UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
      the quarterly period ended September 30,
2008
 
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 Commission
File Number:1-09478
 
 Water
Chef, Inc.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
                86-0515678(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)25
      Fairchild Avenue - Suite 250, Plainview, New York
                11803(Address
      of principal executive offices)
                (Zip
      Code)
 
 (516)
208-8250
 (Registrant’s
telephone number,including area code)
 
 
 Indicate
by check mark whether the registrant (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 o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
 
 Large
      accelerated filer  o
                  Accelerated
      filer  oNon-accelerated
      filer  o
                  Smaller
      reporting company  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes  o   No  x
 
 State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date. As of November 12, 2008, 244,803,634 shares of
common stock of the issuer were outstanding.
  
  PART
I - FINANCIAL INFORMATION
 
 Item
1.   Financial Statements.
 Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Condensed
Balance Sheets
 September
      30,
                  
                  
                  December
      31,2008
                  
                  
                  2007(Unaudited)ASSETSCurrent
      assetsCash
                  
                  $
                  37,601
                  
                  
                  $
                  415,400Prepaid
      expenses and other current assets
                  
                  
                  29,390
                  
                  
                  
                  41,988Total
      current assets
                  
                  
                  66,991
                  
                  
                  
                  457,388Fixed
      assetsProperty
      and equipment, net of accumulated depreciation of $10,712 and $2,063,
      respectively
                  
                  
                  147,196
                  
                  
                  
                  18,987Other
      assetsPatents
      and trademarks, net of accumulated amortization of $16,565 and $13,275,
      respectively
                  
                  
                  58,187
                  
                  
                  
                  38,323Deferred
      financing fees, net of accumulated amortization of $7,530 and $5,020,
      respectively
                  
                  
                  --
                  
                  
                  
                  2,510Other
      assets
                  
                  
                  26,860
                  
                  
                  
                  9,419Total
      other assets
                  
                  
                  85,047
                  
                  
                  
                  50,252Total
      Assets
                  
                  $
                  299,234
                  
                  
                  $
                  526,627LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                  
                  $
                  457,751
                  
                  
                  $
                  492,825Accrued
      compensation
                  
                  
                  113,000
                  
                  
                  
                  104,000Accrued
      consulting and director fees
                  
                  
                  178,000
                  
                  
                  
                  166,000Convertible
      notes payable to officer and director, including accrued interest of
      $7,466 and $7,425, respectively
                  
                  
                  57,466
                  
                  
                  
                  107,425Convertible
      promissory note, including accrued interest of $0 and $7,945 and net of
      debt discount of $0 and $67,900, respectively
                  
                  
                  --
                  
                  
                  
                  190,045Notes
      payable, including accrued interest of $273,851 and $417,542,
      respectively
                  
                  
                  557,073
                  
                  
                  
                  895,077Fair
      value of warrants and options
                  
                  
                  246,100
                  
                  
                  
                  170,900Fair
      value of embedded conversion options
                  
                  
                  78,400
                  
                  
                  
                  239,300Accrued
      dividends payable
                  
                  
                  190,270
                  
                  
                  
                  190,270Total
      current liabilities
                  
                  
                  1,878,060
                  
                  
                  
                  2,555,842Stockholders'
      deficiencyPreferred
      stock, $.001 par value; 10,000,000 shares authorized;185,194 shares issued
      and outstanding (liquidation preference of $2,456,875 and $2,375,650 as of
      September 30, 2008 and December 31, 2007, respectively)
                  
                  
                  185
                  
                  
                  
                  185Common
      stock $.001 par value; 340,000,000 shares authorized;244,808,034 shares
      issued and 244,803,634 shares outstanding as of September 30, 2008 and
      204,177,806 shares issued and 204,173,406 outstanding as of December 31,
      2007
                  
                  
                  244,807
                  
                  
                  
                  204,177Additional
      paid-in capital
                  
                  
                  28,413,004
                  
                  
                  
                  26,129,184Treasury
      stock, at cost, 4,400 shares of common stock
                  
                  
                  (5,768
                  )
                  
                  
                  (5,768
                  )Subscription
      receivable -  (including accrued interest of
    $7,815)
                  
                  
                  (345,015
                  )
                  
                  
                  --Accumulated
      deficit, including $15,354,443 and $13,825,397 of deficit accumulated
      during the development stage as of September 30, 2008 and December 31,
      2007, respectively
                  
                  
                  (29,886,039
                  )
                  
                  
                  (28,356,993
                  )Total
      stockholders’ deficiency
                  
                  
                  (1,578,826
                  )
                  
                  
                  (2,029,215
                  )Total
      Liabilities and Stockholders' Deficiency
                  
                  $
                  299,234
                  
                  
                  $
                  526,627
 See notes
to condensed financial statements
  2
  Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Condensed
Statements of Operations
  January
      1,Three
      Months Ended
                        
                        
                        Nine
      Months Ended
                        
                        
                        2002
      toSeptember 30,
                        
                        
                        September 30,
                        
                        
                        September2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        
                        30, 2008Sales
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        471,290Costs
      and expenses (income) -Cost
      of sales
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        $
                        23,000
                        
                        
                        
                        575,680Selling,
      general and administrative, including stock based compensation of $149,504
      and $46,539 for the three months ended September 30, 2008 and 2007 and
      $387,691 and $550,377 for the nine months ended September 30, 2008 and
      2007 and $2,569,696 for the period of January  1, 2002 to
      September 30, 2008
                        
                        $
                        477,604
                        
                        
                        $
                        346,873
                        
                        
                        $
                        1,449,019
                        
                        
                        
                        1,267,128
                        
                        
                        
                        8,462,965Non-dilution
      agreement termination costs
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        2,462,453Research
      and development
                        
                        
                        90,062
                        
                        
                        
                        75,000
                        
                        
                        
                        255,987
                        
                        
                        
                        75,000
                        
                        
                        
                        691,350Interest
      expense, including interest expense to a related party of $0 and $2,466
      for the three months ended September 30, 2008 and 2007, $0 and $5,329 for
      the nine months ended September 30, 2008 and 2007 and $126,765 for period
      of January 1, 2002 to September 30, 2008
                        
                        
                        7,282
                        
                        
                        
                        38,057
                        
                        
                        
                        78,507
                        
                        
                        
                        177,257
                        
                        
                        
                        1,502,135Financing
      costs - extension of warrants
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        74,700Interest
      expense - conversion provision
                        
                        
                        --
                        
                        
                        
                        22,550
                        
                        
                        
                        --
                        
                        
                        
                        135,550
                        
                        
                        
                        113,000(Gain)
      loss on settlement of debt
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        (226,467
                        )
                        
                        
                        --
                        
                        
                        
                        2,387,550Change
      in fair value of warrants and embedded conversion option
                        
                        
                        (733,200
                        )
                        
                        
                        (270,800
                        )
                        
                        
                        (28,000
                        )
                        
                        
                        (252,400
                        )
                        
                        
                        (444,100
                        )Total
      cost and expenses (income)
                        
                        
                        (158,252
                        )
                        
                        
                        211,680
                        
                        
                        
                        1,529,046
                        
                        
                        
                        1,425,535
                        
                        
                        
                        15,825,733Net
      income (loss)
                        
                        
                        158,252
                        
                        
                        
                        (211,680
                        )
                        
                        
                        (1,529,046
                        )
                        
                        
                        (1,425,535
                        )
                        
                        
                        (15,354,443
                        )Deemed
      dividend on preferred stock
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        (2,072,296
                        )Preferred
      stock dividends
                        
                        
                        (27,075
                        )
                        
                        
                        --
                        
                        
                        
                        (81,225
                        )
                        
                        
                        (213
                        )
                        
                        
                        (698,991
                        )Net
      income (loss) attributable to common stockholders
                        
                        $
                        131,177
                        
                        
                        $
                        (211,680
                        )
                        
                        $
                        (1,610,271
                        )
                        
                        $
                        (1,425,748
                        )
                        
                        $
                        (18,125,730
                        )Basic
      net income (loss) attributable to common stockholders per common
      share
                        
                        
                        *
                        
                        
                        
                        *
                        
                        
                        
                        *
                        
                        
                        
                        *Diluted
      income (loss) attributable to common stockholders per common
      share
                        
                        
                        *
                        
                        
                        
                        *
                        
                        
                        
                        *
                        
                        
                        
                        *Weighted
      average number of common shares outstanding - basic
                        
                        
                        238,391,755
                        
                        
                        
                        190,196,243
                        
                        
                        
                        237,627,738
                        
                        
                        
                        188,606,912Weighted
      average number of common shares outstanding - diluted
                        
                        
                        243,009,074
                        
                        
                        
                        190,196,243
                        
                        
                        
                        237,627,738
                        
                        
                        
                        188,606,912
 _____
 *
              Less
      that $0.01.
 See notes
to condensed financial statements
  3
  Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Condensed
Statement of Stockholders’ Deficiency
 (Unaudited)
 
 Additional
                  
                  
                  Treasury
                  
                  
                  
                  
                  
                  
                  
                  
                  TotalPreferred
      Stock
                  
                  
                  Common
      Stock
                  
                  
                  Paid-In
                  
                  
                  Stock
                  
                  
                  Subscription
                  
                  
                  Accumulated
                  
                  
                  Stockholders’Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  at
      Cost
                  
                  
                  Receivable
                  
                  
                  Deficit
                  
                  
                  DeficiencyBalance
      at December 31, 2007
                  
                  
                  185,194
                  
                  
                  $
                  185
                  
                  
                  
                  204,177,806
                  
                  
                  $
                  204,177
                  
                  
                  $
                  26,129,184
                  
                  
                  $
                  (5,768
                  )
                  
                  
                  --
                  
                  
                  $
                  (28,356,993
                  )
                  
                  $
                  (2,029,215
                  )Proceeds
      from sale of common stock:$0.0357
      per share - February 29, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,401,869
                  
                  
                  
                  1,402
                  
                  
                  
                  48,598
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.0350
      per share - March 7, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  2,857,142
                  
                  
                  
                  2,857
                  
                  
                  
                  97,143
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  100,000$0.0350
      per share - March 13, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,428,571
                  
                  
                  
                  1,429
                  
                  
                  
                  48,571
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.0343
      per share - March 13, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  2,912,622
                  
                  
                  
                  2,913
                  
                  
                  
                  97,087
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  100,000$0.0900
      per share - March 26, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,666,667
                  
                  
                  
                  1,667
                  
                  
                  
                  148,333
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  150,000$0.1083
      per share - March 26, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  461,538
                  
                  
                  
                  462
                  
                  
                  
                  49,538
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.1000
      per share - April 11, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,000,000
                  
                  
                  
                  1,000
                  
                  
                  
                  99,000
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  100,000$0.1083
      per share - May 5, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  923,077
                  
                  
                  
                  923
                  
                  
                  
                  99,077
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  100,000$0.0917
      per share - May 15, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  545,455
                  
                  
                  
                  545
                  
                  
                  
                  49,455
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.0963
      per share - May 15, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  519,031
                  
                  
                  
                  519
                  
                  
                  
                  49,481
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.0963
      per share - May 12, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,557,094
                  
                  
                  
                  1,557
                  
                  
                  
                  148,443
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  150,000$0.1000
      per share - May 23, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  500,000
                  
                  
                  
                  500
                  
                  
                  
                  49,500
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.0840
      per share - June 30, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  833,333
                  
                  
                  
                  833
                  
                  
                  
                  69,167
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  70,000$0.0730
      per share - July 25, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,369,863
                  
                  
                  
                  1,370
                  
                  
                  
                  98,630
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  100,000Stock
      for receivables:$0.0843
      per share - May 12, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  17,000,000
                  
                  
                  
                  17,000
                  
                  
                  
                  1,416,100
                  
                  
                  
                  --
                  
                  
                  $
                  (1,433,100
                  )
                  
                  
                  --
                  
                  
                  
                  --$0.0843
      per share - August 31, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (13,000,000
                  )
                  
                  
                  (13,000
                  )
                  
                  
                  (1,082,900
                  )
                  
                  
                  --
                  
                  
                  
                  1,095,900
                  
                  
                  
                  --
                  
                  
                  
                  --Accrued
      interest
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (7,815
                  )
                  
                  
                  --
                  
                  
                  
                  (7,815
                  )Stock
      for compensation:$0.0500
      per share - March 13, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,000,000
                  
                  
                  
                  1,000
                  
                  
                  
                  49,000
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  50,000$0.0400
      per share - March 26, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  333,333
                  
                  
                  
                  333
                  
                  
                  
                  13,000
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  13,333$0.1000
      per share - May 29, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,000,000
                  
                  
                  
                  1,000
                  
                  
                  
                  99,000
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  100,000$0.0500
      per share - September 18, 2008
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  2,150,000
                  
                  
                  
                  2,150
                  
                  
                  
                  105,350
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  107,500
 
 (Continued
on following page)
  4
  Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Condensed
Statement of Stockholders’ Deficiency
 (Unaudited)
 (Continued
From Previous Page)
 
 Additional
                            
                            
                            Treasury
                            
                            
                            
                            
                            
                            
                            
                            
                            TotalPreferred
      Stock
                            
                            
                            Common
      Stock
                            
                            
                            Paid-In
                            
                            
                            Stock
                            
                            
                            Subscription
                            
                            
                            Accumulated
                            
                            
                            Stockholders’Shares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            at
      Cost
                            
                            
                            Receivable
                            
                            
                            Deficit
                            
                            
                            DeficiencyCommon
      stock issued in repayment of debt:$0.02943
      per share - January 9, 2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            947,119
                            
                            
                            
                            947
                            
                            
                            
                            26,927
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            27,874$0.02500
      per share - January 17, 2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            2,146,324
                            
                            
                            
                            2,146
                            
                            
                            
                            51,512
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            53,658$0.02212
      per share - January 17, 2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            1,250,000
                            
                            
                            
                            1,250
                            
                            
                            
                            48,750
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            50,000$0.03108
      per share - January 22, 2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            6,899,269
                            
                            
                            
                            6,899
                            
                            
                            
                            207,530
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            214,429$0.02943
      per share - February 1, 2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            562,282
                            
                            
                            
                            562
                            
                            
                            
                            15,986
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            16,548Reclassification
      of derivative liability
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            57,700
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            57,700Amortization
      of warrants and option over thevesting period for employees andnon-employees
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            116,858
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            116,858Issuance
      of common stock for $100,000 ofsubscription payable ($0.0443 per
      share)- January 4,
      2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            2,255,639
                            
                            
                            
                            2,256
                            
                            
                            
                            (2,256
                            )
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --Issuance
      of shares upon exercise of warrants($0.0850
      per share) - March 26, 2008
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            110,000
                            
                            
                            
                            110
                            
                            
                            
                            9,240
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            9,350Net
      loss
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            
                            
                            
                            
                            (1,529,046
                            )
                            
                            
                            (1,529,046
                            )BALANCE
      - SEPTEMBER 30, 2008
                            
                            
                            185,194
                            
                            
                            $
                            185
                            
                            
                            
                            244,808,034
                            
                            
                            $
                            244,807
                            
                            
                            $
                            28,413,004
                            
                            
                            $
                            (5,768
                            )
                            
                            $
                            (345,015
                            )
                            
                            $
                            (29,886,039
                            )
                            
                            $
                            (1,578,826
                            )
 
 See notes
to condensed financial statements
  5
  Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Condensed
Statements of Cash Flow
 (Unaudited)
 
 JanuaryNine
      Months Ended
                      
                      
                      1,
      2002September 30,
                      
                      
                      to
      September2008
                      
                      
                      2007
                      
                      
                      30, 2008Cash
      Flows from Operating Activities:Net
      Loss
                      
                      $
                      (1,529,046
                      )
                      
                      $
                      (1,425,535
                      )
                      
                      $
                      (15,354,443
                      )Adjustments
      to reconcile net loss to net cash used in operating activities
      -Depreciation
                      
                      
                      8,649
                      
                      
                      
                      1,508
                      
                      
                      
                      10,712Amortization
      of patents
                      
                      
                      3,290
                      
                      
                      
                      1,763
                      
                      
                      
                      15,183Interest
      expense - amortization of deferred financing
                      
                      
                      2,510
                      
                      
                      
                      5,942
                      
                      
                      
                      22,530Stock
      based compensation
                      
                      
                      387,692
                      
                      
                      
                      550,377
                      
                      
                      
                      2,569,697Interest
      expense - conversion provision
                      
                      
                      -
                      
                      
                      
                      135,550
                      
                      
                      
                      113,000Stock
      subscription - interest receivable
                      
                      
                      (7,815
                      )
                      
                      
                      --
                      
                      
                      
                      (7,815
                      )Accretion
      of debt discount
                      
                      
                      67,900
                      
                      
                      
                      81,200
                      
                      
                      
                      565,321Change
      in fair value of warrants and embedded conversion option
                      
                      
                      (28,000
                      )
                      
                      
                      (252,400
                      )
                      
                      
                      (444,100
                      )(Gain)
      loss on settlement of debt
                      
                      
                      (226,467
                      )
                      
                      
                      --
                      
                      
                      
                      2,387,550Non-dilution
      agreement termination cost
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      2,462,453Inventory
      reserve
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      159,250Write-off
      of stock subscription receivable
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      21,800Financing
      costs - warrant extension
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      74,700Change
      in assets and liabilities -Prepaid
      expenses and other current assets
                      
                      
                      12,598
                      
                      
                      
                      (3,432
                      )
                      
                      
                      20,854Security
      deposit
                      
                      
                      (17,441
                      )
                      
                      
                      (3,198
                      )
                      
                      
                      (17,441
                      )Accounts
      payable, accrued expenses, accrued dividends, accrued compensation,
      accrued consulting and director fees, customer deposits and other current
      liabilities
                      
                      
                      (1,693
                      )
                      
                      
                      273,758
                      
                      
                      
                      1,641,235Net
      Cash Used in Operation Activities
                      
                      
                      (1,327,823
                      )
                      
                      
                      (634,467
                      )
                      
                      
                      (5,759,511
                      )Cash
      Flows from Investing Activities:Purchase
      of property and equipment
                      
                      
                      (136,857
                      )
                      
                      
                      (33,846
                      )
                      
                      
                      (157,907
                      )Patent
      costs
                      
                      
                      (23,155
                      )
                      
                      
                      (25,543
                      )
                      
                      
                      (48,698
                      )Net
      Cash Used in Investing Activities
                      
                      
                      (160,012
                      )
                      
                      
                      (59,389
                      )
                      
                      
                      (206,605
                      )Cash
      Flows from Financing Activities:Reduction
      of stock subscription receivable
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      65,700Proceeds
      from sale of preferred stock
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      1,130,127Proceeds
      from sale of common stock
                      
                      
                      1,170,000
                      
                      
                      
                      450,000
                      
                      
                      
                      3,860,560Proceeds
      from exercise of warrants
                      
                      
                      9,350
                      
                      
                      
                      --
                      
                      
                      
                      9,350Proceeds
      from sale of common stock to be issued
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      300,000Deferred
      financing costs
                      
                      
                      --
                      
                      
                      
                      (7,530
                      )
                      
                      
                      (22,530
                      )Proceeds
      from convertible promissory note
                      
                      
                      --
                      
                      
                      
                      250,000
                      
                      
                      
                      800,000Proceeds
      from officers’ and directors’ loans
                      
                      
                      --
                      
                      
                      
                      100,000
                      
                      
                      
                      100,000Repayment
      of notes payable
                      
                      
                      (69,314
                      )
                      
                      
                      (57,835
                      )
                      
                      
                      (275,001
                      )Net
      Cash Provided by Financing Activities
                      
                      
                      1,110,036
                      
                      
                      
                      734,635
                      
                      
                      
                      5,968,206
 
 (Continued
on following page)
  6
  Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Condensed
Statements of Cash Flow
 (Unaudited)
 (Continued
From Previous Page)
 
 JanuaryNine
      Months Ended
                  
                  
                  1,
      2002September 30,
                  
                  
                  to
      September2008
                  
                  
                  2007
                  
                  
                  30, 2008Net
      (Decrease) Increase in Cash
                  
                  
                  (377,799
                  )
                  
                  
                  40,779
                  
                  
                  
                  2,090Cash
      at Beginning of Year
                  
                  
                  415,400
                  
                  
                  
                  99,716
                  
                  
                  
                  35,511Cash
      at end of period
                  
                  $
                  37,601
                  
                  
                  $
                  140,495
                  
                  
                  $
                  37,601SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for -Interest
                  
                  $
                  2,866
                  
                  
                  $
                  9,083
                  
                  
                  $
                  370,353NON-CASH
      INVESTING ACTIVITIES:Notes
      receivable for common stock issued
                  
                  $
                  337,200
                  
                  
                  
                  --
                  
                  
                  $
                  337,200NON-CASH
      FINANCING ACTIVITIES:Compensation
      satisfied by issuance of common stock
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  $
                  55,250Common
      stock issued in satisfaction of liabilities
                  
                  $
                  362,509
                  
                  
                  $
                  311,078
                  
                  
                  $
                  7,037,871Reclassification
      of derivative liabilities upon conversion of debt
                  
                  $
                  67,400
                  
                  
                  $
                  140,000
                  
                  
                  $
                  208,900Reclassification
      of equity instruments to liabilities upon issuance of debt
                  
                  
                  --
                  
                  
                  $
                  247,100
                  
                  
                  $
                  288,900Cancellation
      of debt for no consideration
                  
                  
                  --
                  
                  
                  $
                  1,327,321
                  
                  
                  $
                  1,327,321
 
 See notes
to condensed financial statements
  7
  Water
Chef, Inc.
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Condensed Financial Statements
 (Unaudited)
 
 
 NOTE 1: DESCRIPTION OF
BUSINESS.
 
 Water
Chef, Inc. (the "Company") is a Delaware corporation engaged in the design and
development of technology to be used in the marketing and sale of water
purification systems, both with in and outside of the United States. The
Company's corporate headquarters is located in Plainview, New York.
 
 
 NOTE
2: BASIS OF PRESENTATION AND ACCOUNTING POLICIES.
 
 The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information. Accordingly, these interim financial
statements do not include all of the information and footnotes required for
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to make the
financial statements not misleading have been included.
 The
operating results for the three and nine month periods ended September 30, 2008
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008. These financial statements should be read in
conjunction with the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2007,
filed with the Securities and Exchange Commission on April 15,
2008.
 
 Development Stage
Company
 
 The
Company is  in the development stage, as defined by Statement of
Financial Accounting Standards ("SFAS") Statement No. 7, "Accounting and
Reporting for Development Stage Companies." Since January 1, 2002, the Company
has generated limited sales and has devoted its efforts primarily to developing
its products, implementing its business and marketing strategy and raising
working capital through equity financing and short- and long-term
borrowings.
 
 Use Of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
 
 The
Company bases its estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. The most
significant estimates, among other things, are used in accounting for allowances
for deferred income taxes, expected realizable values for long-lived assets
(primarily intangible assets) and contingencies, as well as the recording and
presentation of the Company’s common stock, preferred stock, option and warrant
issuances. Estimates and assumptions are periodically reviewed and the effects
of any material revisions are reflected in the financial statements in the
period that they are determined to be necessary. Actual results could differ
from those estimates and assumptions.
 
 Stock Based
Compensation
 
 The
Company reports stock based compensation under SFAS No. 123R “Share Based
Payment” (“SFAS 123R”).  SFAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values.
  8
  The
Company accounts for equity instruments issued to non-employees as compensation
in accordance with the provisions of SFAS 123R and the Emerging Issues Task
Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or In Conjunction with Selling,
Goods or Services” (“EITF 96-18”), which require that each such equity
instruments are recorded at its fair value on the measurement date, which is
typically the date the services are performed.
 
 The
Black-Scholes option valuation model is used to estimate the fair values of
equity instruments. The model includes subjective input assumptions that can
materially affect the fair value estimates. The model was developed for use in
estimating the fair value of traded options or warrants that have no vesting
restrictions and that are fully transferable. The expected volatility is
estimated based on the most recent historical period of time equal to the
weighted average life of the subject equity instrument.
 
 
 NOTE
3: GOING CONCERN.
 
 The
accompanying unaudited condensed financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred recurring losses from operations, an accumulated deficit since its
inception of approximately $29,886,000 and $28,357,000 as of September 30, 2008
and December 31, 2007, respectively, and has a working capital deficiency of
approximately $1,811,000 and $2,098,000 as of September 30, 2008 and December
31, 2007, respectively. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
 
 The
Company'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 Company plans to raise an additional $10 million in the
next twelve months to fund the completion of the Company’s PureSafe First
Response Water Station (the “PureSafe product”) prototype, launch a marketing
program for the PureSafe product, establish a sales and marketing network, start
production and build inventory units of the PureSafe product and provide working
capital for the Company.  No assurance that such financing will be
available on terms advantageous to the Company, or at all.  The
Company anticipates that by the first quarter of 2009, the Company will be fully
commercially operational and cease to be a development stage entity. However,
should the Company not be successful in obtaining the necessary financing to
fund its operations, the Company would need to curtail certain of its
operational activities. The accompanying unaudited condensed financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
 
 
 NOTE
4: RECENT ACCOUNTING STANDARDS.
 
 In March
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161
"Disclosures about Derivative Instruments and Hedging Activities – an Amendment
of FASB Statement No. 133" ("SFAS 161"). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under FASB Statement No. 133 and its related interpretations
and (c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. The guidance in SFAS
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
SFAS 161 encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. At this time, the Company is evaluating the
implications of SFAS 161 and its impact on the Company’s condensed financial
statements has not yet been determined.
 
 In April
2008, FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” FSP 142-3 is effective for fiscal years beginning after December 15,
2008. The Company believes that the implementation of this standard will not
have a material impact on the Company’s consolidated financial position and
results of operations.
  9
  In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS 162 is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.” The Company believes the implementation of this
standard will not have a material impact on the Company’s consolidated financial
position and results of operations.
 
 In
September 2008, FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161” (“FSP 133-1 and FIN 45-4”). FSP 133-1 and FIN 45-4 amends and
enhances disclosure requirements for sellers of credit derivatives and financial
guarantees. It also clarifies that the disclosure requirements of SFAS 161 are
effective for quarterly periods beginning after November 15, 2008, and fiscal
years that include those periods. FSP 133-1 and FIN 45-4 is effective for
reporting periods (annual or interim) ending after November 15, 2008. The
Company believes the implementation of this standard will not have a material
impact on the Company’s consolidated financial position and results of
operations.
 
 In
September 2008, FASB ratified EITF Issue No. 08-5, “Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement” (“EITF
08-5”). EITF 08-5 provides guidance for measuring liabilities issued with an
attached third-party credit enhancement (such as a guarantee). It clarifies that
the issuer of a liability with a third-party credit enhancement (such as a
guarantee) should not include the effect of the credit enhancement in the fair
value measurement of the liability. EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 08-5 on its consolidated financial position and
results of operations.
 
 In
October 2008, FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset
in a Market That Is Not Active” (“FSP 157-3”). FSP 157-3 clarified the
application of SFAS No. 157 in an inactive market. FSP 157-3 demonstrated how
the fair value of a financial asset is determined when the market for that
financial asset is inactive. FSP 157-3 was effective upon issuance, including
prior periods for which financial statements had not been issued. The
implementation of this standard did not have a material impact on the Company’s
consolidated financial position and results of operations.
 
 
 NOTE
5: CONVERTIBLE PROMISSORY NOTES.
 
 On
September 7, 2007, the Company entered into an agreement with two entities not
affiliated with the Company, pursuant to which the Company sold and issued to
such entities convertible notes in the aggregate principal amount of $250,000
bearing interest at the rate of 10% per annum.  In addition, the
Company issued to the entities warrants to purchase an aggregate of 1,384,786
shares of the Company’s common stock at an exercise price of $0.096 per share in
connection with the sale and issuance of such convertible notes.  The
convertible notes had a stated maturity date of March 5, 2008.  The
holders of the convertible notes were entitled to convert all or a portion of
the amount due (principal and interest) under the convertible notes into shares
of the common stock, par value $0.001 per share (the “Common Stock”), of the
Company, at a per share conversion price equal to the lower of $0.12 or 82.5% of
the average of the three lowest closing bid prices of the Common Stock for the
ten trading days immediately preceding the conversion date.
 
 The
Company accounted for the September 7, 2007 transaction in accordance with EITF
Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock.”  Accordingly, the
warrants and the embedded conversion option have been recorded as derivative
liabilities at their fair values and are marked to market through earnings at
the end of each reporting period. The gross proceeds of $250,000 were recorded
net of a discount of $203,700.  The net discount consisted of $68,400
related to the fair value of the warrants and $135,300 related to the fair value
of the embedded conversion option.  The debt discount was charged to
interest expense ratably over the life of the loan.
 
 In
January 2008, the holders of the convertible notes elected to convert the entire
principal amount of $250,000 and accrued interest of $8,851 due under the
convertible notes into an aggregate of 8,408,670 shares of Common
Stock.
  10
  NOTE
6: NET LOSS PER SHARE OF COMMON STOCK.
 
 Basic
income (loss) per share is computed using the weighted average number of
outstanding common shares. Diluted loss per share includes the effect of
dilutive common stock equivalents from the assumed exercise of options,
warrants, convertible preferred stock and convertible notes. The following table
sets forth the components used in the computation of basic and diluted income
per common share:
 
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember 30,
                  
                  
                  September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Numerator:Net
      income (loss)
                  
                  $
                  158,252
                  
                  
                  $
                  (211,680
                  )
                  
                  $
                  (1,529,046
                  )
                  
                  $
                  (1,425,535
                  )Preferred
      stock dividends
                  
                  
                  (27,075
                  )
                  
                  
                  --
                  
                  
                  
                  (81,225
                  )
                  
                  
                  (213
                  )Numerator
      for basic earnings per share – net income (loss) attributable to common
      stockholders - as reported
                  
                  
                  131,177
                  
                  
                  
                  (211,680
                  )
                  
                  
                  (1,610,271
                  )
                  
                  
                  (1,425,748
                  )Effect
      of dilutive securities -Interest
      on convertible promissory notes
                  
                  
                  2,489
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Preferred
      stock dividends
                  
                  
                  13,108
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Numerator
      for basic earnings per share - net income (loss) attributable to common
      stockholders - as adjusted
                  
                  $
                  146,774
                  
                  
                  $
                  (211,680
                  )
                  
                  $
                  (1,610,271
                  )
                  
                  $
                  (1,425,748
                  )Denominator:Denominator
      for basic earnings per share–weighted average shares
                  
                  
                  238,391,755
                  
                  
                  
                  190,196,243
                  
                  
                  
                  237,627,738
                  
                  
                  
                  188,606,912Effect
      of dilutive securities -Warrants
                  
                  
                  356,722
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Assumed
      conversion of -Series
      F preferred stock
                  
                  
                  1,587,760
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Convertible
      promissory notes
                  
                  
                  2,672,837
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Dilutive
      potential common shares
                  
                  
                  4,617,319
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Denominator
      for diluted earnings per share - adjusted weighted-average shares and
      assumed conversions
                  
                  
                  243,009,074
                  
                  
                  
                  190,196,243
                  
                  
                  
                  237,627,738
                  
                  
                  
                  188,606,912Net
      income (loss) to common stockholders -Basic:
                  
                  $
                  
                  *
                  
                  $
                  
                  *
                  
                  $
                  
                  *
                  
                  $
                  
                  *Diluted:
                  
                  $
                  
                  *
                  
                  $
                  
                  *
                  
                  $
                  
                  *
                  
                  $
                  
                  *
 _____
 *
              Less
      that $0.01.
 
 The
following table sets forth the common share equivalents that were excluded from
the calculation:
 
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember 30,
                  
                  
                  September 30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Warrants
                  
                  
                  28,435,654
                  
                  
                  
                  18,297,138
                  
                  
                  
                  28,792,376
                  
                  
                  
                  18,297,138Convertible
      promissory notes
                  
                  
                  -
                  
                  
                  
                  8,210,375
                  
                  
                  
                  2,672,837
                  
                  
                  
                  8,210,375Convertible
      preferred stock
                  
                  
                  -
                  
                  
                  
                  1,622,760
                  
                  
                  
                  1,587,760
                  
                  
                  
                  1,622,760Total
                  
                  
                  28,435,654
                  
                  
                  
                  28,130,273
                  
                  
                  
                  33,052,973
                  
                  
                  
                  28,130,273
  11
  NOTE
7: STOCKHOLDERS' DEFICIENCY.
 
 Debt
 
 During
the nine months ended September 30, 2008, the Company issued 10,554,994 shares
of Common Stock in exchange for cancellation of $312,509 of outstanding debt
principal and accrued interest owed to three note holders, including Leslie
Kessler, the Company’s Chief Executive Officer.
 
 In
January 2008, the Company issued 1,250,000 shares of Common Stock in settlement
of approximately $276,000 of principal and accrued interest due an unaffiliated
party.  Under accounting guidance provided by EITF No 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of
Issue No. 98-5 to Certain Convertible Instruments,” the Company recognized a
gain of approximately $226,000 in connection with such settlement.
 
 Cash
 
 During
the nine months ended September 30, 2008, the Company raised $1,070,000 through
the sale of an aggregate of 16,606,399 shares of Common Stock.
 
 In
addition, in July, 2008, the Company sold and issued an aggregate of 1,369,863
shares of Common Stock and warrants to purchase an additional aggregate 273,973
shares for total consideration of $100,000. The warrants expire on July 18, 2011
and are each exercisable at a price of $0.0876 per share.
 
 On
January 4, 2008, the Company issued 2,255,639 shares of Common Stock for the
settlement of a $100,000 subscription payable.
 
 During
the nine months ended September 30, 2008, the Company issued 110,000 shares of
Common Stock upon exercise of outstanding warrants issued in October 2006 and
received gross cash proceeds of $9,350.
 
 Services
 
 During
the nine months ended September 30, 2008, the Company issued the following
securities of the Company as compensation for services rendered:
 
 1.
              1,000,000
      shares of Common Stock to a consultant incurring a stock based
      compensation charge of $50,000;
 2.
              100,000
      shares of Common Stock and three-year warrants to purchase an additional
      250,000 shares, at $0.058 per share, to a consultant incurring a stock
      based compensation charge of $5,000 and $8,100,
    respectively;
 3.
              333,333
      shares of Common Stock to an employee pursuant to a termination agreement,
      dated February 12, 2008, incurring a stock based compensation charge of
      $13,333;
 4.
              1,000,000
      shares of Common Stock to the Company’s Chief Financial Officer in
      connection with entering into an employment agreement with the officer
      incurring a stock based compensation charge of $100,000;
    and
 5.
              50,000
      shares of Common Stock and three-year warrants to purchase an additional
      50,000 shares, at $0.058 per share, to an employee incurring a stock based
      compensation charge of $2,500 and $1,600,
  respectively.
 
 During
the nine months ended September 30, 2008, the Company approved and granted
2,000,000 shares of Common Stock to each of the Company’s Chief Executive
Officer and Chief Financial Officer with 1,000,000 shares vesting immediately
and 1,000,000 shares vesting in one year, provided the officer remains employed
by the Company.  In connection the issuance of the first 2,000,000
shares, the Company incurred a stock based compensation charge of
$200,000.
  12
  NOTE
8: RELATED PARTY TRANSACTIONS.
 
 (a)
              In
      March 2007, the Company’s Chief Executive Officer and a former director
      each made loans of $50,000 to the Company. The loans pay simple interest
      at the rate of 10% per annum and were due and payable 120 days after
      funding. The loans from the Chief Executive Officer and the director carry
      an option that, if the loans were not repaid by June 14, 2007 and June 29,
      2007, respectively, such options would entitle the lenders to convert
      their debt into shares of Common Stock at a price equal to 50% of the
      average closing price of the Common Stock over the three previous business
      days preceding the date of demand for conversion is made. Under accounting
      guidance provide by EITF 00-19, the conversion price of the loans did not
      have a determinable number of shares the loans could be settled in and as
      a result, have been presented as a derivative liability. Accordingly, the
      conversion option will be marked to market through earnings at the end of
      each reporting period.  In January 2008, the Chief Executive
      Officer converted her note plus accrued interest of $53,658 into 2,146,324
      shares of Common Stock. The $50,000 loan and $7,466 accrued interest owed
      to the former director are still
outstanding.
 
 (b)
              On
      February 8, 2008, the Board of Directors authorized  management
      to negotiate a termination agreement (the “Termination Agreement”) with
      the Company’s then Vice President of Sales and Marketing.  The
      Termination Agreement was finalized on February 12, 2008, pursuant to
      which the Company agreed to pay the former officer eight months’ salary at
      the rate of $7,000 per month commencing on February 12,
      2008.  In addition, the Company is obligated to continue to
      contribute 80% of the health insurance premium with respect to the former
      officer through October 12, 2008. One third of the one million shares of
      Common Stock that the Company granted the former officer on April 23, 2007
      vested immediately upon the execution of the Termination
      Agreement.  The balance of 666,367 shares has been
      forfeited.  On March 26, 2008, the Company issued 333,333 shares
      of common stock to the former officer and recorded a charge to operations
      of approximately $13,300. The warrants the Company awarded the officer on
      April 23, 2007 was voided and in replacement, the Company issued warrants
      to purchase 666,666 shares of Common Stock at an exercise price of $0.11
      per share exercisable through April 23, 2010. In connection with the
      issuance of the replacement warrants, the Company recorded a charge to
      operations of approximately $8,500. The Company agreed to pay an
      additional sum of $7,000, representing repayment for all advances
      previously made by the former officer on behalf of the Company, in two
      installments which were paid prior to September 30,
  2008.
 
 (c)
              On
      March 14, 2008, Malcolm Hoenlein was appointed as director to the
      Company.  He is to receive $8,000 cash compensation per
      year.  In addition, Mr. Hoenlein will receive 250,000 shares of
      Common Stock upon the one year anniversary of his appointment and warrants
      to purchase an additional 500,000 shares, exercisable for a three-year
      period following the one-year anniversary of his appointment to the Board
      at an exercise price of $0.0667 per share. The right to exercise these
      warrants will vest annually over three years. Accordingly, the Company
      will amortize the fair value of these warrants of approximately $17,000
      over the vesting period.
 
 (d)
              In
      April 2008, Leslie J. Kessler, the Company’s Chief Executive Officer,
      Terry R. Lazar, the Company’s Chief Financial Officer and a consultant for
      the Company, each individually entered into Stock Purchase, Loan and
      Security Agreements with the Company.  Under these April 2008
      agreements, the Company loaned the individuals approximately $1.4 million
      in the aggregate.  The obligations to repay the loans were
      evidenced by non-recourse promissory notes.  The notes called
      for interest at a rate of 6% per annum and were to mature in April 2011,
      at which time all unpaid principal and interest are due.  The
      loan funds were to be used exclusively for the purchase of the Common
      Stock.  The purchase price of the stock was based on the average
      closing price of the Common Stock during the 30 trading days immediately
      preceding the date of the April 2008 agreements which equaled
      $0.0843.
 
 In August
2008, after concerns were raised over the structure of the consideration for the
purchase of such shares by the Company’s two senior executive officers utilizing
promissory notes, and following consultations with its current attorneys and
outside professionals, the Company and such executive officers determined to
rescind the transactions contemplated by the April 2008 agreements with Ms.
Kessler and Mr. Lazar.  On August 18, 2008, Ms. Kessler and Mr. Lazar
each entered into a letter agreement with the Company pursuant to which the
Company and each of such officers agreed that the transactions contemplated by
their April 2008 agreements, including the sale and issuance of the 6,500,000
shares to each of Ms. Kessler and Mr. Lazar and the notes they delivered to the
Company, be rescinded in their entireties ab initio.
  13
  The
Company originally sought advice from its then outside attorneys in structuring
the transactions contemplated by the April 2008 agreements.  The
Company has terminated its relationship with such former attorneys.
 
 Accordingly,
for legal purposes, the consummation of the transactions contemplated by the
August 2008 agreements has resulted, among other matters, in the
following:
 
 1.
              The
      April 2008 agreements being deemed rescinded in all respects ab initio and it being
      deemed as if the April 2008 agreements were never entered into, and that
      all mutual promises, covenants and/or agreements contained in the April
      2008 agreements being of no force and/or
effect;
 2.
              Ms.
      Kessler’s and Mr. Lazar’s notes, as well as their respective
      obligations  to repay the amounts due under their respective
      notes, being deemed cancelled in all respects ab initio, and it being
      deemed as if the  notes were never entered into, that they each
      have  no obligation to repay the amounts due under their
      respective notes and that all mutual promises, covenants and/or agreements
      contained in their respective notes being of no force and/or effect;
      and
 3.
              The
      aggregate 13 million shares issued to Ms. Kessler and Mr. Lazar being
      deemed cancelled in all respects ab initio and it being
      deemed as if the shares were never issued or
  outstanding.
 
 However,
for accounting purposes, the transactions are reflected as occurring as the
shares were issued and outstanding until August 18, 2008, the date the
rescission agreements were entered into.
 
 The
Company cannot determine with certainty the effect of the entering into and
rescission of these transactions nor the potential liabilities that may result
from entering into the transactions contemplated by the April 2008 agreements
regardless of the rescission of such transactions.  Accordingly, as of
September 30, 2008, the Company has not accrued any liability that may be
imposed, including, but not limited to, fines and penalties by appropriate
governmental authorities, in the accompanying condensed financial
statements.
 
 As of
September 30, 2008, the Company has included the outstanding note receivable and
accrued interest  due from the consultant, totaling approximately
$345,000, as part of stockholders’ deficiency.
 
 (e)
              On
      April 16, 2008, the Company approved the appointments of Peter Hayden and
      Gal Luft as special advisors to the Company’s Board of
      Directors.  In connection with their appointments, Mr. Hayden
      and Mr. Luft each received four-year warrants to purchase 45,000 shares of
      the Common Stock.  The exercise price for both warrants is
      $0.0853.  The warrants are to vest at the rate of 15,000
      warrants per year on each anniversary of the appointments.  The
      Company determined that the fair value associated with these warrants was
      nominal and has not accrued any cost related to the issuance of these
      warrants. The Company has not yet delivered warrant certificates
      evidencing the warrants granted these special
  advisors.
 
 
 NOTE
9: CREDIT RISK.
 
 The
Company maintains cash deposits with financial institutions, which from time to
time may exceed federally insured limits. The Company has not experienced any
losses and believes it is not exposed to any significant credit risk with
respect to its cash deposits.
 
 
 NOTE
10: COMMITMENTS AND CONTINGENCIES.
 
 On April
8, 2008, the Company entered into a seven year lease for 5,300 square feet of
space in Plainview, New York. The facility is to serve as the Company’s
executive offices, sales office, showroom and an assembly area. The lease term
commenced on July 1, 2008.
 
  14
  The
minimum lease payments are as follows for the twelve months ended September
30,
 
 2009
                    
                    $
                    61,0002010
                    
                    
                    63,0002011
                    
                    
                    64,0002012
                    
                    
                    66,0002013
                    
                    
                    68,000Thereafter
                    
                    
                    131,000$
                    453,000
 
 On June
9, 2008, the Company entered into a six month consulting agreement with
Hidell-Eyster International Inc. for strategic planning and the continued
development and marketing of the PureSafe product. The agreement provides for a
fixed fee of $90,000, plus out of pocket expenses, and is payable at $15,000 per
month.
 
 
 NOTE
11: SUBSEQUENT EVENTS AND OTHER ITEMS.
 
 The Board
of Directors of the Company (the “Board”) approved an equity incentive plan, the
Water Chef, Inc. 2008 Equity Incentive Plan, subject to stockholder
approval.  The purpose of the 2008 plan is to enable the Company to
attract and retain highly qualified personnel. Stockholder approval is being
sought at the Company’s annual meeting of stockholders scheduled for November
20, 2008.
 
 The Board
has approved, subject to stockholder approval, an amendment to the Company’s
Certificate of Incorporation to increase the number of authorized shares of the
Common Stock to 450 million from 340 million. Stockholder approval is being
sought at the Company’s annual meeting of stockholders scheduled for November
20, 2008.
 
 The Board
has approved, subject to stockholder approval, an amendment to the Company’s
Certificate of Incorporation to change the name of the Company to “PureSafe
Water Systems Inc.” Stockholder approval is being sought at the Company’s annual
meeting of stockholders scheduled for November 20, 2008.
 
 In
October 2008, the Company’s Chief Executive Officer and the Chief Financial
Officer each made loans of $50,000 to the Company. The loans pay simple interest
at the rate of 10% per annum and are due upon demand. These loans carry an
option that would entitle the lenders to convert the amount due the lenders
under the loans into Common Stock at a conversion price equal to $0.039 per
share.
 
 In
October, the Company wrote off $156,647 outstanding payables owed to a service
provider per the mutual release and agreement entered into on October 24, 2008
between Water Chef and such provider.  The Company recorded
the transaction as gain on settlement of debt.
   Item 2.  Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
 
 Introductory
Comment
 
 The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's financial
statements and related notes contained elsewhere in this Quarterly Report on
Form 10-Q, as well as the Company’s audited financial statements and related
notes at and for the year ended December 31, 2007 contained in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007, filed with the
Securities and Exchange Commission (the “SEC”) on April 15, 2008.
 
 Forward-looking
Statements
 
 This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934 (the “Exchange
Act”).  To the extent that any statements made in this Form 10-Q
contain information that is not historical, these statements are essentially
forward-looking.  Forward-looking statements can be identified by the
use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,”
“should,” “intend,” “estimate,” and variations of such
words.  Forward-looking statements are subject to risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements.  Such risks and uncertainties include,
without limitation:
  15
  •
              the
      Company’s ability to raise capital to finance its research and development
      and operations, when needed and on terms advantageous to the
      Company;
 •
              the
      Company’s ability to manage growth, profitability and marketability of the
      Company’s products;
 •
              general
      economic and business conditions;
 •
              the
      effect on the Company’s business of recent credit-tightening throughout
      the United States and the world, especially with respect to federal,
      state, local and foreign government procurement agencies, as well as
      quasi-public, charitable and private emergency response
      organizations;
 •
              the
      effect on the Company’s business of recently reported losses within the
      financial, banking and other industries and the effect of such losses on
      the income and financial condition of the Company’s potential
      clients;
 •
              the
      impact of developments and competition within the industries in which the
      Company intends to compete
 •
              adverse
      results of any legal proceedings;
 •
              the
      impact of current, pending or future legislation and regulation on water
      safety, including, but not limited to, changes in zoning and environmental
      laws and regulations within the Company’s target areas of
      operations;
 •
              the
      Company’s ability to maintain and enter into relationships with suppliers,
      vendors and contractors of acceptable quality of goods and services on
      terms advantageous to the Company;
 •
              the
      volatility of the Company’s operating results and financial
      condition;
 •
              the
      Company’s ability to attract and retain qualified senior management
      personnel; and
 •
              the
      other risks and uncertainties detailed in this Form 10-Q and, from time to
      time, in the Company’s other filings with the
  SEC.
 
 Readers
of this Quarterly Report on Form 10-Q should carefully consider such risks,
uncertainties and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could cause the
Company’s actual results to differ materially from those provided in
forward-looking statements.  Readers should not place undue reliance
on forward-looking statements contained in this Form 10-Q.  The
Company does not undertake any obligation to publicly update or revise any
forward-looking statements the Company may make in this Form 10-Q or elsewhere,
whether as a result of new information, future events or otherwise.
 
 Results
of Operations
 
 Sales.The Company
recorded zero sales for the three and nine months ended September 30, 2008 and
2007.
 
 Until the
fourth quarter of 2001, the Company was engaged in the manufacture and marketing
of water coolers and water purification and filtration products.  In
the fourth quarter of 2001, such business was sold so that the Company could
concentrate on the further development, manufacturing, and marketing of a
patented line of “PureSafe” water purification systems.  In 2007, new
management made a strategic decision that the existing PureSafe system had not
produced any significant sales.  New management further recognized
that the existing unit required significantly more engineering.  In
2007, the Company signed a contract with Bircon Ltd., an Israeli-based
engineering consulting company, to design the Company’s new “PureSafe First
Response Water Station” (the “PureSafe product”) line of water decontamination
systems.  The Company believes the PureSafe product will result in the
Company’s first significant sales since 2001.  The Company currently
expects to recognize the first sales of the PureSafe product in the first
quarter of 2009.  The Company will cease being a development stage
enterprise at the time of the Company’s recognition of significant revenue from
the sale of the PureSafe product.
 
 The
PureSafe product utilizes  an extension of the Company’s patented
technology and incorporates additional purification techniques in a mobile,
trailerable and self-contained unit.  This simple, reliable system is
designed to provide clean, potable water in all situations requiring immediate
response.  In June 2008, the Company signed a six-month consulting
agreement with Hidell-Eyster International.  Under the agreement,
Hidell-Eyster will assist the Company in regulatory and licensing issues,
strategic planning, marketing, quality assurance, manufacturing, logistics,
financial planning, monitoring of water testing and sales and
distribution.
  16
  Cost of sales.  The
Company recorded zero cost of sales for the three months ended September 30,
2008 and 2007; Cost of sales for the nine months period ended September 30, 2008
and 2007 was $0 and $23,000, respectively. In
2007, the Company paid $23,000 to Davis Water Products, manufacturer of the
Company’s then PureSafe Water Station for the storage fee for one unit and
manufacturing overhead for three units that the Company commissioned Davis Water
Products to produce.  The Company, following  a number of
experts’ opinions and advice on the quality of the system, terminated the
production and relationship with Davis Water Products in April
2007.  The Company has no further obligation to Davis Water
Products.
  Selling, general and
administrative.  The Company incurred selling, general and
administrative expenses for the three months ended September 30, 2008 of
$477,604 compared to $346,873 for the 2007 comparable period, a increase of
$130,731 or 38%.  A more detailed analysis showed the following items
were the main contribution for the change on the professional fees which
includes legal fees, audit fees and accounting fees for the three months ended
September 30, 2008 was $23,720 compared $105,089 in 2007, a $81,369, or 77%
decrease.  During the three months ended September 30, 2007, the
Company consummated a number of debt/equity financing transactions that incurred
substantial legal and accounting cost.  There were no similar
financing transactions in the comparable period of 2008.  Marketing
expense was $53,171 for the three months ended September 30, 2008 compared
$2,000 in 2007, a $51,171 or 2559% increase.  The increase of
marketing expense was primarily due to (a) the decision to focus on the
development of a business and marketing plan for the PureSafe product and (b)
the retention of Hidell-Eyster International, a consulting firm, in June 2008 to
assist the Company in developing such a business and marketing
plan.  Rental expense was increased by $11,324 from $13,753 in 2007 to
$25,077 in 2008, a 82% increase.  The increase of rent was due to (x)
the Company moving to a larger facility in the third quarter of 2008 in
anticipation of the Company commencing commercial operations of the PureSafe
product and (y) the Company incurring additional rent expense in 2008 for an
Israeli office being subleased from Bircon Ltd., the entity assisting the
Company in the development of the PureSafe product.  The lease for the
Israeli office is on an oral, month to month basis.  Salary expenses,
including deferred compensation, for the three months ended September 30, 2008
was $82,134 compared with $37,500 incurred in the same period of 2007, a $44,634
or 119% increase.  The increase was due to the hiring of chief
financial officer and controller in the third quarter and fourth quarter of
2007, respectively.  Stock based compensation expense for the three
months ended September 30, 2008 was $149,504 compared with $46,539 incurred in
the same period of 2007, a $102,965 or 221% increase, reflects the fair market
value of 2,150,000 shares of company’s common stock awarded to various parties,
including the Chief Executive Officer and Chief Financial Officer of the
Company, during the three month period. The factors that influence the total
stock based compensation include the number of shares granted and the market
price on the date of the grant.
  Selling,
general and administrative expenses for the nine months ended September 30, 2008
were $1,449,019 compared to $1,267,128 for the same period in 2007, an increase
of $181,891 or 14%.  Main contributors to such increase include the
following: audit fees for the nine months ended September 2008 was $144,760
compared $107,000 in 2007, a $37,760 or 35% increase; auto expenses for the nine
months ended September 2008 was $11,153 compared to $2,525 in 2007, an $8,628 or
342% increase, relating to rental of autos for executives and increased travel
by the Company’s consultants.  Consulting fees increased by $61,607,
or 56%, from $109,100 to $170,707 between the comparable none-month periods due
to (a) one-time consulting fee paid to a firm to conduct Sarbane-Oxley
compliance review in the first quarter of 2008 and (b) the hiring of a director
of production in August 2008.  Insurance expenses for the nine months
ended September 2008 was $34,200 compared $44,782 in 2007, a $10,582 or 24%
decrease.  The decrease of insurance resulted from a decrease in the
Company’s portion of the total health insurance premiums for the Company’s
employees.  The Company dropped a secondary health insurance policy in
2008 that was in force in 2007.  Office expenses increased by $8,900
in the first nine months of 2008 compared with the same period in 2007. The
reason for the increase was mainly due to the addition of staff and increased
general office activities. Marketing expenses for the nine months ended
September 30, 2008 was $76,292 compared $2,000 in 2007, a $74,292 or 3715%
increase.  The increase of marketing expense was primarily due to (a)
the decision to focus on the development of a business and marketing plan for
the PureSafe product and (b) the retention of Hidell-Eyster International, a
consulting firm, in June 2008 to assist the Company in developing such a
business and marketing plan.  Rent expenses for the nine months ended
September 2008 was $66,743 compared $33,403 in 2007, a $33,340 or100%
increase.  The increase of rent was due to the fact that (x) the
Company is paying more rent for a much larger facility in the first nine months
of 2008 comparing with the rent paid for the office we occupied in the same
period of 2007, (y) from the fourth quarter of 2007 until the end of the second
quarter of 2008, the Company was paying rent for a facility located in
Connecticut that was used as the Company’s sales office and showroom, and (z)
the Company was incurring additional rent expense in 2008 for an Israeli office
being subleased from Bircon Ltd.  Salary expenses, including deferred
compensation for the nine months ended September 30, 2008 was $246,067 compared
with $155,383 incurred in the same period of 2007, a $90,684 or 58%
increase.  The increase was due to the hiring of chief financial
officer and controller in the third quarter and fourth quarter of
2007.  Stock based compensation expense for the nine months ended
September 30, 2008 was $387,691 compared with $550,377 incurred in the same
period of 2007, a $162,686 or 30% decrease.  The average price for the
Company’s common stock in the nine month period ended September 2008 was
substantially lower compared with the same period of
2007.  This  decrease in the market price of the Company’s
common stock was the main contributor for the overall decrease of stock based
compensation in 2008 even though the Company granted more shares to various
party in 2008 compared to 2007.  The factors that influence the total
stock based compensation include the number of shares granted during the period
and the market value for the securities granted on the date of the
grant.
  17
  Research
and development for the three months ended September 30, 2008 and 2007 was
$90,062 and $75,000, respectively; and, for the nine months ended September 30,
2008 and 2007 was $255,987 and $75,000, respectively.  The $180,987 or
241% increase in research and development expenses was the result of
management’s decision in third quarter of 2007 to retain Bircon Ltd., an
Israeli-based engineering consulting company to design the Company’s new line of
water decontamination systems to replace the then existing model, following
expert opinions that the old model needed major reengineering.
  Interest
expense (non-conversion related) for the three months ended September 30, 2008
and 2007 was $7,282 and $38,057, respectively.  The $30,775 or 81%
decrease in interest expense mainly was  the result of retiring and
conversion of several promissory notes, resulting in no further accruing of
interest in the third quarter of 2008.  For the nine months period
ended September 30, 2008 and 2007 interest expense (non-conversion related) was
$78,507 and $177,257, respectively.  The main factors causing the
$98,750 or 56% decrease of interest expenses for the nine month comparable
periods were (a) the conversion of a promissory note in the principal amount of
$50,000 that was accruing 10% simple interest until its conversion in January
2008, (b) the retiring of a promissory note in the principal amount of $200,000
that was repaid in July 2008, and (c) the settlement of a then existing debt in
the amount of $400,000 that resulted in no further accruing of interest
effective October 2007.
  The
conversion related interest expense for the three months ended September 30,
2008 and 2007 was $0 and $22,550, respectively; for the nine months ended
September 30, 2008 and 2007 were $0 and $135,000, respectively.  All
loan discounts were amortized fully in 2007.  There were no new
financial transactions that resulted in the accrual of a loan discount in the
first nine months of 2008.
 
 In the
first quarter of 2008, the Company issued 1,250,000 shares of the common stock
par value $0.001 (the “Common Stock”), of the Company to a note holder to retire
$276,467 of outstanding debt.  The fair market value of 1,250,000
shares of common stock on the issuance date was $50,000.   The
Company recognized a one-time gain on discharge of debt of
$226,467.
  Change in
fair value of warrants and embedded conversion option for the three months ended
September 30, 2008 and 2007 were ($733,200) and ($270,800), respectively; for
nine months ended September 30, 2008 and 2007 such change in fair value was
($28,000) and ($252,400), respectively.  The decrease in fair value of
warrants and embedded conversion option in 2008 primarily resulted from the
decreased fair value of the Common Stock during the third quarter period of
2008.
  The
warrants and the embedded conversion options are recorded as derivative
liabilities at their fair market value, in accordance with EITF issue No. 00-19,
and marked to market through earnings at the end of each reporting
period.  The downward fluctuation in the three months ended September
30, of 2008 significantly decreased the liability the Company reports on all
outstanding warrants and instruments of the Company that carry embedded
conversion options.
  For all
the above-stated reasons, the net income (loss) for three months ended September
30, 2008 and 2007 was $158,252 and ($211,680), respectively; and the net (loss)
for nine months ended September 30, 2008 and 2007 was ($1,529,046) and
($1,425,535), respectively.
  18
  Liquidity
and Capital Resources
 
 At
September 30, 2008, the Company had a working capital deficit of approximately
$1,811,000. The Company recorded $158,252 of net income for the third quarter of
2008, but such net income was primarily due changes in the fair value of
outstanding detachable warrants, options and embedded conversion options
liabilities.  Absent fluctuations due to market to market changes in
the Company’s outstanding detachable warrants, options and embedded conversion
option liabilities, the Company continues to suffer recurring losses from
operations and has an accumulated deficit since inception of approximately
$29,886,000. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.  The Company'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 Company
plans to raise an additional $10 million in the next twelve months to fund the
completion of the PureSafe product prototype, launch a marketing program for the
PureSafe product, establish a sales and marketing network, start production and
build inventory units of the PureSafe product and provide working capital for
the Company.  No assurance that such financing will be available on
terms advantageous to the Company, or at all.  The Company anticipates
that by the first quarter of 2009, the Company will be fully commercially
operational and cease to be a development stage entity. However, should the
Company not be successful in obtaining the necessary financing to fund its
operations, the Company would need to curtail certain of its operational
activities. The accompanying unaudited condensed financial statements do not
include any adjustments that might be necessary should the Company be unable to
continue as a going concern.
 
 Recent
Accounting Pronouncements
 
 In March
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161
"Disclosures about Derivative Instruments and Hedging Activities – an Amendment
of FASB Statement No. 133" ("SFAS 161"). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under FASB Statement No. 133 and its related interpretations
and (c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. The guidance in SFAS
161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
SFAS 161 encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. At this time, the Company is evaluating the
implications of SFAS 161 and its impact on the Company’s condensed financial
statements has not yet been determined.
 
 In April
2008, FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” FSP 142-3 is effective for fiscal years beginning after December 15,
2008. The Company believes that the implementation of this standard will not
have a material impact on the Company’s consolidated financial position and
results of operations.
 
 In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS 162 is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.” The Company believes the implementation of this
standard will not have a material impact on the Company’s consolidated financial
position and results of operations.
 
 In
September 2008, FASB issued FSP 133-1 and FIN 45-4, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161” (“FSP 133-1 and FIN 45-4”). FSP 133-1 and FIN 45-4 amends and
enhances disclosure requirements for sellers of credit derivatives and financial
guarantees. It also clarifies that the disclosure requirements of SFAS 161 are
effective for quarterly periods beginning after November 15, 2008, and fiscal
years that include those periods. FSP 133-1 and FIN 45-4 is effective for
reporting periods (annual or interim) ending after November 15, 2008. The
Company believes the implementation of this standard will not have a material
impact on the Company’s consolidated financial position and results of
operations.
  19
  In
September 2008, FASB ratified EITF Issue No. 08-5, “Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement” (“EITF
08-5”). EITF 08-5 provides guidance for measuring liabilities issued with an
attached third-party credit enhancement (such as a guarantee). It clarifies that
the issuer of a liability with a third-party credit enhancement (such as a
guarantee) should not include the effect of the credit enhancement in the fair
value measurement of the liability. EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008. The Company is currently
assessing the impact of EITF 08-5 on its consolidated financial position and
results of operations.
 
 In
October 2008, FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset
in a Market That Is Not Active” (“FSP 157-3”). FSP 157-3 clarified the
application of SFAS No. 157 in an inactive market. FSP 157-3 demonstrated how
the fair value of a financial asset is determined when the market for that
financial asset is inactive. FSP 157-3 was effective upon issuance, including
prior periods for which financial statements had not been issued. The
implementation of this standard did not have a material impact on the Company’s
consolidated financial position and results of operations.
  Critical
Accounting Policies and Estimates
  The Company’s financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America.
Preparation of the statements in accordance with these principles requires that
we make estimates, using available data and our judgment, for such things as
valuing assets, accruing liabilities and estimating expenses. The Company is
currently in development stage as defined by SFAS No. 7.  The
following is a list of what we believe are the most critical estimations that we
make when preparing our financial statements.
  Stock-Based
Compensation
 
 The
Company reports stock based compensation under Statements of Financial
Accounting Standards (“SFAS”) No. 123R (“123R”) “Share Based
Payment.”  SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values.
  The
Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123R and the Emerging Issues Task Force
(“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or In Conjunction with Selling, Goods or
Services” (“EITF 96-18”), which require that such equity instruments are
recorded at their fair value on the measurement date, which is typically the
date the services are performed.
 
 The
Black-Scholes option valuation model is used to estimate the fair value of the
options or their equivalent granted. The model includes subjective input
assumptions that can materially affect the fair value estimates. The model was
developed for use in estimating the fair value of traded options or warrants
that have no vesting restrictions and that are fully transferable. The expected
volatility is estimated based on the most recent historical period of time equal
to the weighted average life of the options granted.
 
 The
Company has issued equity instruments in the past to raise capital and as a
means of compensation to employees and for the settlement of debt.
 
 Derivative
Financial Instruments
 
 In
connection with the issuance of certain convertible promissory notes, the terms
of the convertible notes included an embedded conversion feature which provided
for a conversion of the convertible promissory notes into shares of the
Company’s common stock at a rate which was determined to be variable. The
Company determined that the conversion feature was an embedded derivative
instrument pursuant to SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” as amended, and Emerging Issues Task Force (“EITF”) Issue
No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock.”
  20
  The
accounting treatment of derivative financial instruments requires that the
Company record the conversion option and related warrants at their fair values
as of the inception date of the convertible debenture agreements and at fair
value as of each subsequent balance sheet date. In addition, under the
provisions of EITF Issue No. 00-19, as a result of issuing the convertible
promissory notes, the Company was required to reclassify all other non-employee
warrants and options as derivative liabilities and record them at their fair
values at each balance sheet date. Any change in fair value was recorded as
non-operating, non-cash income or expense for each reporting period at each
balance sheet date. The Company reassesses the classification of the instruments
at each balance sheet date. If the classification required under EITF Issue No.
00-19 changes as a result of events during the period, the contract is
reclassified as of the date of the event that caused the
reclassification.
 
 Registration
Payment Arrangements
  The
Company accounts for registration rights agreements in accordance with FASB
Staff Position (FSP) No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements” (“FSP EITF 00-19-2”), which specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5, “Accounting
for Contingencies.” FSP EITF 00-19-2 also requires additional disclosure
regarding the nature of any registration payment arrangements, alternative
settlement methods, the maximum potential amount of consideration and the
current carrying amount of the liability, if any.
 
 Income
taxes
  Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. Differences between tax positions taken
or expected to be taken in a tax return and the benefit recognized and measured
pursuant to the interpretation are referred to as “unrecognized benefits.” A
liability is recognized (or amount of net operating loss carry forward or amount
of tax refundable is reduced) for an unrecognized tax benefit because it
represents an enterprise’s potential future obligation to the taxing authority
for a tax position that was not recognized as a result of applying the
provisions of FIN 48.
  In
accordance with FIN 48, interest costs related to unrecognized tax benefits are
required to be calculated (if applicable) and would be classified as “Interest
expense, net” in the consolidated statements of operations. Penalties would be
recognized as a component of “General and administrative expenses.”
  The
Company’s uncertain tax positions are related to tax years that remain subject
to examination by relevant tax authorities. The Company files income tax returns
in the United States (federal) and in various state and local jurisdictions. The
Company is no longer subject to federal, state and local income tax examinations
by tax authorities for years prior to 2003. The adoption of the provisions of
FIN 48 did not have a material impact on the Company’s financial position and
results of operations.
  
 Item
      3.
              Quantitative
      and Qualitative Disclosures About Market
Risk.
 
 This Item
is not applicable to smaller reporting companies.
  21
  Item
      4T.
              Controls
      and Procedures.
 
 Evaluation
of 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-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company’s disclosure controls and
procedures were not 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 the
Securities and Exchange Commission’s rules and forms and that such information
is accumulated and communicated to the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
 
 On April
16, 2008, the Company entered into a Stock Purchase, Loan and Security Agreement
with each of the Company’s Chief Executive Officer and Chief Financial Officer
pursuant to which the Company issued to each of such executive officers 6.5
million shares of the Company’s common stock.  The officers paid for
such shares by each delivering to the Company a non-recourse promissory note in
the principal amount of $547,950.  The Company and such officers
determined, on August 18, 2008, following consultations with the Company’s
current attorneys and outside professionals, to rescind the transactions
contemplated by the two April 2008 agreements after concerns were raised over
the structure of the consideration utilized in purchasing the
shares.  The Company originally had sought the advice of its then
outside attorneys in structuring the transactions contemplated by the April 2008
agreements.  The Company determined that the Company’s reliance on the
former outside attorneys to be a material weakness and as a result has
terminated its relationship with such former outside attorneys and has retained
new counsel.  Management believes such new counsel is better qualified
to advise the Company on structuring future issuance of its securities which
would remediate the material weakness.
 
 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.  The design of any system of controls is also based in part on
certain assumptions regarding the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.  Given these and other inherent
limitations of control systems, there is only reasonable assurance that the
Company’s controls will succeed in achieving their stated goals under all
potential future conditions.
 
 Changes
in Internal Control Over Financial Reporting
 
 There
have been no changes in the Company’s internal control over financial reporting
(as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act)
during the most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
  22
  PART
II - OTHER INFORMATION
 
 Item
1.       Legal Proceedings.
 
 Reference
is hereby made to Item 3 of the Company’s Annual Report on Form 10-KSB, for the
fiscal year ended December 31, 2007, filed with the Securities and Exchange
Commission on April 15, 2008 (Commission File No.: 0-5418), and to the
references made in such Item, for a discussion of all material pending legal
proceedings to which the Company is a party.
   Item
      1A.
              Risk
      Factors.
 
 This Item
is not applicable to smaller reporting companies.
 
 
 Item
2.       Unregistered Sales of Equity
Securities and Use of Proceeds.
 
 Effective
July 25, 2008, the Company sold 1,369,863 shares of Common Stock and warrants to
purchase an additional 273,973 shares of Common Stock to one investor for gross
proceeds of $100,000.
 
 Effective
September 18, 2008, the Company issued 1,000,000 shares of Common Stock to
Leslie J. Kessler, President, Chief Executive Officer and a director of the
Company.  The Company incurred stock base compensation charge of
$50,000  in connection with such stock issuance.
 
 Effective
September 18, 2008, the Company issued 1,000,000 shares of Common Stock to Terry
Lazar, Chief Financial Officer and a director of the Company.  The
Company incurred stock base compensation charge of $50,000 in connection with
such stock issuance.
 
 Effective
September 18, 2008, the Company issued 100,000 shares of Common Stock to an
outside consultant who serves as the Company’s director of
production.  The Company incurred stock base compensation charge of
$5,000 in connection with such stock issuance.
 
 Effective
September 18, 2008, the Company issued 50,000 shares of Common Stock to an
employee.  The Company incurred stock base compensation charge of
$2,500 in connection with such stock issuance.
 
 The
Company believes the issuances of the securities noted in this Item 2 were each
exempt from the registration requirements of the Securities Act of 1933, as
amended (the “Securities Act’), by reason of the exemption from registration
granted under Section 4(2) of the Securities Act due to the fact that the
subject issuance was a transaction not involving any public
offering.
 
 
 Item
3.       Defaults Upon Senior
Securities.
 
 None
   Item
4.       Submission of Matters to a Vote of
Security Holders.
 
 None.
 
 
 Item
5.       Other Information.
 
 None
 
 Item
6.       Exhibits.
 
 The
following exhibits are being filed as part of this Quarterly Report on Form
10-Q.
  23
  ExhibitNumber
                      
                      Exhibit Description10.1
                      
                      Consulting
      Agreement, dated as of June 6, 2008, by and between Water Chef, Inc., and
      Hidell-Eyster International.  [Incorporated by reference to
      Exhibit 10.1 of the registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2008, filed with the Commission on August 19,
      2008.]10.2
                      
                      Form
      of Stock Subscription Agreement utilized in the sale of common stock and
      warrants from October 26, 2007 through July 18,
      2008.  [Incorporated by reference to Exhibit 10.2 of the
      registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
      2008, filed with the Commission on August 19, 2008.]10.3
                      
                      Form
      of  Warrant issued to investors in connection with
      the  sale of common stock and warrants from October 26, 207
      through July 18, 2008.  [Incorporated by reference to Exhibit
      10.3 of the registrant’s Quarterly Report on Form 10-Q for the quarter
      ended June 30, 2008, filed with the Commission on August 19,
      2008.]10.4
                      
                      Letter
      Agreement, dated August 18, 2008, between Water Chef, Inc. and Leslie J.
      Kessler. [Incorporated by reference to Exhibit 10.3 of the registrant’s
      Current Report on Form 8-K (Date of Report: August 18, 2008), filed with
      the Commission on August 18, 2008.]10.5
                      
                      Letter
      Agreement, dated August 18, 2008, between Water Chef, Inc. and Terry R.
      Lazar.  [Incorporated by reference to Exhibit 10.4 of the
      registrant’s Current Report on Form 8-K (Date of Report: August 18, 2008),
      filed with the Commission on August 18, 2008.]31.1
                      
                      Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive
      Officer.31.2
                      
                      Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial
      Officer.32.1
                      
                      Section
      1350 Certification of Principal Executive Officer.32.2
                      
                      Section
      1350 Certification of Principal Financial
  Officer.
 24
  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.
 
 Dated:  November
      14, 2008
                    Water
      Chef, Inc.By:Leslie
      J. KesslerChief
      Executive Officer(Duly
      Authorized Officer andPrincipal
      Executive Officer)By:Terry
      R. KesslerChief
      Financial Officer(Duly
      Authorized Officer andPrincipal
      Financial
Officer)
   25