249,999                              ---
Civilization Communications Inc.
W. Hawthorne
Valley Stream, NY

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

Rudolf W. Schindler (4)         2,300,000                              3.4%
WaterChef, Inc.
1007 Glen Cove Ave.
Glen Head, NY  11545

Marshall S. Sterman               250,000                               ---
The Mayflower Group
46 Neptune Street
Beverly, MA  01915

All executive officers and
Directors as a Group (5)       22,251,289                             32.6%
                             ===================================================
(Five-5-Persons)


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<PAGE>

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 and IRA Trust.
3.     The shares held by Mr. Conway and affiliates are subject to anti-dilution
       provisions to insure 32.6% ownership of the voting shares.
4.     Shares held by  Mr. Schindler are subject to  anti-dilution provisions to
       insure that  the  shareholder  maintains  ownership of 3.4% 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.









ITEM 13. Exhibits and Reports on Form 8-K
         Reports on Form 8 K - None







                             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 2, 2001                              /s/David A. Conway
-----------------                             -----------------------------
Date:                                         David A. Conway
                                              President, Chief Executive Officer
                                              (Principal Operating Officer)


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