UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








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





For
the quarterly period ended March 31, 2009





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





Commission
File Number:001-09478





PureSafe
Water Systems, Inc.


(Exact
name of registrant as specified in its charter)





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





25
      Fairchild Avenue - Suite 250, Plainview, New York
              11803(Address
      of principal executive offices)
              (Zip
      Code)





(516)
208-8250


(Registrant’s
telephone number,including area code)








Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x  No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T( 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes o  No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.





Large
      accelerated filer  o
                Accelerated
      filer  oNon-accelerated
      filer  o
                Smaller
      reporting company  x





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


Yes  o  No  x





State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date. As of May 12, 2009, 263,612,456 shares of common
stock of the issuer were outstanding.












PART
I - FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements.




PureSafe
Water Systems, Inc.


(Formerly
Known as Water Chef, Inc.)


(A
Development Stage Company Commencing January 1, 2002)


Condensed
Balance Sheets





March
      31,
                          2009
                        
                        
                        December
      31,
                          2008(Unaudited)ASSETSCurrent
      assetsCash
                        
                        $
                        64,314
                        
                        
                        $
                        29,411Prepaid
      expenses and other current assets
                        
                        
                        36,855
                        
                        
                        
                        53,890Total
      current assets
                        
                        
                        101,169
                        
                        
                        
                        83,301Property
      and equipment, net of accumulated depreciation of $23,548 and $17,130,
      respectively
                        
                        
                        136,019
                        
                        
                        
                        142,437Other
      assetsPatents
      and trademarks, net of accumulated amortization of $19,199 and $17,882,
      respectively
                        
                        
                        60,727
                        
                        
                        
                        62,044Other
      assets
                        
                        
                        26,860
                        
                        
                        
                        26,860Total
      other assets
                        
                        
                        87,587
                        
                        
                        
                        88,904Total
      Assets
                        
                        $
                        324,775
                        
                        
                        $
                        314,642LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                        
                        $
                        516,429
                        
                        
                        $
                        410,925Accrued
      compensation
                        
                        
                        197,000
                        
                        
                        
                        155,000Accrued
      consulting and director fees
                        
                        
                        180,000
                        
                        
                        
                        178,000Convertible
      notes payable to officer and director, including accrued interest of
      $18,421and $12,171, respectively and net of debt discount of $45,953 and
      $75,280, respectively
                        
                        
                        222,468
                        
                        
                        
                        186,891Convertible
      promissory notes, including accrued interest of $1,458 and $208 and net of
      debt discount of $13,813 and $19,283, respectively
                        
                        
                        37,646
                        
                        
                        
                        30,925Notes
      payable, including accrued interest of $272,047 and $269,833,
      respectively
                        
                        
                        555,269
                        
                        
                        
                        553,056Fair
      value of warrants
                        
                        
                        275,900
                        
                        
                        
                        121,100Fair
      value of embedded conversion options
                        
                        
                        191,500
                        
                        
                        
                        164,900Accrued
      dividends payable
                        
                        
                        190,328
                        
                        
                        
                        190,328Total
      current liabilities
                        
                        
                        2,366,540
                        
                        
                        
                        1,991,125Stockholders'
      deficiencyPreferred
      stock, $.001 par value; 10,000,000 shares authorized; 184,144 shares
      issued and outstanding (liquidation preference of $2,511,025 and
      $2,483,950 as of March 31, 2009 and December 31, 2008,
      respectively)
                        
                        
                        184
                        
                        
                        
                        184Common
      stock $.001 par value; 450,000,000 shares authorized; 252,707,114 shares
      issued and 252,702,714 shares outstanding as of March 31, 2009 and
      244,850,034 shares issued and 244,845,634 outstanding as of December 31,
      2008
                        
                        
                        252,707
                        
                        
                        
                        244,849Additional
      paid-in capital
                        
                        
                        28,789,045
                        
                        
                        
                        28,528,973Treasury
      stock, at cost, 4,400 shares of common stock
                        
                        
                        (5,768
                        )
                        
                        
                        (5,768
                        )Subscription receivable,
      including accrued interest of $17,901 and $12,914
      respectively
                        
                        
                        (355,101
                        )
                        
                        
                        (350,114
                        )Accumulated
      deficit, including $16,191,235 and $15,563,011 of deficit accumulated
      during the development stage as of March 31, 2009 and December 31, 2008,
      respectively
                        
                        
                        (30,722,832
                        )
                        
                        
                        (30,094,607
                        )Total
      stockholders’ deficiency
                        
                        
                        (2,041,765
                        )
                        
                        
                        (1,676,483
                        )Total
      Liabilities and Stockholders' Deficiency
                        
                        $
                        324,775
                        
                        
                        $
                        314,642





See notes
to condensed financial statements





2





PureSafe
Water Systems, Inc.


(Formerly
Known as Water Chef, Inc.)


(A
Development Stage Company Commencing January 1, 2002)


Condensed
Statements of Operations





Three
      Months Ended
                                    
                                    
                                    January1, 2002March 31,
                                    
                                    
                                    to2009
                                    
                                    
                                    2008
                                    
                                    
                                    March
      31, 2009Sales
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    471,290Costs
      and expenses (income) -Cost
      of sales
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    575,680Selling,
      general and administrative, including stock based compensation of $63,962
      and $107,072 for the three months ended March 31, 2009 and 2008,
      respectively, and $2,736,656 for the period of January 1, 2002 to March
      31, 2009
                                    
                                    
                                    418,412
                                    
                                    
                                    
                                    478,614
                                    
                                    
                                    
                                    9,342,339Non-dilution
      agreement termination costs
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    2,462,453Research
      and development
                                    
                                    
                                    2,234
                                    
                                    
                                    
                                    111,521
                                    
                                    
                                    
                                    708,002Interest
      expense, including interest expense to a related party of $6,250 and
      $1,233 for the three months ended March 31, 2009 and 2008, respectively,
      and $140,023 for period of January 1, 2002 to March 31,
    2009
                                    
                                    
                                    45,079
                                    
                                    
                                    
                                    79,499
                                    
                                    
                                    
                                    1,561,799Financing
      costs - extension of warrants
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    74,700Interest
      expense - conversion provision
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    113,000(Gain)
      loss on settlement of debt
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (226,467
                                    )
                                    
                                    
                                    2,229,903Change
      in fair value of warrants and embedded conversion option
                                    
                                    
                                    162,500
                                    
                                    
                                    
                                    627,800
                                    
                                    
                                    
                                    (405,351
                                    )Total
      cost and expenses (income)
                                    
                                    
                                    628,225
                                    
                                    
                                    
                                    1,070,967
                                    
                                    
                                    
                                    16,662,525Net
      loss
                                    
                                    
                                    (628,225
                                    )
                                    
                                    
                                    (1,070,967
                                    )
                                    
                                    
                                    (16,191,235
                                    )Deemed
      dividend on preferred stock
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (2,072,296
                                    )Preferred
      stock dividends
                                    
                                    
                                    (27,075
                                    )
                                    
                                    
                                    (27,075
                                    )
                                    
                                    
                                    (753,198
                                    )Net
      loss attributable to common stockholders
                                    
                                    $
                                    (655,300
                                    )
                                    
                                    $
                                    (1,098,042
                                    )
                                    
                                    $
                                    (19,016,729
                                    )Basic
      and diluted net loss attributable to common stockholders per common
      share
                                    
                                    
                                    *
                                    
                                    
                                    
                                    (0.01
                                    )Weighted
      average number of common shares outstanding – basic and
      diluted
                                    
                                    
                                    239,169,385
                                    
                                    
                                    
                                    218,163,033


_____


*
            Less
      that $0.01.




See notes
to condensed financial statements





3




PureSafe
Water Systems, Inc.


(Formerly
Known as Water Chef, Inc.)


(A
Development Stage Company Commencing January 1, 2002)


Condensed
Statement of Stockholders’ Deficiency


(Unaudited)





Additional
                    
                    
                    Treasury
                    
                    
                    
                    
                    
                    
                    
                    
                    TotalPreferred Stock
                    
                    
                    Common Stock
                    
                    
                    Paid-In
                    
                    
                    Stock
                    
                    
                    Subscription
                    
                    
                    Accumulated
                    
                    
                    Stockholders’Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    at Cost
                    
                    
                    Receivable
                    
                    
                    Deficit
                    
                    
                    DeficiencyBalance
      at December 31, 2008
                    
                    
                    184,144
                    
                    
                    $
                    184
                    
                    
                    
                    244,850,034
                    
                    
                    $
                    244,849
                    
                    
                    $
                    28,528,973
                    
                    
                    $
                    (5,768
                    )
                    
                    
                    (350,114
                    )
                    
                    $
                    (30,094,607
                    )
                    
                    $
                    (1,676,483
                    )Proceeds
      from sale of common stock and warrants:$0.0330
      per share – January 16, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    757,576
                    
                    
                    
                    758
                    
                    
                    
                    24,242
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    25,000$0.0320
      per share – January 30, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    1,562,500
                    
                    
                    
                    1,563
                    
                    
                    
                    48,437
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    50,000$0.0
      320 per share – February 09, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    640,625
                    
                    
                    
                    641
                    
                    
                    
                    19,859
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    20,500$0.0
      299 per share – February 13, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    1,672,241
                    
                    
                    
                    1,672
                    
                    
                    
                    48,328
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    50,000$0.0
      290 per share – February 17, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    1,724,138
                    
                    
                    
                    1,724
                    
                    
                    
                    48,276
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    50,000Common
      stock issued in repayment of debt:$0.0547
      per share – March 14, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    500,000
                    
                    
                    
                    500
                    
                    
                    
                    26,868
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    27,368Common
      stock issued for services$0.0200
      per share – February 23, 2009
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    1,000,000
                    
                    
                    
                    1,000
                    
                    
                    
                    19,000
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    20,000Stock
      for receivables
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (4,987
                    )
                    
                    
                    --
                    
                    
                    
                    (4,987
                    )Reclassification
      of warrants to derivative liability
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (18,900
                    )
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (18,900
                    )Amortization
      of warrants and optionsfor
      employees and non-employees--
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    43,962
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    43,962Net
      loss
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    
                    
                    
                    
                    (628,225
                    )
                    
                    
                    (628,225
                    )BALANCE
      – March 31, 2009
                    
                    
                    184,144
                    
                    
                    $
                    184
                    
                    
                    
                    252,707,114
                    
                    
                    $
                    252,707
                    
                    
                    $
                    28,789,045
                    
                    
                    $
                    (5,768
                    )
                    
                    $
                    (355,101
                    )
                    
                    $
                    (30,722,832
                    )
                    
                    $
                    (2,041,765
                    )





See notes
to condensed financial statements





4




PureSafe
Water Systems, Inc.


(Formerly
Known as Water Chef, Inc.)


(A
Development Stage Company Commencing January 1, 2002)


Condensed
Statements of Cash Flow


(Unaudited)





JanuaryThree
      Months Ended
                    
                    
                    1,
      2002March 31,
                    
                    
                    to
      March2009
                    
                    
                    2008
                    
                    
                    31, 2009Cash
      Flows from Operating Activities:Net
      loss
                    
                    $
                    (628,225
                    )
                    
                    $
                    (1,070,967
                    )
                    
                    $
                    (16,191,235
                    )Adjustments
      to reconcile net loss to net cash used in operating activities
      -Depreciation
                    
                    
                    6,418
                    
                    
                    
                    1,052
                    
                    
                    
                    23,548Amortization
      of patents
                    
                    
                    1,317
                    
                    
                    
                    860
                    
                    
                    
                    17,817Interest
      expense - amortization of deferred financing
                    
                    
                    --
                    
                    
                    
                    2,510
                    
                    
                    
                    22,530Stock-based
      compensation
                    
                    
                    63,962
                    
                    
                    
                    107,072
                    
                    
                    
                    2,736,656Interest
      expense - conversion provision
                    
                    
                    -
                    
                    
                    
                    --
                    
                    
                    
                    113,000Stock
      subscription - interest receivable
                    
                    
                    (4,988
                    )
                    
                    
                    --
                    
                    
                    
                    (17,902
                    )Accretion
      of debt discount
                    
                    
                    34,797
                    
                    
                    
                    67,900
                    
                    
                    
                    603,875Change
      in fair value of warrants and embedded conversion options
                    
                    
                    162,500
                    
                    
                    
                    627,800
                    
                    
                    
                    (405,351
                    )(Gain)
      loss on settlement of debt
                    
                    
                    --
                    
                    
                    
                    (226,467
                    )
                    
                    
                    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
                    
                    
                    17,035
                    
                    
                    
                    4,853
                    
                    
                    
                    13,389Security
      deposit
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (17,441
                    )Accounts
      payable, accrued expenses, accrued dividends, accrued compensation,
      accrued consulting and director fees, customer deposits and other current
      liabilities
                    
                    
                    186,587
                    
                    
                    
                    (146,655
                    )
                    
                    
                    1,981,541Net
      Cash Used in Operation Activities
                    
                    
                    (160,597
                    )
                    
                    
                    (632,042
                    )
                    
                    
                    (6,171,467
                    )Cash
      Flows from Investing Activities:Purchase
      of property and equipment
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (159,567
                    )Patent
      costs
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (53,871
                    )Net
      Cash Used in Investing Activities
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (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
                    
                    
                    195,500
                    
                    
                    
                    500,000
                    
                    
                    
                    4,056,060Proceeds
      from exercise of warrants
                    
                    
                    --
                    
                    
                    
                    9,350
                    
                    
                    
                    9,350Proceeds
      from sale of common stock to be issued
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    300,000Deferred
      financing costs
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (22,530
                    )Proceeds
      from convertible promissory note
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    850,000Proceeds
      from officers’ and directors’ loans
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    300,000Repayment
      of notes payable
                    
                    
                    --
                    
                    
                    
                    (28,654
                    )
                    
                    
                    (274,999
                    )Net
      Cash Provided by Financing Activities
                    
                    
                    195,500
                    
                    
                    
                    480,696
                    
                    
                    
                    6,413,708





(Continued
on following page)





5





PureSafe
Water Systems, Inc.


(Formerly
Known as Water Chef, Inc.)


(A
Development Stage Company Commencing January 1, 2002)


Condensed
Statements of Cash Flow


(Unaudited)


(Continued
From Previous Page)





JanuaryThree
      Months Ended
                                                              
                                                              
                                                              1,
      2002March 31,
                                                              
                                                              
                                                              to
      March2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              31, 2009Net
      (Decrease) Increase in Cash
                                                              
                                                              
                                                              34,903
                                                              
                                                              
                                                              
                                                              (151,346
                                                              )
                                                              
                                                              
                                                              28,803Cash
      at Beginning of Year
                                                              
                                                              
                                                              29,411
                                                              
                                                              
                                                              
                                                              415,400
                                                              
                                                              
                                                              
                                                              35,511Cash
      at End of Period
                                                              
                                                              $
                                                              64,314
                                                              
                                                              
                                                              $
                                                              264,054
                                                              
                                                              
                                                              $
                                                              64,314SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for -Interest
                                                              
                                                              $
                                                              567
                                                              
                                                              
                                                              $
                                                              1,868
                                                              
                                                              
                                                              $
                                                              370,920NON-CASH
      INVESTING ACTIVITIES:Notes
      receivable for common stock issued
                                                              
                                                              $
                                                              --
                                                              
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              $
                                                              674,400NON-CASH
      FINANCING ACTIVITIES:Accrued
      compensation satisfied by issuance of common stock
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              $
                                                              55,250Common
      stock issued in satisfaction of liabilities
                                                              
                                                              $
                                                              27,368
                                                              
                                                              
                                                              $
                                                              362,509
                                                              
                                                              
                                                              $
                                                              7,065,239Reclassification
      of derivative liabilities
                                                              
                                                              $
                                                              18,900
                                                              
                                                              
                                                              $
                                                              111,400
                                                              
                                                              
                                                              $
                                                              520,066Cancellation
      of debt for no consideration
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              $
                                                              --
                                                              
                                                              
                                                              $
                                                              1,327,321





See notes
to condensed financial statements





6




PureSafe
Water Systems, Inc.


(Formerly
Known as Water Chef, Inc.)


(A
Development Stage Company Commencing January 1, 2002)


Notes
to Condensed Financial Statements


(Unaudited)








NOTE 1: DESCRIPTION OF
BUSINESS.





PureSafe
Water Systems, Inc. (formerly known as Water Chef, Inc.) (the
"Company")  is a Delaware corporation engaged in the design and
development of its technology to be used in the manufacture  and sale
of water purification systems, the PureSafe(TM) First Response Water System
(the “PureSafe FRWS”), both within and outside of the United States. The
Company's corporate headquarters is located in Plainview, New York.








NOTE
2: BASIS OF PRESENTATION AND ACCOUNTING POLICIES.





The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information. Accordingly, these interim financial
statements do not include all of the information and footnotes required for
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to make the
financial statements not misleading have been included.




The
operating results for the three month period ended March 31, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009. These financial statements should be read in conjunction with
the financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2008, filed with the
Securities and Exchange Commission on April 15, 2009.





Use Of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.





The
Company bases its estimates on historical experience and on various assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. The most
significant estimates, among other things, are used in accounting for the
evaluation allowances for deferred income taxes, expected realizable values for
long-lived assets (primarily intangible assets) and contingencies, as well as
the recording and presentation of the Company’s common stock, preferred stock,
option and warrant issuances. Estimates and assumptions are periodically
reviewed and the effects of any material revisions are reflected in the
financial statements in the period that they are determined to be necessary.
Actual results could differ from those estimates and assumptions.





Stock-Based
Compensation





The
Company reports stock-based compensation under SFAS No. 123R “Share Based
Payment” (“SFAS 123R”).  SFAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized in
the financial statements based on their fair values.





The
Company accounts for equity instruments issued to non-employees as compensation
in accordance with the provisions of SFAS 123R and the Emerging Issues Task
Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or In Conjunction with Selling,
Goods or Services” (“EITF 96-18”), which require that each such equity
instrument is recorded at its fair value on the measurement date, which is
typically the date the services are performed.





7





The
Black-Scholes option valuation model is used to estimate the fair values of
options. The model includes subjective input assumptions that can materially
affect the fair value estimates. The model was developed for use in estimating
the fair value of traded options or warrants that have no vesting restrictions
and that are fully transferable. The expected volatility is estimated based on
the most recent historical period of time equal to the weighted average life of
the subject option.





NOTE
3: GOING CONCERN.





The
accompanying unaudited condensed financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred recurring losses from operations, an accumulated deficit since its
inception of approximately $30,723,000 and $30,095,000 as of March 31, 2009 and
December 31, 2008, respectively, and has a working capital deficiency of
approximately $2,265,000 and $1,908,000 as of March 31, 2009 and December 31,
2008, respectively. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.





The Company’s plans with respect to these matters
include restructuringitsexisting 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 nine 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. The Company can give no assurance that
such financing will be available on terms advantageous to us, or at
all.Should the
Company not be successful in obtaining the necessary financing to fund its
operations, the Company would need to curtail certain or all of its operational
activities. The accompanying unaudited condensed financial statements do not
include any adjustments that might be necessary should the Company be unable to
continue as a going concern.





NOTE
4: RECENT ACCOUNTING PRONOUNCEMENTS.





In June
2008, the Financial Accounting Standards Board (“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 adoption
of EITF 07-5 did not have a material impact on the Company’s financial
statements.





In April
2009, FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2 and 124-2”).
FSP 115-2 and 124-2 amend the guidance on other-than-temporary impairment for
debt securities and modifies the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. These FSPs are effective for interim and annual periods ending after
June 15, 2009. The Company is evaluating the impact of FSP 115-2 and 124-2 on
its financial statements.





In April
2009, FASB issued FASB Staff Position No. FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP
157-4”). FSP 157-4 provides additional guidance for estimating fair value under
Statement of Financial Accounting Standard No. 157, “Fair Value Measurements”
when there is an inactive market or the market is not orderly. This FSP is
effective for interim and annual periods ending after June 15, 2009. The Company
is evaluating the impact of FSP 157-4 on its financial statements.





8





In April
2009, FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB
28-1”). These FASB staff position and Accounting Principles Board opinion
require disclosure about fair value of financial instruments in interim periods,
as well as annual financial statements. FSP 107-1 and APB 28-1 are effective for
interim periods ending after June 15, 2009. The Company is evaluating the impact
of these FASB staff position and Accounting Principles Board opinion on its
financial statements.





NOTE
6: NET LOSS PER SHARE OF COMMON STOCK





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, convertible
preferred stock and convertible notes. Common stock equivalents were excluded in
the computation of diluted loss per share since their inclusion would be
anti-dilutive. Total shares issuable upon the exercise of warrants and
conversion of preferred stock and convertible promissory notes for the three
months ended March 31, 2009 and 2008 were as follows:




March
      31,2009
                            
                            
                            2008Warrants
                            
                            
                            31,432,326
                            
                            
                            
                            27,542,806Convertible
      promissory notes
                            
                            
                            9,537,463
                            
                            
                            
                            1,980,611Convertible
      preferred stock
                            
                            
                            1,545,760
                            
                            
                            
                            1,587,760Total
                            
                            
                            42,515,549
                            
                            
                            
                            31,111,177





NOTE
7: STOCKHOLDERS' DEFICIENCY.





Debt





In March
2009, the Company issued 500,000 shares of Common Stock in settlement of $27,368
of accounts payable  due a vendor.





Cash





During
the three months ended March 31, 2009, for gross proceeds of $195,500 the
Company sold an aggregate of 6,357,080 shares of common stock and warrants to
purchase additional 1,271,416 shares of common stock at an exercise price
of $0.0348 to $0.0396.  The warrants have a term of three
years.





Services





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.





NOTE
8: RELATED PARTY TRANSACTIONS.





(a)
            In March 2007, the Company’s
      former director made a loan of $50,000 to the Company. The loan
      accrues simple interest at the rate of 10% per annum and was due and
      payable 120 days after funding. The former director was granted the
      right, if the loan was not repaid by June 25, 2007, to convert his loan
      principal and interest into shares of common stock at a conversion price
      equal to 50% of the average closing price of the common stock over the
      three business days preceding the date on which 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 right is marked to
      market through earnings at the end of each reporting period. As of
      March 31, 2009, the $50,000 loan and $9,949 of accrued interest owed to
      the former director is still outstanding.  The former director
      has made a demand for conversion, but the date of the demand currently is
      in question.





9




(b)
            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 to each officer warrants
      to purchase 256,420 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, 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 are evidenced by the promissory notes of the Company issued to the
      two officers which each contain a conversion clause that grant the
      officers, exercisable at the officer’s sole discretion, to convert the
      loan amount plus all accrued and unpaid interest due under the note into
      common stock at any time.  The conversion price is $0.04 per
      share, the closing market price of the common stock as of the funding date
      of the loans.





On
November 17, 2008, the Chief Executive Officer and the Chief Financial Officer
each made second loans of $50,000 to the Company.  The loans accrue
interest at the rate of 10% per annum.  In addition, in connection
with these second loans, the Company issued to each officer 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 November 17, 2009,
provided, however, 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
are evidenced by the promissory notes the Company issued to these two officers
which contain a conversion clause that grant each of the officers, exercisable
at the officer’s sole discretion, the right to convert the loan amount plus all
accrued and unpaid interest due under the note into common stock at any
time.  The conversion price is $0.04 per share, the closing market
price of the common stock as of the funding date of the loans.





The
Company accounted for the issuance of these convertible promissory notes in
accordance with EITF 00-19. The gross proceeds from the sale of the notes,
$200,000, was recorded net of a discount of approximately $78,800. The debt
discounts 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 options. The debt discounts are charged to interest expense
ratably over the term of the convertible notes.  As of March 31, 2009,
the outstanding amount owed under the convertible promissory notes (principal
and accrued interest) was $222,468, net of a debt discount of
$45,953.




NOTE
9: SUBSEQUENT EVENTS.
 
 (a)
              In
      April 2009, the Company issued 250,000 shares of common stock and granted
      a five-year option to purchase an additional 250,000 shares of common
      stock to the Company’s controller.  The option was made fully
      exercisable as of its grant date and has an exercise price of $0.041 per
      share.  Such stock and option were granted under the Company’s
      2008 Equity Incentive Plan.  The Company incurred stock-based
      compensation $10,250 and $7,100, respectively, in connection with such
      stock and option grant.
 
 (b)
              In
      April 2009, the Company issued 500,000 shares of common stock and granted
      a five-year option to purchase an additional 500,000 shares of common
      stock to the Company’s director of production.  The option was
      made fully exercisable as of its grant date and has an exercise price of
      $0.041 per share.  Such stock and option were granted under the
      Company’s 2008 Equity Incentive Plan.  The Company incurred
      stock-based compensation $20,500 and $14,200, respectively, in connection
      with such stock and option grant.
 
 (c)
              In
      April 2009, the Company issued 2,649,993 shares of common stock to the
      Company’s chief executive officer.  The issuance was made
      pursuant to the demand of the officer to convert convertible promissory
      notes in the aggregate principal amount of $100,000, plus $4,652.51 in
      accrued interest, into such shares of common stock.  The
      promissory notes were issued to her on October 14, and November 17,
      2008.




10




(d)
              In
      April 2009, the Company issued 2,649,993 shares of common stock to the
      Company’s chief financial officer.  The issuance was made
      pursuant to the demand of the officer to convert convertible promissory
      notes in the aggregate principal amount of $100,000, plus $4,652.51 in
      accrued interest, into such shares of common stock.  The
      promissory notes were issued to him on October 14, and November 17,
      2008.
 
 (e)
              In
      April 2009, the Company granted the Company’s chief executive officer the
      right to receive a total of 4,000,000 shares of common stock, 2,000,000 of
      which were issued in April 2009 and the remaining 2,000,000 shares are
      issuable on January 1, 2010.  In addition to such stock grants,
      the officer was granted a five-year option to purchase an additional
      3,000,000 shares of common stock.  The option was made fully
      exercisable as of its grant date and has an exercise price of $0.041 per
      share.  Such stock and option are being issued and were granted
      under the Company’s 2008 Equity Incentive Plan.  The Company
      incurred stock-based compensation $82,000 and $84,900, respectively, in
      connection with such stock and option
grant.
 
 (f)
              In
      April 2009, the Company granted the Company’s chief financial officer the
      right to receive a total of 4,000,000 shares of common stock, 2,000,000 of
      which were issued in April 2009 and the remaining 2,000,000 shares are
      issuable on January 1, 2010.  In addition to such stock grants,
      the officer was granted a five-year option to purchase an additional
      3,000,000 shares of common stock.  The option was made fully
      exercisable as of its grant date and has an exercise price of $0.041 per
      share.  Such stock and option are being issued and were granted
      under the Company’s 2008 Equity Incentive Plan.  The Company
      incurred stock-based compensation $82,000 and $84,900, respectively, in
      connection with such stock and option
grant.
 
 (g)
              In
      April 2009, the Company granted the Company’s chief executive officer
      five-year warrants to purchase an aggregate 4,000,000 shares of common
      stock.  The warrants were made fully exercisable as of their
      grant date and have an exercise price of $0.041 per share.  The
      Company incurred stock-based compensation $113,200 in connection with the
      grant of such warrants.
 
 (h)
              On
      April 29, 2009, for gross proceeds of $25,000, the Company sold
      and issued 609,756 shares of common stock and three-year warrants to
      purchase an additional 121,951 shares of common stock at an exercise price
      of $0.0492 per share.
 
 (i)
              In
      May 2009, the Company issued 250,000 shares of common stock to a director
      in order to fulfill the Company’s obligation in connection with the
      appointment of the director effective March 14, 2008.  The
      Company incurred stock-based compensation of $7,750 in connection with
      such stock issuance.




11




Item 2.
            Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.





Introductory
Comment





The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our financial
statements and related notes contained elsewhere in this Quarterly Report on
Form 10-Q, as well as our audited financial statements and related notes at and
for the year ended December 31, 2008 contained in our Annual Report on Form 10-K
for the year ended December 31, 2008, filed with the Securities and Exchange
Commission (the “SEC”) on April 15, 2009.





Forward-looking
Statements





This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934 (the “Exchange
Act”).  To the extent that any statements made in this Form 10-Q
contain information that is not historical, these statements are essentially
forward-looking.  Forward-looking statements can be identified by the
use of words such as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,”
“could,” “should,” “intend,” “estimate” and variations of such
words.  Forward-looking statements are subject to risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements.  Such risks and uncertainties include,
without limitation:


•
            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-Q and, from time to
      time, in our other filings with the
SEC.





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





Results
of Operations





Sales.We recorded
zero sales for the three months ended March 31, 2009 and 2008.





Until the
fourth quarter of 2001, we were engaged in the manufacture and marketing of
water coolers and water purification and filtration products.  In the
fourth quarter of 2001, such business was sold so that we could concentrate on
the further development, manufacturing and marketing of a line of water
purification systems.  In 2007, new management made a strategic
decision that the existing water filtration system had not produced any
significant sales.  New management further recognized that the
existing unit required significantly more engineering.  In 2007, we
signed a contract with Bircon Ltd., an Israeli-based engineering consulting
company, to design our new “PureSafe First Response Water System” (the “PureSafe
FRWS”) line of water decontamination systems.  We believe the PureSafe
FRWS product will result in our first significant sales since
2001.  We currently expect to recognize the first sales of the
PureSafe product in the fourth quarter of 2009.  We will cease being a
development stage enterprise at the time of our recognition of significant
revenue from sales of the PureSafe FRWS product.





12





Cost of sales.  We
recorded zero cost of sales for the three months ended March 31, 2009 and
2008.





Selling, general and
administrative.  We incurred selling, general and
administrative expenses for the three months ended March 31, 2009 of $418,412
compared to $478,614 for the same period in 2008.  This decrease of
$60,202 for the three months ending March 31, 2009 was primarily a result of the
decrease of the following expenses: Audit fees has dropped $63,500; consulting
fees decreased $25,494; salary expenses including deferred compensation dropped
$17,790.  The comparative high consulting fees in 2008 was the result
of non-recurring consulting fees incurred.  The decrease of salary
expense was due to the fact that we eliminated the sales/marketing staff
position in the first quarter of 2008 period.





Although
the total selling, general and administrative dropped in 2009, marketing expense
has increased to $66,344 in the first quarter of 2009 compared $0 in the same
period of 2008.  The contributing factor for the increase in marketing
expense is the fact that since we have completed PureSafe FRWS prototype, the
focus of our efforts has shifted from research and development to production,
marketing and sales.  We have retained Hidell-Eyster International
Inc., a consulting company to providing strategic planning, product
modification, and the continued development and marketing services of the
PureSafe FRWS.  We also contracted a marketing company to design and
produce marketing materials for a trade show we attended in Washington DC in
April 2009.   While we will continue our research and development
efforts, we expect to continue to increase marketing spending for at least next
twelve months.





Research
and development for the three months ended March 31, 2009 and 2008 was $2,234
and $111,521, respectively.  The $109,287 or 98% decrease in research
and development expenses was, again, the result of the shift of our focus from
research and development to marketing and sales since the completion of the
PureSafe FRWS prototype in July 2008.   However, the downward
trend in research and development spending is not the trend we expect to
continue.  We understand the vital importance of research and
development for our overall success. We are committed to continue to conduct
research and development activities to ensure PureSafe FRWS has the most
advanced technology within the water filtration equipment industry.





Interest
expense (non-debt discount related) for the three months ended March 31, 2009
and 2008 was $10,281 and $79,498, respectively.  The $69,217 or 87%
decrease in interest expense was primarily the result of retiring and conversion
of several promissory notes, resulting in no further accruing of interest since
the third quarter of 2008.





Debt
discount related interest expense for the three months ended March 31, 2009 and
2008 was $34,798 and $0, respectively.  In the fourth quarter of 2008,
we received aggregate $250,000 in debt financing from our two executive officers
and a non-affiliated party.  We incurred a total of $98,320 in debt
discount related to such loans, which will be amortized over the term of the
loans.





Change in
fair value of warrants and embedded conversion options for the three months
ended March 31, 2009 and 2008 were $162,500 and $627,800, respectively. The
decrease in fair value of warrants and embedded conversion option in 2008
primarily resulted from the decreased fair value of the common stock during the
first quarter of 2009 comparing with the same period in 2008.





(Gain)
loss on settlement of debt for the three months ended March 31, 2009 and 2008
was $0 and $226,467.  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.





13





For all
the above-stated reasons, the net loss for three months ended March 31, 2009 and
2008 was ($628,225) and ($1,070,967), respectively.





Liquidity
and Capital Resources





As of
March 31, 2009, we maintained a cash balance of $64,314 as compared to $264,054
as of the same date in 2008.





Net cash
used in the operating activities in the three months ended March 31, 2009 and
2008 was $160,597 and $632,042, respectively.  The primarily factors
that we used approximately $470,000 less cash in the first quarter of 2009
compared to the same period in 2008 were the following:


(a)
            We
      paid approximately $70,000 less in accounting and audit
    fees.


(b)
            In
      the first quarter of 2009, we paid $6,125 in consulting fees compared to
      $85,991 we paid in the same period of 2008, an approximately $80,000
      reduction.  The main reason for the reduction is that two of our
      consultants agreed to defer their compensation until we have sufficient
      funds.


(c)
            We
      paid $44,790 less in salary expense in the first quarter of 2009 compared
      in the same period in 2008 because a) we eliminated the sales/marketing
      position in 2008 resulted a smaller payroll and b) both our chief
      executive officer and chief financial officer chose to defer their
      compensations until we have sufficient
funds.


(d)
            We
      spent $2,807 in research and development in the three months ended March
      31, 2009.  Compared to $241,023 we spent in the same period of
      2008, a $238,216 reduction.  In the first quarter of 2008, our
      main focus was to complete the prototype of PureSafe(TM) First Response
      Water System.  Since the completion of the prototype in July of
      2008, we are putting more focus on the marketing strategy planning and
      preparing to commercialize of our
production.





We did
not incur any capital expenditures in either the first quarter of 2009 or
2008.





In the
three months ended March 31, 2009 and 2008, we raised $195,500 and $500,000
through sales of our common stock, respectively.  In the first quarter
of 2008, an investor exercised warrant to purchase 110,000 shares of common
stock.  We received $9,350 from such transaction.   We
used $28,654 cash to repay notes payables in the first quarter of
2008.  From all the above activities, net cash provided by financing
activities for first quarter of 2009 and 2008 was $195,500 and $480,696,
respectively.





At March
31, 2009, we had a working capital deficit of approximately
$2,265,000.  Absent fluctuations due to market to market changes in
our outstanding detachable warrants, options and embedded conversion option
liabilities, we continue to suffer recurring losses from operations and
have an accumulated deficit since inception of approximately $30,723,000. These
conditions raise substantial doubt about our ability to continue as a going
concern.  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 nine 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 are successful in obtaining such
financing, we believe that there will be revenue recognition by the fourth
quarter of 2009.We
can give no assurance that such financing will be available on terms
advantageous to us, or at all. Should we not be
successful in obtaining the necessary financing to fund our operations, we would
need to curtail some or all of our operational activities. The accompanying
unaudited condensed financial statements do not include any adjustments that
might be necessary should we be unable to continue as a going
concern.





Recent
Accounting Pronouncements





In June
2008, the Financial Accounting Standards Board (“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 adoption
of EITF 07-5 did not have an impact on our financial statements.





14





In April
2009, FASB issued FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2 and 124-2”).
FSP 115-2 and 124-2 amend the guidance on other-than-temporary impairment for
debt securities and modify the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. These FASB staff positions are effective for interim and annual
periods ending after June 15, 2009. We are evaluating the impact of FSP 115-2
and 124-2 on our financial statements.





In April
2009, FASB issued FASB Staff Position No. FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP
157-4”). FSP 157-4 provides additional guidance for estimating fair value under
Statement of Financial Accounting Standard No. 157, “Fair Value Measurements”
when there is an inactive market or the market is not orderly. This FSP is
effective for interim and annual periods ending after June 15, 2009. We are
evaluating the impact of FSP 157-4 on our financial statements.





In April
2009, FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB
28-1”). FSP 107-1 and APB 28-1 require disclosure about fair value of financial
instruments in interim periods, as well as annual financial
statements.  FSP 107-1 and APB 28-1are effective for interim periods
ending after June 15, 2009. We are evaluating the impact of FSP 107-1 and APB
28-1 on our financial statements.





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 in development
stage as defined by SFAS No. 7.  The following is a list of what we
believe are the most critical estimations that we make when preparing our
financial statements.





Stock-Based
Compensation





We report
stock-based compensation under Statements of Financial Accounting Standards
(“SFAS”) No. 123R (“123R”) “Share Based Payment.”  SFAS 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair
values.





We
account for equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 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.





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.





15





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 issuing 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 FASB Staff
Position (FSP) No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements” (“FSP EITF 00-19-2”), which specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5,
“Accounting for Contingencies.” FSP EITF 00-19-2 also requires
additional disclosure regarding the nature of any registration payment
arrangements, alternative settlement methods, the maximum potential amount of
consideration and the current carrying amount of the liability, if
any.





Income
taxes




Effective
January 1, 2007, we 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.”




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 2004. The adoption of the provisions of FIN 48
did not have a material impact on our financial position and results of
operations.




Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





This Item
is not applicable to smaller reporting companies.





16




Item
      4T.
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
of the end of the period covered by this report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this report to provide reasonable assurance that information required
to be disclosed by us in reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.





A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are
met.  The design of any system of controls is also based in part on
certain assumptions regarding the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions.  Given these and other inherent
limitations of control systems, there is only reasonable assurance that our
controls will succeed in achieving their stated goals under all potential future
conditions.





Changes
in Internal Control Over Financial Reporting





We have
taken actions and implemented new policies to mitigate certain weakness we
identified in 2008 which were disclosed in the 10-K we filed with SEC on April
15, 2009.





Entity
Level.  We recognized the need to provide leadership and clear
guidance to our employees regarding the maintenance and preparation of financial
matters.  We have completed in January 2009, PureSafe Employee
Handbook and provided a copy to each of our employee.   We are in
the process of completing the policy and procedures manual and are expecting to
complete and implement the policy and procedures in the second quarter of
2009.





Financial
Reporting.  In 2008, we recognized that we needed to implement a more
structured mechanism for evidence of review in the financial reporting
process.  The following procedures have been implemented since the
beginning of 2009, (a) CFO signs and date all financial documents upon the
completion of reviewing such documents, (b) all approval or permission will be
evidenced by either email or in writing.  No oral approval or
permission is allowed, (c) General Journal is recorded only after CFO approves
(in writing) such entry and (d) monthly bank reconciliations must complete
within 15 days after month ends and reviewed by CFO 5 days after the completion
of bank reconciliation.





Confidential
Reporting mechanism.  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 above
changes, implementation on  our internal control over financial
reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) during the most recently completed fiscal quarter will have
materially affected, or are reasonably likely to materially strengthen our
internal control over financial reporting.





17





PART
II - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.





Reference
is hereby made to Item 3 of our Annual Report on Form 10-K, for the fiscal year
ended December 31, 2008, filed with the Securities and Exchange Commission on
April 15, 2009 (Commission File No.: 0-5418), and to the references made in such
Item, for a discussion of all material pending legal proceedings to which we are
a party.





Item
      1A.
            Risk
      Factors.





This Item
is not applicable to smaller reporting companies.





Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds.





In the
first quarter of 2009, we sold an aggregate 6,357,080 shares of common stock and
warrants to purchase an additional 1,271,416 shares of common stock at an
exercise price of $0.0348 to $0.0396 to multiple investors for total proceeds of
$195,500.




On March
14, 2009, we issued 500,000 shares of common stock to repay outstanding debt of
$27,368 to a service provider.





In May
2009, we issued 250,000 shares of common stock to our director to fulfill our
obligation in connection with the appointment of the director effective March
14, 2008.  We incurred stock-based compensation $7,750 in connection
with this stock issuance.





We
believe the issuances of the securities noted in this Item 2 were each exempt
from the registration requirements of the Securities Act of 1933, as amended
(the “Securities Act”), by reason of the exemption from registration granted
under Section 4(2) of the Securities Act due to the fact that the subject
issuance was a transaction not involving any public offering.





Item
      3.
            Defaults
      Upon Senior Securities.





None





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





None.





Item
      5.
            Other
      Information.





None





Item
      6.
            Exhibits.





The
following exhibits are being filed as part of this Quarterly Report on Form
10-Q.




Exhibit
 Number
              Exhibit
      Description




10.1
            Incentive
      Stock Option Agreement, dated April 17, 2009, between PureSafe Water
      Systems, Inc. and Leslie J.
  Kessler.


10.2
            Incentive
      Stock Option Agreement, dated April 17, 2009, between PureSafe Water
      Systems, Inc. and Terry R.
  Lazar.


10.3
            Incentive
      Stock Option Agreement, dated April 17, 2009, between PureSafe Water
      Systems, Inc. and Al
Wolter.


10.4
            Incentive
      Stock Option Agreement, dated April 17, 2009, between PureSafe Water
      Systems, Inc. and Jawyi
  Dillmann.


10.5
              Warrant
      certificate evidencing 4,000,000 warrants registered in the name of Leslie
      J. Kessler.


31.1
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive
      Officer.31.2
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial
      Officer.


32.1
            Section
      1350 Certification of Principal Executive
  Officer.


32.2
            Section
      1350 Certification of Principal Financial
  Officer.





18




SIGNATURES





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





Dated:  May
      20, 2009
                    PureSafe
      Water Systems, Inc.By:Leslie
      J. KesslerChief
      Executive Officer(Duly
      Authorized Officer andPrincipal
      Executive Officer)By:Terry
      R. KesslerChief
      Financial Officer(Duly
      Authorized Officer andPrincipal
      Financial
Officer)






19