PureSafe Water Systems, Inc. - FORM 10-K

Attached files

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EX-32.1 - EXHIBIT 32.1 - PureSafe Water Systems, Inc.	ex32_1.htm
EX-32.2 - EXHIBIT 32.2 - PureSafe Water Systems, Inc.	ex32_2.htm
EX-31.2 - EXHIBIT 31.2 - PureSafe Water Systems, Inc.	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - PureSafe Water Systems, Inc.	ex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2009

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

Commission File Number: 0-30544

PureSafe Water Systems, Inc.

Formerly known as Water Chef, Inc.

(Name of registrant as specified in its charter)

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

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

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

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

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

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

o Yes T No

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

o Yes T No

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

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

Indicate by check mark whether the registrant 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 o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company T

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

o Yes T No

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

As of March 31, 2010, 284,770,809 shares of the common stock of the registrant were issued and 284,766,409 were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

Introductory Comment - Use of Terminology

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

Note Regarding Forward-Looking Statements

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

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

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

•	general economic and business conditions;

•	the effect on our business of recent credit-tightening throughout the United States and the world, especially with respect to federal, state, local and foreign government procurement agencies, as well as quasi-public, charitable and private emergency response organizations;

•	the effect on our business of recently reported losses within the financial, banking and other industries and the effect of such losses on the income and financial condition of our potential clients;

•	the impact of developments and competition within the industries in which we intend to compete

•	adverse results of any legal proceedings;

•	the impact of current, pending or future legislation and regulation on water safety, including, but not limited to, changes in zoning and environmental laws and regulations within our target areas of operations;

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

•	the volatility of our operating results and financial condition;

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

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

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

PART I

Item 1.

Business.

Organizational Structure

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

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

We have developed a patent pending “PureSafe First Response Water System” (“PureSafe FRWS”) that is self-contained and purifies essentially any type of raw water source including seawater that may be found at a first response emergency site. Our water purification system machines can provide safe, EPA compliant drinking water for over 45,000 people per day. This system is uniquely portable, by helicopter or by vehicle, and can decontaminate essentially any kind of contamination without prior knowledge of the contaminant to be treated. The PureSafe FRWS prototype was developed using advanced Israeli water treatment technology. A fully operational prototype has been manufactured and is currently located at the Company headquarters in Plainview, New York, where it is used for demonstrations.

Subsequent to the development of the prototype we, in coordination with Hidell-Eyster International, Inc. (HEI) , have developed a more advanced production unit that will decontaminate and purify 30,000 gallons of water per day to provide drinking water for 45,000 people per day.

On March 26, 2010 we entered into a long term management agreement with HEI which provides for Steve Keim to serve as President of PureSafe, Henry (Bob) Hidell to serve as Chief Operating Officer, Richard Pellerito as Vice President of Technical Sales, Kathleen Ransome as financial advisor to Terry Lazar, our CFO, and other members of the HEI group as needed, including John Clemmens and Dr. Thomas Brewer, Hydrogeologist.

Products

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

From 1998 to 2006, we continued to concentrate our efforts on the further development, manufacturing and marketing of the PureSafe Water Station.

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

In 2007, new management made a strategic decision that the Pure Safe Water Station was not a viable product that could produce significant sales revenues. Our management recognized that the existing unit required significantly more engineering. In 2007, new management examined the need for a first response system that would be easily deployable and be able to decontaminate and purify water from any contaminated water source and deliver that water in a potable form. In 2007 we signed a contract with Bircon, Ltd. (“Bircon”) an Israeli company to design our new PureSafe FRWS product line.

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

Based on the original technology developed by Bircon, in 2008 we produced a working prototype of the FRWS that can deliver 10,000 gallons of water per day. This prototype has been performance tested and the results have been independently verified. This unit has been serving as a demonstration unit.

In 2008 management held a meeting with the Department of Homeland Security in Washington D.C. and based on that meeting a strategic decision was made to redesign the system to be capable of producing 30,000 gallons of water per day to serve a population of up to 45,000 people. We expect to complete the first two production units by the end of April 2010.

The PureSafe FRWS utilizes our patent pending technology which is comprised of a water extraction boom that extracts water from streams, ponds, pools of floodwater or a failed municipal distribution system. The extracted water is then treated by the application of advanced water treatment technologies which employ multiple stage filtration, multiple stage sanitation (including ozone, chlorine and ultraviolet purification techniques), reverse osmosis membranes, mineralization and final polishing to meet the standard drinking water requirements of the U.S. Environmental Protection Agency (the “EPA”). The system provides redundancy at the filtration and sanitation stations and the duel capability of on-site filling of containers, as well as an automatic water bag producing capability. Components utilized in the system are manufactured by others and are NSF certified. The overall FRWS will require Water Quality Association (WQA) Gold Seal Certification. Water Quality Association is a not-for-profit, trade association and a world leader in standards development and product certification. NSF International develops national standards, provides learning opportunities and provides third-party conformity assessment services.

A basic production unit of FRWS will provide up to 30,000 gallons per day of drinking water, enough to provide water to 45,000 people per day.

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

Manufacturing

In September 2009, we formed PureSafe Manufacturing and Research Corporation, as a wholly owned subsidiary of PureSafe Water Systems, Inc. We are in the process of producing the first two production units at our headquarters in Plainview N.Y. We plan to produce the units in facilities in Plainview, New York. Based on increased demand we may contract out the manufacturing process to qualified sub-contractors, who have been identified. In the future, we may consider licensing agreements for manufacturing in other parts of the world.

On August 6, 2008, we entered into a six month consulting agreement with Designs and Project Development Corp. (D &P) for planning and continued development of the PureSafe FRWS. Under the agreement, The President of D & P, Alphonse Wolter is to serve as Director of Production. The agreement provided for a fixed fee of $ 6,667 per month plus reimbursement of expenses. Upon termination of the consulting agreement, the agreement continued on a month to month basis. In addition to the fixed fee, in July 2008 we issued to Mr. Wolter 100,000 shares of common stock, and warrants to purchase an additional 250,000 shares of common stock for the year ended December 31, 2008. We incurred a charge of $5,000 for the issuance of these shares.

In April 2009, we issued Mr. Wolter 500,000 shares of common stock, and warrants to purchase an additional 500,000 shares of common stock. For the year ended December 31, 2009 we incurred a charge of $34,700 for the issuance of these shares.

In September 2009, D & P agreed to defer $57,003 that is owed for services rendered.

Effective January 1, 2010 the fee to D & P was increased to $ 100,000 per annum and on February 1, 2010 we issued Mr. Wolter 500,000 shares of common stock. Mr. Wolter further requested that an additional $23,335 of debt due to D & P be converted to 457,549 shares of common stock. The shares were issued to Mr. Wolter as per his request.

On March 25, 2010, the Board of Directors approved the appointment of Mr. Wolter to serve as General Manager of PureSafe Manufacturing & Research Corporation.

Raw Materials

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

Competition

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

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

We have identified the following companies which manufacture mobile water purification systems, but may or may not have similarities to the PureSafe First Responder Mobile Water Purification System.

There are four categories of existing water purification units:

The first are those which are essentially very large, not very mobile, almost “fixed” installation units used primarily for long term solutions with a significant amount of lead time. They include: GE, Siemens, and Severn Trent, all of which manufacture large containerized systems.

The second group includes those products that are smaller, cheaper, lighter in weight, but still unable to respond quickly because of their limited purification capabilities (the unit needs to be prepared in advance for the type of contamination it will face.) These are: Ecospheres Technology, Lenntech, Testa/Viwa and Lifekeeper. None of these systems would fall in to the first responder category.

The third group is the category made up of specialty units designed to be either much lower cost, use only green power (with the significant limitations caused by that), or meet a specialized and limited need. This list includes Mobile MaxPure, Bi Pure Water and Rodi which, while they have a trailer mounted system, have no on board power source.

The fourth group includes those companies which have similar claims and design characteristics as PureSafe System but have shortfalls in their application to the first responder market. These companies include: Global Water Group which manufactures different size systems with options which include the trailer, generator, treatment, and salinity options. Nirosoft manufacturers systems capable of processing different sources, but has limitations on fuel storage and output. LifeStream has limitations on the inbound source and has a soft side trailer which provides no security from the elements for the components. Aquapura Tempest has different types of units depending on the source. None of these companies stock units ready to deploy, none have distribution/packaging capability, none have built in redundant systems, and few have the capability of field service training and support. Some require previous source definition and when ordering require additional decisions on option selections which can be complicated and confusing especially when dealing with the unknown.

After reviewing these potential competitors in the above categories we find that most do not compare favorably with the PureSafe unit as a First Responder system. They do not maintain an inventory of ready to ship units, or decontamination units. None of the competitors maintain a chain of custody for the distribution of the water, nor do they have a fill table and or Poly-Film bagging machine for immediate distribution of packaged water. None of the systems have redundant backup systems such as two high pressure pumps and four different post-treatment disinfection methods. In some cases the water source must be defined in advance in order to match the system capabilities for processing, and in other cases a different machine is required for processing brackish or seawater.

The PureSafe First Response Mobile Water Purification System is capable of processing any unknown source at any time without pre-qualification. The large units produced by GE and Siemens manufacturers are capable of processing many sources but are not first response systems considering their deployment time and requirements. None of the trailer mounted units claim the ability to be lifted by helicopter, and the containerized units have no means of movement once they are landed, without a support chassis and a way to load them. We did not find the competitive units to be focused on first responder use, since they do not include everything necessary for a successful deployment without selecting options or adding peripherals. Once on site, the competitive units have only a hose for distribution. Residual ozone in the PureSafe post-processing module also allows sanitization of utensils and medical equipment needed for use in the field. Chemicals, hoses, test kits, filters and specialty tools are all included with the PureSafe unit.

In all cases reviewed, most of these potential competitors do not maintain an inventory of units for immediate shipment, do not have flexible business models, do not have decontamination abilities, do not provide a water bottling station, the automatic production of bags of water and cannot provide units in less than eight weeks after orders are placed. In addition, most of the potential competitors’ units were very limited in the types of water that they could treat successfully in emergency applications; only the very large units could handle contaminated water sources effectively. The smaller units were generally “skid” mounted and not on trailers, while the larger units were on 50-foot trailers and not easily mobile for emergency first responder use. In most instances, the competitors’ units could not be easily airlifted and dropped into strategic areas. None of the units produced by these competitors were focused on first responder use. Competitive units with specific reference to bottle washing and filling, portable by airlifting, trailer towing or on boats do not exist in the market, according to the research conducted on our behalf by HEI International. In addition, our patented water extraction boom is a sophisticated particulate processor that prevents blockages from objects floating in floodwater from occurring in the extraction boom, a significant advantage over competitors’ products. Although, PureSafe FRWS is designed to deliver 30,000 gallons of water per day, the system is scalable to meet specific demands..

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

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

Marketing

According to studies performed by the World Health Organization (WHO) and the United Nations, major parts of Africa, the Middle East, Southeast Asia, the Indian sub-continent, Latin and South America, the Caribbean and much of Eastern Europe are in need of adequate supplies of pure water. The recent earthquake in Haiti has demonstrated the desperate need for safe drinking water and the currently inadequate methods of delivering potable water to an affected population. Parts of Florida, Georgia and other regions in the United States have also reported fresh water deficiencies. Contaminants in municipal water systems have further demonstrated the need for an easily deployable purification methodology. Solving this problem has been a question of applying appropriate technology to decontaminate water and deliver pure potable drinking water to the affected area. Our unique capability of disinfecting equipment and containers by using high concentrations of ozonated water furthers our competitive edge.

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

•

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

•

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

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

Governmental organizations that are involved in first response situations include the Department of Homeland Security, FEMA, the Armed Forces, National Guard, State Offices of Emergency Management, municipalities, fire departments, the Red Cross and other emergency and health care agencies. The Department of Homeland Security in May 2008 issued an Operational Requirement Document (ORD) in which they estimated the market size for our type of system to be 18,000 units over a five year period.

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

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

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

•

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

•

Direct Marketing and Sales – Richard Pellerito has been appointed Vice President of Technical Sales. Richard has many years of experience in the water industry and will be assembling a highly qualified sales organization in the United States. Chief Peter Hayden (Ret), formerly Chief of the New York City Fire Department, will serve as Vice President-Senior Government Liaison. Chief Hayden has extensive relationships in the first responder communities. The Company will be marketing directly and through representatives to local municipalities, first responders, national public emergency management agencies and military organizations that are responsible for first response emergency situations, including those involved in planning emergency preparedness plans.

The Honorable Michael Balboni has joined the Company as a Special Advisor. Mr. Balboni was a New York State Senator and served as Deputy Secretary of Public Safety for New York State. The Company expects to utilize Mr. Balboni’s extensive contacts and knowledge in the governmental sector.

Shaul Kochan has been appointed as Vice President of International Markets. Mr. Kochan will focus on marketing our products worldwide.

•

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

•

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

•

Onsite Demonstration- We plan to conduct onsite demonstrations with potential clients as required and when feasible. The Company has a fully functional prototype unit available for demonstrations and expects to have fully functional production units available for demonstration in the United States by April 30, 2010.

Training- We plan to insure that system operators will be adequately trained. By establishing the “PureSafe Training School” , we seek to assure ourselves and our customers of the quality of

The training.

•

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

•

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

•

Public and Investor Relations Campaign – We plan to implement an active public and investor relations campaign as part of our over-all marketing plan. We recognize that a well coordinated public relations campaign is as valuable as or more valuable than paid advertising with no organized campaign.

Intellectual Property

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

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

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

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

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

Seasonality

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

Research and Development

The original design of the PureSafe FRWS was conducted under the supervision of Gil Tenne, President of Bircon, Ltd. On going research and development is being conducted as a team effort, which includes Henry (Bob) Hidell of Hidell Eyster International, who will serve as Chief Operating Officer of PureSafe Water Systems, Inc, , John Clemmens, Process Engineer, Dr. Thomas Brewer Phd, Hydrogeologist and Alphonse Wolter, General Manager of Puresafe Manufacturing and Research Corporation and Richard Pellerito, Vice President-Technical Sales.

On December 14, 2007, we entered into an agreement with Bircon Ltd, an Israeli based company for services involving the research and development of our FRWS system. Under the agreement, Gil Tenne, the President of Bircon served as PureSafe’s Director of Research and Development, Design and Engineering. The agreement provided for consideration of $ 5,000 per month and was scheduled to terminate on December 31, 2009. The Company has not renewed the agreement. As part of the agreement Bircon was granted warrants to purchase 3 million shares of the Company’s common stock. We plan to take legal action against Mr. Tenne and Bircon, Ltd. for non-performance of their contract (See “Pending Legal Proceedings”) and have cancelled the warrants granted for non-performance.

Hidell-Eyster International Inc, (HEI) is a consulting firm with whom we entered into a six-month agreement on June 9, 2008. We had extended that agreement on a month to month basis. HEI is providing management services, strategic planning, product modification, and the continued development and marketing services of the PureSafe FRWS. The agreement provides for a fixed fee of $ 15,000 per month, plus out of pocket expenses.

On March 26, 2010 we entered into a long term management agreement with HEI, effectively January 1, 2010. The agreement provides for Steve Keim to serve as President of PureSafe, Henry (Bob) Hidell to serve as Chief Operating Officer, Richard Pellerito-Vice President-Technical Sales, Kathleen Ransome as financial advisor to our CFO, Terry Lazar and other members of HEI group as needed, including John Clemmens, process engineer and Dr. Thomas Brewer, hydrogeologist. The management agreement is being staged in two phases; Phase I for the period January 1 through June 30, 2010 and Phase 2 form July 1 to December 31, 2010 as the First Term; The second and third terms of the agreement covers the period from January 1, 2011 to December 31, 2012. Leslie Kessler will continue to serve as our Chief Executive Officer.

The Company has incurred unpaid fees due to HEI of $ 180,000 through December 31, 2009. HEI has agreed to convert their past due fees into common stock of the Company. The Company’s Board has approved the following:

On February 1, 2010 the Board approved the request of HEI to convert $ 90,000 of debt to 1,764,706 shares of common stock .The conversion price is. $0.051 which is the closing price published on OTCBB.com on the date of the approval of such request. As of March 31, 2010, the shares have not been issued.

On February 19, 2010 the Board approved the request of HEI to convert a $ 90,000 promissory note dated September 28, 2009 and $ 5,780.52 of accrued interest into 1,741,464 shares of common stock. The conversion price is $0.055 which is the closing price published on the OTCBB.com on the date of the approval of such request.

Effective January 1, 2010 the fees to HEI were increased to $ 23,000 per month for implementation of Phase I of the agreement and Phase 2 will be implemented on July 1, 2010 at a monthly fee of $36,000 per month.

Our expenditures for research and development activities in fiscal 2009 were $179,919, and in fiscal 2008 were $270,405.

Insurance

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

Employees

As of March 30, 2010, the Company employed a Chief Executive Officer, a Chief Financial Officer, a Controller and one part time administrative employee in our headquarters. The Company employed a Vice President of International Markets.

PureSafe Manufacturing and Research Corp. employed one full time General Manager by agreement with Designs and Project Development Corp., and three 1099 contractors in the production facility.

By agreement with Hidell-Eyster International, Inc., the Company will be provided with their personnel to serve as our President, Chief Operating Officer and Vice President-Technical Sales.

We believe there are a sufficient number of qualified personnel available for the marketing and sales function, administrative requirements and for production. We have no collective bargaining agreement with any of our employees.

Item 1A.

Risk Factors.

We will need additional capital to finance existing obligations and to fund our operations and growth and we may not be able to obtain additional capital at all, or to obtain capital under terms acceptable to us.

We are seeking to raise $5 million additional capital. We anticipate that this amount of capital, if fully raised, will satisfy our financial obligations for approximately 24 months. Our capital requirements in connection with our marketing efforts, continuing product development and purchases of inventory and parts are expected to be significant for the foreseeable future. In addition, unanticipated events could cause our revenues to be lower and our costs to be higher than expected, therefore creating the need for additional capital. Historically, cash generated from operations has not been sufficient to fund our capital requirements, and we have relied upon sales of securities, and loans from our officers to fund our operations. We cannot assure you that we will have sufficient funds available to meet our working capital requirements, or that we will be able to obtain capital to finance operations on favorable terms or at all. If we do not have, or are otherwise unable to secure necessary working capital, we may be unable to fund the continued manufacture of PureSafe units, and we may have to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities, any of which could harm our business.

We have a history of losses and we may continue to incur losses in the future and/or we may never achieve or maintain profitability.

Our financial statements have been prepared assuming that we will continue as a going concern. We have incurred recurring losses from operations, an accumulated deficit since its inception of approximately $32.2 million and $2.1 million for the year ended December 31, 2009, and has a working capital deficiency of approximately $1.7 million as of December 31, 2009. These conditions raise substantial doubt about our ability to continue as a going concern.

Our independent registered public accountants have stated in their report that there is substantial doubt about our ability to continue as a going concern.

We have limited cash resources and have a working capital deficit. Our independent registered public accountants have stated in their report that they have a substantial doubt about our ability to continue as a going concern. By being categorized in this manner, we may find it more difficult in the short term to either locate financing for future projects or to identify lenders willing to provide loans at attractive rates, which may require us to use our cash reserves in order to expand. Should this occur, and unforeseen events also require greater cash expenditures than expected, we could be forced to cease all or a part of our operations.

We plan to expand and we may be unable to manage our growth. We intend to grow our business, but we cannot be sure that we will successfully manage our growth. In order to successfully manage our growth, we must:

expand and enhance our administrative infrastructure;

improve our management, financial and information systems and controls;

expand, train and manage our employees effectively; and

successfully retain and recruit additional employees.

Continued growth could place a further strain on our management, operations and financial resources. We cannot assure that our operating and financial control systems, administrative infrastructure, facilities and personnel will be adequate to support our future operations or to effectively adapt to future growth. If we cannot manage our growth effectively, our business may be harmed.

Technological change and competition may render our potential products obsolete.

The water purification industry continues to undergo rapid change, competition is intense and we expect it to continually increase. Competitors may succeed in developing technologies and products that are more effective or affordable than any that we are developing or that would render our technology and products obsolete or noncompetitive. Many of our competitors have substantially greater experience, financial and technical resources and production and development capabilities than we do. Accordingly, some of our competitors may succeed in obtaining regulatory approval for products more rapidly or effectively than we can for technologies and products that are more effective and/or affordable than any that we are developing.

Product liability exposure may expose us to significant liability.

We face an inherent business risk of exposure to product liability and other claims and lawsuits in the event that the development or use of our technology or prospective products is alleged to have resulted in adverse effects. We may not be able to avoid significant liability exposure. We maintain a $4,000,000 general and product liability policy which covers the manufacture and marketing of our products. Although we believe our insurance coverage to be adequate, we may not have sufficient insurance coverage, and we may not be able to obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance at acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our products. A product liability claim could hurt our financial performance. Even if we avoid liability exposure, significant costs could be incurred that could hurt our financial performance and condition.

Our inability to protect our intellectual property rights may force us to incur unanticipated costs.

Our success will depend, in part, on our ability to obtain and maintain protection in the United States and other countries for certain intellectual property incorporated into our water purification systems and our proprietary methodologies. Our patent applications for our products are currently pending, and there is no guarantee that such patents will be granted, and if they are not, we may be unable to obtain patents relating to our technology. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to prevent competitors from marketing similar solutions that limit the effectiveness of our patent protection and force us to incur unanticipated costs. In addition, existing laws of some countries in which we may provide services or solutions may offer only limited protection of our intellectual property rights.

Our products may infringe the intellectual property rights of third parties, and third parties may infringe our proprietary rights, either of which may result in lawsuits, distraction of management and the impairment of our business.

As the number of patents, copyrights, trademarks and other intellectual property rights in our industry increases, products based on our technology may increasingly become the subject of infringement claims. Third parties could assert infringement claims against us in the future. Infringement claims with or without merit could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, might not be available on terms acceptable to us, or at all. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation to determine the validity of any claims, whether or not the litigation is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel from productive tasks. If there is an adverse ruling against us in any litigation, we may be required to pay substantial damages, discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to infringing technology. Our failure to develop or license a substitute technology could prevent us from selling our products.

We will face substantial competition in marketing our PureSafe FRWS.

We will experience competition from a large number of more established firms in the market for water purification systems. Many of these companies are much larger and have substantially greater financial resources than us. In addition, our potential competitors in many cases already have customers to which they have sold water purification systems and these systems have an operating track record, in contrast to our FRWS which is a relatively new product.in the market.

We do not anticipate paying cash dividends in the foreseeable future, which could adversely affect the price of our Common Stock.

We, by reason of our anticipated financial status and our contemplated financial requirements, do not contemplate or anticipate paying any dividends upon our Common Stock in the foreseeable future. Any payment of cash dividends in the future will be dependent upon the amount of funds legally available, the earnings, financial conditions, capital requirements and other factors that the board of directors may think are relevant.

Item 1B.

Unresolved Staff Comments.

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

Item 2.

Properties.

The Company currently maintains its principal place of business at 25 Fairchild Avenue - Suite 250, Plainview, NY 11803 under a 7-year lease expiring in April 2015. The lease calls for a monthly base rent of $5,000 through April 2009 with annual increases in the monthly base rent. We are required to pay for all applicable utilities, maintenance costs and real estate taxes, which averaged approximately $2,400 per month during the period in 2009. The facility has 5,300 square feet in space and serves as our headquarters, executive offices, and showroom.

Item 3.

Legal Proceedings.

Current legal proceedings to which we are a party are as follows:

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

On June 21, 2009, we were served with a complaint filed in the Supreme Court of the State of New York, County of Nassau, in which suit State Farm Fire & Casualty Company is the plaintiff. The suit is for approximately $202,000 in damages, resulting from a fire that occurred on or about December 16, 2008, allegedly as a result of a defective water cooler sold either by us or by Water Splash LLC, to which we had sold our water cooler business and related liabilities in November 2001. An amended complaint was filed on August 19, 2009, adding Water Splash LLC as a defendant. The claim by State Farm is on the basis that, as the insurance carrier, it is subrogated to the claim for damages of the owner of the property where the fire allegedly started by reason of a defect in the water cooler. Under the complaint, alternative claims for damages are made in negligence, breach of warranty, placing on the market a product in a defective and unreasonably dangerous condition and not fit for its intended use, failure to warn State Farm's subragor of the risks and defects associated with the water cooler which were not discoverable by reasonable inspection, and strict liability. We do not believe that it has any potential exposure by reason of this lawsuit and, in any event, any recovery by the plaintiff would be covered under our existing liability insurance policy. However, we cannot provide assurance that the outcome of this matter will not have a material effect on our financial condition or results of operations.

We have received a collection notice from Bircon, Ltd. for a $140,000 balance they claim is due. We are disputing such claim based on their breach of contract. We plan to vigorously defend any suit filed by Mr. Gil Tenne and /or Bircon Ltd. We will be cancelling the warrants previously authorized for lack of performance.

Item 4.

Reserved.

PART II

Item 5.

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

Market

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

Quarter Ended	High Bid Price		Low Bid Price
March 31, 2008	$	0.14	$	0.03
June 30, 2008		0.11		0.08
September 30, 2008		0.08		0.04
December 31, 2008		0.05		0.02

March 31, 2009		0.05		0.02
June 30, 2009		0.08		0.04
September 30, 2009		0.08		0.04
December 31, 2009		0.07		0.04

Holders

As of March 21, 2010, we had 574 stockholders of record. We estimate that there are approximately 2,000 beneficial holder of our common stock, based on information collected with respect to our annual meeting of stockholders held on November 20, 2008.

Dividends

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

Securities Authorized for Issuance under Equity Compensation Plans

The following table shows information as of December 31, 2009 with respect to each equity compensation plan and individual compensation arrangements under which our equity securities are authorized for issuance to employees or non-employees.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (A)		Weighted-average exercise price of outstanding options, warrants and rights (B)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (C)
Equity compensation plans approved by security holders		6,750,000	$	0.0413		18,500,000

Equity compensation plans not approved by security holders		17,656,666	$	0.0951		0

Total		24,406,666	$	0.0798		18,500,000

As of December 31, 2009, we have granted warrants and other rights to purchase a total of 24,406,666 shares or our common stock with average exercise price of $0.0798. These warrants and other rights were granted to multiple individuals with various reasons such as reward for consulting services, incentive to retain highly desired staff and employee performance rewards. The grant of each of such warrants and other rights were approved by our board of directors. All the warrants were approved by our board of the directors but were not approved by our security holders except 6,750,000 warrants(options) were granted under 2008 Equity Compensation Plans which was approved by security holders in our 2008 annual shareholders’ meeting.

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

Date of Grant/Issuance	Number of Warrants Granted	Exercise Price	Expiration Date	Name of Holder, if a Director or Executive Officer
03/29/07	2,000,000	0.1100	03/29/10	President & CEO
03/29/07	2,000,000	0.1175	03/29/10
05/16/07	2,000,000	0.1100	05/16/10
05/23/07	1,100,000	0.1100	05/23/10	Ronald Hart (formal director)
09/28/07	2,000,000	0.0700	09/28/10	Director and CFO
12/14/07	3,000,000	0.0540	12/14/11
04/23/07	2,000,000	0.1100	04/23/10
02/12/08	(2,000,000) Cancellation	0.1100
02/12/08	666,666	0.1100	04/23/10
03/14/08	500,000	0.0667	03/14/11	Malcolm Hoenlein, director
04/16/08	45,000	0.0853	04/16/11
04/16/08	45,000	0.0853	04/16/11
07/30/08	50,000	0.0580	07/30/11
07/30/08	250,000	0.0580	07/30/11
04/17/09	4,000,000	0.0410	04/17/2014	President & CEO

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

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

•	select the persons to whom awards will be granted,

•	grant awards,

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

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

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

Participation in the 2008 Plan is limited to our:

•	employees, including officers,

•	directors,

•	consultants and

•

advisors.

Under the 2008 Plan, we are authorized to award:

•	stock options,

•	stock bonuses,

•	restricted stock,

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

•	performance grants and

•	other types of awards.

The total number of shares of our common stock reserved and available for grant and issuance pursuant to the 2008 Plan is 30 million. As of December 31, 2009 and through March 22, 2010, no options, warrants, and rights were awarded under 2008 Plan.

Item 6.

Selected Financial Data.

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

Item 7.

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

Overview and Recent Developments

We completed production of a fully functional prototype of the PureSafe FRWS in 2008. The system has been tested for its capability to decontaminate and purify contaminated waters with a variety of contaminants. All bench tests have been successful. Tests were performed under the supervision of Thomas Brewer PH.D, hydrogeologist with Hidell-Eyster International, Inc.. All test results were independently verified by an outside independent laboratory. Test results have been published and have been disclosed to the public.

In 2008 we entered into a Letter of Intent with Mekorot Development and Enterprise Ltd (“Mekorot D&E”), a wholly owned subsidiary of Mekorot National Water Company, the national water carrier of Israel, to create a working relationship with the goal of incorporating the PureSafe FRWS in the global water security initiative of Mekorot D&E. Mekorot D&E, in turn, is seeking our help in marketing their water security program in the United States.

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

We commenced the production of our first two FRWS units in January 2010. We expect to complete these two units on or before April 30, 2010. These two units will provide the following advantages over the first prototype unit:

Capability of delivering 30,000 gallons of potable water per day rather than the 10,000 capacity of the prototype.

Significant advancement on maintenance requirement. Maintenance personnel can step into the unit to change filters and provide other maintenance services.

Automatic water bagging machine integrated into the system. The FRWS can now produce 1,800 ½ liter bags of water automatically.

Filling station integrated into the system. The bottle filling capability is now inside the system to prevent any type of external damage. The prototype had a drop down table for this purpose.

Integrated diesel generator. The diesel generator is an integral part of the system and can operate for up to 90 hours without refueling.

We are seeking financing to expand production to meet what we believe will be significant demand for our product.

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

We have signed a management agreement with Hidell-Eyster International, Inc. (HEI) which provides for Steve Keim to serve as President of PureSafe, Henry (Bob) Hidell to serve as Chief Operating Officer, Richard Pellerito, as Vice President of Technical Sales, Kathleen Ransome, as financial advisor to Terry Lazar, our CFO, and other members of the HEI group as needed, including John Clemmens, process engineer and Dr. Thomas Brewer, hydrogeologist.

Plan of Operations

Our plans for the next twelve months include;

Raising $5 million in capital in two tranches, $2.5 million within the first six months of 2010 and an additional $2.5 million in the fourth quarter of 2010.

The completion of 45 commercial PureSafe FRWS units, with full operational capability. We believe that with acceptable levels of capital, 45 units can be produced of which 35 will be sold and ten will remain in inventory. The ramp up to full production capability of 20 units per month is targeted for the third quarter of 2010.

Expand production capability to meet the expected demand for the FRWS domestically by a combination of expanding the production facility of PureSafe Manufacturing and Research Corporation, and outsourcing to an identified facility.

Identify strategic partners in specific overseas markets that have the production, distribution, maintenance and training capability to produce, distribute, maintain and train personnel in the operation of our system.

To have the first two production units certified by the WQA (Water Quality Association) and UL (Underwriters Laboratory).

To enter into a pilot program with Nassau County New York to field test the units.

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

Following our Operating Business Plan (OBP) to achieve the results anticipated in the OBP and our Cash Flow Projections.

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

To follow our marketing and sales projections by hiring a Vice President of Marketing to achieve sales by the second quarter of 2010.

Chief Peter Hayden will become a full time Vice President – Senior Government Liaison and will identify first responder users of our system.

The Honorable Michael Balboni, former New York State Senator and Deputy Secretary of Public Safety for the State of new York joined us as a Special Advisor in October 2009. We expect to make full use of Mr. Balboni’s knowledge and contacts.

Locating additional board members. Henry (Bob) Hidell will be joining the Board. We are seeking two additional outside Board members who can bring a level of professionalism, independence, recognized success either in business or academia and an unquestionable level of ethical behavior.

Recognizing revenue produced by sales of PureSafe FRWS units. We believe that, as the production process moves in tandem with our marketing initiatives, we shall start to receive orders for the FRWS. Richard Pellerito has become Vice President of Technical Sales. We expect that the extent of his knowledge and experience will move us in the direction of achieving sales.

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

Going Concern

At December 31, 2009, stockholders’ deficiency was $2,213,943 as compared to $1,676,483 at December 31, 2008. Negative working capital was $1,690,319 at December 31, 2009 as compared to $1,907,742 at December 31, 2008.

We continue to suffer recurring losses from operations and have an accumulated deficit since inception of approximately $32.2 million. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern. The Independent Registered Public Accounting Firm’s report on our financial statements included elsewhere herein contains an explanatory paragraph about conditions that raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent upon our ability to bring our products to market and generate revenues, control costs, operate profitably and obtain additional financing, as required and on reasonable terms. Our plans with respect to these matters include restructuring our existing debt and raising additional capital through future issuances of stock and/or debt. We plan to raise an additional $5 million in the next twelve months to fund the following activities: the production of 45 commercialized PureSafe FRWS units; submitting two commercialized units for all necessary certifications; launching a marketing program for the PureSafe FRWS, establishing a sales and marketing network; and concluding agreements with strategic partners for international marketing and manufacturing. Provided we obtain such financing, we believe that there will be revenue recognition by the third quarter of 2010.

We have no assurance that such financing will be available on terms advantageous to us, or at all. We anticipate that by the third quarter of 2010, we will be fully commercially operational and cease to be a development stage entity. However, should we not be successful in obtaining the necessary financing to fund our operations, we would need to curtail certain of our operational activities.

For the first two quarters of 2010, our main focus will be to produce PureSafe FRWS standardized commercial units, complete the certification process and initiate our marketing plan. We expect to recognize the first sales of the PureSafe FRWS by the end of the second quarter of 2010. We will cease being a development stage enterprise at the time of our recognition of significant revenue from the sale of PureSafe FRWS units.

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

Results of Operations

Revenues. We recorded zero sales for the years ended December 31, 2009 and 2008.

Cost of goods sold. Cost of goods sold for the years ended December 31, 2009 and 2008 were $0 and $0, respectively.

Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31, 2009 was $1,897,639, compared to $1,909,982 for the 2008 fiscal year, a decrease of $12,343. The decrease between these two periods was smaller than 1%. Our operation scales and employee force were similar in both 2009 and 2008. That is the main factor the change in total selling, general and administrative expense is very small. Though total Selling, general and administrative expenses change is small, there were a few expenses that have larger shifts in spending between these two periods. Legal fees incurred in 2009 was $96,815, compared to $100,971 in 2008, a $14,615 or 14% decrease. The 14% decrease in legal fees is attributable to a less legal service required in 2009. Audit fees for 2009 was $96,815, compared to $177,260 for 2008, a $80,445 or 45% decrease. The decrease in our audit fees for 2009 was the combination of fee negotiation and the improved efficiency and effectiveness of our accounting department . Accounting fees decreased by $11,090, or 33% from 2009 to 2008. In 2009, our outside accountants spent fewer hours than in 2008 in reviewing transactions prepared and recorded by our controller and compiling our financial statements. We expect the total accounting fees will maintain the same level in 2010 unless our operation, both in PureSafe Water Systems sector or in our manufacturing sector expand rapidly in 2010. Consulting services expenses in 2009 was $198,962, compared to $229,708 in 2008, a $30,746 decrease. The decrease in consulting fees is because we change one vendor’s service to more marketing related than consulting. Office expenses decreased $28,630 or 61% from $46,855 in 2008 to $18,225 in 2009. In 2008, we incurred $19,337 in office expenses related to the 2008 annual shareholders’ meeting held in November. Marketing expenses increased significantly. Marketing expense in 2009 was $223,637 compared to $132,529 in 2008, a 91,108 or 69% increase. The main component of such increase in marketing expense relates to the $180,000 consulting fee incurred in retaining Hidell-Eyster International, Inc. (“HEI”)’s services. On June 9, 2008, we signed an agreement with HEI to retain their services in the following areas: regulatory and licensing issues; marketing; quality assurance; manufacturing and logistics; financial planning and monitoring and sales and distribution. We agreed to pay HEI a fixed fee of $15,000 per month plus approved out-of-pocket expenses. We also incurred approximately $20,000 more in 2009 in various marketing projects, including preparation of a business plan and brochures and trade shows as we are more aggressively marketing our company’s product and image. Rent expense in 2009 was $114,311, compared to $85,833 in 2008, a 28,478.13 or 33% increase. The increase in rent was caused by tax bills we received in 2009 for 2008 property taxes. Travel expenses from decreased from $53,044 in 2008 to $4,683.in 2009, a $48,360 or 91% decrease. The decrease in travel expenses coincides with the completion of our prototype. Since the prototype was brought to United States from Israel in July 2008 and with ever advanced internet technologies, most of the research and development activities are conducted via internet and physical activities of modifying our prototype, building our first 2 commercialized units are being done in our HQ’s facility. The need for the management team to travel to Israel as well as the need for our consultant travel from Israel to United States decreased substantially. Total salaries paid and accrued in 2009 was $262,102, compared to $313,163 in 2008, a decrease of $51,061 or 16%. The main reason for the decrease was that subsequent to October 2008 we were no longer required to pay severance to a former employee.Stock based compensation increased from $490,689 in 2008 to $706,113 in 2009, an increase of $215,424 or 44%. In April 2009, we granted our staff 5,000,000 shares of common stock and options to purchase additional 10,750,000 shares of common stock to various parties which include our Chief Executive Officer and Chief Financial Officer (see Note 13, related parties transactions). We incurred $518,042 stock-based compensation in connection with such grant. In December 2009, we incurred $100,000 additional stock-based compensation from issuing 1,000,000 shares of common stock to each of our Chief Executive Officer and Chief Financial Officer in connection with a 2008 stock grant.

Research and development. Research and development expenses in 2009 were $179,919, compared to $270,405 in 2008, a decrease of $90,486 or 33%. Since the completion of the prototype of PureSafe FRWS in July of 2008, continue our research and development activities have been focused on modifying, redesigning, enhancing, and standarizing FRWS design from the initial prototype design to be a commercialized product. . On September 18, 2009, PureSafe Manufacturing & Research Corporation (PSMR), a Delaware corporation was established. PSMR, a wholly owned subsidiary of the company will be the Manufacturing and Research arm for the Company. In October and November, 2009 the company raised an aggregate $175,000 in convertible debt which included $25,000 from each the Company’s Chief Executive Officer and Chief Financial Officer. The funds raised will be used as initial investment in PSMR and are earmarked for production purpose only. The Company expects to complete two commercial units by the end of April 2010.

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

Interest expense. We incurred $144,592 interest expense in 2009 compared to $93,092 in 2008, a $51,500 or 55% increase. The increase in interest expense in 2009 is mainly due to the write-off of the remaining debt discount on loans that were converted into our common stock in April 2009 and the amortization on the debt discount on loans incurred in 2009.

Change in fair value of warrants and embedded conversion options. Change in fair value of warrants and embedded conversion options for the years ended December 31, 2009 and 2008 were $83,000 and ($151,751), respectively. The warrants and the embedded conversion options are recorded as derivative liabilities at their fair market value, in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19, and marked to market through earnings at the end of each reporting period.

Liquidity and Capital Resources

As of December 31, 2009, we maintained a cash balance of $107,424 as compared to $29,411 at December 31, 2008 an increase in the cash balances of $78,013.

Net cash used in the operating activities was $820,870 and $1,579,182 in 2009 and 2008, respectively. The primarily factors in our use of approximately $758,000 less cash in 2009 compared to the same period in 2008 were the following:

We paid approximately $360,000 to Bircon Ltd for research and development for our prototype in the nine months ended September 30, 2008 and made no such payments in the same period of 2009;

Our Chief Executive Officer, Chief Financial Officer and some of our consultants agreed to defer their compensation since August 2008 so we can utilize the limited funds in a more productive way.

Net cash used in capital expenditures in 2009 and 2008 was $16,618 and $166,843 respectively. In 2008 we paid many one-time expenditures includes leasehold improvements, furniture and fixtures, equipments for the new headquarters and we also paid $23,155 in the first six months of 2008 for the pending patent we applied for in 2008 for the technology used on our PureSafe FRWS. In 2009, we sold two trailers and received $4,350 from the sales.

We raised $540,500 and $1,170,000 through sales of our common stock, in 2009 and 2008 respectively. In the first quarter of 2008, an investor exercised a warrant to purchase 110,000 shares of common stock. We received $9,350 from such transaction. In the first quarter of 2008, we used $69,314 cash to repay notes payables. We raised $325,000 and $50,000 through debt financing in 2009 and 2008 respectively. Proceeds received from officers and directors’ loans were $50,000 and $200,000 in 2009 and 2008 respectively. From all the above activities, net cash provided by financing activities was $915,500 and $1,360,036, in 2009 and 2008 respectively.

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

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

On April 17, 2009, the Chief Executive Officer and the Chief Financial Officer both made demands to convert the then existing loan including accrued interest into the Company’s common stock based on the term set forth in the October 14 and November 17, 2008 promissory notes. The Company issued 5,299,986 shares of common stock to the Chief Executive Officer and the Chief Financial Officer in connection of such conversions of total $200,000 debt principal and $9,304 accrued interest.

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

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 considered a development stage enterprise as defined in the Accounting standards Codification 915 “Development Stage Entities.” We are subject to a number of risks similar to those of other companies in an early stage of development.

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

Development Stage Company

We discontinued our water cooler and filtration operations in November 2001. We have refocused our efforts on raising capital and developing markets for its proprietary technology. Therefore, for financial purposes, we have determined that we re-entered the development stage commencing January 1, 2002. Our statements of operations, stockholders’ deficiency and cash flows for the year ended December 31, 2009 represent the financial information cumulative, from inception/commencement, required by ASC 915 “Development Stage Entities.”

Principle of Consolidation

The consolidated financial statements of PureSafe Water Systems, Inc. include accounts of the company and its wholly-owned subsidiary, PureSafe Manufacturing & Research Corporation. Intercompany transactions and balances are eliminated in consolidation.

Stock-Based Compensation

We report stock based compensation under ASC 718 “Compensation – Stock Compensation”. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values. During the year ended December 31, 2009 and 2008, we issued 8,000,000 and 4,483,333 shares of common stock and incurred a stock based compensation charge of approximately $ 323,500 and $271,000, respectively based on the fair value on the date of the award.

We account for equity instruments issued to non-employees in accordance with the provisions of ASC 718, which require that such equity instruments is recorded at its fair value on the measurement date, which is typically the date the services are performed.

The Black-Scholes option valuation model is used to estimate the fair 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. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the options granted.

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

	Years Ended December 31,
	2009			2008
Risk-free interest rate		2	%		3	%
Expected life, in years		3			3
Expected volatility		83	%		83	%

During the years ended December 31, 2009 and 2008, we granted warrants to purchase 11,000,000 and 833,333 shares of our common stock, respectively, to employees and consultants for services provided. We incurred charges for stock based compensation with respect to such grants of approximately $383,000 and $220,000, respectively.

We have issued equity instruments in the past to raise capital and as a means of compensation to employees and for the settlement of debt.

Derivative Financial Instruments

In connection with the issuance of certain convertible promissory notes, the terms of the convertible notes included an embedded conversion feature which provided for a conversion of the convertible promissory notes into shares of our common stock at a rate which was determined to be variable. We determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging.”

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. As a result of entering into the convertible promissory notes, we were required to reclassify all other non-employee warrants and options as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. We reassess the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

Registration Payment Arrangements

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

Income Taxes[Different from the income tax section in Fin. Note]

Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of FIN 48.

In accordance with FIN 48, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative expenses.”

Our uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. We file income tax returns in the United States (federal) and in various state and local jurisdictions. We are no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2003. The adoption of the provisions of FIN 48 did not have a material impact on our financial position and results of operations. As of December 31, 2009, no liability for unrecognized tax benefits was required to be recorded.

Effects of Recent Accounting Policies

In August 2009, the FASB issued new accounting guidance, under ASC Topic 820 on fair value measurements and disclosures, on the measurement of liabilities at fair value. The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. We adopted this guidance in the quarter ended September 30, 2009 and there was no material impact on the consolidated financial statements.

The FASB, in June 2009, issued new accounting guidance that established the FASB Accounting Standards Codification, ("Codification" or “ASC”) as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. This new guidance became effective for interim and annual periods ending after September 15, 2009. Other than the manner in which new accounting guidance is referenced, the adoption of these changes did not have a material effect on our consolidated financial statements.

In June 2009, the FASB issued an accounting standard addressing transfers of financial assets that removed the concept of a qualifying special-purpose entity (QSPE) from the FASB Accounting Standards Codification (ASC) and removed the exception from applying the consolidation rules to QSPEs. The new standard is effective for interim and annual periods beginning on January 1, 2010 for us. Earlier application is prohibited. We do not expect the effect of adopting this new standard on our consolidated financial condition, results of operations, or cash flows to be material.

In June 2009, the FASB issued an accounting standard that amends the rules addressing consolidation of variable interest entities to an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly affect the entity’s economic performance and has (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The new standard also requires enhanced financial reporting by enterprises involved with variable interest entities. The new standard is effective for interim and annual periods beginning on January 1, 2010 for us. Earlier application is prohibited. We do not expect the effect of adopting this new standard on our consolidated financial condition, results of operations, or cash flows to be material.

In May 2009, the FASB issued new accounting guidance, under ASC Topic 855 on subsequent events, which sets forth: 1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; 2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and 3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a material effect on our consolidated financial statements.

In June 2008, the FASB issued new accounting guidance, under ASC Topic 260 on earnings per share, related to the determination of whether instruments granted in share-based payment transactions are participating securities. This guidance clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. This guidance is effective for financial statements issued for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The adoption of this guidance did not have a material effect on our consolidated financial statements.

In June 2008, the FASB issued new accounting guidance, under ASC Topic 815 on Derivatives and Hedging, as to how an entity should determine whether an instrument, or an embedded feature, is indexed to an entity's own stock and whether or not such instruments would be accounted for as equity or a derivative liability. The adoption of this guidance can affect the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions). For example, warrants with such provisions will no longer be recorded in equity. Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and is applicable to outstanding instruments as of the beginning of the fiscal year it is initially applied. Early application is not permitted. 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 this guidance did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued new accounting guidance under standard ASC Topic 815, on Derivatives and Hedging which requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted under Topic 815 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. This standard is effective for fiscal years and interim periods beginning after November 15, 2008. . The adoption of this pronouncement did not have an impact on our consolidated financial position and results of operations.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

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

Item 8.

Financial Statements and Supplementary Data.

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

Item	Page *
Report of Independent Registered Public Accounting Firm	24
Consolidated Balance Sheets as of December 31, 2009 and 2008	25-26
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008	27
Consolidated Statements of Changes in Stockholders’ Deficiency for the Years Ended December 31, 2009 and 2008	28-34
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007	35-36
Notes to Consolidated Financial Statements	37-59

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of PureSafe Water Systems Inc.

We have audited the accompanying consolidated balance sheets of PureSafe Water Systems Inc. (a development stage company) and its subsidiary as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders' deficiency and cash flows for the years then ended, and for the period from January 1, 2002 (commencement as a development stage company) to December 31, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of PureSafe Water Systems Inc. (a development stage company) and its subsidiary as of December 31, 2009 and 2008 and the consolidated results of their operations and cash flows for the years then ended, and for the period from January 1, 2002 (commencement as a development stage company) to December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has had recurring losses, and has a working capital and stockholders' deficiency as of December 31, 2009. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Marcum LLP

Marcum LLP

New York, New York

April 13, 2010

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Balance Sheets

	December 31,
	2009			2008
ASSETS
Current Assets:
Cash	$	107,424		$	29,411
Inventories		97,115			--
Prepaid expenses and other current assets		120,083			53,890
Total Current Assets		324,622			83,301

Property and equipment, net of accumulated depreciation of $33,356 and $17,130, at December 31, 2009 and 2008, respectively		115,551			142,437
Patents and trademarks, net of accumulated amortization of $23,504 and $17,882, at December 31, 2009 and 2008, respectively		68,980			62,044
Other assets		20,500			26,860
TOTAL ASSETS	$	529,653		$	314,642

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses	$	656,242		$	410,925
Accrued compensation		84,000			155,000
Accrued consulting and director fees		140,000			178,000
Convertible notes payable to officer and director (including accrued interest of $14,685 and $12,171 and net of debt discount of $14,706 and $0, at December 31, 2009 and 2008, respectively)		99,979			186,891
Convertible promissory note (including accrued interest of $9,194 and $208 and net of debt discount of $104,214 and $19,283, at December 31, 2009 and 2008, respectively)		279,980			30,925
Promissory notes payable (including accrued interest of $127,221 and $269,833, at December 31, 2009 and 2008, respectively)		285,443			553,056
Fair value of detachable warrants and options		286,100			121,100
Fair value of embedded conversion options		197,900			164,900
Accrued dividends payable		190,328			190,328
Total Current Liabilities		2,219,972			1,991,125

Long Term Liabilities:
Notes Payable		284,624			--
Notes payable to officers and directors		239,000			--
Total Long Term Liabilities		523,624			--
TOTAL LIABILITIES		2,743,596			1,991,125

Stockholders' Deficiency:
Preferred stock $.001 par value; 10,000,000 shares authorized; 184,144 shares issued and outstanding at December 31, 2009 and 2008, (liquidation preference $2,592,250 and $2,483,950, at December 31, 2009 and 2008, respectively)		184			184
Common stock, $.001 par value; 450,000,000 authorized; 272,162,945 shares issued and 272,158,545 shares outstanding at December 31, 2009; 244,850,034 shares issued and 244,845,634 outstanding at December 31, 2008		272,162			244,849
Additional paid-in capital		30,086,795			28,528,973
Treasury Stock, at cost, 4,400 shares of common stock		(5,768	)		(5,768	)
Subscriptions receivable - related party (including accrued interest of $33,076 and $12,914, at December 31, 2009 and 2008, respectively)		(370,276	)		(350,114	)
Accumulated deficit (including $17,665,444 and $15,563,011 of deficit accumulated during development stage at December 31, 2009 and December 31, 2008, respectively)		(32,197,040	)		(30,094,607	)
Total Stockholders’ Deficiency		(2,213,943	)		(1,676,483	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	529,653		$	314,642

The accompanying notes are an integral part of these consolidated financial statements.

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Operations

	Years Ended December 31,						January 1, 2002 to December 31, 2009
	2009			2008			January 1, 2002 to December 31, 2009
Sales	$	--		$	--		$	471,290
Costs and expenses (income):		--			--
Cost of Sales		--			--			575,680
Selling, general and administrative, including stock-based compensation of $716,313 and $490,689 for the years ended December 31, 2009 and 2008 and $3,378,807 for the period January 1, 2002 to Dec 31, 2009		1,897,639			1,909,982			10,821,567
Non-dilution agreement termination costs		--			--			2,462,453
Research and development		179,919			270,405			885,687
Interest expense - including interest expense to a related party of $86,992 and $7,008 for the years ended December 31, 2009 and 2008, respectively, and $220,765 for the period Jan 1, 2002 to December 31, 2009		144,592			93,092			1,661,312
Financing costs - extension of warrants		--			--			74,700
Interest expense - conversion provision		--			--			113,000
(Gain) loss on settlement of debt		(202,717	)		(384,114	)		2,027,186
Change in fair value of warrants and embedded conversion option		83,000			(151,751	)		(484,851	)
Total costs and expenses		2,102,433			1,737,614			18,136,734
Net (loss)		(2,102,433	)		(1,737,614	)		(17,665,444	)
Deemed dividend on preferred stock		--			--			(2,072,296	)
Preferred stock dividends		(108,300	)		(108,357	)		(834,423	)
		(108,300	)		(108,357	)		(2,906,719	)
Net loss attributable to common stockholders	$	(2,210,733	)	$	(1,845,971	)	$	(20,572,163	)
Net loss attributable to common stockholders per common share - Basic and diluted	$	(0.01	)	$	(0.01	)
Weighted average number of shares outstanding - Basic and diluted		262,016,546			235,494,015

The accompanying notes are an integral part of these consolidated financial statements.

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

	Preferred Stock				Common Stock				Additional Paid-In Capital		Treasury Stock, at Cost			Subscription Receivable			Accumulated Deficit			Total Stockholders’ Deficiency
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Treasury Stock, at Cost			Subscription Receivable			Accumulated Deficit			Total Stockholders’ Deficiency
BALANCE - JANUARY 1, 2002		145,500	$	146		86,614,286	$	86,614	$	12,339,469	$	(5,768	)	$	(67,500	)	$	(14,531,596	)	$	(2,178,635	)
Extension of life of warrants		--		--		--		--		111,000		--			--			--			111,000
Proceeds from sale preferred stock ($1.00 per share)		125,000		125		--		--		117,375		--			--			--			117,500
Proceeds from sale of common stock ($0.025 per share)		--		--		2,500,000		2,500		97,500		--			--			--			100,000
Common stock issued for services ($0.08 per share)		--		--		450,000		450		35,550		--			--			--			36,000
Collection of subscription receivable		--		--		--		--		--		--			30,200			--			30,200
Net loss		--		--		--		--		--		--			--			(1,589,746	)		(1,589,746	)
BALANCE - DECEMBER 31, 2002		270,500	$	271		89,564,286	$	89,564	$	12,700,894	$	(5,768	)	$	(37,300	)	$	(16,121,342	)	$	(3,373,681	)

Proceeds from sale of preferred stock:
March 31, 2003 ($1.00-$2.00 per share)		62,500		63		--		--		74,937		--			--			--			75,500
June 30, 2003 ($0.50 per share)		75,000		75		--		--		37,425		--			--			--			37,500
September 30, 2003 ($1.00-$2.40 per share)		163,281		163		--		--		228,346		--			--			--			228,509
December 31, 2003 ($1.33-$2.80 per share)		145,450		145		--		--		258,717		--			--			--			258,862
Preferred stock issued for services:
March 31, 2003 ($1.00 per share)		30,000		30		--		--		29,970		--			--			--			30,000
June 30, 2003 ($1.00 per share)		51,250		51		--		--		51,199		--			--			--			51,250
September 30, 2003 ($1.00 per share)		67,035		67		--		--		66,968		--			--			--			67,035
December 31, 2003 ($1.88-$4.00 per share)		22,150		22		--		--		65,378		--			--			--			65,400
Collection of subscription receivable		--		--		--		--		--		--			15,500			--			15,500
Write-off of subscription receivable		--		--		--		--		--		--			21,800			--			21,800
Net loss		--		--		--		--		--		--			--			(3,535,479	)		(3,535,479	)
BALANCE - DECEMBER 31, 2003		887,166	$	887		89,564,286	$	89,564	$	13,513,834	$	(5,768	)	$	--		$	(19,656,821	)	$	(6,058,304	)

Proceeds from sale of preferred stock:
March 31, 2004 ($2.40-$4.80 per share)		130,077		130		--		--		400,126		--			--			--			400,256
June 30, 2004 ($0.80 per share)		15,625		16		--		--		12,484		--			--			--			12,500
Preferred stock issued for services:
March 31, 2004 ($2.00-$4.80 per share)		49,433		49		--		--		158,483		--			--			--			158,532

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

(Continued)

	Preferred Stock						Common Stock				Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable		Accumulated Deficit			Total Stockholders’ Deficiency
	Shares			Amount			Shares		Amount		Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable		Accumulated Deficit			Total Stockholders’ Deficiency
Proceeds from sale of common stock:
September 30,2004 ($0.03-$0.15 per share)		--			--			2,541,595		2,541		205,059			--			--		--			207,600
December 31, 2004 ($0.05-$0.10 per share)		--			--			2,487,500		2,488		187,512			--			--		--			190,000
Common stock issued for services:
March 31, 2004 ($0.05 per share)		--			--			477,133		477		23,380			--			--		--			23,857
September 30,2004 ($0.05-$0.15 per share)		--			--			1,857,800		1,858		126,792			--			--		--			128,650
December 31, 2004 ($0.08-$0.10 per share)		--			--			532,500		533		40,968			--			--		--			41,501
Preferred stock dividend		--			--			--		--		(81,034	)		--			--		--			(81,034	)
Common stock issued for satisfaction of liabilities:
June 30, 2004 ($0.15 per share)		--			--			37,786,629		37,787		5,635,934			--			--		--			5,673,721
December 31, 2004 ($0.134 per share)		--			--			411,100		411		54,839			--			--		--			55,250
Preferred stock converted to common stock:
June 30, 2004		(133,250	)		(133	)		5,108,332		5,108		(4,975	)		--			--		--			--
September 30, 2004		(269,263	)		(269	)		12,103,854		12,104		(11,835	)		--			--		--			--
December 31, 2004		(65,375	)		(65	)		3,015,000		3,015		(2,950	)		--			--		--			--
Net loss		--			--			--		--		--			--			--		(3,757,802	)		(3,757,802	)
BALANCE - DECEMBER 31, 2004		614,413		$	615			155,885,729	$	155,886	$	20,258,617		$	(5,768	)	$	--	$	(23,414,623	)	$	(3,005,273	)

Proceeds from sale of common stock:
March 31,2005 ($0.05 per share)		--			--			200,000		200		9,800			--			--		--			10,000
June 30, 2005 ($0.05-$0.06 per share)		--			--			700,000		700		39,300			--			--		--			40,000
September 30, 2005 ($0.07-$0.10 per share)		--			--			2,455,357		2,455		202,545			--			--		--			205,000
December 31, 2005 ($0.05-$0.07 per share)		--			--			3,879,283		3,879		236,081			--			--		--			239,960
Common stock issued for services:
March 31, 2005 ($0.05-$0.10 per share)		--			--			230,000		230		17,770			--			--		--			18,000
December 31, 2005 ($0.05-$0.06 per share)		--			--			407,500		408		21,219			--			--		--			21,627
Preferred stock dividend		--			--			--		--		(66,436	)		--			--		--			(66,436	)
Extension of 1,666,667 warrants		--			--			--		--		74,700			--			--		--			74,700
Common stock issued for satisfaction of liabilities:
September 30, 2005 ($0.07 per share)		--			--			571,428		571		39,429			--			--		--			40,000

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

(Continued)

	Preferred Stock						Common Stock				Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable		Accumulated Deficit			Total Stockholders’ Deficiency
	Shares			Amount			Shares		Amount		Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable		Accumulated Deficit			Total Stockholders’ Deficiency
December 31, 2005 ($0.142 per share)		--			--			100,000		100		14,100			--			--		--			14,200
Preferred stock converted to common stock:
March 31, 2005		(55,970	)		(56	)		2,518,800		2,519		(2,463	)		--			--		--			--
June 30, 2005		(34,020	)		(34	)		1,360,800		1,361		(1,327	)		--			--		--			--
September 30, 2005		(286,650	)		(287	)		13,382,583		13,383		(13,096	)		--			--		--			--
December 31, 2005		(2,188	)		(2	)		87,520		87		(85	)		--			--		--			--
Net loss		--			--			--		--		--			--			--		(1,168,328	)		(1,168,328	)
BALANCE - DECEMBER 31, 2005		235,585		$	236			181,779,000	$	181,779	$	20,830,154		$	(5,768	)	$	--	$	(24,582,951	)	$	(3,576,550	)

Proceeds from sale of common stock:
March 21, 2006 ($0.07 per share)		--			--			3,600,000		3,600		246,400			--			--		--			250,000
May 8, 2002 ($0.08-$0.10 per share)		--			--			3,769,230		3,769		276,231			--			--		--			280,000
June 28, 2006 ($0.10 per share)		--			--			100,000		100		9,900			--			--		--			10,000
August 17, 2006 ($0.07 per share)		--			--			400,000		400		27,600			--			--		--			28,000
Common stock issued for services:
March 21, 2006 ($0.06 per share)		--			--			250,000		250		14,750			--			--		--			15,000
May 8, 2006 ($0.05 per share)		--			--			450,000		450		22,050			--			--		--			22,500
June 6, 2006 ($0.15 per share)		--			--			166,666		166		24,833			--			--		--			24,999
Common stock issued for repayment of debt:
February 13, 2006 ($0.11 per share)		--			--			438,785		439		48,046			--			--		--			48,485
April 3, 2006 ($0.08 per share)		--			--			614,131		614		50,790			--			--		--			51,404
April 6, 2006 ($0.08 per share)		--			--			1,959,631		1,960		154,614			--			--		--			156,574
June 6, 2006 ($0.10-$0.15 per share)		--			--			3,583,334		3,583		390,517			--			--		--			394,100
Preferred stock converted to common stock:		(46,668	)		(47	)		1,866,720		1,867		(1,820	)		--			--		--
Reclassification of derivative liabilities upon conversion of debt		--			--			--		--		368,800			--			--		--			368,800
4,000,000 warrants granted for services, May 18, 2006		--			--			--		--		464,000			--			--		--			464,000
2,500,000 warrants granted for services, May 24, 2006		--			--			--		--		241,200			--			--		--			241,200
Reclassification of warrants and embedded conversion option upon issuance of convertible debt		--			--			--		--		(288,900	)		--			--		--			(288,900	)
Preferred stock dividend		--			--			--		--		(42,401	)		--			--		--			(42,401	)
Net loss		--			--			--		--		--			--			--		(2,072,917	)		(2,072,917	)
BALANCE - DECEMBER 31, 2006		188,917		$	189			198,977,497	$	198,977	$	22,836,764		$	(5,768	)	$	--	$	(26,655,868	)	$	(3,625,706	)

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

(Continued)

	Preferred Stock						Common Stock						Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable		Accumulated Deficit			Total Stockholders’ Deficiency
	Shares			Amount			Shares			Amount			Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable		Accumulated Deficit			Total Stockholders’ Deficiency
Proceeds from sale of common stock:
May 10, 2007 ($0.090 per share)		--			--			1,111,112			1,111			98,889			--			--		--			100,000
May 10, 2007 ($0.083 per share)		--			--			2,409,640			2,409			197,591			--			--		--			200,000
May 31, 2007 ($0.090 per share)		--			--			555,555			555			49,445			--			--		--			50,000
June 26, 2007 ($0.083 per share)		--			--			1,203,080			1,203			98,797			--			--		--			100,000
October 26, 2007 ($0.063 per share)		--			--			3,159,558			3,159			196,841			--			--		--			200,000
November 7, 2007 ($0.059 per share)		--			--			1,675,978			1,676			98,324			--			--		--			100,000
December 5, 2007 ($0.051 per share)		--			--			1,948,052			1,948			98,052			--			--		--			100,000
December 12, 2007 ($0.050 per share)		--			--			1,973,684			1,974			98,026			--			--		--			100,000
December 13, 2007 ($0.051 per share)		--			--			1,948,052			1,948			98,052			--			--		--			100,000
December 20, 2007 ($0.044 per share)		--			--			2,255,639			2,256			97,744			--			--		--			100,000
Stock for compensation:																	--			--		--
May 2, 2007 ($0.110 per share)		--			--			2,500,000			2,500			272,500			--			--		--			275,000
December 14, 2007 ($0.040 per share)		--			--			1,000,000			1,000			39,000			--			--		--			40,000
Common stock issued in repayment of debt:
February 26, 2007 ($0.132 per share)		--			--			195,212			195			25,534			--			--		--			25,729
March 8, 2007 ($0.111 per share)		--			--			234,165			234			25,571			--			--		--			25,805
March 14, 2007 ($0.111 per share)		--			--			256,643			257			25,587			--			--		--			25,844
March 19, 2007 ($0.099 per share)		--			--			262,650			263			25,608			--			--		--			25,871
March 23, 2007 ($0.097 per share)		--			--			806,583			807			76,867			--			--		--			77,674
April 4, 2007 ($0.095 per share)		--			--			546,901			547			51,354			--			--		--			51,901
May 1, 2007 ($0.086 per share)		--			--			908,885			909			77,345			--			--		--			78,254
Stock for late payment penalty:																	--			--		--
May 22, 2007 ($0.100 per share)		--			--			100,000			100			9,900			--			--		--			10,000
Preferred stock converted to common stock:																	--
February 16, 2007		(2,848	)		(3	)		113,920			114			(111	)		--			--		--			--
May 4, 2007		(250	)		--			10,000			10			(10	)		--			--		--			--
December 12, 2007		(625	)		(1	)		25,000			25			(24	)		--			--		--			--
Cancellation of debt for no consideration		--			--			--			--			1,327,321			--			--		--			1,327,321
Surrender and cancellation of common stock		--			--			(20,000,000	)		(20,000	)		20,000			--			--		--			--
Reclassification of derivative liability		--			--			--			--			(227,300	)		--			--		--			(227,300	)
Amortization of warrants for services		--			--			--			--			311,916			--			--		--			311,916
Common stock to be issued		--			--			--			--			100,000			--			--		--			100,000
Preferred stock dividend		--			--			--			--			(399	)		--			--		--			(399	)
Net loss		--			--			--			--			--			--			--		(1,701,125	)		(1,701,125	)
BALANCE - DECEMBER 31, 2007		185,194		$	185			204,177,806		$	204,177		$	26,129,184		$	(5,768	)	$	--	$	(28,356,993	)	$	(2,029,215	)

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

(Continued)

	Preferred Stock				Common Stock						Additional Paid-In Capital			Treasury Stock, at Cost		Subscription Receivable			Accumulated Deficit		Total Stockholders’ Deficiency
	Shares		Amount		Shares			Amount			Additional Paid-In Capital			Treasury Stock, at Cost		Subscription Receivable			Accumulated Deficit		Total Stockholders’ Deficiency
Proceeds from sale of common stock:
$0.0357 per share - February 29, 2008		--		--		1,401,869			1,402			48,598			--		--			--		50,000
$0.0350 per share - March 7, 2008		--		--		2,857,142			2,857			97,143			--		--			--		100,000
$0.0350 per share - March 13, 2008		--		--		1,428,571			1,429			48,571			--		--			--		50,000
$0.0343 per share - March 13, 2008		--		--		2,912,622			2,913			97,087			--		--			--		100,000
$0.0900 per share - March 26, 2008		--		--		1,666,667			1,667			148,333			--		--			--		150,000
$0.1083 per share - March 26, 2008		--		--		461,538			462			49,538			--		--			--		50,000
$0.1000 per share - April 11, 2008		--		--		1,000,000			1,000			99,000			--		--			--		100,000
$0.1083 per share - May 5, 2008		--		--		923,077			923			99,077			--		--			--		100,000
$0.0917 per share - May 15, 2008		--		--		545,455			545			49,455			--		--			--		50,000
$0.0963 per share - May 15, 2008		--		--		519,031			519			49,481			--		--			--		50,000
$0.0963 per share - May 12, 2008		--		--		1,557,094			1,557			148,443			--		--			--		150,000
$0.1000 per share - May 23, 2008		--		--		500,000			500			49,500			--		--			--		50,000
$0.0840 per share - June 30, 2008		--		--		833,333			833			69,167			--		--			--		70,000
$0.0730 per share - July 25, 2008		--		--		1,369,863			1,370			98,630			--		--			--		100,000
Stock for receivables:
$0.0843 per share - May 12, 2008		--		--		17,000,000			17,000			1,416,100			--		(1,433,100	)		--		--
$0.0843 per share - August 31, 2008		--		--		(13,000,000	)		(13,000	)		(1,082,900	)		--		1,095,900			--		--
Accrued interest		--		--		--			--			--			--		(12,914	)		--		(12,914	)
Stock for compensation:
$0.0500 per share - March 13, 2008		--		--		1,000,000			1,000			49,000			--		--			--		50,000
$0.0400 per share - March 26, 2008		--		--		333,333			333			13,000			--		--			--		13,333
$0.1000 per share - May 29, 2008		--		--		1,000,000			1,000			99,000			--		--			--		100,000
$0.0500 per share – August 6, 2008						100,000			100			4,900										5,000
$0.0500 per share - September 19, 2008		--		--		2,050,000			2,050			100,450			--		--			--		102,500
Common stock issued in repayment of debt:
$0.02943 per share - January 9, 2008		--		--		947,119			947			26,927			--		--			--		27,874
$0.02500 per share - January 17, 2008		--		--		2,146,324			2,146			51,512			--		--			--		53,658
$0.02212 per share - January 17, 2008		--		--		1,250,000			1,250			48,750			--		--			--		50,000
$0.03108 per share - January 22, 2008		--		--		6,899,269			6,899			207,530			--		--			--		214,429
$0.02943 per share - February 1, 2008		--		--		562,282			562			15,986			--		--			--		16,548
Reclassification of derivative liability		--		--		--			--			70,766			--		--			--		70,766
Amortization of warrants for services		--		--		--			--			219,856			--		--			--		219,856
Issuance of common stock for $100,000 of subscription payable ($0.0443 per share) - January 4, 2008		--		--		2,255,639			2,256			(2,256	)		--		--			--		--

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

(Continued)

	Preferred Stock						Common Stock				Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable			Accumulated Deficit			Total Stockholders’ Deficiency
	Shares			Amount			Shares		Amount		Additional Paid-In Capital			Treasury Stock, at Cost			Subscription Receivable			Accumulated Deficit			Total Stockholders’ Deficiency
Issuance of shares upon exercise of warrants ($0.0850 per share) - March 26, 2008		--			--			110,000		110		9,240			--			--			--			9,350
Preferred stock converted to common stock		(1,050	)		(1	)		42,000		42		(41	)		--			--			--			--
Preferred stock dividend		--			--			--		--		(57	)		--			--			--			(57	)
Net loss		--			--			--		--		--			--			--			(1,737,614	)		(1,737,614	)
BALANCE - DECEMBER 31, 2008		184,144		$	184			244,850,034	$	244,849	$	28,528,973		$	(5,768	)	$	(350,114	)	$	(30,094,607	)	$	(1,676,483	)

Proceeds from sale of common stock:
$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
$0.0320 per share – February 9, 2009								640,625		641		19,859												20,500
$0.0299 per share – February 13, 2009								1,672,241		1,672		48,328												50,000
$0.0290 per share – February 17, 2009								1,724,138		1,724		48,276												50,000
$0.0410 per share – April 29, 2009								609,756		610		24,390												25,000
$0.0440 per share – May 28, 2009								568,182		568		24,432												25,000
$0.0420 per share – June 3, 2009								595,238		595		24,405												25,000
$0.0600 per share – June 17, 2009								416,667		416		24,584												25,000
$0.0700 per share – June 23, 2009								714,286		714		49,286												50,000
$0.0720 per share – August 3, 2009								277,778		278		19,722												20,000
$0.0720 per share – August 3, 2009								694,444		694		49,306												50,000
$0.0730 per share – August 4, 2009								1,369,863		1,370		98,630												100,000
$0.0379 per share – October 5, 2009								659,631		660		24,340												25,000

Common stock issued in repayment of debt:
$0.0547 per share – March 14, 2009								500,000		500		26,868												27,368
$0.0390 per share – April 17, 2009								2,694,438		2,694		102,391												105,085
$0.040 per share – April 17, 2009								2,605,548		2,606		101,613												104,219
$0.059 per share – December 29, 2009								1,250,000		1,250		72,500												73,750

Stock Based Compensation:
$0.0200 per share – February 23, 2009								1,000,000		1,000		19,000												20,000
$0.0410 per share – April 17, 2009								4,750,000		4,750		190,000												194,750
$0.0350 per share – May 6, 2009								250,000		250		8,500												8,750
$0.0500 per share – December 1, 2009								2,000,000		2,000		98,000												100,000

Reclassification of derivative liability												17,900												17,900

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Stockholders’ Deficiency

(Continued)

	Preferred Stock				Common Stock				Additional Paid-In Capital		Treasury Stock, at Cost			Subscription Receivable			Accumulated Deficit			Total Stockholders’ Deficiency
	Shares		Amount		Shares		Amount		Additional Paid-In Capital		Treasury Stock, at Cost			Subscription Receivable			Accumulated Deficit			Total Stockholders’ Deficiency
Stock for receivables															(20,162	)					(20,162	)

Amortization of warrants and option over the vesting period for employees and non-employees										392,813											392,813



Net Loss																		(2,102,433	)		(2,102,433	)

BALANCE – DECEMBER 31, 2009		184,144		184		272,162,945		272,162		30,086,795		(5,768	)		(370,276	)		(32,197,040	)		(2,113,943	)

The accompanying notes are an integral part of these consolidated financial statements.

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Cash Flows

	Years Ended December 31,						For the Period From January 1, 2002 through December 31, 2009
Cash Flows from Operating Activities:	2009			2008
Net loss	$	(2,102,433	)		(1,737,614	)	$	(17,665,444	)
Adjustments to reconcile net loss to net cash used in operating activities -
Loss on Sale of Property and Equipment		8,177						8,177
Depreciation and amortization		22,769			15,067			39,899
Amortization of patents and trademarks		5,622			4,607			22,122
Interest expense - amortization of deferred financing		--			2,510			22,530
Stock based compensation		716,313			490,689			3,389,007
Interest expense - conversion provision		--			--			113,000
Interest receivable		(20,162	)		(12,914	)		(33,076	)
Accretion of debt discount		118,743			71,657			687,821
Change in fair value of warrants and embedded conversion option		83,000			(151,751	)		(484,851	)
(Gain)/loss on settlement of debt		(202,717	)		(384,114	)		2,027,187
Non-dilution agreement termination cost		--			--			2,462,453
Inventory reserve		--			--			159,250
Write-off of stock subscription receivable		--			--			21,800
Financing costs - warrant extension		--			--			74,700
Change in assets and liabilities -
Prepaid expenses and other current assets		(66,193	)		(11,902	)		(69,839	)
Inventories		(97,115	)		--			(97,115	)
Other assets		6,360			(17,441	)		(11,081	)
Accounts payable, accrued expenses, accrued dividends, accrued compensation, accrued consulting and director fees, customer deposits and other current liabilities		706,766			152,024			2,501,720
Net Cash Used in Operating Activities		(820,870	)		(1,579,182	)		(6,831,739	)

Cash Flows from Investing Activities:
Purchase of property and equipment		(8,410	)		(138,517	)		(167,977	)
Patent costs		(12,558	)		(28,326	)		(66,429	)
Proceeds from sale of property & equipment		4,350			--			4,350
Net Cash Used in Investing Activities		(16,618	)		(166,843	)		(230,056	)

Cash Flows from Financing Activities:
Reduction of stock subscription receivable		--			--			65,700
Proceeds from sale of preferred stock		--			--			1,130,127
Proceeds from sale of common stock		540,500			1,170,000			4,401,060
Proceeds from exercise of warrants		--			9,350			9,350
Proceeds from sale of common stock to be issued		--			--			300,000
Deferred financing costs		--			--			(22,530	)
Proceeds from convertible promissory note		325,000			50,000			1,175,000
Proceeds from officers and directors convertible loans		50,000			200,000			350,000
Repayment of notes payable		--			(69,314	)		(274,999	)
Net Cash Provided by Financing Activities		915,500			1,360,036			7,133,708

Net increase (decrease) in cash		78,012			(385,989	)		71,913

PureSafe Water Systems Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Consolidated Statements of Cash Flows

(Continued)

Cash at beginning of period		29,411		415,400		35,511
Cash at end of period	$	107,424	$	29,411	$	107,424

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest	$	1,190	$	2,866	$	371,543

Non-Cash Investing Activities:
Notes Receivable for common stock issued	$	--	$	337,200	$	337,200

Non-Cash Financing Activities:
Compensation satisfied by issuance of common stock	$	--	$	--	$	55,250
Common stock issued in satisfaction of liabilities	$	310,422	$	362,509	$	7,348,293
Reclassification of derivative liabilities upon conversion of debt	$	17,900	$	70,766	$	519,066
Cancellation of debt for no consideration	$	--	$	--	$	1,327,321

The accompanying notes are an integral part of consolidated these financial statements.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

NOTE 1 – DESCRIPTION OF BUSINESS

PureSafe Water Systems, Inc. (the “Company”) is a Delaware corporation currently engaged in the design and development of its technology to be used in the manufacture and sale of water purification systems both in and outside the United States. The Company's corporate headquarters is in Plainview, New York.

The Company has generated nominal revenues to date; accordingly, the Company is considered a development stage enterprise as defined in the Accounting Standards Codification 915 “Development Stage Entities." The Company is subject to a number of risks similar to those of other companies in an early stage of development.

NOTE 2 - BASIS OF PRESENTATION AND CONTINUED OPERATIONS

Basis of Presentation

The Company discontinued its water cooler and filtration operations in November 2001. As a result, the Company has refocused its efforts on raising capital and developing markets for its proprietary technology. Therefore, for financial purposes, the Company has determined that it has re-entered the development stage commencing January 1, 2002. The Company's statements of operations, stockholders' deficiency and cash flows for the year ended December 31, 2009 represent the financial information cumulative, from inception/commencement, required by ASC 915 “Development Stage Entities."

Principle of Consolidation

Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss of approximately $2.1 million and $1.7 million for each of the years ended December 31, 2009 and 2008, respectively. The Company has a working capital deficit of approximately $1.7 million and $1.9 million, and a stockholders’ deficiency of approximately $2.2 million and $1.7 million at December 31, 2009 and 2008, respectively.

The Company continues to incur recurring losses from operations and has an accumulated deficit since inception of approximately $32.2 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Independent Registered Public Accounting Firm’s report on the Company’s our financial statements contains an explanatory paragraph about conditions that raise substantial doubt about the its ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon our ability to bring products to market and generate revenues, control costs, operate profitably and obtain additional financing, as required and on reasonable terms. The Company’s plans with respect to these matters include:

Raising $5 million in capital in two tranches, $2.5 million within the first six months of 2010 and an additional $2.5 million in the fourth quarter of 2010.

The completion of 45 commercial PureSafe FRWS units, with full operational capability. The Company believes that with acceptable levels of capital, 45 units can be produced of which 35 will be sold and ten will remain in inventory. The ramp up to full production capability of 20 units per month is targeted for the third quarter of 2010.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

To have the first two production units certified by the WQA (Water Quality Association) and UL (Underwriters Laboratory).

To enter into a pilot program with Nassau County, New York to field test the units.

Filing of all required foreign patent applications for the PureSafe FRWS. The Company will identify all the potential markets in which the Company needs patent protection.

Following the Company’s Operating Business Plan (OBP) to achieve the results anticipated in the OBP and theCash Flow Projections.

Initial penetration into target markets; the Company is participating in water industry conferences. The Company’s special advisors are contacting strategic potential customers and are starting to identify strategic partners for selected international marketsin order to achieve sales by the second quarter of 2010.

Retain Chief Peter Hayden, as Vice President – Senior Government Liaison, who will identify first responder users of our system.

The Honorable Michael Balboni, former New York State Senator and Deputy Secretary of Public Safety for New York State joined us as a Special Advisor in October 2009. The Company expects to make full use of Mr. Balboni’s knowledge and contacts.

No assurance that such financing will be available on terms advantageous to the Company, or at all. However, should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities detailed above.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

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

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2009 and 2008 the Company did not have any cash equivalents.

Inventories

Inventory principally consists of raw materials that will be used to manufacture the water purification system machines. These amounts are stated at lower of first-in, first-out (“FIFO”) cost or market.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Patents and Trademarks

Patents and trademarks are amortized ratably over nine to fourteen years. The Company assesses the carrying value of its patents for impairment each year. Based on its assessments, the Company did not incur any impairment charges for the years ended December 31, 2009 and 2008.

Deferred Financing Costs

Cost incurred in conjunction with the debt financing has been capitalized and will be amortized to interest expense using the straight line method, which approximates the interest rate method over the term of the debt. As of December 31, 2009, the deferred financing costs have been fully amortized.

Property and Equipment

Property and equipment consists primarily of equipment and furniture and fixtures and is stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives (generally three to seven years) of the related assets. Leasehold improvements, once placed in service, are amortized over the shorter of the useful life or the remainder of the lease term. Expenditures for maintenance and repairs, which do not extend the economic useful life of the related assets, are charged to operations as incurred. Gains or losses on disposal of property and equipment are reflected in the statement of operations in the period of disposal.

Stock-Based Compensation

The Company reports stock-based compensation under ASC 718 “Compensation – Stock Compensation”. ASC 718 requires all share-based payments to employees, including grants of employee stock options, warrants to be recognized in the consolidated 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 ASC 718, which require that each such equity instrument be recorded at its fair value on the measurement date, which is typically the date the services are performed.

The Black-Scholes option valuation model is used to estimate the fair value of the warrants or options granted. The model includes subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the warrants or options granted.

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

	Years Ended December 31,
	2009			2008
Assumptions:
Risk-free interest rate		2.00	%		3.00	%
Expected life	3 years			3 years
Expected volatility		83	%		83	%
Dividends		0	%		0	%

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs, which are included in selling, general and administrative expenses, were approximately $223,600 and $133,000 for the years ended December 31, 2009 and 2008, respectively.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Income Taxes

Income taxes are accounted for under ASC 740, "Income Taxes," which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. Valuation allowances are established when necessary to reduce deferred assets to the amounts expected to be realized.

Loss Per Share

Basic loss per share was computed using the weighted average number of outstanding common shares. Diluted loss per share includes the effect of dilutive common stock equivalents from the assumed exercise of warrants and convertible preferred stock. Common stock equivalents were excluded from the computation of diluted loss per share since their inclusion would be anti-dilutive. Total shares issuable upon the exercise of warrants and the conversion of preferred stock and convertible debt for the years ended December 31, 2009 and 2008, were comprised as follows:

	As of December 31,
	2009		2008
Warrants		37,803,695		30,160,910
Convertible debt		11,630,791		9,748,787
Series F preferred stock		1,545,760		1,545,760
Total common stock equivalents		50,980,246		41,455,457

Fair Value

ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Standard clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date and emphasizes that fair value is a market-based measurement and not an entity-specific measurement.

ASC 820 establishes the following hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value:

Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset or liability.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Liabilities measured at fair value on a recurring basis at December 31, 2009 and 2008 are as follows:

	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2009
Embedded conversion feature	$	-	$	-	$	197,900	$	197,900
Warrant and option liability	$	-	$	-	$	286,100	$	286,100
December 31, 2009	$	-	$	-	$	484,000	$	484,000

	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2008
Embedded conversion feature	$	-	$	-	$	121,100	$	121,100
Warrant and option liability	$	-	$	-	$	164,900	$	164,900
December 31, 2008	$	-	$	-	$	286,000	$	286,000

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities consist of derivative liabilities associated with the convertible debt that contains an indeterminable conversion share price and the tainted warrants as the Company cannot determine if it will have sufficient authorized common stock to settle such arrangements.

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs during the years ended December 31, 2009 and 2008.

	Embedded Conversion Feature			Warrant Liability			Total
Balance January, 1, 2008	$	239,300		$	170,900		$	410,200

Included in (income) expense		93,700			(245,451	)		(151,751	)
Included in stockholder's equity		(168,100	)		195,651			27,551
Transfers in and /or out of Level 3		--			--			--
Balance December 31, 2008		121,100			164,900			286,000

Included in expense		29,200			53,800			83,000
Included in stockholder's equity:		(89,600	)		71,700			(17,900	)
Included in liabilities		93,400			39,500			132,900
Transfers in and /or out of Level 3		--			--			--
Balance December 31, 2009	$	197,900		$	286,100		$	484,000

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Impairment of Long-Lived Assets

The Company assesses the recoverability of its long lived assets, including property and equipment when there are indications that the assets might be impaired. When evaluating assets for potential impairment, the Company first compares the carrying amount of the asset to the asset’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows used in this analysis are less than the carrying amount of the asset, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset to the asset’s estimated future cash flows (discounted and with interest charges). If the carrying amount exceeds the asset’s estimated futures cash flows (discounted and with interest charges), the loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets. Based on its assessments, the Company did not incur any impairment charges for the years ended December 31, 2009 and 2008.

Research and Development

Research and development costs consist of expenditures incurred during the course of planned research and investigation aimed at the discovery of new knowledge, which will be useful in developing new products or processes. The Company expenses all research and development costs as incurred. During the years ended December 31, 2009 and 2008, the Company incurred approximately $179,900 and $270,400, respectively, of research and development costs which are included in the consolidated statement of operations.

Derivative Financial Instruments

In connection with the issuance of certain convertible promissory notes, the terms of the convertible notes included an embedded conversion feature; which provided for a conversion of the convertible promissory notes into shares of common stock at a rate which was determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging”

The accounting treatment of derivative financial instruments requires that the Company record the conversion option and related warrants at their fair values as of the inception date of the convertible debenture agreements and at fair value as of each subsequent balance sheet date. As a result of entering into the convertible promissory notes, the Company was required to classify all other non-employee warrants and options as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

Subsequent Events

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would require adjustment or disclosure in the consolidated financial statements.

Recent Accounting Pronouncements

In August 2009, the FASB issued new accounting guidance, under ASC Topic 820 on fair value measurements and disclosures, on the measurement of liabilities at fair value. The guidance provides clarification that in circumstances in which a quoted market price in an active market for an identical liability is not available, an entity is required to measure fair value using a valuation technique that uses the quoted price of an identical liability when traded as an asset or, if unavailable, quoted prices for similar liabilities or similar assets when traded as assets. If none of this information is available, an entity should use a valuation technique in accordance with existing fair valuation principles. The Company adopted this guidance in the quarter ended September 30, 2009 and there was no material impact on the consolidated financial statements.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

In June 2009, the FASB issued an accounting standard addressing transfers of financial assets that removed the concept of a qualifying special-purpose entity (QSPE) from the FASB Accounting Standards Codification (ASC) and removed the exception from applying the consolidation rules to QSPEs. The new standard is effective for interim and annual periods beginning on January 1, 2010 for the Company. Earlier application is prohibited. The Company does not expect the effect of adopting this new standard on its consolidated financial condition, results of operations, or cash flows to be material.

In June 2009, the FASB issued an accounting standard that amends the rules addressing consolidation of variable interest entities to an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly affect the entity’s economic performance and has (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The new standard also requires enhanced financial reporting by enterprises involved with variable interest entities. The new standard is effective for interim and annual periods beginning on January 1, 2010 for the Company. Earlier application is prohibited. The Company does not expect the effect of adopting this new standard on its consolidated financial condition, results of operations, or cash flows to be material.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

In March 2008, the FASB issued new accounting guidance under standard ASC Topic 815, on Derivatives and Hedging which requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted under Topic 815 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. This standard is effective for fiscal years and interim periods beginning after November 15, 2008. . The adoption of this pronouncement did not have an impact on the Company’s consolidated financial position and results of operations.

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 2009 and 2008:

	2009			2008
Furniture and fixtures	$	34,374		$	34,374
Leasehold improvement		74,755			74,755
Equipment		39,778			50,438
		148,907			159,567
Accumulated depreciation amortization		(33,356	)		(17,130	)
Property and equipment, net	$	115,551		$	142,437

Depreciation and amortization expense was approximately $22,800 and $15,100 for the years ended December 31, 2009 and 2008, respectively.

NOTE 5 - PATENTS AND TRADEMARKS

Patents and trademarks as of December 31, 2009 and 2008 consist of the following:

	2009			2008
Patents	$	89,764		$	77,446
Trademarks		2,720			2,480
Total cost		92,484			79,926
Accumulated amortization		(23,504	)		(17,882	)
Patents and trademarks, net	$	68,980		$	62,044

Amortization expense for the years ended December 31, 2009 and 2008 was approximately $5,600 and $4,600, respectively.

The following table presents the Company's estimate for amortization expense for each of the five succeeding years and thereafter.

Year Ended December 31,
2010	$	5,267
2011		5,267
2012		5,267
2013		5,267
2014		5,267
2015 and thereafter		42,648
	$	68,983

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

NOTE 6 – PROMISSORY NOTES PAYABLE

Notes payable and accrued interest at December 31, 2009 and 2008 consists of the following:

	December 31,
	2009			2008
	$	210,443	(a)	$	201,589	(a)
		75,000	(b)		351,467	(b)
		284,624	(c)		--
		570,067			553,056
Less long term portion		(284,624	)		--
Current Portion		285,443			553,056

(a)

These are unsecured notes bearing interest at rates ranging from 10% to 15% per annum, and have no specific due date for repayment. The outstanding amounts include accrued and unpaid interest of $127,221 and $118,367 as of December 31, 2009 and 2008, respectively. No demands for repayment have been made by the note holder.

(b)

In April 2001, the Company issued a $400,000 promissory note bearing interest at the rate of 2% per month. In consideration for the issuance of this note, 500,000 shares of common stock were issued to the note holder and a $74,000 debt discount was recorded and fully amortized in the year ended December 31, 2001. The principal balance and accrued interest was payable on September 1, 2001. The Company did not make such payment and was required to issue an additional 100,000 shares to the note holder as a penalty. The Company recorded additional interest expense of $12,300 related to the issuance of these penalty shares.

In October 2007, the Company entered into a settlement agreement with this note holder. Under the settlement agreement, the Company became obligated to make payments of $75,000 each on or before December 31, 2007 and June 30, 2008. The June 20, 2008 payment remains unpaid. In addition, the Company was obligated to issue 2,500,000 shares of common stock to the note holder as settlement for the remaining balance due under the promissory note of $477,934. In January 2008, the Company issued 1,250,000 of the 2,500,000 shares.

Under the advice of then outside counsel, the Company sent inquiries to various parties claiming an interest in the note and shares. As of December 31, 2009, the Company has not received a response from any of the parties contacted. In December 2009, the Company issued the remaining 1,250,000 shares to the note holder and recognized a gain on settlement of debt of approximately $203,000. The shares are currently held in an out-side attorney’s escrow account for the benefit of the legal owner of the note. At December 31, 2009, the Company is reflecting a liability of $75,000, which represents the unpaid settlement payment.

(c)

In September 2009, the Company entered into agreements with three of the Company’s consultants and vendors to defer a total in the aggregate of $284,624 in compensation owed to them. In return, the Company issued to the three vendors each a promissory note for the deferment. The notes mature in January 2011 and interest will be accrued at 10% per annum compounded monthly. Accordingly, the Company reclassified $284,624 from current liabilities to long term liabilities.

NOTE 7 - CONVERTIBLE PROMISSORY NOTES PAYABLE

Convertible promissory notes payable and accrued interest at December 31, 2009 and 2008 consists of the following:

	December 31,
	2009			2008
	$	55,208	(a)		50,208	(a)
		328,986	(b)		--	(b)
		384,194			50,208
Debt discount		(104,214	)		(19,283	)
Current Portion		279,980		$	30,925

(a)

On December 17, 2008, the Company sold and issued a convertible promissory note in the principal amount of $50,000 bearing interest at 10% per annum and warrants to purchase 285,714 shares of common stock at an exercise price of $0.042 per share. The convertible note matures on December 17, 2009. The holder of the note is entitled to convert all or a portion of the convertible note plus any unpaid interest, at the lender’s sole option, into shares of common stock at a conversion price of $0.035 per share.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815 ”Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note $50,000 was recorded net of a discount of $19,500. The debt discount consisted of approximately $2,800 related to the fair value of the warrants and approximately $16,700 related to the fair value of the embedded conversion option. The debt discount was being charged to interest expense ratably over the term of the convertible note. As of December 31, 2009, the outstanding amount owed under the convertible note (principal and accrued interest) was $55,208.

(b)

From October through December 2009, the Company raised $325,000 through debt financing from multiple lenders. The Company issued each lender a convertible promissory note in the principal amount of money lender loaned to the Company. The promissory note matures in one year and bears interest at 10% per annum and is convertible at the option of the holder in to shares of common stock. The conversion prices range from $0.044 to $0.07. In addition the Company granted 1,482,547 warrants to the note holders. The warrants have a life of 5 years and are fully vested on the date of the grant, the exercise price of the warrants ranges from $0.0528 to $0.0840.

The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815 ”Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note $325,000 was recorded net of a discount of $143,100. The debt discount consisted of approximately $93,400 related to the fair value of the warrants and approximately $ 49,700 related to the fair value of the embedded conversion option. The debt discount was being charged to interest expense ratably over the term of the convertible note. As of December 31, 2009, the outstanding amount owed under the convertible note (principal and accrued interest) was $378,986.

NOTE 8 - EQUITY AGREEMENT

On September 7, 2007, the Company entered into a 3-year private equity credit agreement (the “Equity Agreement”) pursuant to which the Company may, at its discretion, periodically sell shares of common stock to an investor for a total purchase price of up to $5.0 million. For each share of common stock purchased under the Equity Agreement, the investor will pay the Company 94% of the three lowest closing bid prices during the valuation period of the common stock for the five trading days immediately following the notice date. The investor’s obligation to purchase shares of the common stock under the Equity Agreement is subject to certain conditions, including volume limitations, the Company obtaining an effective registration statement for the shares of common stock to be sold under the Equity Agreement and, among other things, is limited to purchases that will not result in the investor being the beneficial owner of more than 4.99% of the outstanding common stock at the time of purchase. To date no funds have been received under the Equity Agreement.

Under the terms of the Equity Agreement, the Company is required to file a registration statement and obtain its effectiveness prior to issuing any shares under the equity agreement. Should the Company not maintain the effectiveness of the registration statement, the Company will be obligated to pay damages of 2% per month of the cost of the outstanding shares held by the investor. As of December 31, 2008, the Company has not registered the underlying shares and has not issued any shares or received any proceeds under the Equity Agreement. The Equity Agreement terminates on September 7, 2010.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Operating Leases

Effective as of July 1, 2008, the Company entered into a seven-year lease for 5,300 square feet of space in Plainview, New York. The facility is to serve as the Company’s executive offices, sales office, showroom and an assembly area. The minimum lease payments due under this lease are as follows:

For the Years Ending December 31,
2010	$	64,000
2011		66,000
2012		68,000
2013		70,000
Thereafter		72,000
	$	340,000

Rent expense during the years ended December 31, 2009 and 2008 was approximately$114,300 and $85,800, respectively.

Vendor Agreements

On June 9, 2008, the Company entered into a six month consulting agreement with Hidell-Eyster International Inc. (HEI) for strategic planning and the continued development and marketing of the PureSafe FRWS. The agreement provides for a fixed fee of $90,000, plus out of pocket expenses, and is payable at $15,000 per month. During 2008, the Company incurred a charge of approximately $105,000, which has been included in the consolidated statement of operations as part of consulting fees and marketing expenses. The agreement terminated in December 2008 and was continued on a month to month basis until January 1, 2010.

On March 26, 2010 the Company entered into a thirty-six month term management agreement with HEI, effective January 1, 2010. The Company had fees owing to HEI of $ 180,000 through December 31, 2009of which $90,000 was converted to an interest bearing note in September 2009. HEI has agreed to convert their past due fees into common stock of the Company. The Company’s Board has approved the following:

On February 1, 2010 the Board approved the request of HEI to convert $ 90,000 of debt to 1,764,706 shares of common stock .The conversion price is ($0.051) equals the fair value of the common stock on the date of the approval of such request.

On February 19, 2010 the Board approved the request of HEI to convert a $ 90,000 promissory note dated September 28, 2009 and $ 5,780.52 of accrued interest into 1,741,464 shares of common stock. The conversion price ($0.055) was the fair value of the common stock on the date of the approval of such request.

Effective, January 1, 2010 the fees to HEI were increased to $ 23,000 per month for implementation of Phase I of the agreement and Phase 2 will be implemented on July 1, 2010 at a monthly fee of $36,000 per month.

On August 6, 2008, the Company entered into a six month consulting agreement with Designs and Project Development Corp. (D &P) for planning and continued development of the PureSafe FRWS. The agreement provided for a fixed fee of $ 6,667 per month plus reimbursement of expenses. Upon termination of the consulting agreement, the agreement continued on a month to month basis. In addition to the fixed fee, in July 2008 the Company issued to D&P’s President, Alphonse Wolter 100,000 shares of common stock, and warrants to purchase an additional 250,000 shares of common stock for the year ended December 31, 2008 the Company incurred a charge of $5,000 for the issuance of these shares.

In April 2009, the Company issued Mr. Wolter 500,000 shares of common stock, and warrants to purchase an additional 500,000 shares of common stock for services. For the year ended December 31, 2009 the Company incurred a charge of $34,700 for the issuance of these shares.

In September 2009, D & P agreed to convert $57,003 of the liability to an interest bearing note.

Effective January 1, 2010 the fee to D & P was increased to $ 100,000 per annum and on February 1, 2010 the Company issued to Mr. Wolter 500,000 shares of common stock and incurred a charge of $25,500 for the year ending December 31, 2010, in addition D&P further requested that $23,335 of debt due to them be converted to 457,549 shares of common stock.

On October 14, 2008, the Company entered into a settlement agreement with a vendor which resulted in the extinguishment of approximately $158,000 of then outstanding accounts payable. The Company recorded a gain on this extinguishment of debt in the statement of operations for the year ended December 31, 2008.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Litigation

In March 2007, a then director, provided a $50,000 loan to the Company (See Note 13a). The former director has made a demand for conversion, but the date of the demand is currently in question.

On June 21, 2009 the Company was served with a complaint filed in the Supreme Court of the State of New York, County of Nassau, in which suit State Farm Fire & Casualty Company is the plaintiff. The suit is for approximately $202,000 in damages, resulting from a fire that occurred on or about December 16, 2008, allegedly as a result of a defective water cooler sold either by the Company or by Water Splash LLC, to which the Company had sold its water cooler business and related liabilities in November 2001. An amended complaint was filed on August 19, 2009, adding Water Splash LLC as a defendant. The claim by State Farm is on the basis that, as the insurance carrier, it is subrogated to the claim for damages of the owner of the property where the fire allegedly started by reason of a defect in the water cooler. Under the complaint, alternative claims for damages are made in negligence, breach of warranty, placing on the market a product in a defective and unreasonably dangerous condition and not fit for its intended use, failure to warn State Farm's subragor of the risks and defects associated with the water cooler which were not discoverable by reasonable inspection, and strict liability. As of December 31, 2009, the Company does not believe that it has any potential exposure by reason of this lawsuit and, in any event, any recovery by the plaintiff would be covered under the existing liability insurance policy. However, the Company cannot provide assurance that the outcome of this matter will not have a material effect on the Company’s financial condition or results of operations.

NOTE 10 - COMMON STOCK ISSUED

During the year ended December 31, 2008, the Company recorded the following transactions:

Debt

The Company issued 10,554,994 shares of common stock in exchange for the cancellation of $312,509 of outstanding debt principal and accrued interest owed to three note holders, including the Company’s Chief Executive Officer.

In January 2008, the Company issued 1,250,000 shares of common stock in settlement of approximately $276,000 of principal and accrued interest due an unaffiliated party. Accordingly, the Company recognized a gain of approximately $226,000 in connection with such transaction.

Conversion of preferred stock into common stock

The Company issued 42,000 shares of common stock in connection with the conversion of 1,050 shares of Series F preferred stock.

Cash

The Company received gross proceeds of $1,170,000 through the sale of an aggregate of 17,976,262 shares of common stock and warrants to purchase 3,595,251 shares of common stock at an exercise price of $0.0412 to $0.13 per share. The warrants have a term of three years.

On January 4, 2008, the Company issued 2,255,639 shares of common stock and warrant to purchase 451,128 shares of common stock at an exercise price of $0.0532 per share in connection with the settlement of a $100,000 subscription payable. The warrants have a term of three years.

During the year ended December 31, 2008, the Company issued 110,000 shares of common stock in connection with the exercise of warrants issued in October 2006 and received gross cash proceeds of $9,350.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Services

The Company issued the following securities of the Company as compensation for services rendered:

•

1,000,000 shares of common stock to a consultant incurring a stock-based compensation charge of $50,000;

•.

100,000 shares of common stock and three-year warrants to purchase an additional 250,000 shares, at $0.058 per share, to a consultant incurring stock-based compensation charges of $5,000 and $8,100, respectively;

•

333,333 shares of common stock to an employee pursuant to a termination agreement, dated February 12, 2008, incurring a stock-based compensation charge of $13,333;

•

1,000,000 shares of common stock to the Company’s Chief Financial Officer in connection with entering into an employment agreement with the officer, incurring a stock-based compensation charge of $100,000; and

•

50,000 shares of common stock and three-year warrants to purchase an additional 50,000 shares, at $0.058 per share, to an employee incurring a stock-based compensation charge of $2,500 and $1,600, respectively.

On April 16, 2008, the Company approved the appointments of Peter Hayden and Gal Luft as special advisors to the Company’s Board of Directors. In connection with their appointments, Mr. Hayden and Mr. Luft were each granted four-year warrants to purchase 45,000 shares of common stock. The exercise price for these warrants is $0.0853. The warrants are to vest at the rate of 15,000 warrants per year on each anniversary of the appointments. The Company determined that the fair value associated with these warrants was nominal and has not accrued any cost related to the issuance of these warrants. The Company delivered the warrant certificates to these special advisors on DATE.

On July 30, 2008, the Company issued 2,000,000 shares of common stock to each of the Company’s Chief Executive Officer and Chief Financial Officer, with 1,000,000 shares vesting immediately and 1,000,000 shares vesting one year following issuance, provided the officer is employed by the Company on the anniversary date. In connection the issuance of the initial aggregate 2,000,000 shares, the Company incurred a stock-based compensation charge of $100,000.

During the year ended December 31, 2009, the Company recorded the following transactions:

Debt

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

In December 2009, the Company issued 1,250,000 shares of common stock in settlement of approximately $276,000 of principal and accrued interest due an unaffiliated party the Company recognized a gain of approximately $202,700 in connection with such transaction. (See Note 6)

Cash

Through Equity Financing:

In 2009, the Company received gross proceeds of $540,500 through the sale of an aggregate of 12,262,924 shares of common stock and warrants to purchase 2,452,590 shares of common stock at an exercise price of $0.0348 to $0.0876 per share. The warrants have a term of three years.

Through Debt Financing:

In 2009, the Company received gross proceeds of $375,000 through debt financing. The Company issued each lender a promissory note bearing interest rate of 10% per annum with a term of one year. In connection with the placement, the Company also issued each lender a warrant to purchase aggregate 1,482,547 shares of common stock at exercise price of $0.0528 to $0.0840 per share. The warrants have a term of five years. Both Company’s Chief Executive Officer and Chief Financial Officer participated this private placement by lending $25,000 each to the Company.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Services

The Company issued the following securities of the Company as compensation for services rendered:

1.	1,000,000 shares of common stock to a consultant 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;

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 vested and 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 recorded stock-based compensations of $20,500 and $14,200, respectively;

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 vested and 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 recorded stock-based compensations of $10,250 and $7,100, respectively

NOTE 11 – PREFERRED STOCK

The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share, issuable in series with rights, preferences, privileges and restrictions as determined by the Company’s board of directors.

At December 31, 2009, outstanding preferred stock consists of the following:

	Authorized Shares		Outstanding Shares		Par Value		Current Annual Dividend Requirement		Total Dividend Arrearage		Dividend Arrearage Per Share		Liquidation Preference (Including Dividend Arrearage)
Series A		400,000		52,500	$	53	$	52,500	$	780,100	$	14.86	$	1,305,100
Series D		2,000,000		93,000		93		55,800		752,400		8.09		1,287,150
Series F		1,000,000		38,644		39		--		190,328		--		--
				184,144	$	185	$	108,300	$	1,722,828			$	2,592,250

At December 31, 2008 outstanding preferred stock consists of the following:

	Authorized Shares		Outstanding Shares		Par Value		Current Annual Dividend Requirement		Total Dividend Arrearage		Dividend Arrearage Per Share		Liquidation Preference (Including Dividend Arrearage)
Series A		400,000		52,500	$	53	$	52,500	$	727,600	$	13.86	$	1,252,600
Series D		2,000,000		93,000		93		55,800		696,000		7.48		1,231,350
Series F		1,000,000		38,644		39		--		190,328		--		--
				184,144	$	185	$	108,300	$	1,613,928			$	2,483,950

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

Series A

The Series A preferred stock provides for a 10% cumulative dividend, based on the $10.00 per share purchase price, payable annually in common stock or cash, at the Company's option. The Series A preferred stock is not convertible, and is redeemable solely at the Company's option at a price of $11.00 per share plus accrued dividends. The Series A preferred stockholders have voting rights equal to common stockholders. In the event of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, holders of the Series A preferred stock are entitled to receive out of the assets of the Company the sum of $10.00 per share of Series A preferred stock then outstanding, plus a sum equal to all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final payment or distribution, before any payment or distribution upon dissolution, liquidation or winding up shall be made on any series or class of capital stock ranking junior to Series A preferred stock as to such payment or distribution.

Series D

The Series D preferred stock provides for a 12% cumulative dividend, based on the $5.00 per share purchase price, payable semi-annually in common stock or cash, at the Company's option. The Series D preferred stock is not convertible, and is redeemable solely at the Company's option at a price of $5.75 per share plus accrued dividends. The Series D Preferred stockholders have voting rights equal to the common stockholders. In the event of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, holders of the Series D preferred stock are entitled to receive out of the assets of the Company the sum of all dividends (whether or not earned or declared) on such shares accrued and unpaid thereon to the date of final payment or distribution, before any payment or distribution upon dissolution, liquidation or winding up shall be made on any series or class of capital stock ranking junior to Series D preferred stock as to such payment or distribution.

Series F

The Series F 10% convertible preferred stock is a two-year convertible preferred instrument. All dividends are cumulative and are payable in shares of common stock valued at the then current market price per share, at the time of maturity, or upon conversion, whichever is earlier. The conversion rate for shares and accrued dividends payable is 40 shares of common stock for each share of preferred stock. The Series F convertible preferred stockholders have voting rights equal to the common stockholders. The Series F convertible preferred stock has no stated rights in the assets of the Company upon liquidation. In connection with Series F Preferred Stock conversions, the Company recorded dividends of $58.00 and $399.00 for each of the years ended December 31, 2008 and 2007, respectively.

NOTE 12 – STOCK WARRANTS

The following warrants were issued by the Company in connection with Convertible Promissory Notes:

The year ended December 31, 2008			1,298,534
The year ended December 31, 2009			1,482,547

The following warrants were issued by the Company in connection with various employment and compensation agreements:

The year ended December 31, 2008			1,556,666
The year ended December 31, 2009			11,090,000

The following warrants were issued by the Company in connection with equity private placements:

The year ended December 31, 2008			4,046,379
The year ended December 31, 2009			2,452,590

In 2009, total 7,382,352 warrants expired which included 4,000,000 warrants issued to the Company’s Chief Executive Officer in 2006 in connection with her consulting agreement signed with the Company.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

The following tables sets forth information concerning the Company's warrant issuances and warrant balances outstanding as of, and during the years ended December 31, 2009 and 2008:

	Shares Underlying Warrants			Weighted Average Exercise Price		Intrinsic Value
Outstanding at December 31, 2007		25,889,331		$	0.11	$	--

Granted		6,811,579			0.07		--
Expires		(430,000	)		0.12		--
Exercised		(110,000	)		0.085		--
Cancelled		(2,000,000	)		0.11		--
Outstanding at December 31, 2008		30,160,910			0.11		--

Granted		15,025,137			0.05		--
Expired		(7,272,352	)		0.12		--
Exercised		--			--		--
Cancelled		--			--		--
Outstanding at December 31, 2009		37,913,695		$	0.07		--

The following is additional information with respect to the Company's warrants as of December 31, 2009:

		Warrants Outstanding					Warrants Exercisable
Exercise Price		Number of Outstanding Warrants		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Exercisable Warrants		Weighted Average Exercise Price
$	0.0348		344,828	2.1 years	$	0.0348		344,828	$	0.0348
	0.0359		334,448	2.1 years		0.0359		334,448		0.0359
	0.0384		440,625	2.1 years		0.0384		440,625		0.0384
	0.0396		151,515	2.0 years		0.0396		151,515		0.0396
	0.0410		10,750,000	4.3 years		0.0410		10,750,000		0.0410
	0.0412		582,524	1.2 years		0.0412		582,524		0.0412
	0.0420		1,142,856	1.8 years		0.0420		1,142,856		0.0420
	0.0428		280,374	1.2 years		0.0428		280,374		0.0428
	0.0455		131,927	2.8 years		0.0455		131,927		0.0455
	0.0470		512,820	3.8 years		0.0470		512,820		0.0470
	0.0480		750,000	4.1 years		0.0480		750,000		0.0480
	0.0492		121,951	2.4 years		0.0492		121,951		0.0492
	0.0504		119,048	2.4 years		0.0504		119,048		0.0504
	0.0528		340,908	4.0 years		0.0528		340,908		0.0528
	0.0532		902,256	1.0 years		0.0532		902,256		0.0532
	0.0540		3,000,000	1.0 years		0.0540		3,000,000		0.0540
	0.0552		326,086	4.8 years		0.0552		326,086		0.0552
	0.0576		208,334	4.8 years		0.0576		208,334		0.0576
	0.0580		300,000	1.6 years		0.0580		300,000		0.0580
	0.0600		200,000	4.8 years		0.0600		200,000		0.0600
	0.6080		394,737	0.9 years		0.6080		394,737		0.6080
	0.0616		389,610	0.9 years		0.0616		389,610		0.0616
	0.0624		192,308	5.0 years		0.0624		192,308		0.0624

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

		Warrants Outstanding					Warrants Exercisable
Exercise Price		Number of Outstanding Warrants		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Exercisable Warrants		Weighted Average Exercise Price
	0.0660		90,909	5.0 years		0.0660		90,909		0.0660
	0.0667		500,000	2.2 years		0.0667		166,667		0.0667
	0.0672		89,286	5.0 years		0.0672		89,286		0.0672
	0.0700		2,000,000	0.7 years		0.0700		2,000,000		0.0700
	0.0716		335,196	0.9 years		0.0716		335,196		0.0716
	0.0720		83,333	2.5 years		0.0720		83,333		0.0720
	0.0760		631,912	0.8 years		0.0760		631,912		0.0760
	0.0762		389,610	0.9 years		0.0762		389,610		0.0762
	0.0780		76,923	4.9 years		0.0780		76,923		0.0780
	0.0840		214,287	2.5 years		0.0840		214,287		0.0840
	0.0853		90,000	2.3 years		0.0853		30,000		0.0853
	0.0864		194,447	2.6 years		0.0864		194,447		0.0864
	0.0876		547,947	1.5 years		0.0876		547,947		0.0876
	0.0960		1,384,786	0.7 years		0.0960		1,384,786		0.0960
	0.1008		166,667	1.5 years		0.1008		166,667		0.1008
	0.1080		333,333	1.2 years		0.1080		333,333		0.1080
	0.1100		5,875,757	0.5 years		0.1100		5,875,757		0.1100
	0.1156		415,224	1.3 years		0.1156		415,224		0.1156
	0.1175		2,000,000	0.2 years		0.1175		2,000,000		0.1175
	0.1200		300,000	1.3 years		0.1200		300,000		0.1200
	0.1300		276,923	1.2 years		0.1300		276,923		0.1300
			37,913,695					37,520,362

NOTE 13 - RELATED PARTY TRANSACTIONS

(a)

In March 2007, the Company’s Chief Executive Officer and a former director each made loans of $50,000 to the Company. The loans accrue simple interest at the rate of 10% per annum and were due and payable 120 days after funding. The loans carry an option that, if the loans were not repaid by June 14, 2007 and June 29, 2007, respectively, such options would entitle the lenders to convert their debt into shares of common stock at a conversion price equal to 50% of the average closing price of the common stock over the three previous business days preceding the date of demand for conversion is made. Under accounting guidance provide by ASC 815, the conversion price of the loans did not have a determinable number of shares the loans could be settled in and as a result, have been presented as a derivative liability. Accordingly, the conversion option will be marked to market through earnings at the end of each reporting period. In January 2008, the Chief Executive Officer converted her note plus accrued interest of $53,658 into 2,146,324 shares of common stock. As December 31, 2009, the $50,000 loan and $13,699 accrued interest owed to the former director are still outstanding.

(b)

In each of 2008 and 2009, a firm in which the Company’s Chief Financial Officer held a one-third equity position was retained to prepare the Company’s income tax returns. During the years ended December 31, 2009 and 2008, the Company incurred fees totaling $4,768 and $2,000, respectively, with respect to such services rendered.

(c)

On February 8, 2008, the Company’s Board of Directors authorized the negotiation of a termination agreement (the “Termination Agreement”) with the Company’s then Vice President of Sales and Marketing. The Termination Agreement was finalized on February 12, 2008, pursuant to which the Company agreed to pay the former officer eight months’ salary at the rate of $7,000 per month commencing on February 12, 2008. In addition, the Company was obligated to continue to contribute 80% of the health insurance premium with respect to the former officer through October 12, 2008. One-third of the one million shares of common stock that the Company granted the former officer on April 23, 2007 vested immediately upon the execution of the Termination Agreement. The balance of 666,367 shares was forfeited. On March 26, 2008, the Company issued 333,333 shares of common stock to the former officer and recorded a charge to operations of approximately $13,300. The 2,000,000 warrants the Company awarded the officer on April 23, 2007 were voided and, in replacement, the Company issued warrants to purchase 666,666 shares of common stock at an exercise price of $0.11 per share exercisable through April 23, 2010. In connection with the issuance of the replacement warrants, the Company recorded a charge to operations of approximately $8,500. The Company agreed to pay an additional sum of $7,000, representing repayment for all advances previously made by the former officer on behalf of the Company, in two installments which were paid prior to September 30, 2008.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

(d)

On March 14, 2008, Malcolm Hoenlein was appointed as director to the Company. He is to receive $8,000 cash compensation per year. In addition, Mr. Hoenlein will receive 250,000 shares of common stock upon the one year anniversary of his appointment and warrants to purchase an additional 500,000 shares, exercisable for a three-year period following the one-year anniversary of his appointment to the Board at an exercise price of $0.0667 per share. The right to exercise these warrants will vest annually over three years. Accordingly, the Company will amortize the fair value of these warrants of approximately $17,000 over the vesting period.

(e)

In April 2008, Leslie J. Kessler, the Company’s Chief Executive Officer, Terry R. Lazar, the Company’s Chief Financial Officer and a consultant for the Company, each individually entered into Stock Purchase, Loan and Security Agreements with the Company. Under these April 2008 agreements, the Company loaned the individuals approximately $1.4 million in the aggregate. The obligations to repay the loans were evidenced by non-recourse promissory notes. The notes called for interest at a rate of 6% per annum and were to mature in April 2011, at which time all unpaid principal and interest are due. The loan funds were to be used exclusively for the purchase of the Common Stock. The purchase price of the stock was based on the average closing price of the Common Stock during the 30 trading days immediately preceding the date of the April 2008 agreements which equaled $0.0843.

In August 2008, after concerns were raised over the structure of the consideration for the purchase of such shares by the Company’s two senior executive officers utilizing promissory notes, and following consultations with its current attorneys and outside professionals, the Company and such executive officers determined to rescind the transactions contemplated by the April 2008 agreements with Ms. Kessler and Mr. Lazar. On August 18, 2008, Ms. Kessler and Mr. Lazar each entered into a letter agreement with the Company pursuant to which the Company and each of such officers agreed that the transactions contemplated by their April 2008 agreements, including the sale and issuance of the 6,500,000 shares to each of Ms. Kessler and Mr. Lazar and the notes they delivered to the Company, be rescinded in their entireties ab initio.

The Company originally sought advice from its then outside attorneys in structuring the transactions contemplated by the April 2008 agreements. The Company has terminated its relationship with such former attorneys.

Accordingly, for legal purposes, the consummation of the transactions contemplated by the August 2008 agreements has resulted, among other matters, in the following:

•

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

•

Ms. Kessler’s and Mr. Lazar’s notes, as well as their respective obligations to repay the amounts due under their respective notes, being deemed cancelled in all respects ab initio, and it being deemed as if the notes were never entered into, that they each have no obligation to repay the amounts due under their respective notes and that all mutual promises, covenants and/or agreements contained in their respective notes being of no force and/or effect; and

•

The aggregate 13 million shares issued to Ms. Kessler and Mr. Lazar being deemed cancelled in all respects ab initio and it being deemed as if the shares were never issued or outstanding.

However, for accounting purposes, the transactions are reflected as occurring as the shares were issued and outstanding until August 18, 2008, the date the rescission agreements were entered into.

The Company cannot determine with certainty the effect of the entering into and rescission of these transactions nor the potential liabilities that may result from entering into the transactions contemplated by the April 2008 agreements regardless of the rescission of such transactions. Accordingly, as of December 31, 2009, the Company has not accrued any liability that may be imposed, including, but not limited to, fines and penalties by appropriate governmental authorities, in the accompanying financial statements.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

As of December 31, 2009, the Company has included the outstanding note receivable and accrued interest due from the consultant, totaling approximately $370,300, as part of stockholders’ deficiency.

(f) 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 $0.039 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 ASC 815. 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.

(g) 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, based on meeting the requisite service requirement. 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 vested 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. In February 2010, the Company issued 2,000,000 shares to the chief executive officer and incurred stock-based compensation $114,000 in connection with such issuance.

(h) 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, based on meeting the requisite service requirement. 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 vested 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. In February 2010, the Company issued 2,000,000 shares to the chief financial officer and incurred stock-based compensation $114,000 in connection with such issuance.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

(i) In April 2009, the Company granted the Company’s chief executive officer five-year warrants to purchase an aggregate 3,000,000 shares of common stock. The warrants were made fully vested 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.

(j) In April 2009, the Company granted the Company’s chief financial officer five-year warrants to purchase an aggregate 3,000,000 shares of common stock. The warrants were made fully vested as of theirgrant 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.

(k) 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 $8,750 in connection with such stock issuance.

(l) In September, 2008, the Company approved and granted 2,000,000 shares of Common Stock to each of the Company’s Chief Executive Officer and Chief Financial Officer with 1,000,000 shares vesting immediately and 1,000,000 shares vesting in one year provided the officer remains employed by the Company. In connection the issuance of the first 2,000,000 shares, the Company incurred a stock based compensation charge of $200,000. In December 2009, the Company issued 1,000,000 shares of Common Stock to each of the Company’s Chief Executive Officer and Chief Financial Officer and recorded $100,000 of stock-based compensation.

(m) In September 2009, the Company entered into agreements with the Chief Executive Officer and Chief Financial Officer together to defer a total of $239,000 in compensation owed to them as of September 30, 2009. In return, the Company issued to the Chief Executive Officer and Chief Financial Officer each a promissory note for the deferment. The notes mature in January 2011 and interest will be accrued at 10% per annum compounded monthly. Accordingly, the Company reclassified $239,000 from current liabilities to long term liabilities.

NOTE 14 - INCOME TAXES

The Company evaluates uncertain tax positions under ASC 740 “Income Taxes”. ASC 740 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 ASC 740.

In accordance with ASC 740, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative expenses.”

The Company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. The Company files income tax returns in the United States (federal) and in primarily New York and various other state and local jurisdictions. The Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2005. As of December 31, 2009, no liability for unrecognized tax benefits was required to be recorded.

At December 31, 2009 and 2008, the Company has a deferred tax asset of approximately $ 10.8 million and $9.9 million which consists primarily of federal and state net operating losses of approximately $27.1 million and $25.9 million respectively. ASC 740 requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates the length of carryback and carryforward periods, and expectations of future profits.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

The valuation allowance primarily relates to the federal and state net operating losses for which utilization in future periods is uncertain. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making this assessment. Based on projections for future taxable income over the periods that the deferred tax assets are deductible, the Company believes it is more likely than not that the Company will not realize the benefits of these deductible differences in the near future and therefore a full valuation allowance increased approximately $ 851,000 and 400,000, for the years ended December 31, 2009 and 2008, respectively related to increased net operating losses.

For the year ended December 31, 2009 and 2008, no provision for income taxes has been provided for, as a result of continued net operating losses. The Company is subject to certain state and local taxes based on capital. The state and local taxes based on capital were immaterial for each of the years ended December 31, 2009 and 2008.

A reconciliation between the statutory federal income tax rate (34 %) and the Company’s effective rate for the years ended December 31, 2009 and 2008 is as follows:

	2009			2008
Federal statutory rate		(34.0	)%		(34.0	)%
State tax benefit, net of federal tax		(6.0	)		(6.0	)
Stock based compensation		13.6			9.5
Other permanent differences		(4.4	)		5.6
True up of net operating loss		(9.7	)		--
Change in valuation allowance		40.5			24.8
Effective rate		0.0	%		0.0	%

The Company has net operating loss carry-forwards for federal income tax purposes totaling approximately $26.9 million at December 31, 2009. These carry-forwards expire between the years 2011 through 2029. Utilization of these loss carry-forwards may be limited under Internal Revenue Code Section 382.

NOTE 15 - CREDIT RISK

The Company maintains its checking and money market accounts in banks. Accounts at each bank are insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, cash and cash equivalents may be uninsured or in deposit accounts that exceed the FDIC insurance limit.

Periodically, the Company evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

NOTE 16 – SUBSEQUENT EVENTS

In the first quarter of 2010, the Company received gross proceeds of $175,000 through debt financing. The Company issued each lender a promissory note bearing interest rate of 10% per annum with a term of one year. In connection with the placement, the Company also issued each lender a warrant to purchase aggregate 637,463 shares of common stock at exercise price of $0.052 to $0.06 per share.

In the first quarter of 2010, the Company received gross proceeds of $100,000 through the sale of an aggregate of 1,886,792 shares of common stock and warrants to purchase additional 377,358 shares of common stock at an exercise price of $0.0636. The warrants have a term of three years.

In February 2010, the Company issued 2,000,000 shares to the Company’s Chief Executive Officer. This issuance is the 2nd and last issuance in connection with April 2009 grant, in which 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. The Company incurred stock-based compensation $114,000 in connection with such issuance.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

In February 2010, the Company issued 2,000,000 shares to the Company’s Chief Financial Officer. This issuance is the 2nd and last issuance in connection with April 2009 grant, in which 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. The Company incurred stock-based compensation $114,000 in connection with such issuance.

On February 1, 2010, the Board of Directors of the Company approved employment agreements with the Chief Executive Officer, and the Chief Financial Officer. The employment agreements are effective January 1, 2010, for initial terms of five years, and the term is automatically extended for additional one year periods if neither party gives notice of termination at least 90 days prior to the end of the initial term or any current additional one year term.

The employment agreement with the CEO provides for an annual base salary of $180,000 per year, and the employment agreement with the CFO provides for an annual base salary of $140,400. Both employment agreements provide for incentive payments as established by the Board of Directors and for a performance bonus as follows:

Net Operating Profit Before Income Taxes	Performance Bonus

On the First $10 Million		0	%

On the Next $40 Million		3.5	%

On the Next $50 Million		2.5	%

On all Amounts Over $100 Million		1.5	%

Both employment agreements contain similar provisions for discharge for "cause", including breach of the employment agreement or specified detrimental conduct by the employee, in which cases accrued compensation would payable as provided in the employment agreements. The agreements also provide for termination by the executives for “good reason”, comprising events such as breach of the agreement by the Company, assignment of duties inconsistent with the Executive’s position, or in the event of a change in control of the Company. In the event of a termination by the Company without cause, or by the executive for “good reason”, the Company is required to pay to the Executive a lump sum payment in cash within 30 days after the date of terminating the agreement.

On February 1, 2010, the Directors of the Board approved grants total 2,375,000 shares of common stock and warrants to purchase additional 175,000 shares at exercise price of $0.051 per share to employee, consultants and sub-contractors. The Company’s Chief Executive Officer and Chief Financial Officer each received 600,000 shares of common stock through this grant. The warrants were fully vested on the date such stock and warrants were granted. The Company recorded $119,850 and $5,400 stock-based compensation for the stock and warrant grants respectively for the year ending December 31, 2010.

On February 1, 2010, the Directors of the Board approved the requests from several vendors to convert a total $138,835 of amounts that the Company owes them from July 1, 2009 through December 31, 2009 to 2,722,255 shares of the Company’s common stock.

On February 1, 2010, the Company’s Chief Executive Officer requested and was approved by the Directors of the Board to convert total $54,000 compensation the Company owed her from July 1, 2009 through December 31, 2009 to 1,058,824 shares of the Company’s common stock.

On February 1, 2010, the Company’s Chief Financial Officer requested and was approved by the Directors of the Board to convert total $30,000 compensation the Company owed him from July 1, 2009 through December 31, 2009 to 588,235 shares of the Company’s common stock.

PureSafe Water Systems, Inc. and Subsidiary

(A Development Stage Company Commencing January 1, 2002)

Notes to Consolidated Financial Statements

On February 19, 2010, the Directors of the Board approved the request from Hidell-Eyster Technical Services Inc. to convert total $90,000 of amounts the Company owes them from January 1, 2009 through July 31, 2009 plus accrued interest $5,780.52 to 1,741,464 shares of the Company’s common stock.

On March 8, 2010, the Directors of the Board approved to grant the Company’s Chief Executive Officer a warrant exerciseable into 2 million shares of common stock. The warrant has a term of five years, is fully vested on the date of the grant and is exerciseable at a price of $0.052. In connection with the grant the Company incurred a charge of $69,600 for the year ending December 31, 2010.

On March 8, 2010, the Directors of the Board approved to grant, the Company’s Vice President of International Markets a warrant exerciseable into 2 million shares of common stock. The warrant has a term of five years, is fully vested on the date of the grant and is exerciseable at a price of $0.052. In connection with the grant the Company incurred a charge of $69,600 for the year ending December 31, 2010.

Item 9.

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

None.

Item 9A(T).

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer have each reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of December 31, 2009. Based on such review and evaluation, our chief executive officer and chief financial officer have concluded that, as of December 31, 2009, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission pursuant to the reporting obligations of the Exchange Act, including this Annual Report on Form 10-K, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

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

Management’s Annual Report on Internal Control Over Financial Reporting

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

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

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

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

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

Under the supervision and with the participation of our management, we have assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties. Based on this assessment and those criteria, our management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2009.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management identified the following material weaknesses as of December 31, 2009:

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

We have completed PureSafe Employee Handbook in January 2009 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 2010.

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

The entire staff consists of two officers, one Controller and one receptionist. Therefore, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties. Upon receiving adequate financing the Company plans to increase its controls in these areas by hiring more experienced employees in financial reporting , establishing an audit committee and formally documenting the controls the Company has in place.

Attestation Report

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

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth quarter of our fiscal year ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

None

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

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

		Principal Positions and	Director
Name	Age	Offices with our Company	Since
Leslie J. Kessler	62	Chief Executive Officer and Chairman	2007
Carrol S. Keim	64	President	2010
Terry R. Lazar	66	Chief Financial Officer and Director	2007
Henry(Bob) Hidell	69	Chief Operating Officer	2010
Malcolm Hoenlein	66	Director	2008
Richard Pellerito	59	Vice President-Technical Sales	2010
Shaul Kochan	64	Vice President International Markets	2010
Alphonse Wolter	60	General Manager of PureSafe Manufacturing & Research Corporation	2010

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

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

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

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

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

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

Shaul Kochan joined the Company as a consultant in 2007 and was appointed as Vice President of International Markets on March 26, 2010 after his consulting agreement has expired in December 2009. Prior to joining the Company, Mr. Kochan was a Partner in the Tel Aviv law firm Jehuda, Raveh & Company. He holds an LLB degree from the Hebrew University of Jerusalem, a Masters degree in Philosophy from Haifa University and wrote his doctoral thesis for a Phd in International Relations.

Alphonse Wolter was retained as General Manager of PureSafe Manufacturing and Research Corporation. Among Mr. Wolter’s accomplishments are:

Leadership as president and owner - employed 64 personal in the manufacturing field.

Engineering designs incorporating manufacturing ease, aesthetics, & functionality.

Production drawings including assembly drawings and parts lists.

Manufacturing facility set up and assembly lines.

Quality assurance with complete inspection departments.

Master model and mold maker producing high quality prototypes in all major fields.

State of Florida Licensed General Contractor expediting any facility improvements.

Master plumber with 40 years in the professional fields and commercial experience.

Carroll S. Keim was retained as President on March 26, 2010. Mr. Keim has thirty- five years of marketing and general management experience in service and consumer goods industries, with emphasis on the bottled water industry and new product development. From 1990 to 1997 he was President of his own consulting firm, focused on the bottled water industry, new product development, and start-up ventures. Mr. Keim served as Managing Director of Neverfail Spring Water Ltd, a publicly held bottled water company, and was selected as Best CEO of the year by The Bulletin (Newsweek) in Australia for 2002. He was Chairman of the International Council, the worldwide bottled water association in 2002-2003. Mr. Keim was a Honor Graduate of the Harvard MBA program.

Henry R (Bob) Hidell, lll was retained as Chief Operating Officer on March 26, 2010. Mr. Hidell is the Managing Director of Hidell-Eyster International, a 42 year old international consulting firm with a global reputation in the beverage and water treatment technologies industries. He has overseen the long range business development strategies and finance and administration of the firm. He has been instrumental in the development of the company's joint venture relationships and the execution of business opportunities. In 2007 he became Chairman of the Board and remains Managing Director of Consulting Services.

He is a member of the Executive Board the International Bottled Water Association (IBWA). He is the former Chairman of the International Council of the International Bottled Water Association (ICBWA). He was granted the highest honor in the bottled water industry being named a member of the Beverage World Bottled Water Hall of Fame in 2001. He is a member of the International Society of Beverage Technologists. He is a former a member of the Board of Directors of the Neverfail Spring Water Co., Inc. in Sydney, Australia a publicly held firm with a capitalized value exceeding $300 million. He is a member of the Council of Experts of the Association International de la Distribution des Produits Alimentaires et des Products de Grande Consommation (AIDA), Brussels, Belgium, an international organization servicing the logistics and distribution industry.

Mr. Hidell is a recognized expert in the point of use industry. Here he specializes in the application of advanced water treatment and waste water treatment technologies.

He has developed advanced water treatment technologies and mineralization systems for use in beverage production in Argentina, Mexico, the United States, the Philippines, Europe, Saudi Arabia, United Arab Emirates, Australia, New Zealand, India and Russia. He is also a technical expert in water and business development and technology transfer for the United States Department of State, U.S. Information Service, specializing in Russia.

Mr. Hidell has an M.A. from Southern Illinois University in Land Use Planning and Economic Development and a B.S. in Geology from West Chester University.

Richard Pellerito was retained as Vice President of Operations on March 26, 2010. Mr. Pellerito is a successful water professional with over 30 years experience in General Management related to production, warehousing, distribution, route sales, system design specifications, and applications. His experience includes Branch and Route operations management, plant management, sales management and motivating people toward achieving goals. Experienced with HACCP, FDA food security plans, model recall plans, system treatment design, applications and meeting specifications and equipment application and performance.

Section 16(a) Compliance by Officers and Directors

Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, together with written representations received by us from applicable parties that no Form 5 was required to be filed by such parties, all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed all such required reports during and with respect to our fiscal year ended December 31, 2009, with the following exceptions:.

•	Leslie J. Kessler failed to timely file Form 4's reporting a total of six transactions during our fiscal year ended December 31, 2009 and four transactions from prior years;

•	Terry R. Lazar failed to timely file Forms 4's reporting a total of six transactions during our fiscal year ended December 31, 2009 and three transactions from prior years; and

•	Malcolm Hoenlein failed to timely file two Forms 4's reporting a total of one transaction during our fiscal year ended December 31, 2009 and one from 2008.

Ms. Kessler's and Mr. Lazar's unreported transactions were reported in Form 4's filed on August 20, 2009 and April 8, 2010.

Mr. Hoenlein's unreported transactions were reported in a Form 4 filed August 21, 2009.

Code of Ethics

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

Committees

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

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

Item 11.

Executive Compensation.

General

The following table sets forth, with respect to our fiscal years ended December 31, 2009 and 2008, all compensation earned by or paid to all persons who served as our chief executive officer at any time during our fiscal year ended December 31, 2009 and such other executive officer and other employees of our company who were employed by our company as of the close of business on December 31, 2009 and whose total annual salary and bonus earned during our fiscal year ended December 31, 2009 exceeded $100,000.

SUMMARY COMPENSATION TABLE

	Fiscal Year	Salary		Stock Awards		Option Awards		All Other Compensation		Total
Leslie J. Kessler, Chief Executive Officer and President (1)	2009	$	108,000	$	132,000	$	198,100	$	0	$	438,100
	2008		108,000		50,000		62,600		12,000		232,600

Terry R. Lazar, Chief Financial Officer (2)	2009		60,000		132,000		84,900				276,900
Terry R. Lazar, Chief Financial Officer (2)	2008		60,000		150,000		12,300				222,300

(1)

Ms. Kessler was appointed our President in January 2007 and Chief Executive Officer in February 2007. From May 2006 to January 2007, she was an outside consultant to our company. The amounts reflected in the table constitute the total compensation earned by Ms. Kessler during the subject fiscal years, whether or not actually paid to her. Ms. Kessler was paid $72,000 for her monthly compensation from January 2008 through August 2008 and she chose to defer her monthly salary from September through December 2009. Ms. Kessler was awarded 3 million shares of our common stock. We recorded $132,000 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table. In addition, Ms Kessler was also awarded warrants to purchase 7 million shares of our common stock at exercise price of $0.041 per share. We recorded $198,100 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table.

(2)

Mr. Lazar was appointed Chief Financial Officer and a director of our company in September 2007. The amounts reflected in the table constitute the total compensation earned by Mr. Lazar during the subject fiscal years, whether or not actually paid to him. Mr. Lazar was paid $40,000 for his monthly compensation from January through August 2008 and he chose to defer his monthly salary from September through December 2009. Mr. Lazar was awarded 3 million shares of our common stock. We recorded $132,000 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table. In addition, Mr. Lazar was also awarded warrants to purchase 3 million shares of our common stock at exercise price of $0.041 per share. We recorded $84,900 in stock-based compensation in connection with such award and have included such amount in the Summary Compensation Table.

Employment Agreements/Arrangements with Executive Officers

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

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

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

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

On February 1, 2010, the Board of Directors of the Company approved new Employment Agreements with Leslie J. Kessler, our Chief Executive Officer, and Terry R. Lazar, our Chief Financial Officer. The Employment Agreements are effective January 1, 2010, for initial terms of five years, and the term is automatically extended for additional one year periods if neither party gives notice of termination at least 90 days prior to the end of the initial term or any current additional one year term.

The Employment Agreement with Ms. Kessler provides for a base salary of $180,000 per year, and the Employment Agreement with Mr. Lazar provides for a base salary of $140,400. Both Employment Agreements provide for incentive payments as established by the Board of Directors and for a performance bonus as follows:

Net Operating Profit Before Income Taxes	Performance Bonus

On the First $10 Million		0	%

On the Next $40 Million		3.5	%

On the Next $50 Million		2.5	%

On all Amounts Over $100 Million		1.5	%

Both Employment Agreements contain similar provisions for discharge for "cause", including breach of the Employment Agreement or specified detrimental conduct by the employee, in which cases accrued compensation would payable as provided in the Employment Agreements. The Agreements also provide for termination by the executives for “good reason”, comprising events such as breach of the Agreement by the Company, assignment of duties inconsistent with the Executive’s position, transfer of the executive’s primary office by more than 25 miles from Plainview, New York, or in the event of a change in control of the Company. In the event of a termination by the Company without cause, or by the executive for “good reason”, the Company is required to pay to the Executive in a lump sum in cash within 30 days after the date of termination the aggregate of the following amounts:

A. the sum of (1) the executive’s annual minimum salary through the date of termination to the extent not theretofore paid, (2) any annual incentive payment earned by the executive for a prior period to the extent not theretofore paid and not theretofore deferred, (3) any annual performance bonus payment earned by the executive for a prior period to the extent not theretofore paid and not theretofore deferred,(4) any accrued and unused vacation pay and (5) any business expenses incurred by the executive that are unreimbursed as of the date of termination;

B. The product of (1) the performance bonus payment and (2) a fraction, the numerator of which is the number of days that have elapsed in the fiscal year of the Company in which the date of termination occurs as of the date of termination, and the denominator of which is 365;

C. the amount equal to the sum of (1) three (3) times the executive’s annual minimum salary; (2) one (1) times the performance bonus payment and (3) one (1) times the incentive payment;

D. In the event executive is not fully vested in any retirement benefits with the Company from pension, profit sharing or any other qualified or non-qualified retirement plan, the difference between the amounts executive would have been paid if he or she had been vested on the date his/her employment was terminated and the amounts paid or owed to the executive pursuant to such retirement plans; and

E. The product of (1) the incentive payment and (2) a fraction, the numerator of which is the number of days that have elapsed in the fiscal year of the Company in which the date of termination occurs as of the date of termination, and the denominator of which is 365.

In addition all stock options and warrants outstanding as of the date of termination and held by the executive shall vest in full and become immediately exercisable for the remainder of their full term; all restricted stock shall no longer be restricted to the extent permitted by law, and the Company will use its best efforts, at its sole cost to register such restricted stock as expeditiously as possible; and for the remainder of the executive’s life and the life of his/her spouse, the Company is required to provide the executive continued health care benefits. The executive is responsible for the payment of any COBRA premium, provided that the Company is required to make a lump sum payment to the executive equal to the cost of such premiums, plus an income tax gross-up thereon so that the executive retains an amount equal to the cost of such premiums. The Company in addition beyond the COBRA period is required to pay the executive a lump sum cash amount equal to the present value of the cost of premiums for health care coverage as a supplement to Medicare benefits under an individual policy from a third party insurer, with such insurer to be selected by the executive (which coverage in combination with Medicare benefits shall provide benefits to the executive and/or his/her spouse which are comparable to those provided to executive and/or his/her spouse under the Company’s group health plan as of January 1, 2010) for the remainder of each of the lives of the executive and/or his/her spouse.

Generally, if an Employment Agreement is terminated by reason of death or disability of the executive, the Company is required to pay to the executive or his/her estate accrued salary and bonus obligations, pro-rata incentive compensation, accrued equity benefits and COBRA and retiree health benefits to the executive and/or the executive’s spouse.

To the extent any payment under the Employment Agreement to the executive is subject to the excise tax imposed by section 4999 of the Internal Revenue Code, the executive is entitled to a gross-up payment from the Company to reimburse the executive for additional federal, state and local taxes imposed on executive by reason of the excise tax and the Company’s payment of the initial taxes on such amount. The Company is also required to bear the costs and expenses of any proceeding with any taxing authority in connection with the imposition of any such excise tax.

Effective March 26, 2010, we entered into a General Management Service Agreement (the “HEI Agreement”) with Hidell-Eyster International (HEI) to assist us in the management of our business and oversee financial performance in accordance with the Company’s Board of Directors approved budgets and operating plans. HEI will, inter alia, under HEI Agreement assist us with the implementation of an organizational structure, integrate with other marketing professionals to implement a marketing and sales program during the six (6) month period from the date of HEI Agreement in accordance with the agreed business goals, implement product development, production methodology, and research and development, identify and implement cost-reduction opportunities, and assist with managing the financial operation of the Company wherein the Company’s CFO will oversee funding, cash management, and financial controls including audits, inventory control, accounts receivable, and collections procedures and policies. Our Board of Directors, however, has the right to accept or reject recommendations which HEI may suggest from time to time.

Under the HEI Agreement and during its term, HEI is to designate one director in Phase I (January 1 – June 30, 2010) and two directors in Phase 2 (July 1, 2010 until termination or expiration of the HEI Agreement). At this time, HEI has not designated a director of their choice to be elected to our Board of Directors. Phase I monthly fees are $23,000 per month, and Phase II fees are $36,200 per month.

In addition, the HEI Agreement provides that the Compensation Committee of the Board will develop and approve annual business performance objectives which provide incentives to HEI up to an additional 20% of HEI’s annual compensation (in cash, equity, or both) based upon achieving the approved performance objectives. The incentive package is to be approved by the Company for the year 2010 no later than June 30, 2010, and thereafter shall be approved for each successive year no later than February 1 of that year.

The term of the HEI Agreement is for a term of three years from January 1, 2010 through December 31, 2012. The Company has the right to review the HEI Agreement during the first year in which it is in effect and recommend modifications or to terminate the HEI Agreement without prejudice, except that if the HEI Agreement is so terminated after the first year of its term, HEI is entitled to receive an additional six months of fees during the six month transition period following termination. Otherwise the HEI Agreement requires the terminating party to provide advance notice of termination at the end of the term, or the HEI Agreement is automatically extended.

During Phase 1, HEI will provide a minimum of 10 days and a maximum of 15 days of professional services from Carroll S. Keim, serving as President of the Company, Henry R. Hidell, serving as Chief Operating Officer, Kathleen Ransome, and Dr. Thomas Brewer. Richard Pellerito will serve as full time Vice President Technical Sales. During Phase 2, HEI will provide Carroll S. Keim as President for three weeks per month, Henry R. Hidell as Chief Operating Officer for ten days per month, and Richard Pellerito full-time as Vice President of Technical Sales. We have elected Messrs. Keim, Hidell and Pellerito as officers of the Company in accordance with the terms of the HEI Agreement.

Outstanding Equity Awards at Fiscal Year-End

The following tables set forth, for each person listed in the Summary Compensation Table set forth in the “General” subsection above, as of December 31, 2009:

•	with respect to each option award -

•

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

•

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

•

the exercise price of such option; and

•

the expiration date of such option; and

•	with respect to each stock award -

•

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

•

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

•

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

•

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

Option Award –

Name	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options		Option Exercise Price		Option Expiration Date
Leslie J. Kessler (1)		2,000,000				$	0.110	03/28/10
					3,000,000		0.041	04/17/14
		4,000,000					0.041	04/17/14

Terry R. Lazar (2)		2,000,000				$	0.07	09/27/10
					3,000,000		0.041	04/17/14

_____

(1)

Does not include (a) 506,410 shares of our common stock issuable upon exercise of warrants granted to Ms. Kessler in connection with loans she made to the Company in each October and November 2008 and (b) 104,167 shares issuable upon exercise of warrants that were issued in connection with a loan Ms. Kessler made in October 2009.

(2)

Does not include (a) 506,410 shares of our common stock issuable upon exercise of warrants granted to Mr. Lazar in connection with loans she made to the Company in each October and November 2008 and (b) 100,000 shares issuable upon exercise of warrants that were issued in connection with a loan Mr. Lazar made in October 2009.

Stock Awards-

Name	Number of Shares That Have Not Vested		Market Value of Shares That Have Not Vested		Number of Unearned Shares That Have Not Vested		Equity Incentive Award: Market or Pay-Out Value of Unearned Shares That Have Not Vested
Leslie J Kessler		2,000,000	$	114,000		--	$	--
Terry R. Lazar		2,000,000		114,000	_--			--

Board of Directors Policy on Executive Compensation

Executive Compensation

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

Executive Base Salaries

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

Performance Incentives

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

Incentive Stock Options

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

Benefits and Other Compensation

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

Retirement and Post Retirement Benefits

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

Director Compensation

We have set forth below compensation earned by any person serving as a non-executive director of our company during our fiscal year ended December 31, 2009, unless such person is also listed in the Summary Compensation Table set forth in the “Executive Compensation” subsection above. The Company has determined that effective January 1, 2010 compensation for outside Directors will be $ 2,000 per meeting excepting the Chairman of the Audit Committee who will receive an additional stipend of $ 5,000 per annum. Officers of the Company who serve as Directors will receive $ 1,500 per meeting..

Name		Fees Earned or Paid in Cash				Stock Awards				Option Awards				All Other Compensation				Total
Malcolm Hoenlein (1)		$	8,000			$	--			$				$				$	8,000\

_________

(1)

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

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

We also have paid certain of our prior director’s success fees for their assistance in connection with various transactions in prior years. No such fees were paid in 2009.

Compensation Committee Interlocks And Insider Participation

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

Item 12.

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

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

The following tables set forth information with respect to the beneficial ownership of shares of each class of our voting securities as of March 31, 2010, by:

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

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

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

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

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

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

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

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

Series A Preferred Stock:

Name and Address of Stockholder	Amount and Nature of Beneficial Ownership		Percentage of Class
Jerome and Anne Asher JTWROS (1)		5,000		9.5	%
Robert D. Asher (2)		5,000		9.5
All executive officers and directors as a group (three persons)		0		0.0	%

__________

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

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

Series D Preferred Stock:

Name and Address of Stockholder	Amount and Nature of Beneficial Ownership		Percentage of Class
John A. Borger (1)		10,000		10.8	%
Shirley M. Wan (2)		6,000		6.5
All executive officers and directors as a group (three persons)		0		0.0	%

__________

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

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

Series F Preferred Stock:

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

__________

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

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

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

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

Common Stock:

Name and Address of Stockholder	Amount and Nature of Beneficial Ownership		Percentage of Class
Leslie Kessler (1)	23,399,418	(2)	7.95
Terry Lazar (3)	19,889,527	(4)	6.84
Malcolm Hoenlein (5)	750,000	(6)	0.26
Carroll S. Keim (7)	--		--
Henry Hidell, III (8)	1,741,464	(9)	0.61
Richard Pellerito (10)	50,000		0.02
Shaul Kochan (11)	9,499,500	(12)	3.31
All executive officers and directors as a group	55,329,909	(13)	18.27

__________

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

(2)

Includes (a) 98,400 shares of our common stock held in Ms. Kessler’s IRA account; (b) 2 million shares of our common stock issuable upon exercise of warrants granted to Ms. Kessler in March 2010; (c) 7 million shares of our common stock issuable upon exercise of warrants granted to Ms. Kessler in 2009; (d) 506,410 shares of our common stock issuable upon exercise of warrants Ms. Kessler acquired in connection with loans Ms. Kessler made to the Company in 2008; and (e) 104,167 shares of our common stock issuable upon exercise of warrants Ms. Kessler acquired in connection with loans Ms. Kessler made to the Company in 2009. All warrants included in this section are exercisable within the next 60 days.

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

(4)

Includes (a) 270,000 shares of our common stock owned by Mr. Lazar and his spouse, jointly; (b) 185,000 shares of our common stock held in Mr. Lazar’s IRA account; (c) 205,000 shares of our common stock held in Mr. Lazar’s 401(k) account; (d) 140,000 shares held in an IRA account of Mr. Lazar’s spouse; (e) 25,000 shares of our common stock held in a profit sharing plan trust for the benefit of Mr. Lazar; (f) 476,191 shares of our common stock held by a partnership in which Mr. Lazar holds a one-third (1/3) equity interest; (g) 2,000,000 shares of our common stock issuable upon exercise of warrants previously granted to Mr. Lazar in connection with his initial retention as our Chief Financial Officer in September 2007; (h) 95,238 shares of our common stock issuable upon exercise of warrants sold, in March 2008, to the partnership in which Mr. Lazar holds a one-third (1/3) equity interest; (i) 274,776 shares of our common stock issuable upon exercise of warrants sold to Mr. Lazar, in December 2007; (j) 3 million shares of our common stock issuable upon exercise of warrants granted to Mr. Lazar in 2009; (k) 506,410 shares of our common stock issuable upon exercise of warrants Mr. Lazar acquired in connection with loans Mr. Lazar made to the Company in 2008; and (l) 100,000 shares of our common stock issuable upon exercise of warrants Mr. Lazar acquired in connection with loan Mr. Lazar made to the Company in 2009. All warrants included in this section are exercisable within the next 60 days.

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

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

(7)	Mr. Keim was retained as President on March 26, 2010 under agreement we signed with Hidell-Eyster International, Inc. (“HEI”).

(8)	Mr. Hidell was retained as Chief Operating Officer on March 26, 2010 under HEI agreement.

(9)	The shares were issued to Hidell-Eyster Technical Services in which Mr. Hidell is the sole owner of the company.

(10)	Mr. Pellerito was retained as Vice President of Operations on March 26, 2010.

(11)	Mr. Kochan joined us as International Market consultant in 2007 and was appointed Vice President of International Markets on March 26, 2010.

(12)	Includes 2,000,000 shares of our common stock issuable upon exercise of warrants granted to Mr. Kochan in March 2010.

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

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Transactions

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

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

In September 2008, Mr. Lazar was awarded 2 million shares of our common stock. One million shares vest immediately and one million shares vest upon the first anniversary of the grant. We recorded $50,000, each in 2008 and 2009, of stock based compensation in connection with such transaction.

Leslie J. Kessler, our President and Chief Executive Officer, and a then member of our board of directors, John J. Clarke, each made loans of $50,000 to our company in March 2007. The loans provided for simple interest at the rate of 10% per annum and were due and payable 120 days from funding. We granted each of these lenders an option that, if the loans were not repaid when due, the lender had the right to convert the lender’s debt into common stock at a price equal to 50% of the average closing price of our common stock for the three business days immediately preceding the date of the lender notified us of the lenders election to convert the debt. On the maturity dates of the loans, we recorded a charge for the embedded conversion option of $113,000. Under applicable accounting guidance, the conversion price of the loans did not have a determinable number of shares the loans could be settled in and, as a result, were presented as a derivative liability. Ms. Kessler converted her loan plus accrued interest of $53,658 into a total of 2,146,324 shares of our common stock on January 27, 2008. Mr. Clarke’s loan, with an accrued amount owing of $64,531 as of February 28, 2010, remains outstanding.

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

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

On March 14, 2008, Malcolm Hoenlein was appointed as director to our Company. Under the terms of his appointment, Mr. Hoenlein is to receive $8,000 cash compensation per year. In addition, Mr. Hoenlein received 250,000 shares of our common stock on the one year anniversary of his appointment and was granted an option to purchase 500,000 shares of our common stock, exercisable for a three-year period following the one-year anniversary of his appointment to the Board at an exercise price of $0.0667 per share. The right to exercise the option will vest annually over three years. Accordingly, the Company will amortize the fair value of the option of approximately $17,000 over the vesting period.

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

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

•

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

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

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

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

•

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

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

In September 2008, Ms. Kessler was awarded 2 million shares of our common stock. One million shares vest immediately and one million shares vest upon the first anniversary of the grant. We recorded $50,000, each in 2008 and 2009, of stock based compensation in connection with such transaction.

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

On April 17, 2009, our Chief Executive Officer and Chief Financial Officer both made demands to convert the then existing loan including accrued interest into our Company’s common stock based on the term set forth in the October 14 and November 17, 2008 promissory notes. We issued 5,299,986 shares of common stock to the Chief Executive Officer and the Chief Financial Officer in connection of such conversions of total $200,000 debt principal and $9,304 accrued interest.

In April 2009, we granted our 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 our company’s 2008 Equity Incentive Plan. We incurred stock-based compensation $82,000 and $84,900, respectively, in connection with such stock and option grant. In February 2010, we issued 2,000,000 shares to the chief executive officer and incurred stock-based compensation $114,000 in connection with such issuance.

In April 2009, we 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 our company’s 2008 Equity Incentive Plan. We incurred stock-based compensation $82,000 and $84,900, respectively, in connection with such stock and option grant. In February 2010, we issued 2,000,000 shares to the chief financial officer and incurred stock-based compensation $114,000 in connection with such issuance.

In April 2009, we granted the Company’s chief executive officer five-year warrants to purchase an aggregate 3,000,000 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. We incurred stock-based compensation $113,200 in connection with the grant of such warrants.

In April 2009, the Company granted the Company’s chief financial officer five-year warrants to purchase an aggregate 3,000,000 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.

In May 2009, the Company issued 250,000 shares of common stock to Malcolm Hoenlein, our 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 $8,750 in connection with such stock issuance.

Item 14.

Principal Accounting Fees and Services.

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

Principal Accountant Fees and Services

The following table sets forth the fees billed by our independent certified public accountants for the years ended December 31, 2009 and 2008 for the categories of services indicated.

	Fiscal Year Ended December 31,
Category	2009		2008
Audit fees (1)	$	96,815	$	177,260
Audit-related fees (2)		0		0
Tax fees (3)		0		0
All Other Fees (4)		0		0

__________

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

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

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

(4)	Marcum provided the following other services during the year ended December 31, 2009: none.

Audit Committee Approval

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

Pre-Approval Policy

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

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

Board of Directors Approval of Audit-Related Activities

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

Our board reviewed the audited financial statements of our company for the year ended December 31, 2009 and met with both other members of management and the independent auditors, separately and together, to discuss such financial statements. Management and the auditors have represented to us that the financial statements were prepared in accordance with generally accepted accounting principles in the United States. Our board also received written disclosures and a letter from our auditors regarding their independence from us, as required by [Independence Standards Board Standard No. 1,] and discussed with the auditors their independence with respect to all services that our auditors rendered to us. Our board also discussed with the auditors any matters required to be discussed by Statement on Auditing Standards No. 61. Based upon these reviews and discussions, our board authorized and directed that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2009.

PART IV

Item 15.

Exhibits and Financial Statement Schedules

(a) Financial Statements

The financial statements and schedules included in this Annual Report on Form 10-K are listed in Item 8 and commence following page 26.

(b) Exhibits

The following exhibits are being filed as part of this Annual Report on Form 10-K, or incorporated herein by reference as indicated.

Exhibit
Number		Exhibit Description
3.1		Composite of Certificate of Incorporation of PureSafe Water Systems, Inc., as amended to date.
3.2		Amended and restated By-laws of PureSafe Water Systems, Inc. [Incorporated by reference to Exhibit 3(ii) to Amendment No. 1 to our Annual Report 10-KSB/A, filed with the SEC on November 17, 2003 (File No.: 0-30544).]
3.2a		Amended and Restated By-laws of PureSafe Water Systems, Inc., effective June 11, 2009 [Incorporated by reference to Exhibit 3.2a to our Current Report on Form 8-K, filed with the SEC on June 11, 2009.]
4.5		Series B Warrant to Purchase Common Stock and Allonge to and Amendment and Extension of Common Stock Purchase Warrant. [Incorporated by reference to Exhibit 4.6 to Amendment No. 1 to our Annual Report on Form 10-KSB/A, filed with the SEC on November 17, 2003 (File No.: 0-30544).]
4.6		Series B Second Allonge to and Amendment and Extension of Common Stock Purchase Warrant. [Incorporated by reference to Exhibit 4.6 to our Registration statement on Form SB-2, filed with the SEC on January 24, 2005 (File No.: 0-30544).]
4.7		Subordinated Debentures. [Incorporated by reference to Exhibit 4.5 to Amendment No. 1 to our Annual Report on Form 10-KSB, filed with the SEC on November 17, 2003 (File No.: 0-30544).]
10.4		Warrant Certificate, dated November 16, 2005, issued to Southridge Partners LP. [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on November 23, 2005 (File No.: 0-30544).]
10.5		Loan Agreement, dated as of October 11, 2006, between Water Chef, Inc. and Southridge Partners LP. . [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]
10.6		Registration Rights Agreement, dated as of October 11, 2006, between Water Chef, Inc. and Southridge Partners LP. [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]
10.7		Promissory Note of Water Chef, Inc., dated October 17, 2006 and in the principal amount of $300,000, issued to Southridge Partners LP. [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]
10.8		Warrant Certificate, dated October 11, 2006, issued to Southridge Partners LP. [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on October 19, 2006 (File No.: 0-30544).]
10.9		Securities Purchase Agreement, dated as of August 27, 2007, between Water Chef, Inc., Southridge Partners LP and Southshore Capital Fund Ltd. [Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.10		Registration Rights Agreement, dated as of August 27, 2007, between Water Chef, Inc. and Southridge Partners LP. [Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.11		10% Convertible Promissory Note of Water Chef, Inc., dated September 7, 2007 and in the principal amount of $200,000, issued to Southridge Partners LP. [Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]

10.12		10% Convertible Promissory Note of Water Chef, Inc., dated September 7, 2007 and in the principal amount of $50,000, issued to Southshore Capital Fund Ltd. [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.13		Warrant Certificate, dated September 7, 2007, issued to Southridge Partners LP. [Incorporated by reference to Exhibit 99.5 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.14		Warrant Certificate, dated September 7, 2007, issued to Southshore Capital Fund Ltd. [Incorporated by reference to Exhibit 99.6 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.15		Private Equity Credit Agreement, dated as of September 7, 2007, between Water Chef, Inc. and Brittany Capital Management Limited. [Incorporated by reference to Exhibit 99.7 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.16		Registration Rights Agreement, dated as of September 7, 2007, between Water Chef, Inc. and Brittany Capital Management Limited. [Incorporated by reference to Exhibit 99.8 to our Current Report on Form 8-K, filed with the SEC on September 9, 2007 (File No.: 0-30544).]
10.17		Employment Agreement, dated April 16, 2008 between Water Chef, Inc. and Leslie J. Kessler. [Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]
10.18		Employment Agreement, dated April 16, 2008, between Water Chef, Inc. and Terry R. Lazar. [Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]
10.19		Stock Purchase, Loan and Security Agreement, dated April 16, 2008, between Water Chef, Inc. and Leslie J. Kessler. [Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]
10.20		Stock Purchase, Loan and Security Agreement, dated April 16, 2008, between Water Chef, Inc. and Terry R. Lazar. [Incorporated by reference to Exhibit 99.4 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]
10.21		Stock Purchase, Loan and Security Agreement dated April 16, 2008 between Water Chef, Inc. and Shaul Kochan. [Incorporated by reference to Exhibit 99.5 to our Current Report on Form 8-K (Date of Report: April 16, 2008), filed with the SEC on April 17, 2008 (File No.: 0-30544).]
10.22		Letter Agreement, dated August 18, 2008 between Water Chef, Inc. and Leslie J. Kessler. [Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K (Date of Report: August 18, 2008), filed with the SEC on August 19, 2008 (File No.: 0-30544).]
10.23		Letter Agreement, dated August 18, 2008, between Water Chef, Inc. and Terry R. Lazar. [Incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K (Date of Report: August 18, 2008), filed with the SEC on August 19, 2008 (File No.: 0-30544).]
10.24		Consulting Agreement, dated as of June 6, 2008, by and between Water Chef, Inc., and Hidell-Eyster International. [Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008 (File No.: 0-30544).]
10.25		Form of Stock Subscription Agreement utilized in the sale of common stock and warrants from October 26, 2007 through July 18, 2008. [Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008 (File No.: 0-30544).]
10.26		Form of Warrant issued to investors in connection with the sale of common stock and warrants from October 26, 2007 through July 18, 2008. [Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 19, 2008 (File No.: 0-30544).]
10.27		Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated October 14, 2008 and in the principal amount of $50,000 issued to Leslie J. Kessler. [Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]
10.28		Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated November 17, 2008 and in the principal amount of $50,000 issued to Leslie J. Kessler. [Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]
10.29		Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated October 14, 2008 and in the principal amount of $50,000 issued to Terry R. Lazar. [Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]

10.30		Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated November 17, 2008 and in the principal amount of $50,000 issued to Terry R. Lazar. [Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]
10.31		Loan Agreement, Promissory Note, and Warrant of Water Chef, Inc., dated December 17, 2008 and in the principal amount of $50,000 issued to Steve Legum. [Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]
10.32		Consulting Agreement, dated as of August 6, 2008, by and between Water Chef, Inc., and Designs and Project Development Corp. [Incorporated by reference to Exhibit 10.32 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]
10.33		Consulting Agreement, dated as of December 14, 2007, by and between Water Chef, Inc., and Bircon Ltd. [Incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K, filed with the SEC on April 15, 2009.]
10.34		Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Leslie J. Kessler. [Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]
10.35		Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Terry R. Lazar. [Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]
10.36		Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Al Wolter. [Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]
10.37		Incentive Stock Option Agreement, dated April 17, 2009, between PureSafe Water Systems, Inc. and Al Wolter. [Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]
10.38		Warrant certificate evidencing 4,000,000 warrants registered in the name of Leslie J. Kessler. [Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q, filed with the SEC on May 20, 2009.]
10.39		Form of Loan Agreement for the Company’s 2009 private placement. [Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on November 16, 2009.]
10.40		Employment Agreement, effective as of January 1, 2010, between the Company and Leslie J. Kessler. [Incorporated by reference to Exhibit 10.40 to our Current Report on Form 8-K, filed with the SEC on February 8, 2010.]
10.41		Employment Agreement, effective as of January 1, 2010, between the Company and Terry R. Lazar. [Incorporated by reference to Exhibit 10.41 to our Current Report on Form 8-K, filed with the SEC on February 8, 2010.]
10.42		General Management Services Agreement, effective January 1, 2010, between Hidell—Eyster International and the Company. [Incorporated by reference to Exhibit 10.42 to our Current Report on Form 8-K, filed with the SEC on April 1, 2010.]
14.1		Code of Ethics. [Incorporated by reference to Exhibit 14.1 to our Quarterly Report on Form 10-QSB, filed with the SEC on August 15, 2005.]
31.1		Rule 13a-14(a)/15d-14(a) Certification of Leslie J. Kessler, filed herewith.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Terry R. Lazar, filed herewith.
32.1		Section 1350 Certification of Leslie J. Kessler, filed herewith.
32.2		Section 1350 Certification of Terry R. Lazar, filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 13, 2010	PURESAFE WATER SYSTEMS, INC.




	By: /s/	Leslie J. Kessler
		Leslie J. Kessler, President




	By: /s/	Terry R. Lazar
		Terry R. Lazar, Chief Financial and Accounting Officer

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

Signature and Name	Capacities	Date



/s/ Leslie J. Kessler	Chief Executive Officer, President	April 13, 2010
Leslie J. Kessler	and Director
(Principal Executive Officer)



/s/ Terry R. Lazar	Chief Financial Officer and Director	April 13, 2010
Terry R. Lazar	(Principal Financial Officer and
Principal Accounting Officer)



/s/ Malcolm Hoenlein	Director	April 13, 2010
Malcolm Hoenlein

Attached files

PureSafe Water Systems, Inc. Reports

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