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

                                   FORM 10-KSB
                                   (Mark One)

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

                      For the Year Ended December 31, 2003

                                       OR

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

                For the transition period from         to
                                               -------    -------

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

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

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

                              1007 GLEN COVE AVENUE
                               GLEN HEAD, NY 11545
                     --------------------------------------
                    (Address of principal executive offices)

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

      Securities registered under section 12(b) of the Exchange Act: None.

     Securities registered under section 12 (g) of the Exchange Act: Common
                             stock, Par value $.001

                   Redeemable Common Stock Purchase Warrants.
                   ------------------------------------------

           Check whether the Issuer (1) filed all reports required to
           be filed by Section 13 or 15(d) of the Securities Exchange
                         Act of 1934 during the past 12
           months (or for such shorter period that the registrant was
           required to file such reports) and (2) has been subject to
                  such filing requirements for the past 90 days

                                   YES  X   NO
                                      -----   -----

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

                                   YES      NO  X
                                      -----   -----

        The issuer's net sales for the most recent fiscal year were $ 0.

The aggregate market value of the voting stock held by non-affiliates based upon
the last sale price on March 10, 2004 was approximately $13,913,000.

As of March 10, 2004, the Registrant had 89,559,886 shares of its Common Stock,
$0.001 par value, issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement to be issued in
connection with the 2003 annual meeting of stockholders are incorporated by
reference into Part III

<PAGE>


                                 WATERCHEF, INC.

                          ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I

         ITEM 1.  DESCRIPTION OF BUSINESS .....................................2

         ITEM 2.  DESCRIPTION OF PROPERTY .....................................8

         ITEM 3.  LEGAL PROCEEDINGS ...........................................8

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .........9


PART II

         ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ...10

         ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ..11

         ITEM 7.  FINANCIAL STATEMENTS .......................................14

         ITEM 8.  ACCOUNTING AND FINANCIAL DISCLOSURE CONTROLS................15


PART III

         ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS,
                  PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ..........15

         ITEM 10. EXECUTIVE COMPENSATION .....................................18

         ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT AND RELATED STOCKHOLDERS MATTERS.................19

         ITEM 13. EXHIBITS AND REPORTS ON FORM 8K.............................20

         ITEM 14. PRINCIPLE ACCOUNTANT FEES ..................................21




SIGNATURES ...................................................................22

                                        1

<PAGE>


ITEM 1.  DESCRIPTION OF BUSINESS

THE COMPANY

WaterChef, Inc. (the "Company", "WaterChef"), designs and markets water
purification equipment Water coolers and filters were a substantial part of the
Company's business from 1993 until the fourth quarter of 2001, at which time
this business was sold so that WaterChef could concentrate on the further
development , manufacturing and marketing of their patented line of "PureSafe"
water purification systems. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern. To date, the
Company has shipped 20 PureSafe units. Revenue has been recognized on only 2
PureSafe units as 18 units which were shipped to the Kingdom of Jordan have not
met the criteria for revenue recognition due to no reasonable assurance of
collectibility.

BACKGROUND

The Company was originally incorporated under Arizona law in 1985 and merged
into a Delaware corporation in 1987. In 1993 the Company, then known as Auto
Swap, U.S.A., entered into a reverse merger with WaterChef, Inc., a Nevada
corporation ("Water Chef-Nevada), which manufactured and marketed water coolers
and filters.


PRODUCTS

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

                                        2

<PAGE>


In 1998, searching for a "killer application", WaterChef management focused on
the worldwide need for safe drinking water for populations who are unserved by
municipal water treatment facilities, or are served by municipal systems which
have malfunctioned because of improper maintenance or faulty design. The result
of that activity is the PureSafe Water Station, a turn-key unit that converts
"gray", or bathing grade, water into United States Environmental Protection
Agency ("EPA") grade drinking water. The PureSafe eliminates all living
pathogens that pollute non-processed water - bacteria, cysts, viruses,
parasites, etc. - at an affordable cost for the emerging economies of the world.

The PureSafe Water Station was tested by H2M Labs, Inc.which is approved by
Nassau and Suffolk counties in New York to perform drinking water testing for
the various municipalities in those counties. The specific test performed was a
total and fecal coliform bacteria test, wherein the source water storage tank
which feeds the PureSafe was tested for the presence of total and fecal coliform
bacteria. The source water tank was found to have 50 colonies of coliform
bacteria present. The source water tank was then "spiked" with a three (3) liter
concentration of laboratory grown and cultured bacteria and the storage tank
were measured again with 80,000,000 colonies of bacteria detected. After being
processed through the PureSafe system, the water was tested again, and "FEWER
THAN 2 COLONIES" were detected. In addition to the laboratory test conducted for
WaterChef by H2M Labs, the available scientific literature, in industry journals
such as Water Technology and Water Conditioning and Purification International,
supports the statement that an ozone system such as the one utilized in the
PureSafe effectively eliminates all living pathogens. Ozone was first used in
municipal water treatment in Nice, France in 1904, and then in the Jerome Park
Reservoir in the Bronx, New York in 1906.

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

The core version of the PureSafe can purify and dispense up to 15,000 gallons
per day for an all-inclusive cost (labor, power, amortization of the capital
cost, replacement filters, cartridges and media) of approximately one-half cent
per gallon. The process wastes very little water, producing approximately one
gallon of pure drinking water for every gallon processed. The unit can be moved
with a single fork-lift and is transportable by truck or helicopter. Operating
the PureSafe is simple and straightforward. Turn-key in design, minimum wage
personnel can be trained to operate the unit. A system of fail-safes is built
into the operation, and aside from easily installable spares such as filters and
cartridges, a maintenance and oversight program established by WaterChef should
maintain the operating efficiencies built into the system. WaterChef warrantees
each unit for a period of one year as long as the required maintenance
protocols, using WaterChef supplied parts, as prescribed in the maintenance
manual are adhered to. The Company also offers larger versions of the PureSafe
Water Station to provide pure water in quantities up to 5,000 gallons per hour.
To date, there have been no warranty claims for the PureSafe product operating
in the field. WaterChef also plans to have periodic inspections of installed
equipment by the Company's agents.

                                        3

<PAGE>


While each unit is configured to respond to the particular water quality of a
particular site, such as arsenic removal, seawater desalination, oil separation,
etc., the typical unit contains the following components:

     a.   Inlet connection with macro-filter - designed to strain the input
          water, removes large particulate and directs water into the system

     b.   Inlet pump - self-priming pump which maintains water pressure at
          minimum 40psi throughout the system

     c.   Pre-depth media filter - a multi-media mixed bed to remove pollutants.
          Pressure gauges mounted on the exterior front panel of the unit allow
          for visible monitoring of system performance.

     d.   Ozone generator - provides a rich ozone source that effectively kills
          all living pathogens such as bacteria, viruses, cysts, parasites, etc.
          Unused ozone reverts back to oxygen and produces no harmful
          byproducts.

     e.   Ozone mixing tank - WaterChef's proprietary process for effectively
          mixing the ozone into the water and maintaining the required contact
          time to ensure oxidation of contaminants.

     f.   Process pump - provides optimal operation of the ozone processing.

     g.   Post-depth media filter - another, different, multi-media mixed bed
          designed to filter out oxidized or precipitated pollutants and
          contaminants after the ozone treatment. Effectively removes metals,
          organics and inorganics. Pressure gauges on the front panel indicate
          the need for backwashing to maintain optimal performance.

     h.   Ultraviolet treatment - provided by a UV lamp as a redundant
          sterilizer step to eliminate any surviving pathogens or
          micro-organisms. The UV lamp is tuned to a frequency which also
          converts O3 (ozone) back to O2 (oxygen).

     i.   KDF filter - an ion exchange media containing a proprietary blend of
          copper, zinc and other alloys, effectively adsorbs chlorine and
          biological, inorganic and metallic contaminants.

     j.   Carbon filter - prevents bacteria regrowth while removing inorganic
          compounds and improves water taste and removes odor. The carbon filter
          also acts as a redundant ozone destruct mechanism.

     k.   Mixer - sends ozone treated water to the bottle washing stations.

     l.   Bottle washing stations - incorporated on the outside front of the
          unit for easy access in order to effectively clean bottles used to
          carry water treated at the site.

     m.   Dispensing stations - four individual dispensing lines, each with flow
          adjusting valves to help regulate a smooth, steady flow of water into
          clean bottles.

                                        4

<PAGE>


MANUFACTURING

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

RAW MATERIALS

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

COMPETITION

WaterChef's modular, turn-key PureSafe Water Station directly addresses the
drinking water needs of those environs which do not today, and are unlikely to,
enjoy access to municipally treated water. The Company has produced a turnkey
solution that produces pure water to meet U.S.EPA drinking water standards. This
is a far different market than that addressed by the segment of the industry
which has concentrated on the multi-billion dollar municipal water treatment
sector, or the equally large residential sector. The municipal solution requires
significant investment for infrastructure development (building plants and
laying miles of distribution pipes), and products for residential markets do not
offer the performance or features to meet the needs of the underdeveloped
nations of the world.

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

                                        5

<PAGE>


MARKETING

The potential market for the PureSafe is substantial and is both world-wide and
domestic. According to studies performed by the World Health Organization (WHO)
and the United Nations, major parts of Africa, the Middle East, Southeast Asia,
the Indian sub-continent, Latin and South America, the Caribbean, and much of
Eastern Europe is in need of adequate supplies of pure water. Parts of Florida,
Georgia, and other regions in the United States have also reported fresh water
deficits. In part, solving this problem has been a question of appropriate
technology. Secondarily, but just as important, in a vast part of the world is
the need to secure third party financing so that the local populace can enjoy
the benefits of clean water.

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

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

Not only have the members of the Scientific Advisory Board provided valuable
input and guidance to the Company with respect to system design, technological
input, remediation approaches and a great deal of information relative to the
unique water problems facing many areas of the world, but they have also been
active in introducing the Company to commercial opportunities

During 2000 the Company entered into a master distribution agreement with 4Clean
Waters Ltd., a newly formed Hong Kong corporation to market the PureSafe
internationally. In addition to lending the Company money, with an option to
convert to the Company's common stock, 4Clean Waters had certain threshold sales
requirements necessary to retain their exclusivity. In addition to cash
incentives, there were provisions that would have allowed 4Clean Waters to
purchase additional shares in WaterChef from commissions earned. While there
were a number of sales initiatives that had been initiated by 4Clean Waters, and
the relationship has been cooperative and ongoing, 4Clean Waters was not able to
produce sales for the Company as anticipated during the term of the agreement.
Notwithstanding the agreement with 4Clean Waters, the Company retained the right
to market the PureSafe Water Station itself, with the understanding that sales
made directly by WaterChef, with the exception of certain "grand-fathered"
accounts, would count against the minimum sales required in the year for 4Clean
Waters to retain their sales exclusivity. The limited sales of the PureSafe thus
far have been as a result of the Company's own marketing activities Until the
September 11, 2001 attacks on the World Trade Center and the Pentagon, the
Company had not considered the U.S. domestic market an important part of their
overall marketing strategy.

                                        6

<PAGE>


Now, however, with the creation of the Homeland Security Agency and a new focus
on possible terrorist attacks in the United States causing the creation of
programs to ensure the protection and preservation of our water resources,
opportunities for our products have opened up. WaterChef has been in discussion
with political and government contacts to explore the applications for the
PureSafe as a back-up drinking water system in case of damage to municipal
systems. On the basis of these discussions and other information relative to
homeland security, the Company will be pursuing various options for sales to
this market.

PATENTS

The Company filed for patent protection on its PureSafe Water Station in October
of 1998 and received formal notification that the patent had been issued on
February 19, 2002. The Company feels that this patent upholds the claims that
the PureSafe system is a unique product. In addition to its U.S. patent, the
Company has filed for patent protection in the countries of the European Union,
and in Canada, Mexico, China, Hong Kong, India, Korea and Japan.

The name PureSafe Water Station and the stylized water droplet mark have been
trademarked in the United States.

There can be no assurance that any application of the Company's technologies
will not infringe patent or proprietary rights of others, or that licenses which
might be required for the Company's processes or products would be available on
favorable terms. Furthermore, there can be no assurance that challenges will not
be made against the validity of the Company's patent, or that defenses
instituted to protect against patent violation will be successful.

SEASONALITY

The Company does not expect the Pure Safe to be influenced by seasonality.

RESEARCH AND DEVELOPMENT

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

                                        7

<PAGE>


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, 2003, the Company employed one executive personnel in its
headquarters.

The Company 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.  DESCRIPTION OF PROPERTY

In the fourth quarter of 2001 the Company closed its manufacturing facility in
Montana, and sold its water cooler and filter business and has transferred its
relationship with its JV in China to the buyer of this discontinued operation.
It presently has no owned or leased manufacturing facilities, nor does the
Company have a plan to acquire its own manufacturing facility. The PureSafe
Water Station is manufactured for the Company under a contract by Davis Water
Products.

ITEM 3.  LEGAL PROCEEDINGS

WaterChef was a defendant in a legal action brought by certain debenture holders
("Bridge Loans") in New Hampshire Superior Court seeking repayment of debenture
principal of $300,000 and accrued interest from 1997. On June 22, 2002 a
settlement was reached whereby the Company agreed to pay $497,500 in the form of
shares of common stock. The number of shares to be issued was determined by
dividing $497,500 by the average daily trading price of the Company's common
stock over a 30 day period subsequent to the execution of the settlement
documents. Due to an average trading price of $0.029 over the measurement
period, the Company is obligated to issue 17,037,671 shares of common stock. The
stock has not yet been issued, and will not be issued, and the terms of the
settlement agreement will not be completed, until WaterChef's shareholders have
approved an increase in the authorized common stock of the Corporation. As such,
the Company has recorded these 17,037,671 shares as a liability, in common stock
to be issued, totaling $497,500 as of December 31, 2003.

In addition to the issuance of the above mentioned shares. Attached to the
original Bridge Loans were warrants for the purchase of the Company's common
stock at $0.15 per share. The debenture holders that participated in the legal
action had the lives of their warrants extended. Those warrants that were to
have expired in March 2002 have been extended until March 2004. A total of
1,666,667 shares of common stock may be purchased under these extended warrants.

                                        8

<PAGE>


The Company was a defendant in an action brought by a customer/licensee relating
to a claim that the Company breached a contract by shipping certain goods in
November 1997 that did not conform to the contract. A negotiated settlement was
reached calling for the payment by WaterChef of $27,500. The settlement amount
of $27,500 was paid in full during 2003, and the action was dismissed.

In May 2001, the Company entered into a distribution agreement with a company
(the "Sub Distributor") based in Jordan. The Sub Distributor has agreed to
purchase no fewer than 100 units of the Company's "Pure Safe Water Station"
during 2001 and a minimum of 50 units in each of 2002 and 2003. During the year
ended December 31, 2001, 18 units have been shipped under this agreement. The
sale will be recognized when the Company receives payments due to the fact that
collectiblity cannot be reasonably assured. The Company has recorded the cost of
the inventory shipped as a loss contingency of $242,035 during the year ended
December 31, 2001, since return of the items is uncertain. The Company has
engaged legal counsel in Jordan, to pursue legal remedies and obtain payment for
all units shipped.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


A preliminary Proxy for the purpose of increasing the authorized common shares
of the Corporation was submitted to the SEC, whose questions and comments are
being addressed before resubmission. Upon approval by the SEC, the proxy will be
mailed to the shareholders and a vote by the shareholders will be scheduled.

                                        9

<PAGE>


                                     PART II

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

PRICE RANGE OF COMMON STOCK

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

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.

                        HIGH          LOW

2002

First Quarter           .13           .05
Second Quarter          .08           .03
Third Quarter           .04           .02
Fourth Quarter          .03           .01


2003

First Quarter           .08           .01
Second Quarter          .07           .04
Third Quarter           .16           .04
Fourth Quarter          .22           .09

                                       10

<PAGE>


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

INTRODUCTION

DEVELOPMENT OF THE COMPANY

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

The PureSafe has been designed by the Company to meet the needs of communities
who either did not have access to municipal water treatment systems, or to those
whose systems had been compromised, either by environmental factors or by faulty
design or maintenance.

RESULTS OF OPERATIONS

Sales for the fiscal years ended December 31, 2003 and December 31, 2002 were $0
and $40,000, respectively. During the twelve month period ended December 31,
2003 the Company received payment for one PureSafe Water Station unit but will
not recognize the revenue until the product is shipped in 2004. The Company sold
one PureSafe Water Station in 2002 to White Cross Partners for installation in
Juticalpa, Honduras.

Cost of sales decreased from $246,430 for the year ended December 31, 2002, to
$88,000 for the year ended December 31, 2003, a decrease of $158,430, or 64%.
The decrease is largely due to an increase in inventory reserves recorded in the
2002 period. An analysis of the components of cost of sales in the 2002 and 2003
periods follows:

                                       11

<PAGE>


Cost of Sales     Inventory      Actual        Rent and Overhead
   Period          Reserve        CGS       Payments to Manufacturer    Total

    2002          $159,250      $17,280             $69,900            $246,430

    2003                 0            0             $88,000            $ 88,000



Selling general and administrative expenses for the twelve months ended December
31, 2003 were $817,625 compared to $789,120 for the twelve months ended December
31, 2002, an increase of $ 28,505 or 4%. The increase in expense is primarily
due to cost of a negotiated settlement of a pending litigation.


Interest expense for the year ended December 31, 2003 was $152,478, compared to
$179,111 for the year ended December 31, 2002, a decrease of $26,633, or 15%.
Interest expense during 2002 included an additional $23,000 related to a
settlement.

In 2003 the Company recognized a non-cash expense of $2,477,376 attributable to
the shares to be issued to the Company's CEO upon the voluntary surrender of his
non-dilution agreement, compared to a non-cash charge of $208,935 in 2002.

The net loss for the fiscal year ended December 31, 2003 was $3,535,479 compared
to $1,589,746 for the fiscal year ended December 31, 2002, an increase of
$1,945,733.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2003, the Company had a stockholders' deficiency of
approximately $6,059,000 and a working capital deficiency of approximately
$5,628,000. In addition, the Company has a net loss of approximately $3,535,000
and $1,590,000 for the years ended December 31, 2003 and 2002, respectively. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The auditor's report on its financial
statements included elsewhere herein contains an explanatory paragraph about the
Company's ability to continue as a going concern. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with respect to these matters include restructuring its
existing debt, raising additional capital through future issuances of stock and
/ or debt. The accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

The Company, during 2003 and 2002, raised $599,871 and $417,500, respectively
through the sale of common and preferred stock.

                                       12

<PAGE>


During 2002 the Company continued the restructuring of its debt. In the second
quarter of 2002 the Company reached a negotiated settlement in an action brought
by certain debenture holders (the "Bridge Lenders") in New Hampshire Superior
Court. The litigants sought repayment of $300,000 of debenture principal,
together with interest from 1997, and the issuance of penalty shares for
non-payment of principal and interest. In addition, damages were sought relating
to the Company's failure to register the shares issued under a related warrant
agreement.

The Company and the Bridge Lenders settled this dispute for a total $497,500,
payable in shares of the Company's common stock. The number of shares of common
stock to be paid was determined by dividing $497,500 by the average daily
trading price of WaterChef common over a thirty(30)day trading period,
commencing upon the execution of the settlement agreement. Due to these
requirements, the Company is obligated to issue 17,037,671 shares of common
stock, based on an average price over the measurement period of $0.0292. The
total authorized common stock of the Company does not currently provide a
sufficient number of authorized and unissued, shares to fulfill the terms of the
settlement agreement. As such the Company has recorded these 17,037,671 shares
to be issued as a liability in common stock to be issued for $497,500 as of
December 31, 2003.

In addition to the issuance of the above-mentioned shares, attached to the
original Bridge Loans were warrants for the purchase of the Company's common
stock at $0.15 per share. The debenture holders that participated in the legal
action had the lives of their warrants extended. Such warrants that were to have
expired in March 2002 have been extended until March 2004. A total of 1,666,667
shares of common stock may be purchased under these extended warrants. The
Company has recorded a non-cash charge of $111,000 related to the extension of
the lives of these warrants. Such charge is included in the loss on settlement
of debt.

In addition to the above settlement with Bridge Lender who participated in the
legal action, the Company settled its obligation with debenture holders that did
not participate ("non-participating debenture holders") in the legal action.
These non-participating debenture holders had total debentures of $75,000, plus
accrued interest of $9,850, totaling $84,850 as of the settlement date. In
conjunction with the above settlement, the Company settled these outstanding
non-participating debentures, plus accrued interest, with the issuance of
750,000 shares of common stock valued at $0.0292 per share, or $21,900. The
terms of their warrants were not extended, nor are they entitled to receive
additional shares based of the Company's common stock achieving a certain
average trading price 30 days subsequent to the settlement with the
participating debenture holders. The Company has recorded a $62,950 gain with
regard to the settlement of the non-participating debentures. As of December 31,
2002, the 750,000 shares have not been issued as the Company does not currently
have a sufficient number of authorized and unissued common shares to settle
these non-participating debentures. As such the Company has recorded these
750,000 shares to be issued as a liability in common stock to be issued for
$21,900 as of December 31, 2003. In addition the Company recorded charge of
$2,477,376 in 2003, and $208,935 in 2002. for the voluntary surrender by the
Company's President and CEO of his anti-dilution agreement. Such cost is
expected to be satisfied with the issuance of 14,923,958 shares of common stock,
upon approval by the Company's shareholders, in the number of authorized shares
of the Company common stock. As such the Company has recorded these 14,923,958
shares to be issued as a liability in common stock to be issued for $2,686,311
as of December 31, 2003.

During the year ended December 31, 2002, the Company received $200,000 for
4,000,000 shares of its common stock. These shares will be issued upon the
approval by the stockholders of the increase in the number of authorized common
shares of the Company. Therefore the Company has recorded these 4,000,000 shares
to be issued as a liability in common stock to be issued for $200,000 as of
December 31, 2003.

During the year ended December 31, 2002, the Company agreed to issue to various
third parties an aggregate of 1,329,191 shares of its common stock in connection
with professional services. These shares will be issued upon the approval by the
stockholders of the increase in the number of authorized common shares of the
Company.

                                       13

<PAGE>


The Company intends to request approval of its stockholders for an increase in
the authorized shares of the Company from 100,000,000 shares to 200,000,000
shares. This increase in the outstanding will dilute the ownership interest of
current shareholders and will adversely affect earnings per share and may result
in a lower market value for the Company's stock.

Failure to obtain shareholder approval of the proposed increase in the
authorized common stock of the Corporation will prevent the Company from
discharging its obligations, as listed above, which will have a material adverse
impact on the Company's financial position, its operations and its ability to
continue as a going concern.

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.

ITEM 7.  FINANCIAL STATEMENTS

The Company's financial statements for the fiscal years ended December 31, 2003
and 2002 are included herein and consist of:

         Independent Auditors' Report                                  F-1

         Balance Sheet                                                 F-2

         Statements of Operations                                      F-3

         Statement of Changes in Stockholders' Deficiency              F-4A, 4B

         Statements of Cash Flows                                      F-5

         Notes to Financial Statements                                 F-6

                                       14

<PAGE>


ITEM 8. ACCOUTING AND FINACIAL DISCLOSURE CONTROLS

Evaluation and Disclosure Controls and Procedures
-------------------------------------------------

The Company, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the design and operation of the
Company's "disclosure controls and procedures," as such term is defined in Rules
13a-15e promulgated under the Exchange Act as of this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer has
concluded that the Company's disclosure controls and procedures were effective
as of the end of the period covered by this report to provide reasonable
assurance that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.

Changes in Internal Controls
----------------------------

There have been no changes in internal controls or in other factors that could
significantly affect those controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

Limitations on the Effectiveness of Controls
--------------------------------------------

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a Company have been detected.




                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

At year-end 2003 the Company's Directors, Executive Officers and Scientific
Advisory Board Members are:

Name                        Age         Position(s) with the Company

David A. Conway              62         Director, Chairman- President
                                        and Chief Executive Officer

Ronald W. Hart +             61         Chairman, Scientific
                                        Advisory Board

Mohamed M. Salem +           52         Scientific Advisory Board

Marshall S. Sterman++        72         Director

Richard Wilson +             78         Scientific Advisory Board

Dr.Mostafa K. Tolba          82         Scientific Advisory Board

Lord John Gilbert            78         Scientific Advisory Board
----------

 + Members of the Advisory Board will receive an honorarium, in the form of cash
or common stock, for their service at the discretion of the Board of Directors.

++       Also Audit Committee (Marshall Sterman)
         Also Compensation Committee (Marshall Sterman)

                                       15

<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.

Lord John Gilbert (Ph.D.)

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

Ronald W. Hart (Ph.D.)

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.

                                       16


<PAGE>


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 Cairo
University. 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 an MD and Ph.D. from Cairo
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.

Mostafa K. Tolba (Ph.D.)

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

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.

                                       17

<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION

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

David A. Conway       2003    $165,000      0           0            $165,000
President/CEO


DIRECTORS' COMPENSATION

Directors of the Company do not receive cash compensation for serving as members
; they are reimbursed for their out of pocket expenses related to meetings and
other Company related activity for which they are called upon. In the past they
have received common stock for service to the Company.

In 2003 Mr. Sterman was compensated at the rate of $6,000 per month for
consulting services performed for the Company. The Company may pay for these
services in cash or stock, and may terminate these services at its option.

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

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

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

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.

                                       18

<PAGE>


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


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDERS MATTERS

Set forth below is information as of December 31, 2003, 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 Voting     Percentage of
Beneficial Owner of Shares         Stock Beneficially Owned (1)   Total Voting
--------------------------         ----------------------------   -------------

David A. Conway (2) (3)                    19,201,390                 21.4%
WaterChef, Inc.
1007 Glen Cove Ave.
Glen Head, NY  11545

Marshall S. Sterman (5)                       500,000                  0.6
46 Neptune Street                          ----------              ----------
Beverly, MA  01915

All executive officers and
Directors as a Group (2)(4)                19,701,390                 22.0%
                                           ==========              ==========

(Two-2--Persons)

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

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

     3.   In March, 2002 Mr. Conway voluntarily surrendered the anti-dilution
          agreement that insured 32.6% ownership of the voting shares to Mr.
          Conway and his affiliates.

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

     5.   Mr. Sterman also has the right to have issued 800,000 shares of common
          stock and 500,000 shares of preferred stock eligible for immediate
          conversion upon the approval of increased authorization of common
          stock of the Company.

                                       19

<PAGE>


ITEM 12. RELATED PARTY TRANSACTIONS

     None.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

     Exhibit No.              Description
     -----------              -----------

     31                       Certification of chief Executive Oficer pursuant
                              to Section 302 of the Sarbanes-Oxley Act.

     32                       Certification of Chief Executive Officer and Chief
                              Financial Officer pursuant to 8 U.S.C. Section
                              1350 As adopted pursuant to Section 906 of the
                              Sarbanes- Oxley Act of 2002.

(b)  Reports on Form 8-K      None

                                       20

<PAGE>


ITEM 14. PRINCIPLE ACCOUNTANT FEES

For the year ended December 31, 2003 and 2002, the Company incurred fees for the
audit and for the review of relevant quarterly reports totaling $95,000 and
$65,000.

                                       21

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            WATERCHEF, INC.

 March 5, 2004                              /s/  David A. Conway
                                            -----------------------------------
 Date                                            David A. Conway
                                                 President, Chief Executive
                                                 Officer and Chief Financial
                                                 Officer (Principal Operating
                                                 Officer)

                                       22

<PAGE>


                                     Index of Exhibits
                                     -----------------

Exhibit No.     Description
-----------     -----------

31              Certification of Chief Executive Officer pursuant to Section 302
                of Sarbanes-Oxley Act of 2002.

32              Certification of Chief Executive Officer and Chief Financial
                Officer pursuant to 8 U.S.C. Section 1350 as adopted pursuant to
                Section 906 of the Sarbanes-Oxley Act of 2002.

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying balance sheet of WaterChef, Inc., (a
development stage company commencing January 1, 2002) as of December 31, 2003
and the related statements of operations, stockholders' deficiency and cash
flows for the years ended December 31, 2003 and 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Water Chef, Inc., (a
development stage company commencing January 1, 2002) as of December 31, 2003
and the results of its operations and its cash flows for the years ended
December 31, 2003 and 2002 in conformity with accounting principles generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2(a) to the financial
statements, the Company has suffered recurring losses, and has working capital
and stockholders' deficiencies, which raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2(a). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/s/  Marcum & Kliegman LLP
-----------------------------
     Marcum & Kliegman LLP


New York, New York

March 5, 2004

                                       F-1


<PAGE>


                                 WATERCHEF INC.
            (A Development Stage Company Commencing January 1, 2002)

                                  BALANCE SHEET
                                DECEMBER 31, 2003

                                     ASSETS

CURRENT ASSETS:
   Cash                                                            $    102,831
   Inventory                                                             26,500
   Prepaid expenses                                                      11,220
                                                                   ------------
     TOTAL CURRENT ASSETS                                               140,551

PATENTS AND TRADEMARKS (net of
   accumulated amortization of $ 5,089)                                  20,966

Other Assets                                                              3,162
                                                                   ------------
                                                                   $    164,679
                                                                   ============
                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
   Accounts payable............................................    $    169,053
   Accrued expenses and other current liabilities .............       1,117,768
   Notes payable (including accrued interest of $393,092  .....       1,076,317
   Common stock to be issued ..................................       3,405,711
                                                                   ------------
     TOTAL CURRENT LIABILITIES ................................       5,768,849
                                                                   ------------

LONG-TERM LIABILITIES:
   Loans payable to stockholder (including accrued
     interest of $81,353) .....................................         454,134
                                                                   ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY:
   Preferred stock, $.001 par value;
     10,000,000 shares authorized;
     887,166 shares issued and outstanding,
     (liquidation preference $1,407,700) ......................             887
   Common stock, $.001 par value;
     90,000,000 shares authorized;
     89,564,286 shares issued;
     89,559,886 shares outstanding ............................          89,564
   Additional paid-in capital .................................      13,513,834
   Treasury stock, 4,400 common shares, at cost ...............    (      5,768)
   Accumulated deficit through December 31, 2001...............    ( 14,531,596)
   Deficit accumulated during development stage ...............    (  5,125,225)

                                                                   ------------
     TOTAL STOCKHOLDERS' DEFICIENCY ..........................     (  6,058,304)
                                                                   ------------
                                                                   $    164,679
                                                                   ============


                       See notes to financial statements.

                                       F-2

<PAGE>
<TABLE>
<CAPTION>


                                          WATERCHEF, INC.
                     (A Development Stage Company Commencing January 1, 2002)

                                     STATEMENTS OF OPERATIONS


                                                                                   For the Period
                                                       Year Ended December 31,     January 1, 2002
                                                    -----------------------------  to December 31,
                                                        2003            2002            2003
                                                    -------------   -------------   -------------
<S>                                                 <C>             <C>             <C>
Sales ............................................  $        -      $      40,000   $      40,000
                                                    -------------   -------------   -------------
Costs and Expenses:
   Cost of sales .................................         88,000         246,430         334,430
   Selling, general and administrative ...........        817,625         789,120       1,606,745
   Non-dilution agreement termination costs ......      2,477,376         208,935       2,686,311
   Interest expense (including interest
     expense for related party of $23,868
     in both years)         ......................        152,478         179,111         331,589
   Loss on settlement of debt ...................            -            206,150         206,150
                                                    -------------   -------------   -------------
                                                        3,535,479       1,629,746       5,165,225
                                                    -------------   -------------   -------------
 Net loss ......................................... (   3,535,479)  (   1,589,746)  (   5,125,225)

Preferred stock dividends ........................  (     152,876)  (     112,988)  (     265,864)
                                                    -------------   -------------   -------------
Net loss applicable to
   common stock ..................................  $  (3,688,355)  $(  1,702,734)  $(  5,391,089)
                                                    =============   =============   =============

Basic and Diluted Loss Per Common Share:  ........   $ (     0.04)  $(       0.02)
                                                    =============   =============
Weighted Average Common Shares Outstanding -
   Basic and Diluted .............................     89,559,886      89,559,886
                                                    =============   =============


                                See notes to financial statements.

                                                F-3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                      WATERCHEF, INC.
                                 (A Development Stage Company Commencing January 1, 2002)

                                           STATEMENT OF STOCKHOLDERS' DEFICIENCY


                                                            Preferred Stock              Common Stock          Additional
                                                      -------------------------   -------------------------     Paid-in
                                                         Shares       Amount        Shares        Amount        Capital
                                                      -----------   -----------   -----------   -----------   -----------
<S>                                                      <C>               <C>    <C>               <C>       <C>
BALANCE - DECEMBER 31, 2001                               145,500           146    86,614,286        86,614    12,339,469

  Extension of life of warrants..................            --            --            --            --         111,000
  Sale of preferred stock
    ($1.00 per share - December)                          125,000           125          --            --         117,375
  Shares issued for:
    Cash
 .....($0.025 per share - April)                             --            --       2,500,000         2,500        97,500
    Services
 .....($0.08 per share - April)..................            --            --         450,000           450        35,550
    Collection of subscription receivable
      March                    ..................            --            --            --            --            --
      December                                               --            --            --            --            --
  Net loss.......................................            --            --            --            --            --
                                                      -----------   -----------   -----------   -----------   -----------

BALANCE - DECEMBER 31, 2002......................         270,500   $       271    89,564,286   $    89,564   $12,700,894

  Proceeds from sale of preferred stock

    ($0.50 Per share)                                      75,000            75          --            --          37,425
    ($1.00 Per share)                                     150,000           150          --            --         149,850
    ($1.33 per share)                                       3,126             3          --            --           4,147
    ($1.36 Per share)                                         625             1          --            --             849
    ($1.52 Per share)                                      65,790            66          --            --          99,934
    ($1.60 Per share)                                       2,500             3          --            --           3,997
    ($1.70 Per share)                                      10,000            10          --            --          16,990
    ($1.78 Per share)                                      11,250            11          --            --          19,999
    ($1.84 Per share)                                         907          --            --            --           1,669
    ($1.85 Per share)                                      14,502            14          --            --          26,780
    ($1.92 Per share)                                         781             1          --            --           1,497
    ($2.00 Per share)                                      87,500            88          --            --         174,912
    ($2.40 Per share)                                      16,250            16          --            --          38,984
    ($2.80 Per share)                                       8,000             8          --            --          22,392

Preferred stock issued for services

    ($1.00 Per share)                                     148,285           148          --            --         148,137
    ($1.88 Per share)                                       4,250             4          --            --           7,996
    ($3.20 Per share)                                      17,500            18          --            --          55,982
    ($3.33 Per share)                                         300          --            --            --           1,000
    ($4.00 Per share)                                         100          --            --            --             400


Collection of subscription receivable                        --            --            --            --            --

Write-off of subscription receivable                         --            --            --            --            --

Net Loss                                                     --            --            --            --            --
                                                      -----------   -----------   -----------   -----------   -----------

BALANCE - DECEMBER 31, 2003                               887,166   $       887    89,564,286   $    89,564   $13,513,834
                                                      ===========   ===========   ===========   ===========   ===========


                                            See notes to financial statements.

                                                           F-4A
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                        WATERCHEF, INC.
                                   (A Development Stage Company Commencing January 1, 2002)

                                             STATEMENT OF STOCKHOLDERS' DEFICIENCY



                                                                                  Accumulated      Deficit
                                                                                    Deficit      Accumulated
                                                           Stock                    Through         During          Total
                                                        Subscription   Treasury     December     Development     Stockholders'
                                                         Receivable      Stock      31, 2001        Stage         Deficiency
                                                        ------------   --------   ------------   -----------     ------------
<S>                                                          <C>        <C>         <C>          <C>             <C>
-continued-
BALANCE - DECEMBER 31, 2001                                  (67,500)   (5,768)    (14,531,596)            -     (2,178,635)

  Extension of life of warrants ......................             -         -               -             -        111,000
  Sale of Preferred stock
    ($1.00 per share) ................................             -         -               -             -        117,500
  Shares issued for:
    Cash
      ($0.025 per share) .............................             -         -               -             -        100,000
    Services
      ($0.08 per share) ..............................             -         -               -             -         36,000
    Collection of subscription receivable ............        30,200         -               -             -         30,200
  Net loss ...........................................             -         -               -    (1,589,746)    (1,589,746)
                                                        ------------   -------    ------------   -----------    -----------

BALANCE - DECEMBER 31, 2002 ..........................       (37,300)   (5,768)    (14,531,596)   (1,589,746)    (3,373,681)

  Proceeds from sale of preferred stock

    ($0.50 Per share)                                              -         -              -              -         37,500
    ($1.00 Per share)                                              -         -              -              -        150,000
    ($1.33 per share)                                              -         -              -              -          4,150
    ($1.36 Per share)                                              -         -              -              -            850
    ($1.52 Per share)                                              -         -              -              -        100,000
    ($1.60 Per share)                                              -         -              -              -          4,000
    ($1.70 Per share)                                              -         -              -              -         17,000
    ($1.78 Per share)                                              -         -              -              -         20,010
    ($1.84 Per share)                                              -         -              -              -          1,669
    ($1.85 Per share)                                              -         -              -              -         26,794
    ($1.92 Per share)                                              -         -              -              -          1,498
    ($2.00 Per share)                                              -         -              -              -        175,000
    ($2.40 Per share)                                              -         -              -              -         39,000
    ($2.80 Per share)                                              -         -              -              -         22,400

Preferred stock issued for services

    ($1.00 Per share)                                              -         -              -              -        148,285
    ($1.88 Per share)                                              -         -              -              -          8,000
    ($3.20 Per share)                                              -         -              -              -         56,000
    ($3.33 Per share)                                              -         -              -              -          1,000
    ($4.00 Per share)                                              -         -              -              -            400


Collection of subscription receivable                         15,500         -              -              -         15,500

Write-off of subscription receivable                          21,800         -              -              -         21,800

Net Loss                                                           -         -              -    ( 3,535,479)   ( 3,535,479)

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

BALANCE - DECEMBER 31, 2003                                       -    ( 5,768)  (  14,531,596) (  5,125,225)   ( 6,058,304)
                                                        ============   =======    ============   ===========    ===========


                                            See notes to financial statements.

                                                           F-4B
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                  WATERCHEF INC.
                             (A Development Stage Company Commencing January 1, 2002)

                                             STATEMENTS OF CASH FLOWS


                                                                                                  For the period
                                                                       Years Ended December 31,   January 1, 2002
                                                                      -------------------------   to December 31,
                                                                         2003           2002           2003
                                                                      -----------   -----------    --------------
<S>                                                                  <C>           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss ......................................................... $( 3,535,479) $( 1,589,746)    $( 5,125,225)
    Adjustments to reconcile net loss to
     net cash used in operating activities
       Amortization of patents .....................................        1,854         1,853            3,707
       Non-cash compensation .......................................      213,685        36,000          249,685
       Loss on settlement of debt ..................................         -          206,150          206,150
       Non-dilution agreement termination cost .....................    2,477,376       208,935        2,686,311
       Inventory reserve ...........................................         -          159,250          159,250
       Write-off of stock subscription receivable                          21,800          -              21,800
    Change in assets and liabilities
     Inventory .....................................................            -   (    26,500)     (    26,500)
     Prepaid expenses and other current assets .....................    (  11,220)       56,500           45,280
     Accounts payable, accrued expenses
       and interest............................ ....................      296,686       487,105          783,791
                                                                     ------------   -----------     ------------
NET CASH USED IN OPERATING ACTIVITIES ..............................    ( 535,298)  (   460,453)     (   995,751)
                                                                     ------------   -----------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Reduction of stock subscription receivable .........................     15,500        30,200           45,700
  Proceeds from sale of preferred stock ............................      599,871       117,500          717,371
  Proceeds from sale of common stock ...............................            -       100,000          100,000
  Proceeds from sale of common stock to be issued ..................            -       200,000          200,000
                                                                     ------------   -----------     ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..........................      615,371       447,700        1,063,071
                                                                     ------------   -----------     ------------

NET INCREASE/(DECREASE) IN CASH ......................................     80,073       (12,753)          67,320

CASH AT BEGINNING OF YEAR ..........................................       22,758        35,511           35,511
                                                                     ------------   -----------     ------------
CASH AT END OF YEAR ................................................ $    102,831   $    22,758     $    102,831
                                                                     ============   ===========     ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest ....................................................... $      2,250   $      -        $      2,250
                                                                     ============   ===========     ============
    Income taxes ................................................... $       -      $      -        $       -
                                                                     ============   ===========     ============


                                        See notes to financial statements.

                                                        F-5
</TABLE>

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   DESCRIPTION OF BUSINESS

     WaterChef, Inc. (the "Company"), is a Delaware Corporation currently
     engaged in the design, marketing and sale of water dispensers and
     purification equipment both in and outside the United States.


2.   BASIS OF PRESENTATION AND ACCOUNTING POLICIES

     a.   Basis of Presentation

          The Company discontinued its water cooler and filtration operations in
          November 2001. As a result the Company has refocused its efforts on
          raising capital and developing markets for its proprietary technology.
          Therefore, for financial purposes, the Company has determined that it
          has re-entered the development stage commencing January 1, 2002. The
          Company's statements of operations, stockholders' deficiency and cash
          flows for the year ended December 31, 2003 represent the cumulative,
          from inception information, required by Statement of Financial
          Accounting Standards ("SFAS") No. 7, "Development Stage Enterprises".

          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 $3,535,479 and $1,589,746 for the
          years ended December 31, 2003 and 2002, respectively. Additionally,
          the Company has working capital and stockholders' deficiencies of
          $5,628,000 and $6,059,000 at December 31, 2003. 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 and raising additional capital through future
          issuances of stock and/or debt. The accompanying financial statements
          do not include any adjustments that might be necessary should the
          Company be unable to continue as a going concern.

                                       F-6

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



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

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

     d.   Stock-Based Compensation - In December 2002, the FASB issued SFAS No.
          148,"Accounting for Stock-Based Compensation - Transition and
          Disclosure - an amendment of FASB Statement No. 123." SFAS No. 148
          amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
          provide alternative methods of transition for a voluntary change to
          the fair value based method of accounting for stock-based employee
          compensation. In addition, SFAS No. 148 amends the disclosure
          requirements of SFAS No. 123 to require prominent disclosures in both
          annual and interim financial statements about the method of accounting
          for stock-based employee compensation and the effect of the method
          used on reported results. The disclosure requirements apply to all
          companies for fiscal years ending after December 15, 2002. The interim
          disclosure provisions are effective for financial reports containing
          financial statements for interim periods beginning after December 15,
          2002. The Company will continue to account for stock-based
          compensation according to APB Opinion No. 25.

     e.   Revenue Recognition - Revenues are recognized when product is shipped,
          title passes and collectibility is reasonably assured. Allowances for
          estimated bad debts, sales allowance and discounts are provided when
          such sales are recorded.

     f.   Income Taxes - Income taxes are accounted for under SFAS 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.

                                       F-7

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     g.   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, warrants and
          convertible preferred stock. Diluted per share amounts are computed
          excluding common stock equivalents since their inclusion would be
          anti-dilutive. Total shares issuable upon the exercise of warrants and
          the conversion of preferred stock for the years ended December 31,
          2003 and 2002, were 35,382,471 and 10,187,082, respectively. These
          shares have been excluded from loss per share calculations as they are
          anti-dilutive. In addition, common stock to be issued upon stockholder
          approval of the increase in the authorized stock of the Company,
          aggregating 38,040,820 shares are also excluded from loss per share
          calculations.

     h.   Use of Estimates - The preparation of financial statements in
          conformity with accounting principles generally accepted in the United
          States of America 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.

     i.   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.

     j.   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.

     k.   Research and Development - Research and development cost consist of
          expenditures incurred during the course of planned research and
          investigation aimed at the discovery of new knowledge, which will be
          useful in developing new products or processes. The Company expenses
          all research and development costs as incurred.

     l.   Recent Accounting Pronouncements:

          In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
          "Consolidation of Variable Interest Entities, an Interpretation of ARB
          No. 51." FIN 46 requires certain variable interest entities to be
          consolidated by the primary beneficiary of the entity if the equity
          investors in the entity do not have the characteristics of a
          controlling financial interest or do not have sufficient equity at
          risk for the entity to finance its activities without additional
          financial support from other parties. FIN 46 is effective for all new
          variable interest entities created or acquired after January 31, 2003.
          For variable interest entities created or acquired prior to February
          1, 2003, the provisions of FIN 46 must be applied for the first
          interim or annual period beginning after December 15, 2003.

          In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
          Financial Instruments with Characteristics of both Liabilities and
          Equity." SFAS No. 150 addresses certain financial instruments that,
          under previous guidance, could be accounted for as equity, but now
          must be classified as liabilities in statements of financial position.
          These financial instruments include: 1) mandatorily redeemable
          financial instruments, 2) obligations to repurchase the issuer's
          equity shares by transferring assets, and 3) obligations to issue a
          variable number of shares. SFAS No. 150 is effective for all financial
          instruments entered into or modified after May 31, 2003, and otherwise
          effective at the beginning of the first interim period beginning after
          June 15, 2003.


          Management does not believe that the adoption of this pronouncements
          will have a material effect on the Company's financial statements.

                                       F-8

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


3.   INVENTORY

     At December 31, 2003, inventory consisted of two complete units of the
     Company's water purification units valued at $26,500.

4.   NOTES PAYABLE

     Notes payable at December 31, 2003 consist of the following:

                                 (a)     156,396
                                 (b)     654,533
                                 (c)     265,388
                                       ---------
                                     $ 1,076,317
                                       =========

     (a)  Loans payable - other: These are unsecured notes bearing interest
          ranging from 10% to 15% per annum, with no specific due date for
          repayment. Amounts due on these notes, inclusive of $73,171 in
          interest is $156,396, at December 31, 2003.

     (b)  In April 2001, the Company issued a $400,000 promissory note at an
          interest rate of 2% per month. In consideration for the issuance of
          this note, 500,000 shares of the Company's common stock were issued to
          the note holder and a $74,000 debt discount was recorded and fully
          amortized in the year ended December 31, 2001. The principal balance
          and accrued interest were payable on September 1, 2001. The Company
          did not make such payment and was required to issue an additional
          100,000 penalty shares of its common stock to the note holder. The
          Company recorded additional interest expense of $12,300 related to the
          issuance of these penalty shares. Amounts due on this note, inclusive
          of $254,533 in interest, is $654,533 at December 31, 2003. As of
          December 31, 2003, the note holder has not demanded payment, although
          there is no assurance that the note holder will continue to defer
          demand for repayment.

     (c)  In November 2000, the Company entered into a Convertible Promissory
          Note agreement, whereby the Company may be advanced a maximum of
          $300,000. The Company was advanced the following: $100,000 in November
          2000, $50,000 in December 2000 and $50,000 in January 2001. No further
          cash advances were made to the Company. The Convertible Promissory
          Note agreement also called for the payment of $100,000 of Company
          expenses. The advances bear interest at 10% per annum and were to have
          been repaid as of January 15, 2002. A maximum of 6,000,000 shares
          could have been issued upon conversion had the full $300,000 been
          advanced. As of December 31, 2003, the Company owed $265,388 on these
          advances, inclusive of $65,388 in interest. The Company and the note
          holder, by mutual consent, had agreed to extend the due date of the
          note to May 1, 2002 which has not been extended. All other terms and
          provisions of the note are unchanged. In May 2003, these note holders
          received a judgment against the Company for the principal sum of
          $200,000 plus interest.

5.   LOANS PAYABLE - STOCKHOLDER

     At December 31, 2003, the Company is obligated to its Chief Executive
     Officer and a significant stockholder for loans and advances made to the
     Company totaling $372,781,plus accrued interest of $81,353. These advances
     have been accruing interest ranging from 6% to 12% per annum. The loans
     have no repayment terms and the stockholder has agreed not to demand
     payment until July 1, 2005 at the earliest.

                                       F-9

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

6.   COMMON STOCK TO BE ISSUED

     In February 2002, the Company's Board of Directors approved, pending
     stockholder approval, the increase in the number of authorized common
     shares to be issued to 190,000,000 shares. Such approval has not been
     received.

     During the year ended December 31, 2003, the Company had recorded
     liabilities for common stock to be issued for the following transactions:

     a.   Cash

          During the year end December 31, 2002, the Company received $200,000
          for 4,000,000 shares of its common stock. These shares, will be issued
          upon the approval by the stockholders on the increase in the number of
          authorized common shares of the Company. These shares are not included
          in the loss per share calculations($200,000 is included in common
          stock to be issued as of December 31, 2003).

     b.   Non-Dilution Agreement Termination Cost

          In May 2002, the Company agreed to issue to the Company's President
          and Chief Executive Officer, and to related parties of such, an
          aggregate of 14,923,958 shares of its common stock in connection with
          the voluntary surrender of a non-dilution agreement that the President
          had entered into with the Company in June 1997. These shares are not
          included in the loss per share calculations.

          Since the issuance of these shares is subject to stockholder approval,
          the measurement date for purposes of valuation will be established
          when such stockholder approval has been obtained. Accordingly, the
          Company is utilizing variable accounting to determine the value of
          these shares and the related liability is included in common stock to
          be issued. The value of these shares as of December 31, 2003 is
          $2,686,311.

     c.   Services

          During the year ended December 31, 2002, the Company agreed to issue
          to various parties an aggregate of 1,329,191 shares of its common
          stock in connection with professional services. These shares will be
          issued upon the approval by the stockholders of the increase in the
          number of authorized common shares of the Company.


     d.   Settlement of Debt

          The Company was a defendant in an action brought by certain debenture
          holders (The "Bridge Loans") in New Hampshire Superior Court seeking
          repayment of $300,000 of debenture principal together with interest
          from 1997, and the issuance of penalty shares for non payment of
          principal and interest. In addition, the plaintiff's claim that they
          had suffered by the Company's failure to register the shares issued
          under the warrant agreement.

          The Company had interposed defenses and counterclaims. In June 1997,
          in connection with the debentures, the Company had issued 6,667 shares
          of common stock for every $1,000 of debt at a price of $0.15 per
          share. The Company claimed that it was owed the $300,000 consideration
          for such shares. In addition, the Company had issued warrants for the
          purchase of 2,500,000 shares of common stock at an exercise price of
          $0.15 per share exercisable until March 2002.

                                      F-10

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

          Furthermore, the Company had issued another 100,000 shares of common
          stock to each debenture holder, or 1,300,000 shares, at a price of
          $0.15 per share.

          In the second quarter of 2002, the Company and the Bridge Lenders
          participating in the legal action, settled this dispute requiring the
          Company to: (i) Issue 3,000,000 shares of common stock valued at
          $497,500 in lieu of the principal and interest owed to the debenture
          holders who participated ("participants") in this legal action. The
          Company prior to the settlement had recorded the debentures at
          $300,000, plus accrued interest of $39,400, for a total of $339,400.
          The difference between the $497,500 settlement and the $339,400, or
          $158,100, is recorded as a loss on settlement of debt. (ii) Extend the
          warrants attached to the participants' debentures for another two
          years until March 2004, for which the Company has recorded a non cash
          expense charge of $111,000 which was recorded as loss on settlement of
          debt and (iii) Issue additional shares if the product of the $497,500,
          as valued for the 3,000,000 shares above, divided by the average daily
          trading price for the 30 days subsequent to the settlement, is greater
          than the original 3,000,000 shares. Due to these requirements the
          Company is obligated to issue an additional 14,037,671 shares, due to
          the average trading price of $0.0292 in the 30 days subsequent to the
          settlement. As of December 31, 2003, neither the 3,000,000 nor the
          additional shares of 14,037,671 have been issued, and accordingly the
          Company has recorded these shares as common stock to be issued valued
          at $497,500. These shares are not included in the loss per share
          calculations.

          The debenture holders that did not participate ("non-participating
          debentures") in the above legal action had total debentures of
          $75,000, plus accrued interest of $9,850 as of the settlement date,
          totaling $84,850. In conjunction with the above settlement, the
          Company settled these outstanding non-participating debentures, plus
          accrued interest, with the issuance of 750,000 shares of common stock
          valued at $0.0292 per share, or $21,900. The terms of their warrants
          were not extended, nor are they entitled to receive additional shares
          based on the Company's common stock achieving a certain average
          trading price 30 days subsequent to the settlement with the
          participating debenture holders. The Company has recorded a $62,950
          gain with regard to the settlement of the non-participating debentures
          which was recorded as loss on settlement of debt. As of December 31,
          2003, the 750,000 shares have not been issued, and accordingly the
          Company has recorded these shares as common stock to be issued valued
          at $21,900. These shares are not included in the loss per share
          calculations.

          The total shares to be issued upon stockholder approval of the
          increase in the authorized stock of the Company as a result of the
          transactions described above aggregate 38,040,820.

                                      F-11

<PAGE>
<TABLE>
<CAPTION>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

7.   PREFERRED STOCK

     The Company is authorized to issue 10,000,000 shares of $.001 par value
     preferred stock, issuable in series with rights, preferences, privileges
     and restrictions as determined by the board of directors.

     At December 31, 2003, outstanding preferred shares were as follows:



                                                                                      Liquidation
                                               Current                                Preference
                                               Annual         Total      Dividend     (including
           Authorized     Issued     Par      Dividend      Dividend     Arrearage    dividend
             Shares       Shares    Value    Requirement    Arrearage    Per Share    arrearage)
            -------      -------    -----    -----------    ---------    ---------    -----------
<S>         <C>           <C>       <C>       <C>           <C>           <C>         <C>
Series A    400,000       52,500    $  53     $  52,500     $ 465,100     $ 8.86      $   990,100
Series C    400,000      218,750      218        26,438        27,137        .13             -
Series D    400,000       93,000       93        55,800       417,600       4.49          417,600
Series F  1,000,000      522,916      523        70,645        20,258        .04             -
                         -------    -----     ---------     ---------                 -----------
                         887,166    $ 887     $ 205,383     $ 930,095                 $ 1,407,700
                         =======    =====     =========     =========                 ===========


     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 redeemable solely at the Company's option at a
     price of $11 per share plus accrued dividends. The Series A preferred
     stockholders have voting rights equal to common stockholders.

     In the event of the liquidation, dissolution or winding up of the Company,
     whether voluntary or involuntary, holders of the Series A preferred stock
     are entitled to receive out of the assets of the Company the sum of $10.00
     per share of Series A preferred stock then outstanding, plus a sum equal to
     all dividends (whether or not earned or declared) on such shares accrued
     and unpaid thereon to the date of final payment or distribution, before any
     payment or distribution upon dissolution, liquidation or winding up shall
     be made on any series or class of capital stock ranking junior to Series A
     preferred stock as to such payment or distribution.

     Series C:

     During the year ended December 31, 2002 the Company sold Series C 15%
     Convertible Preferred stock at $1.00 per share. These shares convert in one
     year. All dividends are cumulative and are payable in shares of the
     Company's common stock valued at the then-current market price per share,
     or upon conversion, whichever is earlier. The conversion rate for shares,
     and accrued dividends payable, is 33.33 shares of common for each $1.00 of
     preferred stock and dividends payable, or $0.03 for each share of common
     stock. The Series C Preferred stockholders have voting rights equal to the
     common stockholders. The Series C preferred stock has no stated rights in
     the assets of the Company upon liquidation. During 2002, the Company sold
     125,000 shares of Series C preferred stock. For each share of preferred
     stock purchased, the buyer also receive the right to receive an additional
     33.33 shares of common stock upon conversion as the market value of the
     stock was $0.015 at issuance.

     Cash
     ----

     In April 2003, the Company issued 12,500 shares and raised $25,000 through
     the sale of Series C convertible preferred stock.

     In the year ended December 31, 2002, the Company sold 125,000 shares and
     raised $117,500 through the sale of Series C convertible preferred stock.

     Services
     --------

     In January 2003, the Company issued 30,000 shares of its Series C
     convertible preferred stock for professional services totaling $30,000.

     In April 2003, the Company issued an aggregate of 51,250 shares of its
     Series C convertible preferred stock for professional services totaling
     $51,250.

                                      F-12
</TABLE>

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     Series D:

     The Series D preferred stock provides for a 12% cumulative dividend, based
     on the $5 per share purchase price, payable semi-annually in the Company's
     common stock or cash, at the Company's option. The Series D preferred stock
     is not convertible, and is redeemable solely at the Company's option at a
     price of $5.75 per share plus accrued dividends. The Series D Preferred
     stockholders have voting rights equal to the common stockholders.

     In the event of the liquidation, dissolution or winding up of the Company,
     whether voluntary or involuntary, holders of the Series D preferred stock
     are entitled to receive out of the assets of the Company the sum all
     dividends (whether or not earned or declared) on such shares accrued and
     unpaid thereon to the date of final payment or distribution, before any
     payment or distribution upon dissolution, liquidation or winding up shall
     be made on any series or class of capital stock ranking junior to Series D
     preferred stock as to such payment or distribution.

     Series F

     In April 2003, management authorized the Company to raise up to $550,000
     Through a private placement by issuing 105 two-year convertible preferred
     instruments. The preferred, designated as Series F, and providing for one
     million shares in total, will be convertible into shares of Water Chef's
     common stock at such time as the stockholders of the corporation approve an
     increase in the authorized capital stock of the corporation. All dividends
     are cumulative and are payable in shares of the Company's common stock
     valued at the then current market price per share, at the time of maturity,
     or upon conversion, whichever is earlier. The conversion rate for shares
     and accrued dividends payable is 40 shares of common for each share of
     preferred stock. The Series F convertible preferred stockholders have
     voting rights equal to the common stockholders. The Series F convertible
     preferred stock has no stated rights in the assets of the company upon
     liquidation.

     Although there was a discount upon the issuance of all of the Series F
     preferred stock in accordance with Emerging Issue Task Force ("EITF") 98-5,
     a security is not yet convertible if certain contingencies exist which are
     dependent upon the occurrence of a future event outside the control of the
     security holder. In this case, the shares can only be converted into common
     stock after the stockholders of the Company approve an increase in the
     authorized capital stock of the corporation. In accordance with EITF 98-5,
     any beneficial conversion (discount) feature is measured at the commitment
     date, but will not be recognized as an adjustment to earnings until the
     contingency is resolved, (the date the increase in shares are approved). As
     of December 31, 2003, the deferred contingent beneficial conversion
     adjustment was approximately $1,078,000.


     Cash
     ----

     In April 2003, the Company raised $87,500 through the sale of Series F
     convertible preferred stock.

     In July 2003 and August 2003, the Company raised an additional $75,000 and
     $153,510, respectively through the sale of Series F convertible preferred
     stock.

     In the 4th Quarter of 2003, the Company raised an additional $258,861
     through the sale of Series F convertible preferred stock.

                                      F-13

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



     Services
     --------

     In August 2003 and September 2003, the Company issued an aggregate of
     67,035 shares of its Series F convertible preferred stock for professional
     services totaling $67,035.

     In December 2003, the Company issued an aggregate of 22,150 shares of its
     Series F convertible preferred stock for professional services totaling
     $65,400.


8.   COMMON STOCK

     In February 2002, the Company's Board of Directors approved, pending
     stockholder approval, the increase in the number of authorized common
     shares to be issued to 190,000,000 shares. Such approval has not been
     received.

     a. Cash -

                  In the year ended December 31, 2002, the Company sold
                  2,500,000 shares of its common stock for total proceeds of
                  $100,000, or $.04 per share.

     b. Services -

                  During the year ended December 31, 2002, the Company issued an
                  aggregate of 450,000 shares of its common stock for consulting
                  services totaling $36,000.

9.   Stock Option and Warrant Grant Plan

     In 1994, the Company instituted a stock option plan, which is available to
     selected directors, officers, employees and consultants of the Company (the
     "Participants"). The term of each option is ten years from the date of
     grant or a shorter term as determined by the Stock Option Committee (the
     "Committee"). The exercise price is determined by the Committee and cannot
     be less than 110% of the fair market value of the shares on the date of the
     grant. The Committee as of the date of grant determines the terms,
     conditions and restrictions of the options. No options have been awarded
     under the plan.

     In March 1997, the Company, in connection with Bridge Loans for $375,000
     issued warrants to purchase 2,500,001 shares of common stock at $.15 per
     share. These warrants had a life of five years and were to have expired in
     March 2002. In the year ended December 31, 2000, a total of 333,334 common
     shares were issued upon the exercise of a like number of warrants, for net
     proceeds of $50,000. Of the remaining 2,166,667 un-exercised warrants at
     March 2002, a total of 1,666,667 warrants had their lives extended for an
     additional two years until March 2004. The remaining balance of 500,000
     warrants were not extended, and accordingly they have expired. The
     extension of the exercise date was part of a settlement that the Company
     had reached with certain debenture holders that had brought a legal action
     against the Company.

     During 2002, the Company has valued the extension of these warrants at
     $111,000, which has been included in the loss on settlement of debt.

     The fair value of each stock option, or warrant granted, is estimated on
     the date of grant using the Black-Scholes option-pricing model. The Company
     did not grant, nor issue, options or warrants in the year ended December
     31, 2003.

                                      F-14

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
     The following tables illustrates the Company's stock option and warrant
     issuances and balances outstanding as of, and during the years ended
     December 31, 2003 and 2002:


                                        Shares Underlying   Weighted Average
                                            Warrants         Exercise Price
                                        -----------------   ----------------
     Outstanding at December 31, 2002       2,166,667            $ 0.15
        Granted                                     -                 -
        Expired                              (500,000)             0.15
        Exercised                                   -                 -
                                        -----------------    ---------------
     Outstanding at December 31, 2002       1,666,667            $ 0.15
        Granted                                     -                 -
        Expired                                     -                 -
        Exercised                                   -                 -
                                        -----------------    ---------------
     Outstanding at December 31, 2003       1,666,667            $ 0.15
                                        =================    ===============

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

     The following is additional information with respect to the Company's
warrants as of December 31, 2003:

              WARRANTS OUTSTANDING                     WARRANTS EXERCISABLE
 -----------------------------------------------   -----------------------------

                            Weighted
                                Average Weighted
             Number of     Remaining     Average    Number of      Weighted
 Exercise  Outstanding    Contractual   Exercise   Exercisable      Average
  Price      Warrants        Life        Price      Warrants     Exercise Price
---------  ------------   ------------   -------  ------------   --------------
  $ 0.15     1,666,667     1.25 years    $ 0.15     1,666,667        $ 0.15
=========  ============   ============   =======  ============    ============

10.  LEASES

     The Company's lease for its administrative facilities located in Glen Head,
     New York on a month to month basis.

     Rent expense, for the years ended December 31, 2003 and 2002 was $25,797
     and $22,548, respectively.

11.  INCOME TAXES

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

                                      F-15

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     For the year ended December 31, 2003 and 2002, no provision for income
     taxes Has been provided for, as a result of continued net operating losses.
     The Company is subject to certain state and local taxes based on capital.

     The Company has net operating loss carryforwards for federal income tax
     purposes totaling approximately $15,000,000 at December 31, 2003. These
     carryforwards expire between the years 2009 through 2023. Utilization of
     these loss carryforwards may be limited under Internal Revenue Code Section
     382. The deferred tax asset arising from the net operating loss
     carryforwards has been offset by a corresponding valuation allowance.

     The valuation allowance primarily relates to the federal and state net
     Operating losses for which utilization in future periods is uncertain. The
     ultimate realization of deferred tax assets is dependent upon the
     generation of future taxable income during the periods in which those
     temporary differences become deductible. The Company considers projected
     future taxable income and tax planning strategies in making this
     assessment. Based on projections for future taxable income over the periods
     that the deferred tax assets are deductible, the Company believes it is
     more likely than not that the Company will not realize the benefits of
     these deductible differences in the near future and therefore a full
     valuation allowance of $6,000,000 is provided. The net change in the
     valuation allowance increased approximately $500,000 during 2003 related to
     increased net operating losses.

12.  MAJOR CUSTOMERS

     The Company recorded no sale and one sale to one major customer for the
     year ended December 31, 2003 and 2003 respectively.


13.  COMMITMENTS AND CONTINGENCIES

     The Company was a defendant in an action brought by a customer on June 6,
     2001, relating to a series of contracts that the Company entered into. The
     customer had claimed that the Company breached these contracts by shipping
     certain goods in November 1997, that did not conform to the contract. Most
     of the damages that the customer sought consist of lost business profits.
     Company management, and legal counsel, believed that the action was without
     merit. However, due to the costs in defending the Company in such a legal
     action, Company management opted for a settlement in 2003 as the most cost
     effective manner to handling this matter. The Company has agreed to pay the
     customer a total of $27,500 over nine months which has been paid in full as
     of December 31, 2003.

     In May 2001, the Company entered into a distribution agreement with a
     company (the "Sub distributor") based in the State of Jordan. The Sub
     distributor has agreed to purchase no fewer than 100 units of the Company's
     "Pure Safe Water Station", in the calendar year commencing January 1, 2001.
     A minimum purchase of 50 units are required to be purchased in each of the
     subsequent years commencing January 1, 2002 and 2003, respectively. During
     the year ended December 31, 2001, 18 units had been shipped under this
     agreement. The sale will be recognized when the Company receives payments.
     The Company recorded the cost of the inventory shipped as a loss
     contingency of $242,035 during the year ended December 31, 2001, since
     return of the items is uncertain.

                                      F-16

<PAGE>


                                                                 WATERCHEF, INC.
                        (A Development Stage Company Commencing January 1, 2002)

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

     On November 17, 2000, the Company entered into a three-year master
     distribution agreement for their "Pure Safe Water Station" with a
     distributor based out of Hong Kong ("the distributor"). Under this
     agreement, upon meeting minimum quantities of sales in each of the years of
     agreement, the distributor will receive a rebate of 20% of the total price
     for all products, parts and supplies purchased from the Company.
     Furthermore, the distributor, upon meeting these minimum sales quantities
     will have the right to purchase up to 30,000,000 shares of the Company's
     common stock at $0.05 per share. The sales targets were never met and the
     agreement was cancelled on June 17, 2002.

                                      F-17