UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-K





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


For
      the fiscal year ended December 31,
2008





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





Commission
File Number: 0-30544





PureSafe
Water Systems, Inc.


(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)





Registrant’s
telephone number, including area code:   (516) 208-8250





Securities
registered pursuant to Section 12(b) of the Act: None


Securities
registered pursuant to Section 12(g) of the Act: Redeemable Common Stock
Purchase Warrants





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


o  Yes     ý  No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.


o  Yes     ý  No





Indicate
by check mark if the registrant has (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.  ý  Yes     o  No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.  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 (Do not check if
      a smaller reporting company)
                  Smaller
      reporting company  ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


o  Yes     ý No





The
aggregate market value of the voting and non-voting common equity of the
registrant held by non-affiliates computed by reference to the closing sale
price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter, was $16,769,119, assuming that
all stockholders, other than executive officers, directors and 5% stockholders
of the registrant, are non-affiliates.





As of
April 8, 2009, 252,702,714 shares of the
common stock of the registrant were outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE
 None







Introductory
Comment - Use of Terminology





Throughout
this Annual Report on Form 10-K, the terms the “Company,” “we,” “us” and “our”
refers to PureSafe Water Systems, Inc., f/k/a Water Chef, Inc.





Note
Regarding Forward-Looking Statements





This
Annual Report on Form 10-K 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-K
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 “anticipate,” “believe,” “continue,” “could,” “estimate”
“expect,” “hope,” “intend,” “may,” “plan,” “potential,” “product,” “seek,”
“should,” “will,” “would” 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:





•
            our
      ability to raise capital to finance our research and development and
      operations, when needed and on terms advantageous to
  us;


•
            our
      ability to manage growth, profitability and marketability of our
      products;


•
            general
      economic and business conditions;


•
            the
      effect on our 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 our 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 our potential
  clients;


•
            the
      impact of developments and competition within the industries in which we
      intend 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 our target areas of
  operations;


•
            our
      ability to maintain and enter into relationships with suppliers, vendors
      and contractors of acceptable quality of goods and services on terms
      advantageous to us;


•
            the
      volatility of our operating results and financial
    condition;


•
            our
      ability to attract and retain qualified senior management personnel;
      and


•
            the
      other risks and uncertainties detailed in this Form 10-K and, from time to
      time, in our other filings with the Securities and Exchange
      Commission.





Readers
of this Annual Report on Form 10-K should carefully consider such risks,
uncertainties and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could cause our 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-K.  We do not
undertake any obligation to publicly update or revise any forward-looking
statements we may make in this Form 10-K or elsewhere, whether as a result of
new information, future events or otherwise.





2





PART
I




Item
      1.
            Business.





Organizational
Structure





Our
company was incorporated in Delaware in 1987.  Our business
predecessor was incorporated in Arizona in 1985.  In 1993, our
business predecessor, then known as Auto Swap, U.S.A., Inc., merged with and
into our company, although the business predecessor was treated as the surviving
corporation for accounting purposes.  Following the effectiveness of
such merger, the surviving corporation changed its name to “Water Chef, Inc. and
began operating the businesses previously conducted by the business predecessor,
the manufacture and marketing of water coolers and filters.  The
manufacture and marketing of water coolers and filters constituted a substantial
part of our business from 1993 until the fourth quarter of 2001, at which time
such operations were sold and we began concentrating on the further development,
manufacturing and marketing of a patented line of water purification
systems.  In 2007, we signed a contract with Bircon Ltd., an
Israeli-based engineering consulting company (“Bircon”), to design our
“PureSafeTMFirst
Response Water System” line of mobile water decontamination and purification
systems (the “PureSafe FRWS”).  In 2008, we changed our name to
“PureSafe Water Systems, Inc.”





We have
generated nominal revenues since we sold our water coolers and filters
operations.  Accordingly, we are deemed for accounting purposes to be
a development stage enterprise since January 1, 2002 and are subject to a number
of risks similar to those of other companies in an early stage of
development.  The accompanying financial statements have been prepared
assuming our company will continue as a going concern.  We believe the
PureSafe FRWS will be the product line by which we will generate our first
significant sales since 2001.  Upon generating significant sales, we
will cease being deemed a development stage enterprise.





Products





In 1998,
searching for a “killer application,” our management focused on the worldwide
need for safe drinking water for populations who are not served by municipal
water treatment facilities, or are served by municipal systems that have
malfunctioned because of improper maintenance or faulty design.  The
result of that activity was the development of the PureSafe Water Station, a
turn-key unit that converts “gray,” or bathing grade, water into EPA grade
drinking water.  The PureSafe Water Station was designed to eliminate
all living pathogens that pollute non-processed water (e.g., bacteria, cysts,
viruses, parasites, etc.) at an affordable cost for the emerging economies of
the world.





From 1998
to 2007, we continued to concentrate our efforts on the further development,
manufacturing and marketing of the PureSafe Water Station.





While the
PureSafe Water Station gained considerable attention and received appropriate
approvals by various governmental and non-governmental agencies, it became clear
to our management that the economics of the PureSafe Water Station, primarily
the power requirements to operate the unit, made sales much more difficult than
anticipated.  In addition, prior management found it difficult to
penetrate markets in third world countries.





In 2007,
new management made a strategic decision that the Pure Safe Water Station was
not a viable product that could produce significant sales
revenues.  Our management recognized that the existing unit required
significantly more engineering.  In 2007, new management signed a
contract with Bircon to design our new PureSafe FRWS product line.





The
PureSafe FRWS is designed as a rapid deployment water treatment and bottling
system providing immediate drinking water to emergency first responders from
almost any source of raw water.  The PureSafe FRWS also is intended to
provide drinking water to the immediately affected population of a disaster on a
short term basis.





The
PureSafe FRWS utilizes our patent pending technology which is comprised of a
water extraction boom that extracts water from streams, ponds, pools of
floodwater or a failed municipal distribution system.  The extracted
water is then treated by the application of advanced water treatment
technologies which employ multiple stage filtration, multiple stage sanitation
(including ozone, chlorine and ultraviolet purification techniques), reverse
osmosis membranes, mineralization and final polishing to meet the standard
drinking water requirements of the U.S. Environmental Protection Agency (the
“EPA”).  The system provides redundancy at the filtration and
sanitation stations and on site bottling of drinking water. Key components
utilized in the system are manufactured by others and are NSF International
certified. The overall PureSafe FRWS will require NSF certification as an
integrated system.  NSF Internationl, a not-for-profit,
non-governmental organization, is a world leader in standards development,
 product certification, education and risk-management for public health and
safety.  Focusing on food, water, indoor air and the environment, NSF
International develops national standards, provides learning opportunities and
providies third-party conformity assessment services.  A basic
systemprovide up
to 10,000 gallons of drinking water, enough to provide water to 10,000 people
per day.





3





In
addition to its drinking water supply capability, the PureSafe FRWS is being
designed to have an add-on module to serve as a mobile decontamination unit (the
“DECON Module”).  The DECON Module was added, after a review of the
competitive market, as a means to further distinguish the PureSafe FRWS from
competitors.  The DECON Module is capable of decontaminating first
responder personnel exposed to biological agents, fuel or other
contaminants.  The DECON Module sprays the exposed individual with
high concentrations of ozonated water or water containing solvents or
surfactants to remove the contaminants.  The DECON Module consists of
various chemical and water injectors that stream the decontaminants through a
shower or spray head and a waste water collection/recovery pan where the
decontaminants are stored or returned to the PureSafe FRWS for treatment and
reuse.





Manufacturing





The
Company plans to contract out the manufacturing process to sub-contractors who
have not yet been identified.  In the future the Company may permit
licensing agreements for manufacturing in other parts of the world.





Raw
Materials





The
PureSafe FRWS system has been designed to utilize readily available
off-the-shelf components and sub-systems.  Sub-systems and components
are available from multiple manufacturers.  Therefore, we do not
believe that obtaining raw materials will be difficult once manufacturing
commences.





Competition





We have
identified the need for providing potable drinking water during emergencies as a
market segment that requires solutions which we can provide.  We
believe that dramatic changes in weather patterns, global warming and failing
water infrastructures, provide an opportunity for our company to exploit the
marketplace by providing rapidly deployable units to areas where populations
require potable drinking water quickly. Populations that have little mobility
because of infrastructure failures need drinking water immediately to sustain
life.  It is anticipated that individual PureSafe FRWS units will be
delivered by its owners to areas where the populations are clustered so that
potable drinking water in disinfected portable containers can be provided in an
efficient manner.





This is a
far different market than that addressed by a large segment of the industry
which has concentrated on the multi-billion dollar municipal water treatment
sector, or the equally large residential sector.  The municipal
solution requires significant investment for infrastructure development (e.g., building plants and
laying miles of distribution pipes).  Products for residential markets
do not offer the performance or features to meet the needs of the first response
market or the needs of the underdeveloped nations of the world.





We have
identified the following companies which manufacture water treatment equipment
products.  We believe that these entities represent the major
competitors in the water treatment industry.





•
            Nirosoft
      – Israeli-based, privately owned company established in 1990 that
      specializes in the design, manufacture, installation, operation and
      maintenance of advanced water and waste water treatment systems and
      services for fixed and mobile applications.  According to
      Nirosoft, Nirosoft has produced and sold over 350 trailers to mostly third
      world countries in which the cost of the trailers was paid for by the
      United Nations and other relief
agencies.





•
            Global
      Water Group – US-based, Global Water Group is a manufacturer of water
      purification, waste water processing and waste water-effluent recycling
      equipment for municipalities, military, disaster relief agencies,
      industry, remote villages, homes and new residential and industrial
      developments.  Since 1990, Global has specialized in mobile,
      self-contained and fixed-based water purification systems for disaster
      relief and military use.





4





•
            LifeKeeper
      – Sweden-based, LifeKeeper provides compact disaster relief equipment
      which provides electricity, water to drink and water for disinfection and
      sanitation.  The smallest unit is capable of supplying emergency
      drinking water for 300 people on a daily
basis.





•
            General
      Electric/Zenon – Zenon is the brand name used by the GE Water &
      Process Technologies unit of GE Infrastructure, a global supplier of water
      treatment, waste water treatment and process systems
      solutions.  For emergency water treatment or temporary mobile
      water filtration needs, Zenon offers a line of containerized membrane
      systems.





•
            Tesla/Viwa
      – Czech Republic-based company that offers a branded automatic mobile
      drinking water treatment plant designed as a provisional source of
      drinking water.  The unit represents an integrated system,
      installed in a modified twenty-foot ISO-1C container, with a capacity of
      5,000 liters per hour.





In all
cases reviewed, most of these potential competitors do not maintain an inventory
of units for immediate shipment, do not have flexible business models, do not
have decontamination abilities, do not provide a water bottling station and can
not provide units in less than eight weeks after orders are
placed.  In addition, most of the potential competitors’ units were
very limited in the types of water that they could treat successfully in
emergency applications; only the very large units could handle contaminated
water sources effectively.  The competitors’ units also were not
designed to be portable and self contained or secure, in most
instances.  The smaller units were generally “skid” mounted and not on
trailers, while the larger units were on 50-foot trailers and not easily mobile
for emergency first responder use.  In most instances, the
competitors’ units could not be easily airlifted and dropped into strategic
areas.  None of the units produced by these competitors were focused
on first responder use.  Competitive units with specific reference to
bottle washing and filling, portable by airlifting, trailer towing or on boats
do not exist in the market, according to the research conducted on our behalf by
Hidell-Eyster International.  In addition, our patented water
extraction boom is a sophisticated particulate processor that prevents blockages
from objects floating in floodwater from occurring in the extraction boom, a
detriment, we believe, to the potential competitors’’ products.





For these
reasons, we believe the combined capability of water decontamination and
delivery system of our PureSafe FRWS is unique to the market.





The
markets in which we intend to operate are highly competitive with respect to
performance, quality and price.  We anticipate that we will directly
compete with those competitors which we identified above, as well as with other
local, regional and water treatment service and equipment
providers.  In the future, we also may face further competition from
new market entrants and possible alliances between existing
competitors.  Some of our competitors have, or may have, greater
financial, marketing and other resources than we have.  As a result,
competitors may be able to respond more quickly to new or emerging trends and
changes in technology, benefit from greater purchasing economies, offer more
aggressive pricing to customers or devote greater resources to the promotion of
their products than we are capable of accomplishing.  There can be no
assurance that we will be able to successfully compete in the future with such
competitors.  The failure to successfully compete could have an
adverse effect on our operating results.





Marketing





According
to studies performed by the World Health Organization (WHO) and the United
Nations, major parts of Africa, the Middle East, Southeast Asia, the Indian
sub-continent, Latin and South America, the Caribbean and much of Eastern Europe
is in need of adequate supplies of pure water.  Parts of Florida,
Georgia and other regions in the United States have also reported fresh water
deficiencies.  Solving this problem has been a question of applying
appropriate technology to decontaminate water and deliver pure potable drinking
water to the affected area.





5





We
believe that there are clearly two distinct markets, each requiring a different
sub-set of marketing skills:




•
            The Domestic US market.
      The entry into the US market will be our primary target during the first
      year of production of the PureSafe
FRWS.




•
            International Markets.
      The entry into foreign markets will require strategic partnerships with
      well established companies.




The
United States domestic marketing program will focus on the primary needs of
first responders, such as federal, state and local agencies entrusted with first
response challenges during times of both national and man-made disasters, as
well as potential terrorist attacks.





Governmental
organizations that are involved in first response situations include the
Homeland Security Agency, the Armed Forces, National Guard, municipalities, fire
departments, the Red Cross and other emergency and health care
agencies.





The
market for our products also includes secondary markets, such as condominium
developments, universities, hospitals, hotels, nursing homes, assisted living
facilities or any private user that is concerned about the availability of pure,
safe potable drinking water in times of natural or man-made
disasters.





The
international market includes governments who need to address the same needs as
the United States domestic market.





Our
management understands that, to be successful, we will need to create an
effective sales organization to promote our brand and product attributes through
a variety of outlets and formats with clear branding messages.  With
this in mind, our marketing plan is based on the following key
components:





•
            Strategic
      Alliances – We intend to enter into strategic alliances with special
      advisors and organizations already integrated in the water industry both
      domestically and internationally.





•
            Direct
      Marketing and Sales – We intend to assemble a highly qualified sales
      organization and representatives in the United States and Israel to market
      directly to local municipalities, first responders, national public
      emergency management agencies and military organizations that are
      responsible for first response emergency situations, including those
      involved in planning emergency preparedness
  plans.





•
            Advertising
      – We plan to advertise in a number of leading trade magazines, such as
      Fire Chief, Fire House, SIGNAL Magazine,Homeland First Response, Journal
      and Disaster Management and
Response.




•
            Trade
      Show Participations –We plan to participate in key industry trade shows in
      the United States, Israel, Europe and other regions throughout the
      world.  We also plan to participate in Federal Emergency
      Management Agency (FEMA) and first responders conferences in the United
      States.





•
            Onsite
      Demonstration – We plan to conduct onsite demonstrations with potential
      clients as required and when feasible.  We anticipate having
      fully functioning demonstration units available for demonstration in the
      United States by September 1, 2009





•
            Web
      Based Marketing – We will utilize pay-per-click as well as natural Search
      Engine Optimization (SEO) optimization techniques to generate traffic to
      our website, www.puresafewatersystems.com.  We
      also plan to publish our website address in our public relations
      campaigns.  This strategy is expected to generate leads from
      potential clients for follow up by our direct sales
      organization.  The contents of our website do not constitute a
      part of this Annual Report on Form
10-K.





•
            Clear
      Branding Message – We plan to convey clear differentiating brand marketing
      messages to highlight our brand and product attributes on our website and
      in our promotional campaigns.  The marketing messages will be
      designed for decision makers in our targeted
  markets.





•
            Public
      and Investor Relations Campaign – We plan to implement an active public
      and investor relations campaign as part of our over-all marketing
      plan.  We recognize that a well coordinated public relations
      campaign is as valuable as or more valuable than paid advertising in a
      disorganized campaign.





6





Intellectual
Property





The
Company filed for U.S. patent protection for the PureSafe FRWS on April 9, 2008
and this patent application is currently
pending.





Despite
our efforts to protect our intellectual property rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary.  In addition, the laws of some foreign
countries do not protect intellectual proprietary intellectual rights to as
great an extent as do the laws of the United States.  Monitoring and
identifying unauthorized use of broadly disseminated products is
difficult.





There can
be no assurance that our means of protecting our intellectual property rights
will be adequate or that our competitors will not independently develop similar
technology or duplicate our products or design around our patents or other
intellectual property rights.  Further, there also can be no assurance
that any issued patent will provide us with any competitive
advantages.





We are
not aware that the PureSafe FRWS materially infringes upon the proprietary
rights of third parties.  There can be no assurance, however, that
third parties will not claim such infringement by us.  Any such
claims, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays or might require us to enter into
royalty or licensing agreements.  Such royalty or licensing
agreements, if required, may not be available on terms acceptable to
us.





Litigation
may be necessary to protect our proprietary technology.  Our
competitors and potential competitors may resort to litigation as a means of
competition.  Such litigation may be time consuming, costly and expose
us to new claims that we may not have anticipated.  Although patent
and intellectual property disputes have often been settled through licensing,
cross-licensing or similar arrangements, costs associated with such arrangements
may be substantial, if they may be obtained at all.  Any litigation
involving us, whether as plaintiff or defendant, regardless of the outcome, may
result in substantial costs and expenses to us and cause a significant diversion
of effort by our technical and management personnel.  In addition,
there can be no assurance that litigation, instituted either by or against us,
will not be necessary to resolve issues that may arise from time to time in the
future with other competitors.  Any such litigation could have a
material adverse effect upon our business, operating results and financial
condition.  In the event of an adverse result in any such litigation,
we could be required to expend significant resources to develop non-infringing
technology, obtain licenses to the technology which is the subject of the
litigation on terms not advantageous to us, pay damages, and/or cease the use of
any infringing technology.  There can be no assurance that we would
have available funds sufficient to satisfy any cash awards.





Seasonality





The
Company does not expect that the sales of the PureSafe FRWS will have some level
of fluctuation due to seasonality of water trauma events such as hurricanes,
tornados, tsunamis, storms, flooding or other natural or man-made disasters.
Preparedness requires a readiness to address disasters prior to their
occurrence. We do not view seasonality as an issue with respect to international
markets.





Research and
Development





The
original design of the PureSafe FRWS was conducted under the supervision of Gil
Tenne, President of Bircon. Ongoing research and development is being conducted
as a team effort, which includes an engineer and hydrologist from Hidell Eyster
International, Gil Tenne, and Alphonse Wolter, our Director of
Production.





On
December 14, 2007, the Company entered into an agreement for services involving
the research and development of its product with Bircon, Ltd., an Israeli based
company.  Under the agreement, Gil Tenne, the President of Bircon will
serve as our Director of Research and Development, Design and Engineering. The
agreement provides for consideration of $5,000 per month and currently is
scheduled to terminate on December 31, 2009.  In addition, we granted
Bircon warrants to purchse 3 million shares of our common stock. The warrants
are exercisable at $0.054 per share, have a term of four years and vest over
three years. The warrants were initially valued at approximately $80,600
utilizing the Black Scholes option pricing model and is being charged to
operations over the vesting period.





7





Hidell-Eyster
International Inc., a consulting company with whom  we entered into a
six-month agreement on June 9, 2008, is providing strategic planning, product
modification, and the continued development and marketing services of the
PureSafe FRWS.  The agreement provides for a fixed fee of $90,000 plus
out of pocket expenses, payable at $15,000 per month.  We have
has incurred a charge of approximately $105,000, which has been included on the
statement of operations as part of consulting fees and marketing
expenses.  The agreement expired in December 2008. We continue to use
the services of the consultant on a month to month basis.





On August
6, 2008, we entered into a six month consulting agreement with Designs and
Project Development Corp. (“D&P) for planning and continued development of
the PureSafe FRWS.  Under the agreement, the President of D&P, Al
Wolter is to serve as our Director of Production.  The agreement
provides for a fixed fee of $6,667 per month, plus reimbursement of
expenses.  In addition to the fixed fee, we issued to D&P 100,000
shares of our common stock, valued at $5,000, and warrants to purchase an
additional 250,000 shares of our common stock at $0.058 per share was granted to
D&P’s president.  We recorded total a $13,100 stock-based
compensation in connection with this transaction.  We have incurred a
charge of approximately $67,000, which has been included on the statement of
operations as part of research and development.





As of
February 26, 2009, the aggregate cost of the design, prototyping and development
of the PureSafe FRWS has been in excess of $705,000.





Insurance





The
Company maintains a $ 4 million general business liability policy.We believe
such insurance coverage to be adequate for its current
requirements.  No assurance can be given that adequate insurance
coverage, at reasonable cost or otherwise, will be available in the
future.





Employees





As of
April 8, 2009, we employed two executive officers, one full time administrative
employee and one part time administrative employee in its
headquarters.





We
believe there are a sufficient number of qualified personnel available both for
the marketing and sales function, administrative requirements and for our
sub-contractor for production.   The Company has no collective
bargaining agreement with any of its employees.








Item
      1A.
            Risk
      Factors.





Disclosure
under Item 1A is not required of smaller reporting companies.








Item
      1B.
            Unresolved
      Staff Comments.





Disclosure
under Item 1B is not required of smaller reporting companies.








Item
      2.
            Properties.





We
currently maintain our principal place of business at 25 Fairchild Avenue -
Suite 250, Plainview, NY 11803 under a 7-year lease expiring in April
2015.  The lease calls for a monthly base rent of $5,000 through April
2009 with annual increases in the monthly base rent.  We are required
to pay for all applicable utilities, maintenance costs and real estate taxes,
which averaged approximately $1,700 per month during the period in 2008 in which
we occupied the premises.  The facility has 5,300 square feet in space
and serves as our headquarters, executive offices, and showroom.





8





Item
      3.
            Legal
      Proceedings.





We
may become a party to various legal proceedings arising in the ordinary course
of our business, but we are not currently a party to any legal proceeding that
we believe would have a material adverse effect on our financial position or
results of operations.





In March
2007, a then director, John Clarke provided a $50,000 loan to our
company.  The loan pays simple interest at the rate of 10% per annum
and the principal was due to be paid on June 29, 2007.  The loan
carries an option provision that entitles the former director to convert his
debt to shares of our common stock if the principal was not paid on the due
date.  The conversion price is the 50% of the average closing price of
common stock over the three previous business days before demand for conversion
is made.  The former director has made a demand for conversion, but
the date of the demand is currently in question.





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders.





Not
applicable.


9




PART
II





Item
      5.
            Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities.




Market





Our
common stock is traded over-the-counter and has been available for quotation on
the OTC Bulletin Board (the “OTC BB”) under the trading symbol “WTER.OB”
..  The following table sets forth the range of high and low bid prices
for our common stock for the periods indicated as derived from the Yahoo Finance
website.  The information reflects inter-dealer prices, without retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.





High
                    
                    
                    LowQuarter Ended
                    
                    Bid Price
                    
                    
                    Bid PriceMarch
      31, 2007
                    
                    $
                    0.19
                    
                    
                    $
                    0.01June
      30, 2007
                    
                    
                    0.13
                    
                    
                    
                    0.10September
      30, 2007
                    
                    
                    0.12
                    
                    
                    
                    0.06December
      31, 2007
                    
                    
                    0.09
                    
                    
                    
                    0.02March
      31, 2008
                    
                    
                    0.14
                    
                    
                    
                    0.03June
      30, 2008
                    
                    
                    0.11
                    
                    
                    
                    0.08September
      30, 2008
                    
                    
                    0.08
                    
                    
                    
                    0.04December
      31, 2008
                    
                    
                    0.05
                    
                    
                    
                    0.02March
      31, 2009
                    
                    
                    0.05
                    
                    
                    
                    0.02





Holders





As of
April 8, 2009, we had 791 stockholders of record.  We estimate that
there are approximately 2,000 beneficial holders of our common stock, based on
information collected with respect to our annual meeting of stockholders held on
November 20, 2008.





Dividends





No
dividends have been declared or paid on our common stock, and we do not
anticipate that any dividends will be declared or paid in the foreseeable
future.  Dividends on our common stock are subordinated to dividends
and liquidation rights of the holders of our outstanding Series A and Series D
preferred stock and the rights of the holders of our outstanding Series F
convertible preferred stock.





10





Securities Authorized for
Issuance under Equity Compensation Plans





The
following table shows information as of December 31, 2008 with respect to each
equity compensation plan and individual compensation arrangements under which
our equity securities are authorized for issuance to employees or
non-employees.





Plan
      Category
                
                Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                  (A)
                
                
                Weighted-average
      exercise price of outstanding options, warrants and rights
                  (B)
                
                
                Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (A))
                  (C)Equity
      compensation plans approved by security holders
                
                
                0
                
                
                
                n/a
                
                
                
                30,000,000Equity
      compensation plans not approved by security holders
                
                
                20,156,666
                
                
                $
                0.0995
                
                
                
                0Total
                
                
                20,156,666
                
                
                $
                0.0995
                
                
                
                30,000,000





As of
December 31, 2008, we have granted  warrants and other rights to
purchase a total of 20,156,666 shares or our common stock with average exercise
price of $0.0995. These  warrants and other rights were granted to
multiple individuals for various reasons such as reward for consulting services,
incentive to retain highly desired staff and employee performance
rewards.  The grant of each of such  warrants and other
rights were approved by our board of directors.  All the warrants were
approved by our board of the directors but were not approved by our security
holders.





We have
set forth below additional information concerning the material features of each
grant of  warrants and other rights under a plan not approved by our
security holders.  For purposes of this disclosure, the term “Plan”
includes all individual agreements that provide for equity compensation and
include all individual option agreements, warrants and other contract rights
payable in equity.





Date
      of Grant/Issuance
                
                Number
      of Warrants Granted
                
                
                Exercise
      Price
                
                Expiration
      Date
                Name
      of Holder, if a Director or Executive Officer05/24/06
                
                
                1,250,000
                
                
                $
                0.1500
                
                05/24/09
                J.
      John Clarke (former director)05/24/06
                
                
                4,000,000
                
                
                
                0.1000
                
                05/24/09
                Leslie
      Kessler, Director, President & CEO05/24/06
                
                
                1,250,000
                
                
                
                0.1500
                
                05/24/09
                Marshall
      Sterman (former director)03/29/07
                
                
                2,000,000
                
                
                
                0.1100
                
                03/29/10
                Leslie
      Kessler, Director, President & CEO03/29/07
                
                
                2,000,000
                
                
                
                0.1175
                
                03/29/10
                Consultant05/16/07
                
                
                2,000,000
                
                
                
                0.1100
                
                05/16/10
                Consultant05/23/07
                
                
                1,100,000
                
                
                
                0.1100
                
                05/23/10
                Ronald
      Hart (former director)09/28/07
                
                
                2,000,000
                
                
                
                0.0700
                
                09/28/10
                Terry
      Lazar, Director and CFO12/14/07
                
                
                3,000,000
                
                
                
                0.0540
                
                12/14/11
                Consultant04/23/07
                
                
                2,000,000
                
                
                
                0.1100
                
                04/23/10
                Employee02/12/08
                
                (2,000,000)
      Cancellation
                
                
                
                0.1100
                
                
                Employee02/12/08
                
                
                666,666
                
                
                
                0.1100
                
                04/23/10
                Employee03/14/08
                
                
                500,000
                
                
                
                0.0667
                
                03/14/11
                Malcolm
      Hoenlein, director04/16/08
                
                
                45,000
                
                
                
                0.0853
                
                04/16/11
                Special
      Advisor to the Board04/16/08
                
                
                45,000
                
                
                
                0.0853
                
                04/16/11
                Special
      Advisor to the Board07/30/08
                
                
                50,000
                
                
                
                0.0580
                
                07/30/11
                Employee07/30/08
                
                
                250,000
                
                
                
                0.0580
                
                07/30/11
                Consultant





11





In
November 2008, our stockholders approved our company’s 2008 Equity Incentive
Plan (the “2008 Plan”).  The purposes of the 2008 Plan are (a) to
enable our company to attract and retain highly qualified personnel who will
contribute to our success, and (b) to provide incentives to participants in the
2008 Plan that are linked directly to increases in stockholder value which will
therefore inureto the
benefit of all of our stockholders.





The 2008
Plan provides for its administrator (i.e., our board of directors, or a
committee of the board in which each member will be an independent director) to
have full authority, in its discretion, to:


•
            select
      the persons to whom awards will be
granted,


•
            grant
      awards,


•
            determine
      the number of shares to be covered by each
  award,


•
            determine
      the type, nature, amount, pricing, timing and other terms of each award,
      and


•
                interpret,
      construe and implement the provisions of the 2008 Plan, including the
      authority to adopt rules and regulations.





Participation
in the 2008 Plan is limited to our:


•
            employees,
      including officers,


•
            directors,


•
            consultants
      and


•
            advisors.





Under the
2008 Plan, we are authorized to award:


•
            stock
      options,


•
            stock
      bonuses,


•
            restricted
      stock,


•
            stock
      appreciation rights, commonly referred to as
  “SARs,”


•
            performance
      grants and


•
            other
      types of awards.





The total
number of shares of our common stock reserved and available for grant and
issuance pursuant to the 2008 Plan is 30 million.  As of December 31,
2008 and through April 8, 2009, no options, warrants, and rights were awarded
under 2008 Plan.





Item
      6.
            Selected
      Financial Data.





Disclosure
under Item 6 is not required of smaller reporting companies.








Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.





Overview and Recent
Developments





We have
completed production of a fully functional prototype of the PureSafe FRWS. The
system has been tested for its capability to decontaminate and purify
contaminated waters with a variety of contaminants. All bench tests have been
successful. Tests were performed under the supervision of Thomas Brewer PH.D,
hydrologist with Hidell Eyster. All test results were independently verified by
an outside independent laboratory. Test results have been published and have
been disclosed to the public.





We have
entered into a Letter of Intent with Mekorot Development and Enterprise Ltd
(“Mekorot D&E”), a wholly owned subsidiary of Mekorot National Water
Company, the national water carrier of Israel, to create a working relationship
with the goal of incorporating the PureSafe FRWS in the global water security
initiative of Mekorot D&E.  Mekorot D&E, in turn, is seeking
our help in marketing their water security program in the United
States.





12





We have
initiated discussion with various potential international partners concerning
distribution and manufacturing rights.





We are
seeking financing to move into the production stage for the PureSafe
FRWS.





We also
have begun to explore a joint venture relationship with a financial institution
to provide lease financing for production units.  No assurance can be
given that we will receive financing from any source or that such financing will
be in a sufficient amount or on terms favorable to our company.  Any
financing could have a dilutive effect to our then current
stockholders.  Even if sufficient and on terms favorable to us,
financing can not guaranty that we will generate revenues or be profitable at
any time in the future.





Plan of
Operations





Our plans
for the next twelve months include:


•
            The
      completion of 30 commercial PureSafe FRWS units, with full operational
      capability.  We believe that with acceptable levels of capital,
      30 units can be produced of which 25 will be for sale and five will remain
      in inventory. The ramp up to full production capability of 80 units per
      month is targeted for the first quarter of
2010.


•
            Filing
      of all required foreign patent applications for the PureSafe
      FRWS.  We will identify all the potential markets in which we
      need patent protection.


•
            Certification
      of the PureSafe FRWS by all applicable government and private
      entities.  The first two production units will be sent to the
      NSF for certification. Additional field testing will be performed on the
      units for durability and sustainability under harsh
      conditions.


•
            Continuing
      capital raise with a total maximum target of $10 million, the amount of
      additional funds we believe is required for the next twelve
      months.  The capital raising process is an on-going endeavor,
      involving targeting individuals, private equity funds, foundations, and
      government sponsors.


•
            Hiring
      a new Director of Sales.  We expect to hire an individual for
      such position by July 2009.  We anticipate that the individual
      hired will be a licensed engineer with strong experience in the water
      industry.


•
            Initial
      penetration into target markets; we are participating in water industry
      conferences.  Our special advisors are contacting strategic
      potential customers and we are starting to identify strategic partners for
      selected international markets.


•
            Locating
      special advisors as targeted resource personnel.  We expect to
      add special advisors to our management team that can help us penetrate
      specific markets, such as universities and hospitals. We already have
      quality access to the first response industry through a former Fire Chief
      of the New York City Fire
Department.


•
            Concluding
      agreements with strategic partners for international marketing and
      manufacturing.  We are identifying potential partners who have
      strong distribution capability, financial resources and market presence in
      selected countries. We plan to create joint venture partnerships with
      selected companies that will entail distribution rights, as well as
      manufacturing licensing.


•
            Locating
      additional board members. We are seeking the addition of one director who
      can bring a level of professionalism, recognized success either in
      business or academia and an unquestionable level of ethical
      behavior.


•
            Recognizing
      revenue produced by sales of PureSafe FRWS units. We believe that, as the
      production process moves in tandem with our marketing initiatives, we
      shall start to receive orders for the
FRWS.


•
            No
      assurance can be given that any of the above items will be completed
      during the next twelve months or at any time in the future. Further,
      completion of all of such items does not guaranty that we will generate
      any revenue or become profitable at any time in the
  future.





For the
first two quarters of 2009, our main focus will be to produce PureSafe FRWS
standardized commercial units, complete the certification process and initiate
our marketing plan.We expect to recognize
the first sales of the PureSafe FRWS by the end of the third quarter of
2009.  We will cease being a development stage enterprise at the time
of our recognition of significant revenue from the sale of PureSafe FRWS
units.





The
extent of these initiatives will be contingent upon the amount of capital
raised.





13





Results
of Operations




Revenues.  We
recorded zero sales for the years ended December 31, 2008 and 2007.





Cost of goods
sold.Cost of goods sold for the years ended December 31, 2008
and 2007 were $0 and $23,000, respectively.  Even though we generated
no sales in 2007, we incurred charges from January 2007 through April 2007 for
storage space we rented from a manufacturer who was contracted to produce our
old water station unit.We terminated the
relationship with the sub-contractor in 2007.





Selling, general and
administrative.Selling, general and administrative expenses
for the year ended December 31, 2008 was $1,909,982, compared to $1,356,895 for
the 2007 fiscal year, an increase of $553,087 or 41% between the
periods.  Legal fees incurred in 2008 was $100,971, compared to
$164,555 in 2007.  The 39% decrease in legal fees is attributable to
less legal services required in 2008.  Audit fees for 2008 was
$177,260, compared to $120,500 for 2007.  Accounting fees increased by
$22,520 or 82% from 2007 to 2008.  In 2008, our outside consultants
spent more hours training our new controller, reviewing all transactions
recorded by our controller and compiling our financial statements.  We
expect the total accounting fees will decrease in 2009 as our controller gains
more experience and knowledge of our operations.  Consulting services
expenses in 2008 was $229,708, compared to $167,700 in 2007.  The 37%
increase was primarily the result of the consulting fees paid to Bircon Ltd. for
the PureSafe FRWS prototype project and consulting fees paid and accrued to
retain the services of our Director of Production.  Office expenses
increased $31,020 or 195% from $15,835 in 2007 to $46,855 in 2008.  In
2008, we incurred $19,337 in office expenses related to the 2008 annual
shareholders’ meeting held in November.  Further, the volume of
activities in general office functions increased compared with
2007.  Marketing expenses increased
significantly.  Marketing expense in 2008 was $132,529 compared to
$6,559 in 2007.  The main component of such 1920% increase in
marketing expense relates to the $105,000 consulting fee paid to Hidell-Eyster
International, Inc. (“HEI”).  On June 9, 2008, we signed an agreement
with HEI to retain their services in the following areas: regulatory and
licensing issues; marketing; quality assurance; manufacturing and logistics;
financial planning and monitoring and sales and distribution.  We
agreed to pay HEI a fixed fee of $15,000 per month plus approved out-of-pocket
expenses.  We also incurred approximately $20,000 in various marketing
projects, including preparation of a business plan and
brochures.  Rent expense in 2008 was $85,833, compared to $44,791 in
2007.  The 92% rent increase is related to the increased rent at this
new headquarters.  Total salaries paid and accrued in 2008 was
$313,163, compared to $157,201 in 2007, an increase of $155,963 or
99%.  Salary increases are attributable to hiring a new Chief
Financial Officer in September 2007 and a new Controller in October
2007.  Stock based compensation dropped from $636,926 in 2007 to
$490,689 in 2008, a decrease of $146,227 or 23%.  The amount of
warrants and shares we granted to various parties in 2008 were significantly
less than 2007.  The average per share price of our common stock was
approximately $.03 less in 2008 than the price in 2007.





Research and
development.Research and development expenses in 2008 was
$270,405, compared to $435,363 in 2007, a decrease of $164,958 or
38%.  Most of the consulting fees, engineering fees, electrician fees,
and cost of materials for the PureSafe FRWS prototype was incurred in
2007.  Although we do not foresee significant increases in research
and development in 2009, expectations are that costs in 2009 will approximate
those incurred in 2008.





Discharge of
debt.  We realized a gain on discharge of debt from two
transactions of $384,114. In the first quarter of 2008, we issued 1,250,000
shares of our common stock to a note holder to retire $276,467 of outstanding
debt.  The fair market value of these 1,250,000 shares on the issuance
date was $50,000 and we recognized a one-time gain on discharge of such debt of
$226,467.  In October 2008, based on a mutual release and agreement,
we wrote off $157,647 in outstanding debt to a vendor.  The write-off
was treated as discharge of debt.





14





Interest expense (non-conversion
related). We incurred $93,092 interest expense (non-conversion related)
in 2008 compared to $430,067 in 2007.  The $336,975, a 78% drop in
interest expense in 2008 was the result of retiring and converting several
promissory notes in December 2007 and during first half year of 2008, resulting
in no further accrued interest, as well as, the settlement and retirement
of  existing debt in the amount of $400,000 in October
2007.





The
conversion related interest expense for the years ended of December 31, 2008 and
2007 were $0 and $113,000, 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 2008.





Change in fair value of warrants and
embedded conversion options.  Change in fair value of warrants
and embedded conversion options for the years ended December 31, 2008 and 2007
were ($151,751) and ($544,200), respectively.  The fluctuation of
price of our common stock in 2008 was relatively smaller than we experienced in
2007.  The average price of our common stock in 2008 was less than the
average price in 2007.  Thus, in 2008,  we experienced less
change in the fair value of outstanding warrants and embedded conversion
options.  The warrants and the embedded conversion options are
recorded as derivative liabilities at their fair market value, in accordance
with Emerging Issues Task Force (“EITF”) Issue No. 00-19, and marked to market
through earnings at the end of


each
reporting period.





Liquidity and Capital
Resources





As of
December 31, 2008, we maintained a cash balance of $29,411 as compared to
$415,400 at December 31, 2007.  The decrease in the cash balance of
$385,989 was primarily due to the following:


(a)
              $328,113
      net cash used on operating activities, reduction of
  debt;


(b)
              $120,252
      net cash  used on purchasing furniture, equipment and leasehold
      improvement; and


(c)
              a
      $62,376 reduction in cash provided by financing
  activities.





We are
currently seeking additional capital up to $10 million to support the production
process, expand marketing and sales initiatives, and provide for administrative
cost.  We sold a total of 6,357,079 shares of our common stock and
warrants to purchase an additional 1,271,416 shares for gross proceeds of
$195,000 during the first quarter of 2009 toward our financing
efforts.





On
October 14, 2008, Leslie J. Kessler, our President and Chief Executive Officer,
and Terry R. Lazar, our Chief Financial Officer, each loaned our company the sum
of $50,000.  The loans bear interest at the rate of 10% per
annum.  In connection with such loans, we issued to each of such
executive officers warrants to purchase 256,410 shares of common stock at an
exercise price of $0.047 per share.  The loans are due and payable by
or on October 14, 2009, provided, however, that the lenders have the right to
demand payment of all amounts due under the loans at any time.  The
loans were evidenced by convertible promissory notes, which grant the lender the
right to convert principal and all accrued and unpaid interest into shares of
our common stock at a conversion price of $0.039 per share, the closing market
price of our common stock on the closing date of the loans.





On
November 17, 2008, Leslie J. Kessler, our President and Chief Executive Officer,
and Terry R. Lazar, our Chief Financial Officer, each loaned our company the sum
of $50,000.  The loans bear interest at the rate of 10% per
annum.  In connection with such loans, we issued to each of such
executive officers warrants to purchase 250,000 shares of common stock at an
exercise price of $0.048 per share.  The loans are due and payable by
or on October 14, 2009, provided, however, that the lenders have the right to
demand payment of all amounts due under the loans at any time.  The
loans were evidenced by convertible promissory notes, which grant the lender the
right to convert principal and all accrued and unpaid interest into shares of
our common stock at a conversion price of $0.040 per share, the closing market
price of our common stock on the closing date of the loans.





On
December 17, 2008, an investor made a loan of $50,000 to our
company.  The loan pays interest at the rate of 10% per
annum.  In connection with such loan, we issued to the investor
warrants to purchase 285,714 shares of our common stock at an exercise price of
$.042 per share.  The loan is due and payable on December 17,
2009.  The loan is evidenced by a promissory note containing a
conversion clause that allows the investor to convert the loan principal plus
all accrued and unpaid interest due into common stock of the
Company.  The conversion price was set at $.035 per share which was
the closing market price of our common stock on the date of the
loan.





15





Going
Concern





At
December 31, 2008, we had a stockholders’ deficiency of $1,676,483 as
compared  to $2,029,215 at December 31, 2007.  Negative
working capital was $1,907,742 at December 31, 2008 as compared to negative
working capital of $2,098,454 at December 31, 2007.





We
continue to suffer recurring losses from operations and have an accumulated
deficit since inception of approximately $30,000,000.  These
conditions raise substantial doubt about our ability to continue as a going
concern.  The accompanying financial statements have been prepared
assuming that we will continue as a going concern and do not include any
adjustments that might be necessary should we be unable to continue as a going
concern.  The Independent Registered Public Accounting Firm’s report
on our financial statements included elsewhere herein contains an explanatory
paragraph about conditions that raise substantial doubt about our ability to
continue as a going concern.  Our continuation as a going concern is
dependent upon our ability to bring our products to market and generate
revenues, control costs, operate profitably and obtain additional financing, as
required and on reasonable terms.  Our plans with respect to these
matters include restructuring our existing debt and raising additional capital
through future issuances of stock and/or debt.  We are seeking to
raise an additional $10 million in the next twelve months to fund the following
activities: the production of 30 commercialized PureSafe FRWS units; Submitting
two commercialized units for all necessary certifications; launching a marketing
program for the PureSafe FRWS, establishing a sales and marketing network; and
concluding agreements with strategic partners for international marketing and
manufacturing.  Provided we obtain such financing, we believe that
there will be revenue recognition by the third quarter of 2009.





We have
no assurance that such financing will be available on terms advantageous to us,
or at all.  We anticipate that by the fourth quarter of 2009, we will
be fully commercially operational and cease to be a development stage
entity.  However, should we not be successful in obtaining the
necessary financing to fund our operations, we would need to curtail certain of
our operational activities.




Critical Accounting Policies
and Estimates





Our
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.  We are
currently deemed in development stage as defined by Statement of Financial
Accounting Standards (“SFAS”) No. 7 “Accounting and Reporting by Development
Stage Enterprises” (“SFAS 7”).





The
following is a list of what we believe are the most critical estimations that we
make when preparing our financial statements.





Development
Stage Company





We
discontinued our water cooler and filtration operations in November
2001.  We have refocused our efforts on raising capital and developing
markets for its proprietary technology.  Pursuant to the provisions of
SFAS 7, we are considered a development stage company.  We are subject
to a number of risks similar to those of other early development stage
companies.





Stock-Based
Compensation





We report
stock based compensation under Statements of Financial Accounting Standards No.
123R (SFAS “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.  During the year ended December 31, 2008 and 2007, we issued
4,483,333 and 3,500,000 shares of common stock and incurred a stock based
compensation charge of approximately $ 271,000 and $325,000, respectively based
on the fair value on the date of the award.





16





We
account 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
principal assumptions used in applying the Black-Scholes model along with the
results from the model were as follows:





Years
      Ended December 31,2008
                  
                  
                  2007Risk-free
      interest rate
                  
                  
                  1
                  %
                  
                  
                  5
                  %Expected
      life, in years
                  
                  
                  3
                  
                  
                  
                  3Expected
      volatility
                  
                  
                  83
                  %
                  
                  
                  90
                  %Dividends
                  
                  
                  0
                  %
                  
                  
                  0
                  %





During
the years ended December 31, 2008 and 2007, we granted warrants to purchase
833,333 and 14,100,000 shares of our common stock, respectively, to employees
and consultants for services rendered.  We incurred charges for stock
based compensation with respect to such grants of approximately $220,000 and
$315,000, respectively.





We have
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 our common
stock at a rate which was determined to be variable.  We 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.”





The
accounting treatment of derivative financial instruments requires that we 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 entering into the convertible promissory
notes, we were 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.  We reassess 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





We
account for registration rights agreements in accordance with Financial
Accounting Standards Board (“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.





17





Income
Taxes





Effective
January 1, 2007, we adopted the provisions of Financial Accounting Standards
Board (“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.”





Our
uncertain tax positions are related to tax years that remain subject to
examination by relevant tax authorities.  We file income tax returns
in the United States (federal) and in various state and local
jurisdictions.  We are 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 our financial position and results of
operations.  As of December 31, 2008, no liability for unrecognized
tax benefits was required to be recorded.





Effects
of Recent Accounting Policies





In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value.  The objective of SFAS 159 is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently.  Generally
accepted accounting principles have required different measurement attributes
for different assets and liabilities that can create artificial volatility in
earnings.  SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS 159 does not eliminate disclosure requirements
included in other accounting standards, including requirements for disclosures
about fair value measurements included in SFAS 157 and SFAS No. 107,
“Disclosures about Fair Value of Financial Instruments.”  SFAS 159 is
effective as of the beginning of the first fiscal year in 2008.  The
adoption of SFAS No. 159 did not have a material impact on our financial
position, results of operations or cash flows.





In
December 2007, the issued SFAS No. 141 (revised 2007), “Business Combinations”
(“SFAS 141(R)”).  SFAS 141(R) replaces SFAS No. 141, “Business
Combinations,” and is effective for us for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  SFAS 141(R) requires
the new acquiring entity to recognize all assets acquired and liabilities
assumed in the transactions; establishes an acquisition-date fair value for
acquired assets and liabilities; and fully discloses to investors the financial
effect the acquisition will have.  SFAS 141(R) would have an impact on
accounting for any business acquired after the effective date of this
pronouncement.





In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”).  SFAS 160 requires
all entities to report minority interests in subsidiaries as equity in the
consolidated financial statements, and requires that transactions between
entities and non-controlling interests be treated as equity.  SFAS 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 with earlier adoption
prohibited.  The adoption of this pronouncement is not expected to
have a material impact on our financial position, results of operations and cash
flows.  However, SFAS 160 may affect future periods.





18





In March
2008, FASB issued Statement of Financial Accounting Standards 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 SFAS 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, we are evaluating the implications of SFAS
161 and its impact on our financial statements has not yet been
determined.





In April
2008, FASB issued Staff Position No. 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” (“SFAS 142”) in order to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141(R) and other US GAAP.  FSP 142-3 is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008 and is to be applied prospectively to intangible assets
acquired after the effective date.  Disclosure requirements are to be
applied prospectively to all intangible assets recognized as of, and subsequent
to, the effective date.  Early adoption is not
permitted.  We are currently evaluating the impact of the adoption of
FSP 142-3 on our financial statements.





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 accounting principles
used in preparing financial statements of nongovernmental entities that are
presented in conformity with US GAAP.  Currently, US GAAP hierarchy is
provided in the American Institute of Certified Public Accountants U.S. Auditing
Standards (“AU”) Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles” (“AU Section 411”).  SFAS
No. 162 is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board’s amendments to AU Section 411.  We do not
expect the adoption of SFAS 162 to have an impact on our financial
statements.





In May
2008, FASB issued FSP Accounting Principles Board Opinion (“APB”) 14-1,
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion” (“FSP APB 14-1).  FSB APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash or other assets
upon conversion to separately account for the liability and equity components of
the instrument in a manner that reflects the issuer’s nonconvertible debt
borrowing rate.  FSP APB 14-1 is effective for financial statements
issued for fiscal years and interim periods beginning after December 15, 2008
and is to be applied retrospectively to all periods presented, with certain
exceptions.  The adoption of FSP APB 14-1 is not expected to have any
impact on our financial statements; however it may impact the accounting for
future debt issuances.





In June
2008, the FASB ratified the consensus reached by the EITF on three issues
discussed at its June 12, 2008 meeting pertaining to EITF 07-5, “Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”
(“EITF 07-5).  The issues include how an entity should evaluate
whether an instrument, or embedded feature, is indexed to its own stock, how the
currency in which the strike price of an equity-linked financial instrument, or
embedded equity-linked feature, is denominated affects the determination of
whether the instrument is indexed to an entity’s own stock and how the issuer
should account for market-based employee stock option valuation
instruments.  EITF 07-5 is effective for financial instruments issued
for fiscal years and interim periods beginning after December 15, 2008 and is
applicable to outstanding instruments as of the beginning of the fiscal year it
is initially applied.  The cumulative effect, if any, of the change in
accounting principle shall be recognized as an adjustment to the opening balance
of retained earnings.  We are currently evaluating the impact of
adopting EITF 07-5 on our financial statements.





On June
16, 2008, FASB issued FASB Staff Position (“FSP”) No. EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities,” which concluded that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of EPS pursuant to the two-class method.  FSP No. EITF
03-6-1 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years.  Upon adoption, a company is
required to retrospectively adjust its earnings per share data to conform with
the provisions of FSP No. EITF 03-6-1.  We are currently evaluating
the requirements of FSP EITF 03-6-1 and have not yet determined the impact on
our financial statements.





19





Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





Disclosure
under Item 7A is not required of smaller reporting companies.





Item
      8.
            Financial
      Statements and Supplementary Data.





We set
forth below a list of our audited financial statements included in this Annual
Report on Form 10-K and their location.





Item
                    Page *Report
      of Independent Registered Public Accounting Firm
                    F-1Balance
      Sheets at December 31, 2008 and 2007
                    F-2Statement
      of Operations for the Years Ended December 31, 2008 and
    2007
                    F-3Statement
      of Changes in Stockholders’ Deficiency for the Years Ended December 31,
      2008 and 2007
                    F-4Statement
      of Cash Flows for the Years Ended December 31, 2008 and
    2007
                    F-10Notes
      to Financial Statements
                    F-12
 _____


*           Page
F-1 follows page  to this Annual Report on Form
10-K.





Item
      9.
            Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure.





None.





Item
      9A(T).
            Controls
      and Procedures.





Evaluation of Disclosure
Controls and Procedures





Our chief
executive officer and chief financial officer have each reviewed and evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of
December 31, 2008.  Based on such review and evaluation, our chief
executive officer and chief financial officer have concluded that, as of
December 31, 2008, our disclosure controls and procedures were not effective to
ensure that information required to be disclosed by us in the reports that we
file or submit to the Securities and Exchange Commission pursuant to the
reporting obligations of the Exchange Act, including this Annual Report on Form
10-K, is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms of the SEC.  Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosures.  The reason that our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective was due to the material
weaknesses in our internal control over financial reporting, as discussed in our
Management's Annual Report on Internal Control Over Financial Reporting set
forth below.





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 also is 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 our
controls will succeed in achieving their stated goals under all potential future
conditions.





20





Management’s Annual Report
on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f)
of the Exchange Act.  Internal control over financial reporting is a
process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, and effected by the board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States (“US GAAP”), including those
policies and procedures that:


•
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company,


•
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with US GAAP, and that
      receipts and expenditures are being made only in accordance with
      authorizations of management and directors of the company,
    and


•
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with policies and procedures may deteriorate.





Under the
supervision and with the participation of our management, we have assessed the
effectiveness of our internal control over financial reporting as of December
31, 2008.  In making this assessment, our management used the criteria
described in Internal Control
– Intergrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission.  Due
to the inherent issue of segregation of duties in a small company, we have
relied heavily on entity or management review controls to lessen the issue of
segregation of duties.  Based on this assessment and those criteria,
our management concluded that the Company did not maintain effective internal
control over financial reporting as of December 31, 2008, due to the
material weaknesses noted below.





A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.  Our
management identified the following material weaknesses as of December 31,
2008:





Entity
Level.  We recognize the need to provide leadership and
guidance to our employees regarding the maintenance and preparation of financial
matters.  There is a weakness due to the fact that there aren’t
documented policies and procedures in place for certain
procedures.  An audit committee has not been previously
established.





Financial
Reporting.  There needs to be a more structured mechanism for
evidence of review in the financial reporting process.





Officer and Director
Loans.  On April 16, 2008, we entered into a Stock Purchase,
Loan and Security Agreement with each of our Chief Executive Officer and Chief
Financial Officer pursuant to which we issued to each of such executive officers
6.5 million shares of our common stock.  The officers paid for such
shares by each delivering to us a non-recourse promissory note in the principal
amount of $547,950.  We and such officers determined, on August 18,
2008, following consultations with our 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.  We originally had sought the
advice of our then outside attorneys in structuring the transactions
contemplated by the April 2008 agreements.  We determined that our
reliance on the former outside attorneys to be a material weakness and, as a
result, have terminated our relationship with such former outside attorneys and
have retained new counsel.  Management believes such new counsel is
better qualified to advise us on structuring future issuance of our securities
which would remediate the material weakness.





21





Confidential Reporting
Mechanism.  We recognize that we need to provide leadership and
guidance to our employees, clients and vendors regarding business ethics and
professional conduct. A confidential reporting mechanism must be in place for
anonymous reporting of a breach to these ethics that will enable prompt and
thorough investigation. In January 2009, we implemented a whistleblower
program.  A toll-free number, as well as an email address, were posted
on the homepage of our website to encourage our employee, contractors,
sub-contractors, vendors to report any unethical or illegal behavior they
suspect.





The
entire staff consists of two officers, one controller and one
receptionist.  Therefore, we have relied heavily on entity or
management review controls to lessen the issue of segregation of
duties.





Attestation
Report





This
Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only our management’s annual report on internal control over financial
reporting in this Form 10-K.




Changes in Internal Controls
Over Financial Reporting





There
were no changes in our internal control over financial reporting during the
fourth quarter of our fiscal year ended December 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal ontrol over
financial reporting.





Item
      9B.
            Other
      Information.





None





22





PART
III





Item
      10.
            Directors,
      Executive Officers and Corporate
Governance.




Directors and Executive
Officers





The
following table sets forth the names and positions of our current executive
officers and directors.





Principal
      Positions and
                                  
                                  DirectorName
                                  
                                  Age
                                  
                                  Offices with our Company
                                  
                                  SinceLeslie
      J. Kessler
                                  
                                  61
                                  
                                  President
      and Chief Executive Officer
                                  
                                  2007Terry
      R. Lazar
                                  
                                  65
                                  
                                  Chief
      Financial Officer and Director
                                  
                                  2007Malcolm
      Hoenlein
                                  
                                  65
                                  
                                  Director
                                  
                                  2008





Our
directors are elected at our annual meeting of stockholders and serve for one
year or until successors are elected and qualify.  Our board of
directors appoints our company’s officers, and their terms of office are at the
discretion of our board, except to the extent governed by an employment
contract.





Set forth
below is a brief description of the background of each of our current directors
and executive officers, based on information provided to us by
them.





Leslie J. Kesslerwas retained
as our President in January 2007 and was appointed our Chief Executive Officer
and elected as a member of our board of directors in February
2007.  Since 1994, Ms. Kessler has served as President of LIK Capital,
which specializes in consulting and assisting companies with financing their
growth and development.  In 1996, Ms. Kessler co-founded CPC of
America, Inc., a development stage publicly-traded company developing
cardiologic and other medical devices, where she served as corporate secretary
and a director from 1996 to 1998.  Ms. Kessler holds BA degrees in
psychology and elementary education and an MA degree in elementary education
from Hofstra University.





Terry Lazarwas retained as
our Chief Financial Officer in September 2007.  At such time, he also
was elected as a member of our board of directors.  Mr. Lazar is a
senior partner at the accounting firm Lazar Broder LLP, which was formed in
2009.  Prior to the formation of Lazar Broder LLP, he was a senior
partner of Lazar Sanders Thaler & Associates, LLP, an accounting firm
founded in 1977.  Mr. Lazar has served as a partner and the Chief
Executive Officer of the Ambulatory Surgery Center of Brooklyn since
1987.  Mr. Lazar is a certified public accountant and holds a BBA
degree from the City University of New York.





Malcolm Hoenleinwas elected
to our board of directors in March 2008.  Mr. Hoenlein is the
Executive Vice Chairman and Chief Executive Officer of the Conference of
Presidents of Major American Jewish Organizations, the coordinating body on
national and international Jewish concerns for 52 national Jewish organizations,
since 1968.  He served on the editorial board of ORBIS - The Journal
of International Affairs from 1966 to 1968 and as a Middle East specialist at
the Foreign Policy Research Institute from 1966 to 1968 Mr. Hoenlein serves as
an advisor to many public officials and is frequently consulted on public policy
issues.  He serves on the boards of various companies including Keryx
Biopharmaceuticals Inc. (NasdaqGM: KERX), Manhattan Pharmaceuticals Inc.
(OTCBB:  MHAN.OB) and Bank Leumi USA.  Mr. Hoenlein holds a
BA degree in political science from Temple University and a MA degree from the
University of Pennsylvania's Department of International Relations, as well as
an honorary Doctorate of Laws from Touro College and an honorary Doctorate of
Humane Letters from Yeshiva University.





We
believe that Malcolm Hoenlein would meet the requirements to be considered an
independent director under the rules of The Nasdaq Stock Market.  We
further believe that Terry Lazar would meet the requirements to be considered an
audit committee financial expert under the rules of the Securities and Exchange
Commission, although he would not meet the requirements to be considered an
independent director under the rules of The Nasdaq Stock Market.





23





Section 16(a) Compliance by
Officers and Directors





Based
solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished
to us, together with written representations received by us from applicable
parties that no Form 5 was required to be filed by such parties, all parties
subject to the reporting requirements of Section 16(a) of the Exchange Act filed
all such required reports during and with respect to our fiscal year ended
December 31, 2007, with the following exceptions:.





•
            Leslie
      J. Kessler failed to timely file five Forms 4 reporting a total of five
      transactions during our fiscal year ended December 31,
    2008;


•
            Terry
      R. Lazar failed to timely file thirteen Forms 4 reporting a total
      of  41 transactions during our fiscal year ended December 31,
      2008.





Code of
Ethics





On June
13, 2005, our board of directors adopted a written Code of Ethics designed to
deter wrongdoing and promote honest and ethical conduct, full, fair and accurate
disclosure, compliance with laws, prompt internal reporting and accountability
to adherence to the Code of Ethics.  Our Code of Ethics applies to all
of our employees and directors, including our Chief Executive Officer, Chief
Financial Officer and Controller.  This Code of Ethics was filed as an
exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
filed with the SEC on August 15, 2005.





Committees





Our board
of directors has not established standing audit or compensation committees, or
committees performing similar functions, to assist it in the discharge of the
board’s duties.





Our board
of directors has not established a nominating committee, nor did it adopt a
nominating committee charter.  Our board believes that its size
negates the need for establishing a separate nominating
committee.  However, all of our board’s nominees for election as
directors of our company are approved by our directors, if any, who meet the
definition of independent under the rules of The Nasdaq Stock
Market.  Our independent directors, if any, will consider
recommendations for election as directors submitted by our
stockholders.  These recommendations will be discussed at board
meetings and appropriate candidates will be invited to meet with our independent
directors, if any, and entire board to discuss their qualifications for serving
on our board.  Our board has not established minimum qualifications
for candidates recommended by our stockholders.  Any determination to
include a stockholder-recommended candidate as a board nominee remains a
subjective determination to be made by our independent directors.








Item
      11.
            Executive
      Compensation.





General





The
following table sets forth, with respect to our fiscal years ended December 31,
2008 and 2007, all compensation earned by or paid to all persons who served as
our chief executive officer at any time during our fiscal year ended December
31, 2008 and such other executive officer and other employees of our company who
were employed by our company as of the close of business on December 31, 2008
and whose total annual salary and bonus earned during our fiscal year ended
December 31, 2008 exceeded $100,000.





24





SUMMARY
COMPENSATION TABLE





Fiscal
      Year
                            
                            Salary
                            
                            
                            Stock
      Awards
                            
                            
                            Option
      Awards
                            
                            
                            All
      Other Compensation
                            
                            
                            TotalLeslie
      J. Kessler, Chief Executive Officer and President (1)
                            2008
                            
                            $
                            108,000
                            
                            
                            $
                            50,000
                            
                            
                            $
                            62,600
                            
                            
                            $
                            12,000
                            
                            
                            $
                            232,6002007
                            
                            
                            99,000
                            
                            
                            
                            220,000
                            
                            
                            
                            46,953
                            
                            
                            
                            --
                            
                            
                            
                            365,953Terry
      R. Lazar, Chief Financial Officer (2)
                            2008
                            
                            
                            60,000
                            
                            
                            
                            150,000
                            
                            
                            
                            12,300
                            
                            
                            
                            --
                            
                            
                            
                            222,3002007
                            
                            
                            15,000
                            
                            
                            
                            40,000
                            
                            
                            
                            --
                            
                            
                            --
                            
                            
                            
                            55,000


_________


(1)
            Ms.
      Kessler was appointed our President in January 2007 and Chief Executive
      Officer in February 2007.  From May 2006 to January 2007, she
      was an outside consultant to our company.  The amounts reflected
      in the table constitute the total compensation earned by Ms. Kessler
      during the subject fiscal years, whether or not actually paid to
      her.  Ms. Kessler was paid $72,000 for her monthly compensation
      from January 2008 through August 2008 and she chose to defer her monthly
      salary from September through December 2008.  In addition, in
      July 2008, Ms. Kessler was awarded 1 million shares of our common
      stock.  We recorded $50,000 in stock-based compensation in
      connection with such award and have included such amount in the Summary
      Compensation Table.  In March 2008,  we recorded
      $12,000 accrued consulting compensation owed to Ms. Kessler
      for  May 2006 and January 2007 consulting services that the
      Company failed to record.


(2)
            Mr.
      Lazar was appointed Chief Financial Officer and a director of our company
      in September 2007. The amounts reflected in the table constitute the total
      compensation earned by Mr. Lazar during the subject fiscal year, whether
      or not actually paid to him.  Mr. Lazar was paid $40,000 for his
      monthly compensation from January through August 2008 and he chose to
      defer his monthly salary from September through December
      2008.  In addition, in May 2008, we issued 1 million shares of
      common stock to Mr. Lazar in accordance with his employment
      agreement.  In July 2008,  our board of directors
      awarded Mr. Lazar an additional 1,000,000 shares of our common
      stock.  We recorded an aggregate of $150,000 in stock-based
      compensation in connection with these two awards and have included such
      amount in the Summary Compensation
Table.





Employment
Agreements/Arrangements with Executive Officers





In
connection with our retention of Leslie J. Kessler, our President and Chief
Executive Officer, as an employee in January 2007, we established her base
compensation at $9,000 per month, issued to her 2 million shares of our common
stock, with a fair value of $220,000, and granted her warrants to purchase an
additional 2 million shares of our common stock.  The warrants are
exercisable at $0.11 per share, have a term of three years , vest over two years
and were valued at $125,200.  These warrants were valued using the
Black-Scholes option valuation model and are charged to operations over the
vesting period.  We amended the terms of her warrants in September
2007 to permit cashless exercise.





We
entered into an employment agreement with Leslie J. Kessler, our President and
Chief Executive Officer, in April 2008, pursuant to which she is to receive a
base salary of $108,000 per year.  Under Ms. Kessler’s employment
agreement, we are obligated to provide her with fully paid accident and health
insurance for her and her family and pay her an automobile allowance of up to
$1,000 per month, plus reimburse her for the expense of insurance, fuel and
maintenance of the automobile.  Ms. Kessler has waived all rights to
such insurance benefits and automobile allowance for the years ending December
31, 2008 and 2007.  Ms. Kessler’s employment agreement provides that,
if there is a “change in control,” of our company (as defined in the agreement)
and she is terminated within one year following such change in control, we are
obligated to pay her an amount equal to $9,000 multiplied by the greater of (a)
twelve or (b) the number of months remaining under the agreement.  In
addition, upon a change in control, all of her then outstanding options and
warrants will become fully vested and any restriction on any common stock
previously awarded to her will lapse.  Ms. Kessler’s employment
agreement also provides for payments to her in the event of her termination
other than for cause, on account of her death or on account of her
disability.  Ms. Kessler’s employment agreement contains
confidentiality, non-competition, non-solicitation and work product
provisions.  Ms. Kessler’s employment agreement has a stated term of
five years with provisions for automatic one-year-extensions if neither party
elects to terminate the agreement at least 90 days prior to the renewal
date.





25





In
connection with our retention of Terry R. Lazar, our Chief Financial Officer, in
September 2007, we established his base compensation at $5,000 per month, and,
in December 2007, issued to him 1 million shares of our common stock and granted
him warrants to purchase an additional 1 million shares of our common
stock.  The fair value of our common stock on the date of issuance of
such 1 million shares was $0.04 per share and we recorded a charge of $40,000 as
stock based compensation in connection with such stock issuance.  The
warrants are exercisable at $0.07 per share, have a term of three years, vest
over two years and were valued at $25,100.  The warrants were valued
using the Black-Scholes option valuation model and are charged to operations
over the vesting period.  The warrants permit cashless
exercise.





We
entered into an employment agreement with Terry R. Lazar, our Chief Financial
Officer, in April 2008, pursuant to which he is to receive a base salary of
$60,000 per year.  Under Mr. Lazar’s employment agreement, we are
obligated to provide him with fully paid accident and health insurance for him
and his family and pay him an automobile allowance of up to $1,000 per month,
plus reimburse him for the expense of insurance, fuel and maintenance of the
automobile.  Mr. Lazar has waived all rights to such insurance
benefits and automobile allowance for the years ending December 31, 2008 and
2007.  Mr. Lazar’s employment agreement provides that, if there is a
“change in control” of our company (as defined in the agreement) and he is
terminated within one year following such change in control, we are obligated to
pay him an amount equal to $5,000 multiplied by the greater of (a) twelve or (b)
the number of months remaining under the agreement.  In addition, upon
a change in control, all of his then outstanding options and warrants will
become fully vested and any restriction on any common stock previously awarded
to him will lapse.  Mr. Lazar’s employment agreement also provides for
payments to him in the event of his termination other than for cause, on account
of his death or on account of his disability.  Mr. Lazar’s employment
agreement contains confidentiality, non-competition, non-solicitation and work
product provisions.  Mr. Lazar’s employment agreement has a stated
term of five years with provisions for automatic one-year-extensions if neither
party elects to terminate the agreement at least 90 days prior to the renewal
date.





Outstanding Equity Awards at
Fiscal Year-End





The
following tables set forth, for each person listed in the Summary Compensation
Table set forth in the “General” subsection above, as of December 31,
2008:


•
            with
      respect to each option award -


•
            the
      number of shares of our common stock issuable upon exercise of outstanding
      options that have been earned, separately identified by those exercisable
      and unexercisable;


•
            the
      number of shares of our common stock issuable upon exercise of outstanding
      options that have not been earned;


•
            the
      exercise price of such option; and


•
            the
      expiration date of such option; and


•
            with
      respect to each stock award -


•
            the
      number of shares of our common stock that have been earned but have not
      vested;


•
            the
      market value of the shares of our common stock that have been earned but
      have not vested;


•
            the
      total number of shares of our common stock awarded under any equity
      incentive plan that have not vested and have not been earned;
      and


•
            the
      aggregate market or pay-out value of our common stock awarded under any
      equity incentive plan that have not vested and have not been
      earned.





26





Option
Award –





Name
                                
                                Number
      of Securities Underlying Unexercised Options Exercisable
                                
                                
                                Number
      of Securities Underlying Unexercised Options Unexercisable
                                
                                
                                Equity
      Incentive Plan Awards:
                                  Number
      of Securities Underlying Unexercised Unearned Options
                                
                                
                                Option
      Exercise Price
                                
                                Option
      Expiration DateLeslie
      J. Kessler (1)
                                
                                
                                4,000,000
                                
                                
                                
                                -
                                
                                
                                
                                0
                                
                                
                                $
                                0.10
                                
                                05/23/091,000,000
                                
                                
                                
                                1,000,000
                                
                                
                                
                                0
                                
                                
                                
                                0.11
                                
                                03/28/10Terry
      R. Lazar (2)
                                
                                
                                1,000,000
                                
                                
                                
                                1,000,000
                                
                                
                                
                                --
                                
                                
                                $
                                0.07
                                
                                09/27/10


_____


(1)
              Does
      not include (a) 2,576,149 shares of our common stock issuable upon
      conversion of convertible promissory notes (principal, accrued and unpaid
      interest through December 31, 2008) aggregating to $101,736 in principal
      amount sold to Ms. Kessler in October and November 2008 and (b) 506,410
      shares issuable upon exercise warrants that were issued in connection with
      the sale of such convertible promissory notes in October and November
      2008.


(2)
              Does
      not include (a) 2,576,149 shares of our common stock issuable upon
      conversion of convertible promissory notes (principal, accrued and unpaid
      interest through December 31, 2008) aggregating to $101,736 in principal
      amount sold to Mr. Lazar in October and November 2008 and (b) 506,410
      shares issuable upon exercise warrants that were issued in connection with
      the sale of such convertible promissory notes in October and November
      2008.





Stock
Awards-





Name
                
                Number
      of Shares That Have Not Vested
                
                
                Market
      Value of Shares That Have Not Vested
                
                
                Number
      of Unearned Shares That Have Not Vested
                
                
                Equity
      Incentive Award:
                  Market
      or Pay-Out Value of Unearned Shares That Have Not VestedLeslie
      J Kessler
                
                
                1,000,000
                
                
                $
                --
                
                
                
                --
                
                
                $
                --Terry
      R. Lazar
                
                
                1,000,000
                
                
                
                --
                
                
                ­--
                
                
                
                --





Board of Directors Policy on
Executive Compensation





Executive
Compensation





Our
executive compensation philosophy is to provide competitive levels of
compensation by recognizing the need for multi-discipline management
responsibilities, achievement of our company’s overall performance goals,
individual initiative and achievement, and allowing our company to attract and
retain management with the skills critical to its long-term
success.  Management compensation is intended to be set at levels that
we believe is consistent with that provided in comparable
companies.  Our company’s compensation programs are designed to
motivate executive officers to meet annual corporate performance goals and to
enhance long-term stockholder value.  Our company's executive
compensation has four major components: base salary, performance incentive,
incentive stock options and other compensation.





Executive
Base Salaries





Base
salaries are determined by evaluating the various responsibilities for the
position held, the experience of the individual and by comparing compensation
levels for similar positions at companies within our principal
industry.  We review our executives’ base salaries and determine
increases based upon an officer’s contribution to corporate performance, current
economic trends and competitive market conditions.





27





Performance
Incentives





We
utilize performance incentives based upon criteria relating to performance in
special projects undertaken during the past fiscal year, contribution to the
development of new products, marketing strategies, manufacturing efficiencies,
revenues, income and other operating goals to augment the base salaries received
by executive officers.





Incentive
Stock Options





Our
company uses stock options as a means to attract, retain and encourage
management and to align the interests of executive officers with the long-term
interest of our company’s stockholders.





Benefits
and Other Compensation





Our
company offers life, health and disability benefits to our two senior executive
officers which are similar to the benefits offered to all of our
employees.  Our company also provides supplemental life and disability
insurance coverage as well as an automobile allowance to our two senior
executive officers as additional compensation.  The Company’s two
senior executive officers waived their rights to life, health and disability
benefits for the years ending December 31, 2008 and 2007.





Retirement
and Post Retirement Benefits





Our
company does not offer a post-retirement health plan to its executive officers
or employees.





Director
Compensation





We have
set forth below compensation earned by any person serving as a director of our
company during our fiscal year ended December 31, 2008, unless such person is
also listed in the Summary Compensation Table set forth in the “Executive
Compensation” subsection above.





Name
                  
                  Fees
      Earned or Paid in Cash
                  
                  
                  Stock
      Awards
                  
                  
                  Option
      Awards
                  
                  
                  All
      Other Compensation
                  
                  
                  TotalMalcolm
      Hoenlein (1)
                  
                  $
                  6,334
                  
                  
                  $
                  --
                  
                  
                  $
                  14,250
                  
                  
                  $
                  --
                  
                  
                  $
                  20,584\


_________


(1)
            We
      have agreed to compensate Malcolm Hoenlein, currently our sole outside
      director, $8,000 per year for his services as a director of our
      company.  In addition, in connection with his initial election
      to our board of directors in March 2008, we agreed to issue to Mr.
      Hoenlein 250,000 shares of our common stock on March 14, 2009, the first
      anniversary of his appointment to our Board of Directors, if he was a
      director of our company on such date, and granted him an option to
      purchase an additional 500,000 shares or our common stock, exercisable for
      a three-year period at $0.0667 per share commencing on such one-year
      anniversary date.





We also
reimburse our directors for reasonable expenses that they may incur for our
benefit.





We also
have paid certain of our prior director’s success fees for their assistance in
connection with various transactions in prior years.  No such fees
were paid in 2008.





Compensation Committee
Interlocks And Insider Participation





The Board
does not have a compensation committee, and none of our executive officers has
served as a director or member of the compensation committee of any other entity
whose executive officers served on our Board.





28





Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.




We
currently have outstanding four classes of voting securities: our common stock,
Series A Preferred Stock, Series D Preferred Stock and Series F Preferred
Stock.





The
following tables set forth information with respect to the beneficial ownership
of shares of each class of our voting securities as of April 8, 2009,
by:


•
            each
      person known by us to beneficially own 5% or more of the outstanding
      shares of such class of stock, based on filings with the Securities and
      Exchange Commission and certain other
  information,


•
            each
      of our current “named executive officers” and directors,
    and


•
            all
      of our current executive officers and directors as a
  group.





Beneficial
ownership is determined in accordance with the rules of the SEC and includes
voting and investment power.  In addition, under SEC rules, a person
is deemed to be the beneficial owner of securities which may be acquired by such
person upon the exercise of options and warrants or the conversion of
convertible securities within 60 days from the date on which beneficial
ownership is to be determined.





The term
“named executive officers” is defined in the SEC rules as those executive
officers who are required to be listed in the Summary Compensation Table
provided under Item 10 of this Annual Report on Form 10-K.





Except as
otherwise indicated in the notes to the following table,


•
            we
      believe that all shares are beneficially owned, and investment and voting
      power is held by, the personsnamed as owners,
  and


•
            the
      address for each beneficial owner listed in the table is c/o Water Chef,
      Inc., 25 Fairchild Avenue,Suite 250, Plainview, New York
      11803.





Series
A Preferred Stock:




Amount
      andNature
      ofBeneficial
                        
                        
                        PercentageName and Address of
      Stockholder
                        
                        Ownership
                        
                        
                        of
      ClassJerome
      and Anne Asher JTWROS (1)
                        
                        
                        5,000
                        
                        
                        
                        9.5
                        %Robert
      D. Asher (2)
                        
                        
                        5,000
                        
                        
                        
                        9.5All
      executive officers and directors as a group (three
persons)
                        
                        
                        0
                        
                        
                        
                        0.0
                        %


__________


(1)
            The
      address for Mr. J. and Ms. Asher is 2701 N. Ocean Boulevard, Apartment
      E-202, Boca Raton, Florida 33431.


(2)
            The
      address for Mr. R. Asher is 72 Old Farm Road, Concord, Massachusetts
      01742.




Series
D Preferred Stock:




Amount
      andNature
      ofBeneficial
                        
                        
                        PercentageName and Address of
      Stockholder
                        
                        Ownership
                        
                        
                        of
      ClassJohn
      A. Borger (1)
                        
                        
                        10,000
                        
                        
                        
                        10.8
                        %Shirley
      M. Wan (2)
                        
                        
                        6,000
                        
                        
                        
                        6.5All
      executive officers and directors as a group (three
persons)
                        
                        
                        0
                        
                        
                        
                        0.0
                        %


__________


(1)
            The
      address for Mr. Borger is 806 E. Avenida Pico, Suite 1, PMB #262, San
      Clemente, California 92673.


(2)
            The
      address for Ms. Wan is 5455 Chelsen Wood Drive, Duluth, Georgia
      30155.




29




Series
F Preferred Stock:




Amount
      andNature
      ofBeneficial
                      
                      
                      PercentageName
      and Address of Stockholder
                      
                      Ownership
                      
                      
                      of
      ClassRobert
      Kaszovitz (1)
                      
                      
                      10,000
                      
                      
                      
                      25.2
                      %C
      Trade Inc. (2)
                      
                      
                      9,375
                      
                      
                      
                      10.4Olsham
      Grundman Frome Rosenzweig & Wolosky (3)
                      
                      
                      5,000
                      
                      
                      
                      5.6Peter
      Hoffman (4)
                      
                      
                      3,126
                      
                      
                      
                      7.9All
      executive officers and directors as a group (three
persons)
                      
                      
                      0
                      
                      
                      
                      0.0


__________


(1)
            The
      address for Mr. Kaszovitz is 1621 51st
      Street, Brooklyn, New York, 11204.


(2)
            The
      address for C Trade Inc. is 25-40 Shore Boulevard, Suite 9L, Astoria, New
      York 11102.


(3)
            The
      address for Olsham Grundman Frome Rosenzweig & Wolosky is 65 East
      55th
      Street, New York, New York 10022.


(4)
            The
      address for Mr. Hoffman is 70-35 Vleigh Place, Flushing, New York
      11367.




Common
Stock:




Amount
      andNature
      ofBeneficial
                        
                        
                        PercentageName
      and Address of Stockholder
                        
                        Ownership
                        
                        
                        of
      ClassGoldman,
      Sachs & Co. and The Goldman Sachs Group, Inc. (1)
                        
                        
                        13,091,040
                        
                        
                        
                        5.2
                        %Leslie
      J. Kessler (2)
                        
                        
                        14,362,583
                        (3)
                        
                        
                        5.5Terry
      R. Lazar (4)
                        
                        
                        11,255,304
                        (5)
                        
                        
                        4.4Malcolm
      Hoenlein (6)
                        
                        
                        750,000
                        (7)
                        
                        
                        0.3All
      executive officers and directors as a group (three
persons)
                        
                        
                        26,367,887
                        (8)
                        
                        
                        9.9


__________


(1)
            The
      address for Goldman, Sachs & Co. and The Goldman Sachs Group, Inc. is
      85 Broad Street, New York, New York
10004.


(2)
            Ms.
      Kessler is our President and Chief Executive Officer and a member of our
      board of directors.


(3)
            Includes
      (a) 98,400 shares of our common stock held in Ms. Kessler’s IRA account,
      (b) 6 million shares of our common stock issuable upon exercise of
      warrants previously granted to Ms. Kessler in connection with her initial
      retention as a consultant in May 2006 (4 million shares) and as our
      President in January 2007 (2 millions shares) and (c) an aggregate
      3,082,559 shares of our common stock issuable upon exercise of warrants
      (506,410 shares) and conversion of convertible promissory notes (2,576,149
      shares, assuming conversion of all principal and all interest accrued
      through April 8, 2009), which warrants and notes were sold to Ms. Kessler
      in October and November 2008 and are exercisable/convertible within the
      next 60 days.


(4)
            Mr.
      Lazar is our Chief Financial Officer and a member of our board of
      directors.


(5)
            Includes
      (a) 270,000 shares of our common stock owned by Mr. Lazar and his spouse,
      jointly, (b) 185,000 shares of our common stock held in Mr. Lazar’s IRA
      account, (c) 205,000 shares of our common stock held in Mr. Lazar’s 401(k)
      account, (d) 125,000 shares held in an IRA account of Mr. Lazar’s spouse,
      (e) 25,000 shares of our common stock held in a profit sharing plan trust
      for the benefit of Mr. Lazar, (f) 1,428,571 shares of our common stock
      held by a partnership in which Mr. Lazar holds a one-third (1/3) equity
      interest (of which Mr. Lazar disclaims beneficial ownership to 952,380 of
      such shares), (g) 1,000,000 shares of our common stock issuable upon
      exercise of warrants previously granted to Mr. Lazar in connection with
      his initial retention as our Chief Financial Officer in September 2007,
      which warrants are exercisable within the next 60 days, (h) 285,714 shares
      of our common stock issuable upon exercise of warrants sold, in
      March  2008, to the partnership in which Mr. Lazar holds a
      one-third (1/3) equity interest, which warrants are exercisable within the
      next 60 days (of which, Mr. Lazar disclaims beneficial ownership in
      190,476 of such shares), (i) 274,776 shares of our common stock issuable
      upon exercise of warrants sold to Mr. Lazar, in December 2007, which
      warrants are exercisable within the next 60 days, (j) an aggregate
      3,082,559 shares of our common stock issuable upon exercise of warrants
      (506,410 shares) and conversion of convertible promissory notes
      (2,576,149) shares, assuming conversion of all principal and all interest
      accrued through April 8, 2009, which warrants and notes were sold to Mr.
      Lazar in October and November 2008 and are exercisable/convertible within
      the next 60 days.


(6)
            Mr.
      Hoenlein is a member of our board of
directors.


(7)
            Includes
      500,000 shares of our common stock underlying an option granted to Mr.
      Hoenlein in March 2008, which option is exercisable within the next 60
      days.


(8)
            Includes
      those shares beneficially owned by our current executive officers and
      directors, as set forth in notes (3), (5) and
  (7).





30





Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence.





Certain Relationships and
Related Transactions





In
connection with his resignation, effective January 29, 2007, as our President,
Chief Executive Officer and Chief Financial Officer, David A. Conway surrendered
his stock appreciation rights, forgave any unpaid severance under his employment
agreement with us, forgave $525,738 of debt and relinquished his rights to
$471,583 of unpaid and accrued salary.  We recorded the forgiveness of
such liabilities, which aggregated to $947,321, as a contribution to
capital.  The cancellation of the stock appreciation rights did not
have an accounting impact on our company.





In
connection with his resignation, effective February 12, 2007, as one of our
directors, Marshall S. Sterrman waived his rights to any accrued consulting and
director fees owed him by our company, which aggregated to
$330,000.  We recorded the forgiveness of such liabilities as a
contribution to capital.





In
connection with our retention of Leslie J. Kessler, our President and Chief
Executive Officer, as a consultant to our company on April 4, 2006, we granted
Ms. Kessler three-year warrants to purchase 4 million shares of our common stock
with an exercise price of $0.10 per share.  In addition, she was to
receive cash compensation of $6,000 per month.  Such cash compensation
was never paid to Ms. Kessler and we have accrued $48,000 of consulting fees due
Ms. Kessler.





In
connection with our retention of Leslie J. Kessler, our President and Chief
Executive Officer, in January 2007, we established her base compensation at
$9,000 per month, issued to her 2 million shares of our common stock, with a
fair value of $220,000, and granted her warrants to purchase an additional 2
million shares of our common stock.  The warrants are exercisable at
$0.11 per share, have a term of three years], vest over two years and
were valued at $125,200.  These warrants were valued using the
Black-Scholes option valuation model and are charged to operations over the
vesting period.  We amended the terms of her warrants in September
2007 to permit cashless exercise.





We
entered into an employment agreement with Leslie J. Kessler, our President and
Chief Executive Officer, in April 2008, pursuant to which she is to receive a
base salary of $108,000 per year.  Under her employment agreement, we
are obligated to provide her with fully paid accident and health insurance for
her and her family and pay her an automobile allowance of up to $1,000 per
month, plus reimburse her for the expense of insurance, fuel and maintenance of
the automobile.  Ms. Kessler has waived all rights to such insurance
benefits and automobile allowance for the years ending December 31, 2008 and
2007.  Ms. Kessler’s employment agreement provides that, if there is a
change in control of our company (as defined in the agreement) and she is
terminated within one year following such change in control, we are obligated to
pay her an amount equal to $9,000 multiplied by the greater of (a) twelve or (b)
the number of months remaining under the agreement.  In addition, upon
a change in control, all of her then outstanding options and warrants will
become fully vested and any restriction on any common stock previously awarded
to her will lapse.  Ms. Kessler’s employment agreement also provides
for payments to her in the event of her termination other than for cause, on
account of her death or on account of her disability.  Ms. Kessler’s
employment agreement contains confidentiality, non-competition, non-solicitation
and work product provisions.  Ms. Kessler’s employment agreement does
not have a stated term.  Ms. Kessler’s employment agreement has a
stated term of five years with provisions for automatic one-year-extensions if
neither party elects to terminate the agreement at least 90 days prior to the
renewal date.





In July
2008, Ms. Kessler was awarded 1 million shares of our common
stock.  We recorded $50,000 of stock based compensation in connection
with such transaction.





In
connection with our retention of Terry R. Lazar, our Chief Financial Officer, in
September 2007, we established his base compensation at $5,000 per month, and,
in December 2007, issued to him 1 million shares of our common stock and granted
him warrants to purchase an additional 1 million shares of our common
stock.  The fair value of our common stock on the date of issuance of
such 1 million shares was $0.04 per share and we recorded a charge of $40,000 as
stock based compensation in connection with such stock issuance.  The
warrants are exercisable at $0.07 per share, have a term of three years, vest
over two years and were valued at $25,100.  The warrants were valued
using the Black-Scholes option valuation model and are charged to operations
over the vesting period.  The warrants permit cashless
exercise.





31





We
entered into an employment agreement with Terry R. Lazar, our Chief Financial
Officer, in April 2008, pursuant to which he is to receive a base salary of
$60,000 per year.  Under Mr. Lazar’s employment agreement, we are
obligated to provide him with fully paid accident and health insurance for him
and his family and pay him an automobile allowance of up to $1,000 per month,
plus reimburse him for the expense of insurance, fuel and maintenance of the
automobile.  The executive has waived all rights to such insurance
benefits and automobile allowance for the years ending December 31, 2008 and
2007.  Mr. Lazar’s employment agreement provides that, if there is a
“change in control” of our company (as defined in the agreement) and he is
terminated within one year following such change in control, we are obligated to
pay him an amount equal to $5,000 multiplied by the greater of (a) twelve or (b)
the number of months remaining under the agreement.  In addition, upon
a change in control, all of his then outstanding options and warrants will
become fully vested and any restriction on any common stock previously awarded
to him will lapse.  Mr. Lazar’s employment agreement also provides for
payments to him in the event of his termination other than for cause, on account
of his death or on account of his disability.  Mr. Lazar’s employment
agreement contains confidentiality, non-competition, non-solicitation and work
product provisions.  Mr. Lazar’s employment agreement has a stated
term of five years with provisions for automatic one-year-extensions if neither
party elects to terminate the agreement at least 90 days prior to the renewal
date.





In July
2008, Mr. Lazar was awarded 1 million shares of our common stock.  We
recorded $50,000 of stock based compensation in connection with such
transaction.





Leslie J.
Kessler, our President and Chief Executive Officer, and a then member of our
board of directors, John J. Clarke, each made loans of $50,000 to our company in
March 2007.  The loans provided for simple interest at the rate of 10%
per annum and were due and payable 120 days from funding.  We granted
each of these lenders an option that, if the loans were not repaid when due, the
lender had the right to convert the lender’s debt into common stock at a price
equal to 50% of the average closing price of our common stock for the three
business days immediately preceding the date of the lender notified us of the
lenders election to convert the debt.  On the maturity dates of the
loans, we recorded a charge for the embedded conversion option of
$113,000.  Under applicable accounting guidance, the conversion price
of the loans did not have a determinable number of shares the loans could be
settled in and, as a result, were presented as a derivative
liability.  Ms. Kessler converted her loan plus accrued interest of
$53,658 into a total of 2,146,324 shares of our common stock on January 27,
2008.  Mr. Clarke’s loan, with an accrued amount owing of $59,949 as
of April 8, 2009, remains outstanding.





We sold
to Terry R. Lazar, our Chief Financial Officer, in December 2007, a total of
1,973,684 shares of our common stock and three-year warrants to purchase an
additional 394,737 shares  of our common stock for proceeds of
$100,000, the market value of such 1,973,684 shares at the time of
purchase.  Such warrants are exercisable at $0.0608 per
share.





In
February 2008, we sold to a partnership in which Mr. Lazar has a one-third (1/3)
equity interest, a total of 1,428,571 shares of our common stock and three-year
warrants to purchase an additional 285,714 shares of our common stock for gross
proceeds of $50,000, the approximate market value of such 1,428,571 shares at
the time of purchase.  Such warrants have an exercise price of $0.042
per share.





On March
14, 2008, Malcolm Hoenlein was appointed as director to our
Company.  Under the terms of his appointment, Mr. Hoenlein is to
receive $8,000 cash compensation per year.  In addition, Mr. Hoenlein
received 250,000 shares of our common stock on the one year anniversary of his
appointment and was granted an option to purchase 500,000 shares of our common
stock, 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 the option will vest annually over three years. Accordingly,
the Company will amortize the fair value of the option of approximately $17,000
over the vesting period.





32





Leslie J.
Kessler, our President and Chief Executive Officer, and our company entered into
a letter agreement, dated August 18, 2008, pursuant to which the transactions
contemplated by the Stock Purchase, Loan and Security Agreement, dated April 16,
2008, between Ms. Kessler and our company, as well as the transactions
consummated pursuant to such April 2008 agreement, be rescinded in their
entireties, ab
initio.  The transactions consummated pursuant to the April
2008 agreement included the sale to Ms. Kessler of 6.5 million shares of our
common stock for $547,950, payable by delivery of a non-recourse promissory note
in the amount of such consideration.  Ms. Kessler and we determined,
following consultations with our current advisors and outside professionals, to
rescind the transactions contemplated by the April 2008 agreement and entered
into the August 2008 letter agreement after concerns were raised over the
structure of the consideration utilizing a promissory note.  We
originally had sought advice from our then outside lawyers in structuring the
transactions contemplated by the April 2008 agreement.  We have
terminated our relationship with such former lawyers.  Accordingly,
the consummation of the transactions contemplated by the August 2008 letter
agreement has resulted, among other matters, in the following:


•
            the
      April 2008 agreement being deemed rescinded in all respects ab initio and it being
      deemed as if the April 2008 agreement was never entered into, and that all
      mutual promises, covenants and/or agreements contained in the April 2008
      agreement being of no force and/or
effect;


•
            Ms.
      Kessler’s promissory note, as well as the obligations of Ms. Kessler to
      repay the amounts due under such note, being deemed cancelled in all
      respects ab
      initio and it being deemed as if the note was never entered into,
      that Ms. Kessler has no obligation to repay the amounts due under the note
      and that all mutual promises, covenants and/or agreements contained in the
      note being of no force and/or effect;
and


•
            the
      6.5 million shares being deemed cancelled in all respects ab initio and it being
      deemed as if the shares were never issued or
  outstanding.





Terry R.
Lazar, our Chief Financial Officer, and our company entered into a letter
agreement, dated August 18, 2008, pursuant to which the transactions
contemplated by the Stock Purchase, Loan and Security Agreement, dated April 16,
2008, between Mr. Lazar and our company, as well as the transactions consummated
pursuant to such April 2008 agreement, be rescinded in their entireties, ab initio.  The
transactions consummated pursuant to the April 2008 agreement included the sale
to Mr. Lazar of 6.5 million shares of our common stock for $547,950, payable by
delivery of a non-recourse promissory note in the amount of such
consideration.  Mr. Lazar and we determined, following consultations
with our current advisors and outside professionals, to rescind the transactions
contemplated by the April 2008 agreement and entered into the August 2008 letter
agreement after concerns were raised over the structure of the consideration
utilizing a promissory note.  We originally had sought advice from our
then outside lawyers in structuring the transactions contemplated by the April
2008 agreement.  We have terminated our relationship with such former
lawyers.  Accordingly, the consummation of the transactions
contemplated by the August 2008 letter agreement has resulted, among other
matters, in the following:


•
            the
      April 2008 agreement being deemed rescinded in all respects ab initio and it being
      deemed as if the April 2008 agreement was never entered into, and that all
      mutual promises, covenants and/or agreements contained in the April 2008
      agreement being of no force and/or
effect;


•
            Mr.
      Lazar’s promissory note, as well as the obligations of Mr. Lazar to repay
      the amounts due under such note, being deemed cancelled in all respects
      ab initio and it
      being deemed as if the note was never entered into, that Mr. Lazar has no
      obligation to repay the amounts due under the note and that all mutual
      promises, covenants and/or agreements contained in the note being of no
      force and/or effect; and


•
            the
      6.5 million shares being deemed cancelled in all respects ab initio and it being
      deemed as if the shares were never issued or
  outstanding.





On
October 14, 2008, Leslie J. Kessler, our President and Chief Executive Officer,
and Terry R. Lazar, our Chief Financial Officer, each loaned our company the sum
of $50,000.  The loans bear interest at the rate of 10% per
annum.  In connection with such loans, we issued to each of such
executive officers warrants to purchase 256,410 shares of common stock at an
exercise price of $0.047 per share.  The loans are due and payable by
or on October 14, 2009, provided, however, that the lenders have the right to
demand payment of all amounts due under the loans at any time.  The
loans were evidenced by convertible promissory notes, which grant the lender the
right to convert principal and all accrued and unpaid interest into shares of
our common stock at a conversion price of $0.039 per share, the closing market
price of our common stock on the closing date of the loans.





On
November 17, 2008, Leslie J. Kessler, our President and Chief Executive Officer,
and Terry R. Lazar, our Chief Financial Officer, each loaned our company the sum
of $50,000.  The loans bear interest at the rate of 10% per
annum.  In connection with such loans, we issued to each of such
executive officers warrants to purchase 250,000 shares of common stock at an
exercise price of $0.048 per share.  The loans are due and payable by
or on October 14, 2009, provided, however, that the lenders have the right to
demand payment of all amounts due under the loans at any time.  The
loans were evidenced by convertible promissory notes, which grant the lender the
right to convert principal and all accrued and unpaid interest into shares of
our common stock at a conversion price of $0.040 per share, the closing market
price of our common stock on the closing date of the loans.





33





We
accounted for the issuance of the above convertible promissory notes in
connection with the October and November 2008 Loan Agreements in accordance with
EITF 00-19.  Accordingly, the warrants and the embedded conversion
option of the convertible note is recorded as derivative liabilities at their
fair market value and were marked to market through earnings at the end of each
reporting period.  The gross proceeds from the sale of the notes
$200,000 was recorded net of a discount of approximately $78,800.  The
debt discount consisted of approximately $11,200 related to the fair value of
the warrants and approximately $67,600 related to the fair value of the embedded
conversion option.  The debt discount is charged to interest expense
ratably over the term of the convertible note.  As of December 31,
2008, the outstanding amount owed under the convertible promissory note
(principal and accrued interest) was $128,192, net of a debt discount of
$75,280.





In each
of 2007 and 2008, a firm in which our Chief Financial Officer held a one-third
equity position  was retained to prepare our income tax
returns.  During the years ended December 31, 2007 and 2008, we
incurred fees totaling $2,000 and $5,900, respectively, with respect to such
services rendered.








Item
      14.
            Principal
      Accounting Fees and Services.





Marcum
& Kliegman LLP (“Marcum & Kliegman”) has served as our independent
certified public accountants for our past two fiscal years.





Principal Accountant Fees
and Services





The
following table sets forth the fees billed by our independent certified public
accountants for the years ended December 31, 2008 and 2007 for the categories of
services indicated.





Fiscal Year Ended December
    31,Category
                  
                  2008
                  
                  
                  2007Audit
      fees (1)
                  
                  $
                  177,260
                  
                  
                  $
                  120,500Audit-related
      fees (2)
                  
                  
                  0
                  
                  
                  
                  0Tax
      fees (3)
                  
                  
                  0
                  
                  
                  
                  0All
      Other Fees
                  
                  
                  0
                  
                  
                  
                  0


__________


(1)
            Consists
      of fees billed for the audit of our annual financial statements, review of
      financial statements included in our Quarterly Reports on Form 10-Q and
      services that are normally provided by the accountant in connection with
      statutory and regulatory filings or
engagements.


(2)
            Consists
      of assurance and related services that are reasonably related to the
      performance of the audit and reviews of our financial statements and are
      not included in “audit fees” in this
table.


(3)
            Consists
      of professional services rendered for tax compliance, tax advice and tax
      planning.  The nature of these tax services is tax
      preparation.





Audit Committee
Approval





We do not
have an audit committee of our board of directors.  We believe that
each member of our board has the expertise and experience to adequately serve
our stockholders’ interests while serving as directors.  Since we are
not required to maintain an audit committee and our full board acts in the
capacity of an audit committee, we have not elected to designate any member of
our board as an “audit committee financial expert.”





34





Pre-Approval
Policy





We
understand the need for Marcum & Kliegman to maintain objectivity and
independence in its audit of our financial statements.  To minimize
relationships that could appear to impair the objectivity of Holtz Rubenstein,
our board of directors has restricted the non-audit services that Marcum &
Kliegman may provide to us and has determined that we would obtain even these
non-audit services from Marcum & Kliegman only when the services offered by
Marcum & Kliegman are more effective or economical than services available
from other service providers.





Our board
of directors has adopted policies and procedures for pre-approving all non-audit
work performed by Marcum & Kliegman or any other accounting firms we may
retain.  Specifically, under these policies and procedures, our board
shall pre-approve the use of Marcum & Kliegman for detailed, specific types
of services within the following categories of non-audit services: merger and
acquisition due diligence and related accounting services; tax services;
internal control reviews; and reviews and procedures that we request Marcum
& Kliegman to undertake to provide assurances of accuracy on matters not
required by laws or regulations.  In each case, the policies and
procedures require our board to set specific annual limits on the amounts of
such services which we would obtain from Marcum & Kliegman and require
management to report the specific engagements to the board and to obtain
specific pre-approval from the board for all engagements.





Board of Directors Approval
of Audit-Related Activities





Management
is responsible for the preparation and integrity of our financial statements, as
well as establishing appropriate internal controls and financial reporting
processes.  Marcum & Kliegman is responsible for performing an
independent audit of our financial statements and issuing a report on such
financial statements.  Our board of directors’ responsibility is to
monitor and oversee these processes.





Our board
reviewed the audited financial statements of our company for the year ended
December 31, 2008 and met with both other members of management and the
independent auditors, separately and together, to discuss such financial
statements. Our board also received written disclosures and a letter from our
auditors regarding their independence from us, as required by Independence
Standards Board Standard No. 1, and discussed with the auditors their
independence with respect to all services that our auditors rendered to
us.  Our board also discussed with the auditors any matters required
to be discussed by Statement on Auditing Standards No. 61.  Based upon
these reviews and discussions, our board authorized and directed that the
audited financial statements be included in our Annual Report on Form 10-K for
the year ended December 31, 2008.





35




PART
IV
 
 Item
      15.
              Exhibits,
      Financial Statement Schedules
 
 Financial
Statements
 
 The
financial statements and schedules included in this Annual Report on Form 10-K
are listed in Item 8 and commence following page 38.
 
 Exhibits
 
 The
following exhibits are being filed as part of this Annual Report on Form
10-K.
  ExhibitNumber
                        
                        Exhibit Description3.1
                        
                        Composite
      of Certificate of Incorporation of PureSafe Water Systems, Inc., as
      amended to date.3.2
                        
                        Amended
      and restated By-laws of PureSafe Water Systems,
      Inc.  [Incorporated by reference to Exhibit 3(ii)  to
      Amendment  No. 1 to our Annual Report 10-KSB/A, filed with the
      SEC on November 17, 2003 (File No.: 0-30544).]4.5
                        
                        Series
      B Warrant to Purchase Common Stock and Allonge to and Amendment and
      Extension of Common Stock Purchase Warrant.   [Incorporated
      by reference to Exhibit 4.6 to Amendment No. 1 to our Annual Report on
      Form 10-KSB/A, filed with the SEC on November 17, 2003 (File No.:
      0-30544).]4.6
                        
                        Series
      B Second Allonge to and Amendment and Extension of Common Stock Purchase
      Warrant.  [Incorporated by reference to Exhibit 4.6 to our
      Registration statement on Form SB-2, filed with the SEC on January 24,
      2005 (File No.: 0-30544).]4.7
                        
                        Subordinated
      Debentures.  [Incorporated by reference to Exhibit 4.5 to
      Amendment No. 1 to our Annual Report on Form 10-KSB, filed with the SEC on
      November 17, 2003 (File No.: 0-30544).]10.4
                        
                        Warrant
      Certificate, dated November 16, 2005, issued to Southridge Partners
      LP.  [Incorporated by reference to Exhibit 99.4 to our Current
      Report on Form 8-K, filed with the SEC on November 23, 2005 (File No.:
      0-30544).]10.5
                        
                        Loan
      Agreement, dated as of October 11, 2006, between Water Chef, Inc. and
      Southridge Partners LP.  .  [Incorporated by reference
      to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on
      October 19, 2006 (File No.: 0-30544).]10.6
                        
                        Registration
      Rights Agreement, dated as of October 11, 2006, between Water Chef, Inc.
      and Southridge Partners LP.  [Incorporated by reference to
      Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on
      October 19, 2006 (File No.: 0-30544).]10.7
                        
                        Promissory
      Note of Water Chef, Inc., dated October 17, 2006 and in the principal
      amount of $300,000, issued to Southridge Partners
      LP.  [Incorporated by reference to Exhibit 99.4 to our Current
      Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.:
      0-30544).]10.8
                        
                        Warrant
      Certificate, dated October 11, 2006, issued to Southridge Partners
      LP.  [Incorporated by reference to Exhibit 99.4 to our Current
      Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.:
      0-30544).]10.9
                        
                        Securities
      Purchase Agreement, dated as of August 27, 2007, between Water Chef, Inc.,
      Southridge Partners LP and Southshore Capital Fund
      Ltd.  [Incorporated by reference to Exhibit 99.1 to our Current
      Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.:
      0-30544).]10.10
                        
                        Registration
      Rights Agreement, dated as of August 27, 2007, between Water Chef, Inc.
      and Southridge Partners LP.  [Incorporated by reference to
      Exhibit 99.2 to our Current Report on Form 8-K, filed with the SEC on
      September 9, 2007 (File No.: 0-30544).]10.11
                        
                        10%
      Convertible Promissory Note of Water Chef, Inc., dated September 7, 2007
      and in the principal amount of $200,000, issued to Southridge Partners
      LP.  [Incorporated by reference to Exhibit 99.3 to our Current
      Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.:
      0-30544).]
  36
  10.12
                      
                      10%
      Convertible Promissory Note of Water Chef, Inc., dated September 7, 2007
      and in the principal amount of $50,000, issued to Southshore Capital Fund
      Ltd.  [Incorporated by reference to Exhibit 99.4 to our Current
      Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.:
      0-30544).]10.13
                      
                      Warrant
      Certificate, dated September 7, 2007, issued to Southridge Partners
      LP.  [Incorporated by reference to Exhibit 99.5 to our Current
      Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.:
      0-30544).]10.14
                      
                      Warrant
      Certificate, dated September 7, 2007, issued to Southshore Capital Fund
      Ltd.  [Incorporated by reference to Exhibit 99.6 to our Current
      Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.:
      0-30544).]10.15
                      
                      Private
      Equity Credit Agreement, dated as of September 7, 2007, between Water
      Chef, Inc. and Brittany Capital Management
      Limited.  [Incorporated by reference to Exhibit 99.7 to our
      Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File
      No.: 0-30544).]10.16
                      
                      Registration
      Rights Agreement, dated as of September 7, 2007, between Water Chef, Inc.
      and Brittany Capital Management Limited.  [Incorporated by
      reference to Exhibit 99.8 to our Current Report on Form 8-K, filed with
      the SEC on September 9, 2007 (File No.: 0-30544).]10.17
                      
                      Employment
      Agreement, dated April 16, 2008 between Water Chef, Inc. and Leslie J.
      Kessler.  [Incorporated by reference to Exhibit 99.1 to our
      Current Report on Form 8-K (Date of Report: April 16, 2008), filed with
      the SEC on April 17, 2008 (File No.: 0-30544).]10.18
                      
                      Employment
      Agreement, dated April 16, 2008, between Water Chef, Inc. and Terry R.
      Lazar.  [Incorporated by reference to Exhibit 99.2 to our
      Current Report on Form 8-K (Date of Report: April 16, 2008), filed with
      the SEC on April 17, 2008 (File No.: 0-30544).]10.19
                      
                      Stock
      Purchase, Loan and Security Agreement, dated April 16, 2008, between Water
      Chef, Inc. and Leslie J. Kessler.  [Incorporated by reference to
      Exhibit 99.3 to our Current Report on Form 8-K (Date of Report: April 16,
      2008), filed with the SEC on April 17, 2008 (File No.:
      0-30544).]10.20
                      
                      Stock
      Purchase, Loan and Security Agreement, dated April 16, 2008, between Water
      Chef, Inc. and Terry R. Lazar.  [Incorporated by reference to
      Exhibit 99.4 to our Current Report on Form 8-K (Date of Report: April 16,
      2008), filed with the SEC on April 17, 2008 (File No.:
      0-30544).]10.21
                      
                      Stock
      Purchase, Loan and Security Agreement dated April 16, 2008 between Water
      Chef, Inc. and Shaul Kochan.  [Incorporated by reference to
      Exhibit 99.5 to our Current Report on Form 8-K (Date of Report: April 16,
      2008), filed with the SEC on April 17, 2008 (File No.:
      0-30544).]10.22
                      
                      Letter
      Agreement, dated August 18, 2008 between Water Chef, Inc. and Leslie J.
      Kessler.  [Incorporated by reference to Exhibit 10.3 to our
      Current Report on Form 8-K (Date of Report: August 18, 2008), filed with
      the SEC on August 19, 2008 (File No.: 0-30544).]10.23
                      
                      Letter
      Agreement, dated August 18, 2008, between Water Chef, Inc. and Terry R.
      Lazar.  [Incorporated by reference to Exhibit 10.4 to our
      Current Report on Form 8-K (Date of Report: August 18, 2008), filed with
      the SEC on August 19, 2008 (File No.: 0-30544).]10.24
                      
                      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 to our Quarterly Report on Form 10-QSB, filed with the SEC on
      August 19, 2008 (File No.: 0-30544).]10.25
                      
                      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 to our
      Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008
      (File No.: 0-30544).]10.26
                      
                      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 to our
      Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008
      (File No.: 0-30544).]10.27
                      
                      Loan
      Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated October
      14, 2008 and in the principal amount of $50,000 issued to Leslie J.
      Kessler.10.28
                      
                      Loan
      Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated
      November 17, 2008 and in the principal amount of $50,000 issued to Leslie
      J. Kessler.10.29
                      
                      Loan
      Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated October
      14, 2008 and in the principal amount of $50,000 issued to Terry R.
      Lazar.10.30
                      
                      Loan
      Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated
      November 17, 2008 and in the principal amount of $50,000 issued to Terry
      R. Lazar.
  37
  10.31
                    
                    Loan
      Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated
      December 17, 2008 and in the principal amount of $50,000 issued to Steve
      Legum.10.32
                    
                    Consulting
      Agreement, dated as of August 6, 2008, by and between Water Chef, Inc.,
      and Designs and Project Development Corp.10.33
                    
                    Consulting
      Agreement, dated as of December 14, 2007, by and between Water Chef, Inc.,
      and Bircon Ltd.14.1
                    
                    Code
      of Ethics.  [Incorporated by reference to Exhibit 14.1 to our
      Quarterly Report on Form 10-QSB, filed with the SEC on August 15,
      2005.]31.1
                    
                    Rule
      13a-14(a)/15d-14(a) Certification of Leslie J. Kessler.31.2
                    
                    Rule
      13a-14(a)/15d-14(a) Certification of Terry R. Lazar.32.1
                    
                    Section
      1350 Certification of Leslie J. Kessler.32.2
                    
                    Section
      1350 Certification of Terry R.
Lazar.


38




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Stockholders
 of PureSafe Water Systems
Inc.
 (Formerly Water Chef,
Inc.):
 
 We have
audited the accompanying balance sheets of PureSafe Water Systems Inc. (formerly
Water Chef, Inc.) (a development stage company) as of December 31, 2008 and 2007
and the related statements of operations, stockholders' deficiency and cash
flows for the years then ended, and for the period from January 1, 2002
(commencement as a development stage company) to December 31,
2008.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of PureSafe Water Systems Inc.
(formerly Water Chef, Inc.) (a development stage company) as of December 31,
2008 and 2007 and the results of its operations and its cash flows for the years
then ended, and for the period from January 1, 2002 (commencement as a
development stage company) to December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  As discussed in Note 2 to the financial
statements, the Company has had recurring losses, and has a working capital and
stockholders' deficiency as of December 31, 2008.  These conditions
raise substantial doubt about its ability to continue as a going
concern.  Management's plans in regard to these matters are also
described in Note 2.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 /s/
      Marcum & Kliegman LLPNew
      York, New YorkApril
      14,
2009
  F-1
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Balance
Sheets
 
 December
      31,2008
                  
                  2007ASSETSCurrent
      Assets:Cash
                  
                  $
                  29,411
                  
                  
                  $
                  415,400Prepaid
      expenses and other current assets
                  
                  
                  53,890
                  
                  
                  
                  41,988Total
      Current Assets
                  
                  
                  83,301
                  
                  
                  
                  457,388Property
      and equipment, net of accumulated depreciation of $17,130 and $2,063, at
      December 31, 2008 and 2007, respectively
                  
                  
                  142,437
                  
                  
                  
                  18,987Patents
      and trademarks, net of accumulated amortization of $17,882 and $13,275, at
      December 31, 2008 and 2007, respectively
                  
                  
                  62,044
                  
                  
                  
                  38,323Deferred
      financing fees, net of accumulated amortization of $7,530 and $5,020, at
      December 31, 2008 and 2007, respectively
                  
                  
                  --
                  
                  
                  
                  2,510Other
      assets
                  
                  
                  26,860
                  
                  
                  
                  9,419TOTAL
      ASSETS
                  
                  $
                  314,642
                  
                  
                  $
                  526,627LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCurrent
      Liabilities:Accounts
      payable and accrued expenses
                  
                  $
                  410,925
                  
                  
                  $
                  492,825Accrued
      compensation
                  
                  
                  155,000
                  
                  
                  
                  104,000Accrued
      consulting and director fees
                  
                  
                  178,000
                  
                  
                  
                  166,000Convertible
      notes payable to officer and director (including accrued interest of
      $12,171 and $7,425 and net of debt discount of $75,280 and $0, at December
      31, 2008 and 2007, respectively)
                  
                  
                  186,891
                  
                  
                  
                  107,425Convertible
      promissory note (including accrued interest of $208 and $7,945 and net of
      debt discount of $19,283 and $67,900, at December 31, 2008 and 2007,
      respectively)
                  
                  
                  30,925
                  
                  
                  
                  259,359Promissory
      notes payable (including accrued interest of $269,833 and $417,542, at
      December 31, 2008 and 2007, respectively)
                  
                  
                  553,056
                  
                  
                  
                  825,763Fair
      value of detachable warrants and options
                  
                  
                  121,100
                  
                  
                  
                  170,900Fair
      value of embedded conversion options
                  
                  
                  164,900
                  
                  
                  
                  239,300Accrued
      dividends payable
                  
                  
                  190,328
                  
                  
                  
                  190,270Total
      Current Liabilities
                  
                  
                  1,991,125
                  
                  
                  
                  2,555,842Stockholders'
      Deficiency:Preferred
      stock $.001 par value; 10,000,000 shares authorized; 184,144 and 185,194
      shares issued and outstanding at December 31, 2008 and 2007, respectively
      (liquidation preference $2,483,950 and $2,375,650, at December 31, 2008
      and 2007, respectively)
                  
                  
                  184
                  
                  
                  
                  185Common
      stock, $.001 par value; 450,000,000 authorized; 244,850,034 shares issued
      and 244,845,634 shares outstanding at December 31, 2008; 204,177,806
      shares issued and 204,173,406 outstanding at of December 31,
      2007
                  
                  
                  244,849
                  
                  
                  
                  204,177Additional
      paid-in capital
                  
                  
                  28,528,973
                  
                  
                  
                  26,129,184Treasury
      Stock, at cost, 4,400 shares of common stock
                  
                  
                  (5,768
                  )
                  
                  
                  (5,768
                  )Subscriptions
      receivable - related party  (including accrued interest of
      $12,914)
                  
                  
                  (350,114
                  )
                  
                  
                  --Accumulated
      deficit (including $15,563,011 and $13,825,397 of deficit accumulated
      during development stage at December 31, 2008 and December 31, 2007,
      respectively)
                  
                  
                  (30,094,607
                  )
                  
                  
                  (28,356,993
                  )Total
      Stockholders’ Deficiency
                  
                  
                  (1,676,483
                  )
                  
                  
                  (2,029,215
                  )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                  
                  $
                  314,642
                  
                  
                  $
                  526,627
 
 The
accompanying notes are an integral part of these financial
statements.
  F-2
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Operations
 
 Years
      Ended
                          December
      31,
                        
                        
                        January
      1, 2002 to December 31, 20082008
                        
                        
                        2007Sales
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        471,290Costs
      and expenses (income):Cost
      of Sales
                        
                        
                        --
                        
                        
                        
                        23,000
                        
                        
                        
                        575,680Selling,
      general and administrative, including stock-based compensation of $490,689
      and $636,916 for the years ended December 31, 2008 and  2007 and
      $2,672,694 for the period January 1, 2002 to Dec 31, 2008
                        
                        
                        1,909,982
                        
                        
                        
                        1,356,895
                        
                        
                        
                        8,923,928Non-dilution
      agreement termination costs
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        2,462,453Research
      and development
                        
                        
                        270,405
                        
                        
                        
                        435,363
                        
                        
                        
                        705,768Interest
      expense - including interest expense to a related party of $7,008 and
      $7,425 for the years ended December 31, 2008 and 2007, respectively, and
      $133,773 for the period Jan 1, 2002 to December 31, 2008
                        
                        
                        93,092
                        
                        
                        
                        317,067
                        
                        
                        
                        1,516,720Financing
      costs - extension of warrants
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        74,700Interest
      expense - conversion provision
                        
                        
                        --
                        
                        
                        
                        113,000
                        
                        
                        
                        113,000(Gain)
      loss on settlement of debt
                        
                        
                        (384,114
                        )
                        
                        
                        --
                        
                        
                        
                        2,229,903Change
      in fair value of warrants and embedded conversion option
                        
                        
                        (151,751
                        )
                        
                        
                        (544,200
                        )
                        
                        
                        (567,851
                        )Total
      costs and expenses
                        
                        
                        1,737,614
                        
                        
                        
                        1,701,125
                        
                        
                        
                        16,034,301Net
      loss
                        
                        
                        (1,737,614
                        )
                        
                        
                        (1,701,125
                        )
                        
                        
                        (15,563,011
                        )Deemed
      dividend on preferred stock
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        (2,072,296
                        )Preferred
      stock dividends
                        
                        
                        (108,357
                        )
                        
                        
                        (108,699
                        )
                        
                        
                        (726,123
                        )(108,357
                        )
                        
                        
                        (108,699
                        )
                        
                        
                        (2,798,419
                        )Net
      loss attributable to common stockholders
                        
                        $
                        (1,845,971
                        )
                        
                        $
                        (1,809,824
                        )
                        
                        $
                        (18,361,430
                        )Net
      loss attributable to common stockholders per common share - Basic and
      diluted
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.01
                        )Weighted
      average number of shares outstanding - Basic and diluted
                        
                        
                        235,494,015
                        
                        
                        
                        190,285,689
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Stockholders’ Deficiency
 
 Preferred
      Stock
                                                                                        
                                                                                        
                                                                                        Common
      Stock
                                                                                        
                                                                                        
                                                                                        Additional
      Paid-In
      Capital
                                                                                        
                                                                                        
                                                                                        Treasury
      Stock, at Cost
                                                                                        
                                                                                        
                                                                                        Subscription
      Receivable
                                                                                        
                                                                                        
                                                                                        Accumulated
      Deficit
                                                                                        
                                                                                        
                                                                                        Total
      Stockholders’
      DeficiencyShares
                                                                                        
                                                                                        
                                                                                        Amount
                                                                                        
                                                                                        
                                                                                        Shares
                                                                                        
                                                                                        
                                                                                        AmountBALANCE
      - JANUARY 1, 2002
                                                                                        
                                                                                        
                                                                                        145,500
                                                                                        
                                                                                        
                                                                                        $
                                                                                        146
                                                                                        
                                                                                        
                                                                                        
                                                                                        86,614,286
                                                                                        
                                                                                        
                                                                                        $
                                                                                        86,614
                                                                                        
                                                                                        
                                                                                        $
                                                                                        12,339,469
                                                                                        
                                                                                        
                                                                                        $
                                                                                        (5,768
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (67,500
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (14,531,596
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (2,178,635
                                                                                        )Extension
      of life of warrants
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        111,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        111,000Proceeds
      from sale preferred stock ($1.00 per share)
                                                                                        
                                                                                        
                                                                                        125,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        125
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        117,375
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        117,500Proceeds
      from sale of common stock ($0.025 per share)
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,500,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,500
                                                                                        
                                                                                        
                                                                                        
                                                                                        97,500
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        100,000Common
      stock issued for services ($0.08 per share)
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        450,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        450
                                                                                        
                                                                                        
                                                                                        
                                                                                        35,550
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        36,000Collection
      of subscription receivable
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        30,200
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        30,200Net
      loss
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        (1,589,746
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (1,589,746
                                                                                        )BALANCE
      - DECEMBER 31, 2002
                                                                                        
                                                                                        
                                                                                        270,500
                                                                                        
                                                                                        
                                                                                        $
                                                                                        271
                                                                                        
                                                                                        
                                                                                        
                                                                                        89,564,286
                                                                                        
                                                                                        
                                                                                        $
                                                                                        89,564
                                                                                        
                                                                                        
                                                                                        $
                                                                                        12,700,894
                                                                                        
                                                                                        
                                                                                        $
                                                                                        (5,768
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (37,300
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (16,121,342
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (3,373,681
                                                                                        )Proceeds
      from sale of preferred stock:March
      31, 2003 ($1.00-$2.00 per share)
                                                                                        
                                                                                        
                                                                                        62,500
                                                                                        
                                                                                        
                                                                                        
                                                                                        63
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        74,937
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        75,000June
      30, 2003 ($0.50 per share)
                                                                                        
                                                                                        
                                                                                        75,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        75
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        37,425
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        37,500September
      30, 2003 ($1.00-$2.40 per share)
                                                                                        
                                                                                        
                                                                                        163,281
                                                                                        
                                                                                        
                                                                                        
                                                                                        163
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        228,346
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        228,509December
      31, 2003 ($1.33-$2.80 per share)
                                                                                        
                                                                                        
                                                                                        145,450
                                                                                        
                                                                                        
                                                                                        
                                                                                        145
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        258,717
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        258,862Preferred
      stock issued for services:March
      31, 2003 ($1.00 per share)
                                                                                        
                                                                                        
                                                                                        30,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        30
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        29,970
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        30,000June
      30, 2003 ($1.00 per share)
                                                                                        
                                                                                        
                                                                                        51,250
                                                                                        
                                                                                        
                                                                                        
                                                                                        51
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        51,199
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        51,250September
      30, 2003 ($1.00 per share)
                                                                                        
                                                                                        
                                                                                        67,035
                                                                                        
                                                                                        
                                                                                        
                                                                                        67
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        66,968
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        67,035December
      31, 2003 ($1.88-$4.00 per share)
                                                                                        
                                                                                        
                                                                                        22,150
                                                                                        
                                                                                        
                                                                                        
                                                                                        22
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        65,378
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        65,400Collection
      of subscription receivable
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        15,500
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        15,500Write-off
      of subscription receivable
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        21,800
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        21,800Net
      loss
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        (3,535,479
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (3,535,479
                                                                                        )BALANCE
      - DECEMBER 31, 2003
                                                                                        
                                                                                        
                                                                                        887,166
                                                                                        
                                                                                        
                                                                                        $
                                                                                        887
                                                                                        
                                                                                        
                                                                                        
                                                                                        89,564,286
                                                                                        
                                                                                        
                                                                                        $
                                                                                        89,564
                                                                                        
                                                                                        
                                                                                        $
                                                                                        13,513,834
                                                                                        
                                                                                        
                                                                                        $
                                                                                        (5,768
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        --
                                                                                        
                                                                                        
                                                                                        $
                                                                                        (19,656,821
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (6,058,304
                                                                                        )Proceeds
      from sale of preferred stock:March
      31, 2004 ($2.40-$4.80 per share)
                                                                                        
                                                                                        
                                                                                        130,077
                                                                                        
                                                                                        
                                                                                        
                                                                                        130
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        400,126
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        400,256June
      30, 2004 ($0.80 per share)
                                                                                        
                                                                                        
                                                                                        15,625
                                                                                        
                                                                                        
                                                                                        
                                                                                        16
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        12,484
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        12,500Preferred
      stock issued for services:March
      31, 2004 ($2.00-$4.80 per share)
                                                                                        
                                                                                        
                                                                                        49,433
                                                                                        
                                                                                        
                                                                                        
                                                                                        49
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        158,483
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        --
                                                                                        
                                                                                        
                                                                                        
                                                                                        158,532Proceeds
      from sale of common stock:
  F-4
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Stockholders’ Deficiency
 (Continued)
 
 Preferred
      Stock
                                                                                                  
                                                                                                  
                                                                                                  Common
      Stock
                                                                                                  
                                                                                                  
                                                                                                  Additional
                                                                                                    Paid-In
      Capital
                                                                                                  
                                                                                                  
                                                                                                  Treasury
      Stock, at Cost
                                                                                                  
                                                                                                  
                                                                                                  Subscription
      Receivable
                                                                                                  
                                                                                                  
                                                                                                  Accumulated
      Deficit
                                                                                                  
                                                                                                  
                                                                                                  Total
                                                                                                    Stockholders’
                                                                                                    DeficiencyShares
                                                                                                  
                                                                                                  
                                                                                                  Amount
                                                                                                  
                                                                                                  
                                                                                                  Shares
                                                                                                  
                                                                                                  
                                                                                                  AmountSeptember
      30,2004 ($0.03-$0.15 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,541,595
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,541
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  205,059
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  207,600December
      31, 2004 ($0.05-$0.10 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,487,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,488
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  187,512
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  190,000Common
      stock issued for services:March
      31, 2004 ($0.05 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  477,133
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  477
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  23,380
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  23,857September
      30,2004 ($0.05-$0.15 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,857,800
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,858
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  126,792
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  128,650December
      31, 2004 ($0.08-$0.10 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  532,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  533
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  40,968
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  41,501Preferred
      stock dividend
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (81,034
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (81,034
                                                                                                  )Common
      stock issued for satisfaction of liabilities:June
      30, 2004 ($0.15 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  37,786,629
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  37,787
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5,635,934
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5,673,721December
      31, 2004 ($0.134 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  411,100
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  411
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  54,839
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  55,250Preferred
      stock converted to common stock:June
      30, 2004
                                                                                                  
                                                                                                  
                                                                                                  (133,250
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (133
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  5,108,332
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5,108
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (4,975
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --September
      30, 2004
                                                                                                  
                                                                                                  
                                                                                                  (269,263
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (269
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  12,103,854
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  12,104
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (11,835
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --December
      31, 2004
                                                                                                  
                                                                                                  
                                                                                                  (65,375
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (65
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  3,015,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,015
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (2,950
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --Net
      loss
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (3,757,802
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (3,757,802
                                                                                                  )BALANCE
      - DECEMBER 31, 2004
                                                                                                  
                                                                                                  
                                                                                                  614,413
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  615
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  155,885,729
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  155,886
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  20,258,617
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  (5,768
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  (23,414,623
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (3,005,273
                                                                                                  )Proceeds
      from sale of common stock:March
      31,2005 ($0.05 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  200,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  200
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,800
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  10,000June
      30, 2005 ($0.05-$0.06 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  700,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  700
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  39,300
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  40,000September
      30, 2005 ($0.07-$0.10 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,455,357
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,455
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  202,545
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  205,000December
      31, 2005 ($0.05-$0.07 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,879,283
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,879
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  236,081
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  239,960Common
      stock issued for services:March
      31, 2005 ($0.05-$0.10 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  230,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  230
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  17,770
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  18,000December
      31, 2005 ($0.05-$0.06 per share)
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  407,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  408
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  21,219
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  21,627Preferred
      stock dividend
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (66,436
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (66,436
                                                                                                  )Extension
      of 1,666,667 warrants
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  74,700
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  --
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  74,700Common
      stock issued for satisfaction of liabilities:
  F-5
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Stockholders’ Deficiency
 (Continued)
 
 Preferred
      Stock
                                                                                                        
                                                                                                        
                                                                                                        Common
      Stock
                                                                                                        
                                                                                                        
                                                                                                        Additional
                                                                                                          Paid-In
      Capital
                                                                                                        
                                                                                                        
                                                                                                        Treasury
      Stock, at Cost
                                                                                                        
                                                                                                        
                                                                                                        Subscription
      Receivable
                                                                                                        
                                                                                                        
                                                                                                        Accumulated
      Deficit
                                                                                                        
                                                                                                        
                                                                                                        Total
                                                                                                          Stockholders’
                                                                                                          DeficiencyShares
                                                                                                        
                                                                                                        
                                                                                                        Amount
                                                                                                        
                                                                                                        
                                                                                                        Shares
                                                                                                        
                                                                                                        
                                                                                                        AmountSeptember
      30, 2005 ($0.07 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        571,428
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        571
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        39,429
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        40,000December
      31, 2005 ($0.142 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        100,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        100
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        14,100
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        14,200Preferred
      stock converted to common stock:March
      31, 2005
                                                                                                        
                                                                                                        
                                                                                                        (55,970
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (56
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        2,518,800
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,519
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (2,463
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --June
      30, 2005
                                                                                                        
                                                                                                        
                                                                                                        (34,020
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (34
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        1,360,800
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,361
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,327
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --September
      30, 2005
                                                                                                        
                                                                                                        
                                                                                                        (286,650
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (287
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        13,382,583
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        13,383
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (13,096
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --December
      31, 2005
                                                                                                        
                                                                                                        
                                                                                                        (2,188
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (2
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        87,520
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        87
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (85
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --Net
      loss
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,168,328
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (1,168,328
                                                                                                        )BALANCE
      - DECEMBER 31, 2005
                                                                                                        
                                                                                                        
                                                                                                        235,585
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        236
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        181,779,000
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        181,779
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        20,830,154
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (5,768
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (24,582,951
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (3,576,550
                                                                                                        )Proceeds
      from sale of common stock:March
      21, 2006 ($0.07 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,600,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,600
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        246,400
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        250,000May
      8, 2002 ($0.08-$0.10 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,769,230
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,769
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        276,231
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        280,000June
      28, 2006 ($0.10 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        100,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        100
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        9,900
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        10,000August
      17, 2006 ($0.07 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        400,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        400
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        27,600
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        28,000Common
      stock issued for services:March
      21, 2006 ($0.06 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        250,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        250
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        14,750
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        15,000May
      8, 2006 ($0.05 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        450,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        450
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        22,050
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        22,500June
      6, 2006 ($0.15 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        166,666
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        166
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        24,833
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        24,999Common
      stock issued for repayment of debt:February
      13, 2006 ($0.11 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        438,785
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        439
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        48,046
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        48,485April
      3, 2006 ($0.08 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        614,131
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        614
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        50,790
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        51,404April
      6, 2006 ($0.08 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,959,631
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,960
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        154,614
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        156,574June
      6, 2006 ($0.10-$0.15 per share)
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,583,334
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,583
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        390,517
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        394,100Preferred
      stock converted to common stock:
                                                                                                        
                                                                                                        
                                                                                                        (46,668
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (47
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        1,866,720
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,867
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,820
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --Reclassification
      of derivative liabilities upon conversion of debt
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        368,800
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        368,8004,000,000
      warrants granted for services, May 18, 2006
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        464,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        464,0002,500,000
      warrants granted for services, May 24, 2006
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        241,200
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        241,200Reclassification
      of warrants and embedded conversion option upon issuance of convertible
      debt
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (288,900
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (288,900
                                                                                                        )Preferred
      stock dividend
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (42,401
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        --
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (42,401
                                                                                                        )
  F-6
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Stockholders’ Deficiency
 (Continued)
 
 Preferred
      Stock
                                                                                                    
                                                                                                    
                                                                                                    Common
      Stock
                                                                                                    
                                                                                                    
                                                                                                    Additional
                                                                                                      Paid-In
      Capital
                                                                                                    
                                                                                                    
                                                                                                    Treasury
      Stock, at Cost
                                                                                                    
                                                                                                    
                                                                                                    Subscription
      Receivable
                                                                                                    
                                                                                                    
                                                                                                    Accumulated
      Deficit
                                                                                                    
                                                                                                    
                                                                                                    Total
                                                                                                      Stockholders’
                                                                                                      DeficiencyShares
                                                                                                    
                                                                                                    
                                                                                                    Amount
                                                                                                    
                                                                                                    
                                                                                                    Shares
                                                                                                    
                                                                                                    
                                                                                                    AmountNet
      loss
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (2,072,917
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (2,072,917
                                                                                                    )BALANCE
      - DECEMBER 31, 2006
                                                                                                    
                                                                                                    
                                                                                                    188,917
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    189
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    198,977,497
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    198,977
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    22,836,764
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (5,768
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    (26,655,868
                                                                                                    )
                                                                                                    
                                                                                                    $
                                                                                                    (3,625,706
                                                                                                    )Proceeds
      from sale of common stock:May
      10, 2007 ($0.090 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,111,112
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,111
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,889
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000May
      10, 2007 ($0.083 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,409,640
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,409
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    197,591
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    200,000May
      31, 2007 ($0.090 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    555,555
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    555
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    49,445
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    50,000June
      26, 2007 ($0.083 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,203,080
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,203
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,797
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000October
      26, 2007 ($0.063 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,159,558
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,159
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    196,841
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    200,000November
      7, 2007 ($0.059 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,675,978
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,676
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,324
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000December
      5, 2007 ($0.051 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,948,052
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,948
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,052
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000December
      12, 2007 ($0.050 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,973,684
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,974
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,026
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000December
      13, 2007 ($0.051 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,948,052
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,948
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,052
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000December
      20, 2007 ($0.044 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,255,639
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,256
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    97,744
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000Stock
      for compensation:
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --May
      2, 2007 ($0.110 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,500,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,500
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    272,500
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    275,000December
      14, 2007 ($0.040 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,000,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    39,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    40,000Common
      stock issued in repayment of debt:February
      26, 2007 ($0.132 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    195,212
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    195
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,534
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,729March
      8, 2007 ($0.111 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    234,165
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    234
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,571
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,805March
      14, 2007 ($0.111 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    256,643
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    257
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,587
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,844March
      19, 2007 ($0.099 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    262,650
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    263
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,608
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25,871March
      23, 2007 ($0.097 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    806,583
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    807
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    76,867
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    77,674April
      4, 2007 ($0.095 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    546,901
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    547
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    51,354
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    51,901May
      1, 2007 ($0.086 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    908,885
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    909
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    77,345
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    78,254Stock
      for late payment penalty:
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --May
      22, 2007 ($0.100 per share)
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    100
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    9,900
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    10,000Preferred
      stock converted to common stock:
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --February
      16, 2007
                                                                                                    
                                                                                                    
                                                                                                    (2,848
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (3
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    113,920
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    114
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (111
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --May
      4, 2007
                                                                                                    
                                                                                                    
                                                                                                    (250
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    10,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    10
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (10
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --December
      12, 2007
                                                                                                    
                                                                                                    
                                                                                                    (625
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (1
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    25,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (24
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --Cancellation
      of debt for no consideration
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,327,321
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,327,321Surrender
      and cancellation of common stock
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (20,000,000
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (20,000
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    20,000
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --Reclassification
      of derivative liability
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (227,300
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (227,300
                                                                                                    )Amortization
      of warrants for services
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    311,916
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    --
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    311,916
  F-7
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Stockholders’ Deficiency
 (Continued)
 
 Preferred
      Stock
                                                                                              
                                                                                              
                                                                                              Common
      Stock
                                                                                              
                                                                                              
                                                                                              Additional
                                                                                                Paid-In
      Capital
                                                                                              
                                                                                              
                                                                                              Treasury
      Stock, at Cost
                                                                                              
                                                                                              
                                                                                              Subscription
      Receivable
                                                                                              
                                                                                              
                                                                                              Accumulated
      Deficit
                                                                                              
                                                                                              
                                                                                              Total
                                                                                                Stockholders’
                                                                                                DeficiencyShares
                                                                                              
                                                                                              
                                                                                              Amount
                                                                                              
                                                                                              
                                                                                              Shares
                                                                                              
                                                                                              
                                                                                              AmountCommon
      stock to be issued
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              100,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              100,000Preferred
      stock dividend
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (399
                                                                                              )
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (399
                                                                                              )Net
      loss
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (1,701,125
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (1,701,125
                                                                                              )BALANCE
      - 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
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (12,914
                                                                                              )
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (12,914
                                                                                              )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 – August 6, 2008
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              100,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              100
                                                                                              
                                                                                              
                                                                                              
                                                                                              4,900
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              5,000$0.0500
      per share - September 19, 2008
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,050,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,050
                                                                                              
                                                                                              
                                                                                              
                                                                                              100,450
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              102,500Common
      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
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              70,766
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              70,766
  F-8
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Stockholders’ Deficiency
 (Continued)
 
 Preferred
      Stock
                                                                                              
                                                                                              
                                                                                              Common
      Stock
                                                                                              
                                                                                              
                                                                                              Additional
                                                                                                Paid-In
      Capital
                                                                                              
                                                                                              
                                                                                              Treasury
      Stock, at Cost
                                                                                              
                                                                                              
                                                                                              Subscription
      Receivable
                                                                                              
                                                                                              
                                                                                              Accumulated
      Deficit
                                                                                              
                                                                                              
                                                                                              Total
                                                                                                Stockholders’
                                                                                                DeficiencyShares
                                                                                              
                                                                                              
                                                                                              Amount
                                                                                              
                                                                                              
                                                                                              Shares
                                                                                              
                                                                                              
                                                                                              AmountAmortization
      of warrants for services
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              219,859
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              219,859Issuance
      of common stock for $100,000 of subscription 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
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              9,350Preferred
      stock converted to common stock
                                                                                              
                                                                                              
                                                                                              (1,050
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (1
                                                                                              )
                                                                                              
                                                                                              
                                                                                              42,000
                                                                                              
                                                                                              
                                                                                              
                                                                                              42
                                                                                              
                                                                                              
                                                                                              
                                                                                              (41
                                                                                              )
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --Preferred
      stock dividend
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (57
                                                                                              )
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (57
                                                                                              )Net
      loss
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              --
                                                                                              
                                                                                              
                                                                                              
                                                                                              (1,737,614
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (1,737,614
                                                                                              )BALANCE
      - DECEMBER 31, 2008
                                                                                              
                                                                                              
                                                                                              184,144
                                                                                              
                                                                                              
                                                                                              $
                                                                                              184
                                                                                              
                                                                                              
                                                                                              
                                                                                              244,850,034
                                                                                              
                                                                                              
                                                                                              $
                                                                                              244,849
                                                                                              
                                                                                              
                                                                                              $
                                                                                              28,528,973
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (5,768
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (350,114
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (30,094,607
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (1,676,483
                                                                                              )
 
 The
accompanying notes are an integral part of these financial
statements.
  F-9
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Cash Flows
 
 Years Ended December 31,
                              
                              
                              For
      the Period From January 1, 2002 through2008
                              
                              
                              2007
                              
                              
                              December 31, 2008Cash
      Flows from Operating Activities:Net
      loss
                              
                              $
                              (1,737,614
                              )
                              
                              
                              (1,701,125
                              )
                              
                              $
                              (15,563,010,
                              )Adjustments
      to reconcile net loss to net cash used in operating activities
      -Depreciation
      and amortization
                              
                              
                              15,067
                              
                              
                              
                              2,063
                              
                              
                              
                              17,130Amortization
      of patents
                              
                              
                              4,607
                              
                              
                              
                              2,623
                              
                              
                              
                              16,500Interest
      expense - amortization of deferred financing
                              
                              
                              2,510
                              
                              
                              
                              9,707
                              
                              
                              
                              22,530Stock
      based compensation
                              
                              
                              490,689
                              
                              
                              
                              636,916
                              
                              
                              
                              2,672,694Interest
      expense - conversion provision
                              
                              
                              --
                              
                              
                              
                              113,000
                              
                              
                              
                              113,000Interest
      receivable
                              
                              
                              (12,914
                              )
                              
                              
                              --
                              
                              
                              
                              (12,914
                              )Accretion
      of debt discount
                              
                              
                              71,657
                              
                              
                              
                              204,901
                              
                              
                              
                              569,078Change
      in fair value of warrants and embedded conversion option
                              
                              
                              (151,751
                              )
                              
                              
                              (544,200
                              )
                              
                              
                              (567,851
                              )(Gain)/loss
      on settlement of debt
                              
                              
                              (384,114
                              )
                              
                              
                              --
                              
                              
                              
                              2,229,903Non-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
                              
                              
                              (11,902
                              )
                              
                              
                              (28,962
                              )
                              
                              
                              (3,646
                              )Security
      deposit
                              
                              
                              (17,441
                              )
                              
                              
                              --
                              
                              
                              
                              (17,441
                              )Accounts
      payable, accrued expenses, accrued dividends,  accrued
      compensation, accrued consulting and director fees, customer deposits and
      other current liabilities
                              
                              
                              152,024
                              
                              
                              
                              244,940
                              
                              
                              
                              1,794,955Net
      Cash Used in Operating Activities
                              
                              
                              (1,579,182
                              )
                              
                              
                              (1,060,137
                              )
                              
                              
                              (6,010,870
                              )Cash
      Flows from Investing Activities:Purchase
      of property and equipment
                              
                              
                              (138,517
                              )
                              
                              
                              (21,050
                              )
                              
                              
                              (159,567
                              )Patent
      costs
                              
                              
                              (28,328
                              )
                              
                              
                              (25,543
                              )
                              
                              
                              (53,871
                              )Net
      Cash Used in Investing Activities
                              
                              
                              (166,845
                              )
                              
                              
                              (46,593
                              )
                              
                              
                              (213,438
                              )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
                              
                              
                              
                              1,150,000
                              
                              
                              
                              3,860,560Proceeds
      from exercise of warrants
                              
                              
                              9,350
                              
                              
                              
                              --
                              
                              
                              
                              9,350Proceeds
      from sale of common stock to be issued
                              
                              
                              --
                              
                              
                              
                              100,000
                              
                              
                              
                              300,000Deferred
      financing costs
                              
                              
                              --
                              
                              
                              
                              (7,530
                              )
                              
                              
                              (22,530
                              )Proceeds
      from convertible promissory note
                              
                              
                              50,000
                              
                              
                              
                              250,000
                              
                              
                              
                              850,000Proceeds
      from officers and directors convertible loans
                              
                              
                              200,000
                              
                              
                              
                              100,000
                              
                              
                              
                              300,000Repayment
      of notes payable
                              
                              
                              (69,312
                              )
                              
                              
                              (170,056
                              )
                              
                              
                              (274,999
                              )Net
      Cash Provided by Financing Activities
                              
                              
                              1,360,038
                              
                              
                              
                              1,422,414
                              
                              
                              
                              6,218,208Net
      (decrease) increase in cash
                              
                              
                              (385,989
                              )
                              
                              
                              315,684
                              
                              
                              
                              (6,100
                              )Cash
      at beginning of period
                              
                              
                              415,400
                              
                              
                              
                              99,716
                              
                              
                              
                              35,511
  F-10
  PureSafe
Water Systems Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Statements
of Cash Flows
 (Continued)
 Cash
      at end of period
                                    
                                    $
                                    29,411
                                    
                                    
                                    $
                                    415,400
                                    
                                    
                                    $
                                    29,411Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the year for interest
                                    
                                    $
                                    2,866
                                    
                                    
                                    $
                                    10,556
                                    
                                    
                                    $
                                    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
                                    
                                    $
                                    70,766
                                    
                                    
                                    $
                                    (227,300
                                    )
                                    
                                    $
                                    501,166Cancellation
      of debt for no consideration
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    1,327,321
 
 The
accompanying notes are an integral part of these financial
statements.
  F-11
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 
 NOTE
1 – DESCRIPTION OF BUSINESS
 
 PureSafe
Water Systems, Inc. (the “Company”) is a Delaware corporation currently engaged
in the design and development of its technology to be used in the manufacture
and sale of water purification systems both in and outside the United
States.  The Company's corporate headquarters is in Plainview, New
York.  In November 2008, the Company’s name was changed from “Water
Chef, Inc.”
 
 The
Company has generated nominal revenues to date; accordingly, the Company is
considered a development stage enterprise as defined in Financial Accounting
Standards Board (“FASB”) No. 7, "Accounting and Reporting for Development Stage
Companies."  The Company is subject to a number of risks similar to
those of other companies in an early stage of development.
 
 
 NOTE
2 - BASIS OF PRESENTATION AND CONTINUED OPERATIONS
 
 Basis
of Presentation
 
 The
Company discontinued its water cooler and filtration operations in November
2001.  As a result, the Company has refocused its efforts on raising
capital and developing markets for its proprietary
technology.  Therefore, for financial purposes, the Company has
determined that it has re-entered the development stage commencing January 1,
2002.  The Company's statements of operations, stockholders'
deficiency and cash flows for the year ended December 31, 2008 represent the
financial information cumulative, from inception/commencement, required by
Statement of Financial Accounting Standards ("SFAS") No. 7, "Development Stage
Enterprises."
 
 Going
Concern
 
 The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (“US
GAAP”), which contemplate continuation of the Company as a going concern and the
realization of assets and the satisfaction of liabilities in the normal course
of business.  The Company incurred a net loss of approximately
$1,700,000 for each of the years ended December 31, 2008 and 2007,
respectively.  The Company has a working capital deficit of
approximately $1,908,000 and $2,098,000 and a stockholders’ deficiency of
approximately $1,676,000 and $2,029,000 at December 31, 2008 and 2007,
respectively.
 
 The
Company continues to incur recurring losses from operations and has an
accumulated deficit since inception of approximately
$30,000,000.  These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.  The accompanying
financial statements have been prepared assuming the Company will continue as a
going concern and do not include any adjustments that might be necessary should
the Company be unable to continue as a going concern.  The Independent
Registered Public Accounting Firm’s report on our financial statements contains
an explanatory paragraph about conditions that raise substantial doubt about the
Company’s ability to continue as a going concern.  Our continuation as
a going concern is dependent upon our ability to bring our products to market
and generate revenues, control costs, operate profitably and obtain additional
financing, as required and on reasonable terms.  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 is seeking to raise an additional $10 million in
the next twelve months to fund the following activities:
 
 •
              production
      of 25 PureSafeTM First Response Water Systems (the “PureSafe FRWS”)
      units;
 •
              submitting
      two fully functional PureSafe FRWS units for all necessary
      certifications;
 •
              launching
      a marketing program for the PureSafe
FRWS;
 •
              establishing
      a sales and marketing network;
 •
              commencing
      the production and building  inventory of 5 units of the
      PureSafe FRWS product; and
 •
              securing
      working capital.
  F-12
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 No
assurance that such financing will be available on terms advantageous to the
Company, or at all.  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.
 
 
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
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.
 
 Management
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), contingencies, as well as the recording and
presentation of its common stock and related warrants
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.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents.  As of
December 31, 2008 and 2007 the Company did not have any cash
equivalents.
 
 Patents
and Trademarks
 
 Patents
and trademarks are amortized ratably over nine to fourteen years.  The
Company assesses the carrying value of its patents for impairment each
year.  Based on its assessments, the Company did not incur any
impairment charges for the years ended December 31, 2008 and 2007.
 
 Deferred
Financing Costs
 
 Cost
incurred in conjunction with the debt financing has been capitalized and will be
amortized to interest expense using the straight line method, which approximates
the interest rate method over the term of the debt.
 
 Property
and Equipment
 
 Property
and equipment consists primarily of equipment and furniture and fixtures and is
stated at cost.  Depreciation and amortization are provided using the
straight-line method over the estimated useful lives (generally three to seven
years) of the related assets.  Leasehold improvements, once placed in
service, are amortized over the shorter of the useful life or the remainder of
the lease term.  Expenditures for maintenance and repairs, which do
not extend the economic useful life of the related assets, are charged to
operations as incurred.  Gains or losses on disposal of property and
equipment are reflected in the statement of operations in the period of
disposal.
  F-13
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 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.
 
 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 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
warrants 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.  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
principal assumptions used in applying the Black-Scholes model along with the
results from the model were as follows:
 
 Years
      Ended
                      December
      31,2008
                    
                    
                    2007Assumptions:Risk-free
      interest rate
                    
                    
                    1.00
                    %
                    
                    
                    5.00
                    %Expected
      life
                    
                    3
      years
                    
                    
                    3
      yearsExpected
      volatility
                    
                    
                    83
                    %
                    
                    
                    90
                    %Dividends
                    
                    
                    0
                    %
                    
                    
                    0
                    %
 
 During
the year ended December 31, 2008 and 2007, the Company issued 4,483,333 and
3,600,000 shares of common stock and incurred a stock based compensation charge
of approximately $ 271,000 and $325,000, respectively, based on the fair value
on the date of the award.
 
 During
the years ended December 31, 2008 and 2007, the Company granted 833,333 and
14,100,000 warrants to employees and consultants for services
provided.  Accordingly, the Company incurred a charge for stock-based
compensation of approximately $220,000 and $312,000, respectively.
 
 Advertising
Costs
 
 Advertising
costs are expensed as incurred.  Advertising costs, which are included
in selling, general and administrative expenses, were approximately $133,000 and
$7,000 for the years ended December 31, 2008 and 2007,
respectively.
 
 Income
Taxes
 
 Income
taxes are accounted for under SFAS No. 109, "Accounting for Income Taxes," which
is an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax
returns.  Valuation allowances are established when necessary to
reduce deferred assets to the amounts expected to be realized.
  F-14
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 Loss
Per Share
 
 Basic
loss per share was 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 and
convertible preferred stock.  Common stock equivalents were excluded
from the computation of diluted loss per share since their inclusion would be
anti-dilutive.  Total shares issuable upon the exercise of options,
warrants and the conversion of preferred stock and convertible debt for the
years ended December 31, 2008 and 2007, were comprised as follows:
 
 As
      of December 31,2008
                    
                    
                    2007Warrants
                    
                    
                    30,160,910
                    
                    
                    
                    25,889,331Convertible
      debt
                    
                    
                    9,748,787
                    
                    
                    
                    13,735,042Series
      F preferred stock
                    
                    
                    1,545,760
                    
                    
                    
                    1,587,760Total
      common stock equivalents
                    
                    
                    41,455,457
                    
                    
                    
                    41,212,133
 
 Fair
Value of Financial Instruments
 
 The
carrying amounts of the financial instruments reported in the balance sheet
approximate their fair market value due to the short-term maturities of these
instruments.  The fair value of the Company's long-term debt is
estimated using quoted market prices and estimated rates which would be
available to the Company for debt with similar terms.
 
 Impairment
of Long-Lived Assets
 
 In the
event that facts and circumstances indicate that the cost of an asset may be
impaired, an evaluation of recoverability would be performed.  If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down to fair value is required.
 
 Research
and Development
 
 Research
and development costs consist of expenditures incurred during the course of
planned research and investigation aimed at the discovery of new knowledge,
which will be useful in developing new products or processes.  The
Company expenses all research and development costs as
incurred.  During the years ended December 31, 2008 and 2007, the
Company incurred approximately $270,400 and $435,400, respectively, of research
and development costs which are included in the statement of
operations.
 
 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 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 (“SFAS 133”), and EITF Issue No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (“EITF 00-19”)
 
 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 00-19, as a result of entering into the convertible
promissory notes, the Company was required to classify 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
at each balance sheet date.  If the classification required under EITF
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.
  F-15
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 Registration
Payment Arrangements
 
 The
Company accounts for registration rights agreements in accordance with FASB
Staff Position No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements” (“FSP 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 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.
 
 Recent
Accounting Pronouncements
 
 In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value.  The objective of SFAS 159 is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently.  Generally
accepted accounting principles have required different measurement attributes
for different assets and liabilities that can create artificial volatility in
earnings.  SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS 159 does not eliminate disclosure requirements
included in other accounting standards, including requirements for disclosures
about fair value measurements included in SFAS 157 and SFAS No. 107,
“Disclosures about Fair Value of Financial Instruments.”  SFAS 159 is
effective as of the beginning of the first fiscal year beginning after November
17, 2007.  The adoption of SFAS No. 159 did not have a material impact
on the Company’s financial position, results of operations or cash
flows.
 
 In
December 2007, FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”).  SFAS 141(R) replaces SFAS No. 141,
“Business Combinations,” and is effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  SFAS 141(R) requires
the new acquiring entity to recognize all assets acquired and liabilities
assumed in the transactions; establishes an acquisition-date fair value for
acquired assets and liabilities; and fully discloses to investors the financial
effect the acquisition will have.  SFAS 141(R) would have an impact on
accounting for any business acquired after the effective date of this
pronouncement.
 
 In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”).  SFAS 160 requires
all entities to report minority interests in subsidiaries as equity in the
consolidated financial statements, and requires that transactions between
entities and non-controlling interests be treated as equity.  SFAS 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 with earlier adoption
prohibited.  The adoption of this pronouncement is not expected to
have a material impact on the Company’s financial position, results of
operations and cash flows.  However, SFAS 160 may affect future
periods.
 
 In March
2008, FASB issued Statement of Financial Accounting Standards 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 SFAS 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, management is evaluating the implications of
SFAS 161 and its impact on the financial statements has not yet been
determined.
  F-16
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 In April
2008, FASB issued Staff Position No. 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” (“SFAS 142”) in order to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141(R) and other US GAAP.  FSP 142-3 is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008 and is to be applied prospectively to intangible assets
acquired after the effective date.  Disclosure requirements are to be
applied prospectively to all intangible assets recognized as of, and subsequent
to, the effective date.  Early adoption is not
permitted.  The Company is currently evaluating the impact of adopting
FSP 142-3 on its financial statements.
 
 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 accounting principles
used in preparing financial statements of nongovernmental entities that are
presented in conformity with US GAAP.  Currently, US GAAP hierarchy is
provided in the American Institute of Certified Public Accountants U.S. Auditing
Standards (“AU”) Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles” (“AU Section 411”).  SFAS
No. 162 is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board’s amendments to AU Section 411.  The
Company does not expect the adoption of SFAS 162 to have an impact on its
financial statements.
 
 In May
2008, FASB issued FSP Accounting Principles Board Opinion (“APB”) 14-1,
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion” (“FSP APB 14-1”).  FSB APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash or other assets
upon conversion to separately account for the liability and equity components of
the instrument in a manner that reflects the issuer’s nonconvertible debt
borrowing rate.  FSP APB 14-1 is effective for financial statements
issued for fiscal years and interim periods beginning after December 15, 2008
and is to be applied retrospectively to all periods presented, with certain
exceptions.  The adoption of FSP APB 14-1 is not expected to have any
impact on the Company’s financial statements; however FSP APB 14-1 may impact
the accounting for future debt issuances.
 
 In June
2008, the FASB ratified the consensus reached by the EITF on three issues
discussed at its June 12, 2008 meeting pertaining to EITF 07-5, “Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”
(“EITF 07-5).  The issues include how an entity should evaluate
whether an instrument, or embedded feature, is indexed to its own stock, how the
currency in which the strike price of an equity-linked financial instrument, or
embedded equity-linked feature, is denominated  affects the
determination of whether the instrument is indexed to an entity’s own stock and
how the issuer should account for market-based employee stock option valuation
instruments.  EITF 07-5 is effective for financial instruments issued
for fiscal years and interim periods beginning after December 15, 2008 and is
applicable to outstanding instruments as of the beginning of the fiscal year it
is initially applied.  The cumulative effect, if any, of the change in
accounting principle shall be recognized as an adjustment to the opening balance
of retained earnings.  The Company is currently evaluating the impact
of adopting EITF 07-5 on the Company’s financial statements.
 
 On June
16, 2008, the FASB issued FASB Staff Position (“FSP”) No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities,” which concluded that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of EPS pursuant to the two-class method.  FSP No. EITF
03-6-1 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years.  Upon adoption, a company is
required to retrospectively adjust its earnings per share data to conform with
the provisions of FSP No. EITF 03-6-1.  The Company is currently
evaluating the requirements of FSP EITF 03-6-1 and has not yet determined the
impact on the Company’s financial statements.
  F-17
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 NOTE
4 – PROPERTY AND EQUIPMENT
 
 Property
and equipment consist of the following at December 31, 2008 and
2007:
 
 2008
                      
                      
                      2007Furniture
      and fixtures
                      
                      $
                      34,374
                      
                      
                      $
                      --Leasehold
      improvement
                      
                      
                      74,755
                      
                      
                      
                      --Equipment
                      
                      
                      50,438
                      
                      
                      
                      21,050159,567
                      
                      
                      
                      21,050Accumulated
      depreciation amortization
                      
                      
                      (17,130
                      )
                      
                      
                      (2,063
                      )Property
      and equipment, net
                      
                      $
                      142,437
                      
                      
                      $
                      18,987
 
 Depreciation
and amortization expense was approximately $15,100 and $2,100 for the years
ended December 31, 2008 and 2007, respectively.
 
 NOTE
5 - PATENTS AND TRADEMARKS
 
 Patents
and trademarks as of December 31, 2008 and 2007 consist of the
following:
 
 2008
                    
                    
                    2007Patents
                    
                    $
                    77,446
                    
                    
                    $
                    50,043Trademarks
                    
                    
                    2,480
                    
                    
                    
                    1,555Total
      cost
                    
                    
                    79,926
                    
                    
                    
                    51,598Accumulated
      amortization
                    
                    
                    (17,882
                    )
                    
                    
                    (13,275
                    )Patents
      and trademarks, net
                    
                    $
                    62,044
                    
                    
                    $
                    38,323
 
 Amortization
expense for the years ended December 31, 2008 and 2007 was approximately $4,600
and $2,600, respectively.  The following table presents the Company's
estimate for amortization expense for each of the five succeeding years and
thereafter.
 
 Year
      Ended December 31,2009
                      
                      $
                      5,2672010
                      
                      
                      5,2672011
                      
                      
                      5,2672012
                      
                      
                      5,2672013
                      
                      
                      5,2672014
      and thereafter
                      
                      
                      35,709$
                      62,044
 
 NOTE
6 – PROMISSORY NOTES PAYABLE
 
 Notes
payable and accrued interest at December 31, 2008 and 2007 consists of the
following:
 
 December
      31,2008
                                
                                
                                2007$
                                201,589
                                (a)
                                
                                $
                                197,830
                                (a)351,467
                                (b)
                                
                                
                                627,933
                                (b)$
                                553,056
                                
                                
                                $
                                825,763
  F-18
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 (a)
              These
      are unsecured notes bearing interest ranging from 10% to 15% per annum,
      with no specific due date for repayment.  The amount due on
      these notes, inclusive of $118,367 of interest is $201,589 at December 31,
      2008 and $197,830, inclusive interest of $11,608 at December 31,
      2007.  [No demands for
      repayment have been made by the note
holder.
 
 (b)
              In
      April 2001, the Company issued a $400,000 promissory note bearing interest
      at the rate of 2% per month.  In consideration for the issuance
      of this note, 500,000 shares of common stock were issued to the note
      holder and a $74,000 debt discount was recorded and fully amortized in the
      year ended December 31, 2001.  The principal balance and accrued
      interest was payable on September 1, 2001.  The Company did not
      make such payment and issued an additional 100,000 shares to the note
      holder as a penalty.  The Company recorded additional interest
      expense of $12,300 related to the issuance of these penalty
      shares.
 
 In
      October 2007, the Company entered into a settlement agreement with this
      note holder.  Under the settlement agreement, the Company became
      obligated to make payments of $75,000 each on or before December 31, 2007
      and June 30, 2008.  The June 30, 2008 payment remains
      unpaid.  In addition, the Company was obligated to issue
      2,500,000 shares of common stock to the note holder as settlement for the
      remaining balance due under the promissory note of $477,934.  In
      January 2008, the Company issued 1,250,000 of the 2,500,000
      shares.
 
 In
accordance with accounting guidance provided by EITF No 98-5, “Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios,” and EITF No. 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 transaction.
 
 During
      2008, questions arose as to who was the legal owner(s) of the
      note.  Under the advice of then outside counsel, the Company
      sent inquiries to various parties claiming an interest in the note and
      shares. As of December 31, 2008, the Company has not received a response
      from any of the parties contacted.  At December 31, 2008, the
      Company is reflecting a liability of $351,467, inclusive of interest
      payable of $151,467, which represents the unpaid settlement payment and
      the unissued shares.
 
 
 NOTE
7 - CONVERTIBLE PROMISSORY NOTES PAYABLE
 
 Convertible
promissory notes payable and accrued interest at December 31, 2008 and 2007
consists of the following:
  December
      31,2008
                              
                              
                              2007$
                              --
                              (a)
                              
                              
                              69,313
                              (a)--
                              (b)
                              
                              
                              190,045
                              (b)30,925
                              (c)30,925
                              
                              
                              $
                              259,358
 
 (a)
                In
      November 2000, the Company entered into an agreement with an entity in
      which a former Company director had an ownership
      interest.  Under the terms of the agreement, the entity agreed
      to advance the Company up to a maximum of $300,000. The Company was
      advanced $100,000 in November 2000, $50,000 in December 2000 and $50,000
      in January 2001 under the agreement.   Interest was to
      accrue on all outstanding advancesat a rate of 10%
      per annum.  Repayment of all advances was to be made by January
      15, 2002.  The Company failed to repay the debt by its maturity
      date and the debt holder commenced an action against the Company for
      repayment of the debt.
  F-19
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 On May 8,
2003, a judgment was entered against the Company in the amount of $245,389,
which included accrued and unpaid interest of $45,389.   No
payments were made on such judgment.
 
 In April
2007, the Company entered into a payment arrangement with the debt holder which
required the Company to make two payments of $25,000 each in May and June of
2007 and monthly payments of $10,000 thereafter until the judgment amount plus
interest thereon, was paid in full.  As of December 31, 2007, the
outstanding balance due the debt holder was $69,313. The remaining debt balance
was fully repaid in August 2008.
 
 (b)
                On
      September 7, 2007, the Company entered into a loan agreement (the “2007
      Loan Agreement”), pursuant to which the Company issued convertible
      promissory notes (the “2007 Loan Notes”) in the aggregate principal amount
      of $250,000 and bearing interest at 10% per annum and warrants (the “2007
      Loan Warrants”) to purchase 1,384,786 shares of common stock at an
      exercise price of $0.096 per share.  The maturity date of the
      2007 Loan Notes was March 5, 2008.  The holders of the 2007 Loan
      Notes were granted the right to convert all or a portion of the amount
      owed under the 2007 Loan Notes into shares of common stock at a conversion
      price equal to the lower of $0.12 per share or 82.5% of the average of the
      three lowest closing bid prices for the ten trading days immediately
      preceding the conversion date.  However, the holders were each
      prohibited from exercising the 2007 Loan Warrants and/or converting the
      2007 Loan Notes in such a manner as would result in the holder being a
      beneficial owner of more than 4.99% of the outstanding common stock at the
      time of such
exercise/conversion.
 
 Under the
terms of the 2007 Loan Agreement, the Company was required to file a
registration statement with the SEC registering for resale the shares of common
stock issuable upon exercise of the 2007 Loan Warrants and conversion of the
2007 Loan Notes.  The Company was required to file the registration
statement and have the registration statement declared effective by specified
dates, the failure to do so would result in monthly penalties equal to 2% of the
then outstanding aggregate principal amount of the 2007 Loan
Notes.  The registration statement was not declared effective on or
prior to the specified date in order for the Company to avoid
penalties.  The registration statement was declared effective on
December 26, 2007 and, as a result of such delay in effectiveness, the Company
accrued $5,000 as a penalty.
 
 The
      Company accounted for the issuance of the 2007 Loan Note in accordance
      with EITF 00-19.   Accordingly, the 2007 Loan Warrants and
      the embedded conversion option of the 2007 Loan Notes were recorded as
      derivative liabilities at their fair market value and were marked to
      market through earnings at the end of each reporting
      period.  The gross proceeds from the sale of the 2007 Loan Notes
      of $250,000 were recorded net of a discount of $203,000.  The
      debt discount consisted of $68,400 related to the fair value of the 2007
      Loan Warrants and $135,300 related to the fair value of the embedded
      conversion option.  The debt discount was being charged to
      interest expense ratably over the term of the 2007 Loan
      Notes.  As of December 31, 2007, the outstanding amount owed
      under the 2007 Loan Notes (principal and accrued interest) was $190,045,
      net of a debt discount of $67,900.  In January 2008, the Company
      issued 8,408,670 shares of common stock in satisfaction of all amounts
      then due under the 2007 Loan Notes of $258,851, including $8,851 of
      accrued interest.
 
 (c)
                On
      December 17, 2008, the Company sold and issued a convertible promissory
      note in the principal amount of $50,000 bearing interest at 10% per annum
      and warrants to purchase 285,714 shares of common stock at an exercise
      price of $0.042 per share.  The convertible note matures on
      December 17, 2009.  The holder of the note is entitled to
      convert all or a portion of the convertible note plus any unpaid interest,
      at the lender’s sole option, into shares of common stock at a conversion
      price of $0.035 per share.
 
 The
Company accounted for the issuance of the convertible promissory note in
accordance with EITF 00-19.   Accordingly, the warrants and the
embedded conversion option of the convertible note is recorded as derivative
liabilities at their fair market value and were marked to market through
earnings at the end of each reporting period.  The gross proceeds from
the sale of the note $50,000 was recorded net of a discount of
$19,500.  The debt discount consisted of approximately $2,800 related
to the fair value of the warrants and approximately $16,700 related to the fair
value of the embedded conversion option.  The debt discount was being
charged to interest expense ratably over the term of the convertible
note.  As of December 31, 2008, the outstanding amount owed under the
convertible note (principal and accrued interest) was $30,925, net of a debt
discount of $19,283.
  F-20
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 NOTE
8 - EQUITY AGREEMENT
 
 On
September 7, 2007, the Company entered into a 3-year private equity credit
agreement (the “Equity Agreement”) pursuant to which the Company may, at its
discretion, periodically sell shares of common stock to an investor for a total
purchase price of up to $5.0 million.  For each share of common stock
purchased under the Equity Agreement, the investor will pay the Company 94% of
the three lowest closing bid prices during the valuation period of the common
stock for the five trading days immediately following the notice
date.  The investor’s obligation to purchase shares of the common
stock under the Equity Agreement is subject to certain conditions, including
volume limitations, the Company obtaining an effective registration statement
for the shares of common stock to be sold under the Equity Agreement and, among
other things, is limited to purchases that will not result in the investor being
the beneficial owner of more than 4.99% of the outstanding common stock at the
time of purchase.  To date no funds have been received under the
Equity Agreement.
 
 Under the
terms of the Equity Agreement, the Company is required to file a registration
statement and obtain its effectiveness prior to issuing any shares under the
equity agreement.  Should the Company not maintain the effectiveness
of the registration statement, the Company will be obligated to pay damages of
2% per month of the cost of the outstanding shares held by the
investor.  As of December 31, 2008, the Company has not registered the
underlying shares and has not issued any shares or received any proceeds under
the Equity Agreement.    The Equity Agreement terminates on
September 7, 2010.
 
 NOTE
9 - COMMITMENTS AND CONTINGENCIES
 
 (a)
              Effective
      as of July 1, 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 minimum lease payments due under this lease
      are as follows:
 
 For
      the Years
                      Ending
      December 31,2009
                    
                    $
                    61,0002010
                    
                    
                    63,0002011
                    
                    
                    64,0002012
                    
                    
                    66,0002013
                    
                    
                    68,000Thereafter
                    
                    
                    131,000$
                    453,000
 
 Rent
      expense during the years ended December 31, 2008 and 2007 was
      approximately$85,800 and $44,800,
respectively.
 
 (b)
              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 FRWS.  The
      agreement provides for a fixed fee of $90,000, plus out of pocket
      expenses, and is payable at $15,000 per month.  The Company has
      incurred a charge of approximately $105,000, which has been included on
      the statement of operations as part of consulting fees and marketing
      expenses.  The agreement terminated in December
      2008.  However, the Company continues to utilize the services of
      the consultant on a month to month
basis.
  F-21
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 (c)
              In
      August, 2008, the Company entered into a six month consulting agreement
      with Designs and Project Development Corp. (“D&P”) for planning and
      the continued development of the PureSafe FRWS.  The agreement
      provides for a fixed fee of $6,667 per month, plus reimbursement for
      expenses incurred by the consultant.  In addition to the fixed
      fees, the Company issued 100,000 shares of common stock, valued at $5,000,
      to D&P and issued warrants to purchase 200,000 shares
      of    common stock at $0.058 per share was granted to
      D&P’s president.  The Company recorded $13,100 stock-based
      compensation charge in connection with the securities issued in this
      transaction.  The Company also has incurred a charge of
      approximately $67,000, which has been included on the statement of
      operations as part of research and development expenses, in connection
      with the fixed fee portion of  this
  transaction.
 
 (d)
              On
      October 14, 2008, the Company entered into a settlement agreement with a
      vendor which resulted in the extinguishment of approximately $158,000 of
      then outstanding accounts payable.  The Company recorded a gain
      on this extinguishment of debt in the statement of operations for the year
      ended December 31, 2008.
 
 
 NOTE
10 - COMMON STOCK ISSUED
 
 During
the year ended December 31, 2007, the Company recorded the following
transactions:
 
 Debt
 
 During
the year ended December 31, 2007, the Company issued 3,211,039 shares of common
stock for the settlement of $300,000 of debt principal and $11,078 of accrued
interest.
 
 Conversion of preferred
stock into common stock
 
 During
the year ended December 31, 2007, the Company issued 148,920 shares of common
stock in connection with the conversion of 3,723 shares of preferred
stock.
 
 Cash
 
 During
the year ended December 31, 2007, the Company raised $1,150,000 through the sale
of 18,240,350 shares of common stock and warrants to purchase 3,043,320 shares
of common stock at an exercise price of $0.0532 to $0.076.  The
warrants have a term of three years.
 
 In
December 2007, the Company received $100,000 as the consideration for the
issuance of 2,255,639 shares of common stock and warrants to purchase 451,128
shares of common stock at an exercise price of $0.0532.  The warrants
have a life of 3 years.  The Company issued these shares and warrants
during the quarter ended March 31, 2008.
 
 Services
 
 During
the year ended December 31, 2007, the Company issued 100,000 shares of common
stock in satisfaction of a late payment penalty to one of its note
holders.  The Company recorded a charge of $10,000 in connection with
such issuance.
 
 During
the year ended December 31, 2007, the Company issued 3,500,000 shares of common
stock to the Company’s Chief Executive Officer and Chief Financial
Officer.  The Company incurred a stock-based compensation charge of
$315,000 in connection with such issuance.
 
 During
the year ended December 31, 2007, the Company granted three-year warrant to
purchase an aggregate 14,100,000 shares of common stock to various employees and
consultants.  Of such warrants, warrants to purchase 5,100,000 shares
were immediately exercisable, with the remaining warrants becoming exercisable
over the terms of such warrants.  Each of the warrants is exercisable
at $0.0532 to $0.1500 per share.  The Company incurred a stock-based
compensation charge of approximately $312,000 in connection with the grant of
the immediately exercisable warrants.
  F-22
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 Relinquishment of common
stock
 
 In
connection with the resignation of the Company’s former President and Chief
Executive Officer on January 29, 2007, the former officer surrendered to the
Company for cancellation 20,000,000 shares of common stock.
 
 During
the year ended December 31, 2008, the Company recorded the following
transactions:
 
 Debt
 
 The
Company issued 10,554,994 shares of common stock in exchange for the
cancellation of $312,509 of outstanding debt principal and accrued interest owed
to three note holders, including 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 No. 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 transaction.
 
 Conversion of preferred
stock into common stock
 
 The
Company issued 42,000 shares of common stock in connection with the conversion
of 1,050 shares of Series F preferred stock.
 
 Cash
 
 The
Company received gross proceeds of $1,170,000 through the sale of an aggregate
of 17,976,262 shares of common stock and warrants to purchase 3,595,251 shares
of common stock at an exercise price of $0.0412 to $0.13 per
share.  The warrants have a term of three years.
 
 On
January 4, 2008, the Company issued 2,255,639 shares of common stock and warrant
to purchase 451,128 shares of common stock at an exercise price of $0.0532 per
share in connection with the settlement of a $100,000 subscription
payable.  The warrants have a term of three years.
 
 During
the year ended December 31, 2008, the Company issued 110,000 shares of common
stock in connection with the exercise of warrants issued in October 2006 and
received gross cash proceeds of $9,350.
  F-23
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 Services
 
 The
Company issued the following securities of the Company as compensation for
services rendered:
 
 •
              1,000,000
      shares of common stock to a consultant incurring a stock-based
      compensation charge of $50,000;
 •.
              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 stock-based
      compensation charges of $5,000 and $8,100,
  respectively;
 •
              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;
 •
              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
 •
              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.
 
 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 were each granted four-year warrants to purchase 45,000
      shares of common stock.  The exercise price for these 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.
 
 On July
30, 2008, the Company issued 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 one year following
issuance, provided the officer is employed by the Company on the anniversary
date.  In connection the issuance of the initial aggregate 2,000,000
shares, the Company incurred a stock-based compensation charge of
$100,000.
 
 
 NOTE
11 – PREFERRED STOCK
 
 The
Company is authorized to issue 10,000,000 shares of preferred stock, par value
$0.001 per share, issuable in series with rights, preferences, privileges and
restrictions as determined by the Company’s board of directors.
 
 At
December 31, 2008, outstanding preferred stock consists of the
following:
 
 Authorized
                    Shares
                  
                  
                  Outstanding
      Shares
                  
                  
                  Par
      Value
                  
                  
                  Current
      Annual Dividend Requirement
                  
                  
                  Total
      Dividend Arrearage
                  
                  
                  Dividend
      Arrearage Per Share
                  
                  
                  Liquidation
      Preference (Including Dividend Arrearage)Series
      A
                  
                  
                  400,000
                  
                  
                  
                  52,500
                  
                  
                  $
                  53
                  
                  
                  $
                  52,500
                  
                  
                  $
                  727,600
                  
                  
                  $
                  13.86
                  
                  
                  $
                  1,252,600Series
      D
                  
                  
                  2,000,000
                  
                  
                  
                  93,000
                  
                  
                  
                  93
                  
                  
                  
                  55,800
                  
                  
                  
                  696,000
                  
                  
                  
                  7.48
                  
                  
                  
                  1,231,350Series
      F
                  
                  
                  1,000,000
                  
                  
                  
                  38,644
                  
                  
                  
                  39
                  
                  
                  
                  --
                  
                  
                  
                  190,328
                  
                  
                  
                  --
                  
                  
                  
                  --184,144
                  
                  
                  $
                  185
                  
                  
                  $
                  108,300
                  
                  
                  $
                  1,613,928
                  
                  
                  
                  
                  
                  
                  $
                  2,483,950
 
 At
December 31, 2007 outstanding preferred stock consists of the
following:
 
 Authorized
                    Shares
                  
                  
                  Outstanding
      Shares
                  
                  
                  Par
      Value
                  
                  
                  Current
      Annual Dividend Requirement
                  
                  
                  Total
      Dividend Arrearage
                  
                  
                  Dividend
      Arrearage Per Share
                  
                  
                  Liquidation
      Preference (Including Dividend Arrearage)Series
      A
                  
                  
                  400,000
                  
                  
                  
                  52,500
                  
                  
                  $
                  53
                  
                  
                  $
                  52,500
                  
                  
                  $
                  675,100
                  
                  
                  $
                  12.85
                  
                  
                  $
                  1,200,100Series
      D
                  
                  
                  2,000,000
                  
                  
                  
                  93,000
                  
                  
                  
                  93
                  
                  
                  
                  55,800
                  
                  
                  
                  640,800
                  
                  
                  
                  6.89
                  
                  
                  
                  1,175,550Series
      F
                  
                  
                  1,000,000
                  
                  
                  
                  39,694
                  
                  
                  
                  39
                  
                  
                  
                  --
                  
                  
                  
                  190,270
                  
                  
                  
                  --
                  
                  
                  
                  --185,194
                  
                  
                  $
                  185
                  
                  
                  $
                  108,300
                  
                  
                  $
                  1,506,170
                  
                  
                  
                  
                  
                  
                  $
                  2,375,650
  F-24
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 Series A
 
 The
Series A preferred stock provides for a 10% cumulative dividend, based on the
$10.00 per share purchase price, payable annually in common stock or cash, at
the Company's option.  The Series A preferred stock is not
convertible, and is redeemable solely at the Company's option at a price of
$11.00 per share plus accrued dividends.  The Series A preferred
stockholders have voting rights equal to common stockholders.  In the
event of the liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of the Series A preferred stock are entitled
to receive out of the assets of the Company the sum of $10.00 per share of
Series A preferred stock then outstanding, plus a sum equal to all dividends
(whether or not earned or declared) on such shares accrued and unpaid thereon to
the date of final payment or distribution, before any payment or distribution
upon dissolution, liquidation or winding up shall be made on any series or class
of capital stock ranking junior to Series A preferred stock as to such payment
or distribution.
 
 Series D
 
 The
Series D preferred stock provides for a 12% cumulative dividend, based on the
$5.00 per share purchase price, payable semi-annually in common stock or cash,
at the Company's option.  The Series D preferred stock is not
convertible, and is redeemable solely at the Company's option at a price of
$5.75 per share plus accrued dividends.  The Series D Preferred
stockholders have voting rights equal to the common stockholders.  In
the event of the liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, holders of the Series D preferred stock are entitled
to receive out of the assets of the Company the sum of all dividends (whether or
not earned or declared) on such shares accrued and unpaid thereon to the date of
final payment or distribution, before any payment or distribution upon
dissolution, liquidation or winding up shall be made on any series or class of
capital stock ranking junior to Series D preferred stock as to such payment or
distribution.
 
 Series F
 
 The
Series F 10% convertible preferred stock is a two-year convertible preferred
instrument.  All dividends are cumulative and are payable in shares of
common stock valued at the then current market price per share, at the time of
maturity, or upon conversion, whichever is earlier.  The conversion
rate for shares and accrued dividends payable is 40 shares of common stock for
each share of preferred stock.  The Series F convertible preferred
stockholders have voting rights equal to the common stockholders.  The
Series F convertible preferred stock has no stated rights in the assets of the
Company upon liquidation.  In connection with Series F Preferred Stock
conversions, the Company recorded dividends of $58.00 and $399.00 for each of
the years ended December 31, 2008 and 2007, respectively.
  F-25
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 NOTE
12 – STOCK WARRANTS
 
 The
following warrants were issued by the Company in connection with Convertible
Promissory Notes:
 
 The
      year ended December 31, 2007
                  
                  1,384,786The
      year ended December 31, 2008
                  
                  1,298,534
 
 The
following warrants were issued by the Company in connection with various
employment and compensation agreements:
 
 The
      year ended December 31, 2007
                  
                  14,100,000The
      year ended December 31, 2008
                  
                  1,556,666
 
 The
following warrants were issued by the Company in connection with private
placements:
 
 The
      year ended December 31, 2007
                
                2,592,193The
      year ended December 31, 2008
                
                4,046,379
  In
February 2008, the Company cancelled 2,000,000 warrants in connection with the
termination of a former employee.
 
 In March
2008, 110,000 warrants were exercised.  The Company received $9,350
from the transaction.
  The
following tables sets forth information concerning the Company's warrant
issuances and warrant balances outstanding as of, and during the years ended
December 31, 2008 and 2007:
 
 Shares
      Underlying Warrants
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Intrinsic
      Value
                  
                  
                  Weighted
      Average Fair ValueOutstanding
      at December 31, 2006
                  
                  
                  7,812,352
                  
                  
                  $
                  0.12
                  
                  
                  $
                  22,059
                  
                  
                  $
                  0.10Granted
                  
                  
                  18,076,979
                  
                  
                  
                  0.08
                  
                  
                  
                  --
                  
                  
                  
                  0.04Expired
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Exercised
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Outstanding
      at December 31, 2007
                  
                  
                  25,889,331
                  
                  
                  
                  0.11
                  
                  
                  
                  --
                  
                  
                  
                  0.05Granted
                  
                  
                  6,811,579
                  
                  
                  
                  0.07
                  
                  
                  
                  --
                  
                  
                  
                  0.06Expired
                  
                  
                  (430,000
                  )
                  
                  
                  0.12
                  
                  
                  
                  --
                  
                  
                  
                  --Exercised
                  
                  
                  (110,000
                  )
                  
                  
                  0.085
                  
                  
                  
                  --
                  
                  
                  
                  0.093Cancelled
                  
                  
                  (2,000,000
                  )
                  
                  
                  0.11
                  
                  
                  
                  --
                  
                  
                  
                  --Outstanding
      at December 31, 2008
                  
                  
                  30,160,910
                  
                  
                  $
                  0.11
                  
                  
                  
                  --
                  
                  
                  $
                  0.10
  F-26
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 The
following is additional information with respect to the Company's warrants as of
December 31, 2008:
 
 Warrants
      Outstanding
                      
                      
                      Warrants
      ExercisableExercise
      Price
                      
                      
                      Number
      of Outstanding Warrants
                      
                      Weighted
      Average Remaining Contractual Life
                      
                      Weighted
      Average Exercise Price
                      
                      
                      Number
      of Exercisable Warrants
                      
                      
                      Weighted
      Average Exercise Price$
                      0.041
                      
                      
                      
                      582,524
                      
                      2.2
      years
                      
                      $
                      0.041
                      
                      
                      
                      582,524
                      
                      
                      $
                      0.0410.042
                      
                      
                      
                      1,142,856
                      
                      2.9
      years
                      
                      
                      0.042
                      
                      
                      
                      1,142,856
                      
                      
                      
                      0.0420.043
                      
                      
                      
                      280,374
                      
                      2.2
      years
                      
                      
                      0.043
                      
                      
                      
                      280,374
                      
                      
                      
                      0.0430.047
                      
                      
                      
                      512,820
                      
                      4.8
      years
                      
                      
                      0.047
                      
                      
                      
                      512,820
                      
                      
                      
                      0.0470.048
                      
                      
                      
                      500,000
                      
                      4.9
      years
                      
                      
                      0.048
                      
                      
                      
                      500,000
                      
                      
                      
                      0.0480.053
                      
                      
                      
                      902,256
                      
                      2.0
      years
                      
                      
                      0.053
                      
                      
                      
                      902,256
                      
                      
                      
                      0.0530.054
                      
                      
                      
                      3,000,000
                      
                      2.0
      years
                      
                      
                      0.054
                      
                      
                      
                      3,000,000
                      
                      
                      
                      0.0540.058
                      
                      
                      
                      300,000
                      
                      2.6
      years
                      
                      
                      0.058
                      
                      
                      
                      300,000
                      
                      
                      
                      0.0580.061
                      
                      
                      
                      394,737
                      
                      1.9
      years
                      
                      
                      0.061
                      
                      
                      
                      394,737
                      
                      
                      
                      0.0610.062
                      
                      
                      
                      389,610
                      
                      1.9
      years
                      
                      
                      0.062
                      
                      
                      
                      389,610
                      
                      
                      
                      0.0620.067
                      
                      
                      
                      500,000
                      
                      3.2
      years
                      
                      
                      0.067
                      
                      
                      
                      500,000
                      
                      
                      
                      0.0670.070
                      
                      
                      
                      2,000,000
                      
                      1.7
      years
                      
                      
                      0.070
                      
                      
                      
                      1,000,000
                      
                      
                      
                      0.0700.072
                      
                      
                      
                      335,196
                      
                      1.9
      years
                      
                      
                      0.072
                      
                      
                      
                      335,196
                      
                      
                      
                      0.0720.076
                      
                      
                      
                      1,021,522
                      
                      1.9
      years
                      
                      
                      0.076
                      
                      
                      
                      1,021,522
                      
                      
                      
                      0.0760.085
                      
                      
                      
                      772,352
                      
                      2.5
      years
                      
                      
                      0.085
                      
                      
                      
                      772,352
                      
                      
                      
                      0.0850.088
                      
                      
                      
                      273,973
                      
                      2.5
      years
                      
                      
                      0.088
                      
                      
                      
                      273,973
                      
                      
                      
                      0.0880.096
                      
                      
                      
                      1,384,786
                      
                      1.7
      years
                      
                      
                      0.096
                      
                      
                      
                      1,384,786
                      
                      
                      
                      0.0960.100
                      
                      
                      
                      4,000,000
                      
                      0.4
      years
                      
                      
                      0.100
                      
                      
                      
                      4,000,000
                      
                      
                      
                      0.1000.101
                      
                      
                      
                      166,667
                      
                      2.5
      years
                      
                      
                      0.101
                      
                      
                      
                      166,667
                      
                      
                      
                      0.1010.108
                      
                      
                      
                      333,333
                      
                      2.2
      years
                      
                      
                      0.108
                      
                      
                      
                      333,333
                      
                      
                      
                      0.1080.110
                      
                      
                      
                      5,875,757
                      
                      1.5
      years
                      
                      
                      0.110
                      
                      
                      
                      5,875,757
                      
                      
                      
                      0.1100.116
                      
                      
                      
                      415,224
                      
                      2.3
      years
                      
                      
                      0.116
                      
                      
                      
                      415,224
                      
                      
                      
                      0.1160.118
                      
                      
                      
                      2,000,000
                      
                      1.2
      years
                      
                      
                      0.118
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.1180.120
                      
                      
                      
                      300,000
                      
                      2.3
      years
                      
                      
                      0.120
                      
                      
                      
                      300,000
                      
                      
                      
                      0.1200.130
                      
                      
                      
                      276,923
                      
                      2.3
      years
                      
                      
                      0.130
                      
                      
                      
                      276,923
                      
                      
                      
                      0.1300.150
                      
                      
                      
                      2,500,000
                      
                      0.4
      years
                      
                      
                      0.150
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.15030,160,910
                      
                      
                      
                      
                      
                      
                      
                      
                      28,660,910
  F-27
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 The
following is additional information with respect to the Company's warrants as of
December 31, 2007:
 
 Warrants
      Outstanding
                        
                        
                        Warrants
      ExercisableExercise
      Price
                        
                        
                        Number
      of Outstanding Warrants
                        
                        Weighted
      Average Remaining Contractual Life
                        
                        Weighted
      Average Exercise Price
                        
                        
                        Number
      of Exercisable Warrants
                        
                        
                        Weighted
      Average Exercise Price$
                        0.053
                        
                        
                        
                        451,128
                        
                        3.0
      years
                        
                        $
                        0.053
                        
                        
                        
                        451,128
                        
                        
                        $
                        0.0530.054
                        
                        
                        
                        3,000,000
                        
                        3.0
      years
                        
                        
                        0.054
                        
                        
                        
                        --
                        
                        
                        
                        --0.061
                        
                        
                        
                        394,737
                        
                        2.9
      years
                        
                        
                        0.061
                        
                        
                        
                        394,737
                        
                        
                        
                        0.0610.062
                        
                        
                        
                        389,610
                        
                        2.9
      years
                        
                        
                        0.062
                        
                        
                        
                        389,610
                        
                        
                        
                        0.0620.062
                        
                        
                        
                        389,610
                        
                        3.0
      years
                        
                        
                        0.062
                        
                        
                        
                        389,610
                        
                        
                        
                        0.0620.070
                        
                        
                        
                        2,000,000
                        
                        2.7
      years
                        
                        
                        0.070
                        
                        
                        
                        --
                        
                        
                        
                        --0.072
                        
                        
                        
                        335,196
                        
                        2.9
      years
                        
                        
                        0.072
                        
                        
                        
                        335,196
                        
                        
                        
                        0.0720.076
                        
                        
                        
                        631,912
                        
                        2.8
      years
                        
                        
                        0.076
                        
                        
                        
                        631,912
                        
                        
                        
                        0.0760.085
                        
                        
                        
                        882,352
                        
                        1.8
      years
                        
                        
                        0.085
                        
                        
                        
                        882,352
                        
                        
                        
                        0.0850.096
                        
                        
                        
                        1,384,786
                        
                        2.8
      years
                        
                        
                        0.096
                        
                        
                        
                        1,384,786
                        
                        
                        
                        0.0960.100
                        
                        
                        
                        4,000,000
                        
                        1.4
      years
                        
                        
                        0.100
                        
                        
                        
                        4,000,000
                        
                        
                        
                        0.1000.110
                        
                        
                        
                        7,100,000
                        
                        2.3
      years
                        
                        
                        0.110
                        
                        
                        
                        3,100,000
                        
                        
                        
                        0.1100.118
                        
                        
                        
                        2,000,000
                        
                        2.2
      years
                        
                        
                        0.118
                        
                        
                        
                        1,000,000
                        
                        
                        
                        0.1180.140
                        
                        
                        
                        430,000
                        
                        .9
      years
                        
                        
                        0.140
                        
                        
                        
                        430,000
                        
                        
                        
                        0.1400.150
                        
                        
                        
                        2,500,000
                        
                        1.4
      years
                        
                        
                        0.150
                        
                        
                        
                        2,500,000
                        
                        
                        
                        0.15025,889,331
                        
                        
                        
                        
                        
                        
                        
                        
                        15,889,331
 
 
 NOTE
13 - RELATED PARTY TRANSACTIONS
 
 (a)
              On
      January 29, 2007, in connection with his resignation, the Company’s then
      President and Chief Executive Officer (i) surrendered his previously
      granted stock appreciation rights and all existing rights to severance
      payments under his employment agreement, (ii) forgave $525,738 of notes
      payable and accrued interest on such notes and (iii) relinquished his
      rights to $471,583 of unpaid and accrued salary.  The Company
      recorded the surrender, forgiveness and relinquishment of such
      liabilities, which aggregated to $947,321, as a contribution to
      capital.  The cancellation of the stock appreciation rights did
      not have an accounting impact.
 
 (b)
              In
      February 12, 2007, in connection with his resignation as a director of the
      Company, the resigning director waived his rights to any accrued
      consulting and director fees owed to him, which aggregated to $330,000.
      The Company recorded the waiver of such liabilities as a contribution to
      capital.
 
 (c)
              In
      March 2007, the Company’s Chief Executive Officer and a former director
      each made loans of $50,000 to the Company.  The loans accrue
      simple interest at the rate of 10% per annum and were due and payable 120
      days after funding.  The loans 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 conversion 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.  The former director has made a demand for
      conversion, but the date of the demand is currently in
      question.
  F-28
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 (d)
              In
      each of 2007 and 2008, a firm in which the Company’s Chief Financial
      Officer held a one-third equity position  was retained to
      prepare the Company’s income tax returns.  During the years
      ended December 31, 2007 and 2008, the Company incurred fees totaling
      $2,000 and $5,900, respectively, with respect to such services
      rendered.
 
 (e)
              On
      February 8, 2008, the Company’s Board of Directors authorized the
      negotiation of 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 was 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 was
      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 2,000,000 warrants the Company
      awarded the officer on April 23, 2007 were 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.
 
 (f)
              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.
 
 (g)
              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.
  F-29
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 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:
 
 •
              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;
 •
              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
 •
              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 December 31, 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 financial
statements.
 
 As
      of December 31, 2008, the Company has included the outstanding note
      receivable and accrued interest  due from the consultant,
      totaling approximately $350,000, as part of stockholders’
      deficiency.
 
 (i)
              On
      October 14, 2008, Leslie J. Kessler, the Company’s Chief Executive
      Officer, and Terry R. Lazar, the Company’s Chief Financial Officer each
      made loans of $50,000 to the Company.  The loans accrue interest
      at the rate of 10% per annum.  In addition, the Company issued
      256,410 warrants to each officer to purchase common stock at an exercise
      price of $0.047 per share.  The loans  are due and
      payable by or on October 14, 2009, provided, however, that each executive
      officer may, at the officer’s option and in lieu of conversion as set in
      the loan agreements, demand repayment of the loan amount plus all accrued
      and unpaid interest as of the date demand is received by the
      Company.  The loans were evidenced by the promissory notes the
      Company issued to the two officers which each contain a conversion clause
      that allow the officers at the officer’s sole option to convert the loan
      amount plus all accrued and unpaid interest due under the note into common
      stock at any time.  The conversion price was set at $0.04 per
      share, which was the closing market price of the common stock as of the
      closing date of the loans.
 
 (j)
              On
      November 17, 2008, the Chief Executive Officer and the Chief Financial
      Officer each made second loans of $50,000 each to the
      Company.  The loans accrue interest at the rate of 10% per
      annum.  In addition, the Company issued 250,000 warrants to each
      officer to purchase shares of common stock at an exercise price of $0.048
      per share.  The loans are due and payable by or on November 17,
      2009, provided, however, that each of the officers may, at the officer’s
      option and in lieu of conversion as set in the loan agreements, demand
      repayment of the loan amount plus all accrued and unpaid interest as of
      the date demand is received by the Company.  The loans were
      evidenced by the promissory notes the Company issued to these two officers
      which contain a conversion clause that allow each of the officers, at the
      officer’s sole option, to convert the loan amount plus all accrued and
      unpaid interest due under the note into common stock at any
      time.  The conversion price was set at $0.04 per share, which
      was the closing market price of the common stock as of the closing date of
      the loans.
  F-30
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 The
Company accounted for the issuance of the above convertible promissory note
disclosed in item (i) and (j) in accordance with EITF
00-19.   Accordingly, the warrants and the embedded conversion
option of the convertible note is recorded as derivative liabilities at their
fair market value and were marked to market through earnings at the end of each
reporting period.  The gross proceeds from the sale of the note
$100,000 was recorded net of a discount of approximately $78,800.  The
debt discount consisted of approximately $11,200 related to the fair value of
the warrants and approximately $67,600 related to the fair value of the embedded
conversion option.  The debt discount is charged to interest expense
ratably over the term of the convertible note.  As of December 31,
2008, the outstanding amount owed under the convertible promissory note
(principal and accrued interest) was $128,192, net of a debt discount of
$75,280.
 
 NOTE
14 - 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 primarily New York and various
other 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 2004.  As of December 31, 2008, no liability for unrecognized
tax benefits was required to be recorded.
 
 The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes” (“SFAS 109”).  SFAS 109 requires the recognition of deferred
tax assets and liabilities for both the expected impact of differences between
the financial statements and tax basis of assets and liabilities and for the
expected future tax benefit to be derived from tax loss and tax credit carry
forwards.  SFAS 109 additionally requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred tax
assets.
 
 At
December 31, 2008 and 2007, the Company has a deferred tax asset of
approximately $9.9 million and $9.5 million which consists primarily of federal
and state net operating losses.  SFAS No. 109 requires that a
valuation allowance be established when it is “more likely than not” that all or
a portion of deferred tax assets will not be realized.  A review of
all available positive and negative evidence needs to be considered, including a
company’s performance, the market environment in which the company operates the
length of carryback and carryforward periods, and expectations of future
profits.
 
 The
valuation allowance primarily relates to the federal and state net operating
losses for which utilization in future periods is uncertain.  The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible.  The Company considers projected future taxable
income and tax planning strategies in making this assessment.  Based
on projections for future taxable income over the periods that the deferred tax
assets are deductible, the Company believes it is more likely than not that the
Company will not realize the benefits of these deductible differences in the
near future and therefore a full valuation allowance increased approximately
$400,000 during 2008 related to increased net operating losses.
  F-31
  PureSafe
Water Systems, Inc.
 (Formerly
Water Chef, Inc.)
 (A
Development Stage Company Commencing January 1, 2002)
 Notes
to Financial Statements
 (Continued)
 
 For the
year ended December 31, 2008 and 2007, no provision for income taxes has been
provided for, as a result of continued net operating losses.  The
Company is subject to certain state and local taxes based on
capital.  The state and local taxes based on capital were immaterial
for each of the years ended December 31, 2008 and 2007.
 
 A
reconciliation between the statutory federal income tax rate (34 %) and the
Company’s effective rate for the years ended December 31, 2008 and 2007 is as
follows:
 
 2008
                    
                    
                    2007Federal
      statutory rate
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %State
      tax benefit, net of federal tax
                    
                    
                    6.0
                    
                    
                    
                    6.0Permanent
      differences
                    
                    
                    (5.2
                    )
                    
                    
                    (4.9
                    )Other
                    
                    
                    (2.2
                    )
                    
                    
                    --Change
      in valuation allowance
                    
                    
                    (22.6
                    )
                    
                    
                    (35.1
                    )Effective
      rate
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %
 
 The
Company has net operating loss carry-forwards for federal income tax purposes
totaling approximately $25.2 million at December 31, 2008.  These
carry-forwards expire between the years 2010 through
2028.  Utilization of these loss carry-forwards may be limited under
Internal Revenue Code Section 382.
 
 
 NOTE
15 - CREDIT RISK
 
 The
Company maintains its checking and money market accounts in
banks.  Accounts at each bank are insured by the Federal Deposit
Insurance Corporation (“FDIC”).  At times, cash and cash equivalents
may be uninsured or in deposit accounts that exceed the FDIC insurance
limit.
 
 Periodically,
the Company evaluates the credit worthiness of the financial institutions and
has determined the credit exposure to be negligible.
 
 
 NOTE
16 – SUBSEQUENT EVENTS
 
 In the
first quarter of 2009, the Company sold an aggregate 6,357,079 shares
of common stock and three-year warrants to purchase an additional 1,271,416
shares of common stock at an exercise price of $0.0348 to $0.0396 for gross
proceeds of $195,000.
 
 On
February  23, 2009, the Company issued 1,000,000 share of common stock
to a consultant pursuant to the term of a consulting agreement entered into in
October 2007.  The Company recorded $20,000 of stock-based
compensation in connection with this issuance.
 
 On March
11, 2009, the Company issued 500,000 shares of common stock for the settlement
of $27,368 of outstanding  payables with a service
provider.
 F-32
  SIGNATURES





Pursuant
to the requirements of Section 13 or 15 (d) 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.





Date:  April
      14, 2009
                PureSafe
      Water Systems, Inc.By:
                /s/
      Leslie J. KesslerLeslie
      J. Kessler, President





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.








Signature and Name
                      
                      Capacities
                      
                      Date/s/
      Leslie
      J. Kessler
                      
                      Chief
      Executive Officer, President
                      
                      April
      14, 2009Leslie
      J. Kessler
                      
                      and
      Director(Principal
      Executive Officer)/s/
      Terry
      R. Lazar
                      
                      Chief
      Financial Officer and Director
                      
                      April
      14, 2009Terry
      R. Lazar
                      
                      (Principal
      Financial Officer andPrincipal
      Accounting Officer)/s/
      Malcolm
      Hoenlein
                      
                      Director
                      
                      April
      14, 2009Malcolm
      Hoenlein