psws_10q.htm


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

FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2013
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
Commission File Number: 001-09478

PureSafe Water Systems, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
86-0515678
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
160 Dupont Street, Plainview, New York 
 
11803
(Address of principal executive offices) 
 
(Zip Code)
 
(516) 208-8250
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T( 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ 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
Smaller reporting company
þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 12, 2013, 875,546,328 shares of the common stock of the registrant were issued and 875,541,928 were outstanding.



 
 

 
 
PURESAFE WATER SYSTEMS, INC.
 
INDEX
 
     
Page
 
         
   
3
 
           
   
3
 
           
     
4
 
           
     
5
 
           
     
6
 
           
     
7
 
           
     
8
 
           
   
18
 
           
   
25
 
           
   
25
 
           
   
27
 
           
   
27
 
           
   
29
 
           
     
30
 
 
 
2

 
PART I — FINANCIAL INFORMATION

 
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. The following unaudited consolidated financial statements should be read in conjunction with the year-end restated consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2012.

The results of operations for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results for the entire fiscal year or for any other period.
 
 
 
 
 
3

 
PureSafe Water Systems Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
 
   
June 30,
2013
   
December 31,
2012
 
ASSETS
Current Assets:
           
Cash
 
$
7,904
   
$
63,571
 
Inventories
   
193,236
     
322,718
 
Prepaid expenses and other current assets
   
82,506
     
54,478
 
Total Current Assets
   
283,646
     
440,767
 
                 
Property and equipment, net of accumulated depreciation of $176,005 and $164,710, respectively
   
25,005
     
49,014
 
Patents and trademarks, net of accumulated amortization of $44,868 and $41,816, respectively
   
62,474
     
58,068
 
Other assets
   
34,910
     
28,451
 
TOTAL ASSETS
 
$
406,035
   
$
576,300
 
   
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
               
Accounts payable and accrued expenses
 
$
620,518
   
$
695,589
 
Accrued compensation
   
1,166,850
     
972,286
 
Deferred rent payable
   
7,050
     
7,050
 
Accrued consulting and director fees
   
144,000
     
144,000
 
Customer deposits
   
--
     
149,588
 
Notes payable to officer and director (including accrued interest of $173,298 and $138,132, respectively)
   
810,349
     
811,132
 
Convertible promissory note (including accrued interest of $171,761 and $141,564 and net of debt discount of $4,862 and $80,606, respectively)
   
1,146,964
     
1,111,110
 
Promissory notes payable (including accrued interest of $230,630 and $220,295, respectively)
   
576,176
     
706,829
 
Fair value of detachable warrants and conversion option
   
935,700
     
263,300
 
Accrued dividends payable
   
190,328
     
190,328
 
Common stock to be issued
   
19,532
     
--
 
Total Current Liabilities
   
5,617,467
     
5,051,212
 
                 
Long Term Liabilities:
               
Promissory notes payable, net of current portion
   
--
     
8,196
 
Total Long Term Liabilities
   
--
     
8,196
 
TOTAL LIABILITIES
 
$
5,617,467
   
$
5,059,408
 
                 
Commitments and Contingencies
               
                 
Stockholders' Deficiency:
               
Preferred stock $.001 par value; 10,000,000 shares authorized; 184,144 shares issued and
outstanding (liquidation preference $2,971,300 and $2,917,150, as of
June 30, 2013 and December 31, 2012, respectively)
   
184
     
184
 
Common stock, $.001 par value; 2,000,000,000 authorized; 864,462,986 shares issued and 864,458,586 shares
outstanding at June 30, 2013; 561,343,935 shares issued and 561,339,535 outstanding at December 31, 2012
   
864,462
     
561,343
 
Additional paid-in capital
   
41,557,635
     
40,423,615
 
Treasury Stock, at cost, 4,400 shares of common stock
   
(5,768
)
   
(5,768
)
Subscriptions receivable (including accrued interest of $103,857 and $93,825, respectively)
   
(441,057
)
   
(431,025
)
Accumulated deficit
   
(47,186,888
)
   
(45,031,457
)
Total Stockholders’ Deficiency
   
(5,211,432
)
   
(4,483,108
)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
 
$
406,035
   
$
576,300
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
4

 
PureSafe Water Systems Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
 
   
Three months ended June 30
   
Six Months Ended June 30
 
   
2013
   
2012
   
2013
   
2012
 
                                 
Sales
 
$
--
     
--
   
$
--
   
$
265,000
 
                                 
Cost of Sales
   
--
     
85,659
     
--
     
282,718
 
                                 
Gross Profit (Loss)
   
--
     
(85,659
)
   
--
     
(17,718
)
                                 
Operating Expenses:
                               
                                 
Compensation and related benefits, including stock-based compensation of $27,600 and $50,400 for the three months and $421,700 and $241,900 for the six months ended June 30, 2013 and 2012, respectively
   
208,469
     
207,534
     
808,041
     
564,044
 
                                 
Insurance and medical benefits
   
21,206
     
20,191
     
33,750
     
43,849
 
                                 
Research and development
   
36,230
     
22,725
     
46,682
     
58,239
 
                                 
Professional, legal and consulting fees, including stock-based compensation of $80,000 and $0 for the three months and $257,000 and $4,500 for the six months ended June 30, 2013 and 2012, respectively
   
73,752
     
63,512
     
279,018
     
110,098
 
                                 
Marketing
   
835
     
6,175
     
25,835
     
13,654
 
                                 
Occupancy
   
63,796
     
70,210
     
121,733
     
139,632
 
                                 
(Gain) on sale of fixed asset
   
(7,286
)
   
--
     
(7,286
)
   
34,708
 
                                 
Other administrative and general
   
57,752
     
73,978
     
104,709
     
135,973
 
                                 
Total Operating Expenses
   
454,754
     
464,325
     
1,412,482
     
1,100,197
 
                                 
Loss from Operations
   
(454,754
)
   
(549,984
)
   
(1,412,482
)
   
(1,117,915
)
                                 
Other Income (Expense):
                               
                                 
Interest income
   
5,044
     
5,044
     
33,570
     
10,088
 
                                 
Interest expense, including interest to related parties of $17,394 and $17,709 for the three months and $35,166 and $35,225 for six months ended June 30, 2013 and 2012, respectively, including $10,199 of stock based compensation for the six months ended June 30, 2013.
   
(91,047
)
   
(165,455
)
   
(226,419
)
   
(296,633
)
                                 
Change in fair value of derivative liability
   
(223,900
)
   
153,400
     
(550,100
)
   
397,900
 
Total Other Income (Expense)
   
(309,903
)
   
(7,011
)
   
(742,949
)
   
111,355
 
                                 
Net Loss
   
(764,657
)
   
(556,955
)
   
(2,155,431
)
   
(1,006,560
)
                                 
Dividend on preferred stock
   
(27,075
)
   
(27,075
)
   
(54,150
)
   
(54,150
)
                                 
Net Loss Attributable to Common Stockholders’
   
(791,732
)
   
(584,070
)
 
$
(2,209,581
)
 
$
(1,060,710
)
                                 
Net Loss Attributable to Common Stockholders Per Share basic and diluted
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
                                 
Weighted average number of shares outstanding
   
829,915,888
     
346,412,336
     
743,044,645
     
345,762,812
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5

 
PureSafe Water Systems, Inc. and Subsidiary
Condensed Consolidated Statement of Stockholders’ Deficiency
For the Six months ended June 30, 2013
(Unaudited)

                           
Additional
   
Treasury
               
Total
 
   
Preferred Stock
   
Common Stock
   
Paid-In
   
Stock
   
Subscription
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
At Cost
   
Receivable
   
Deficit
   
Deficiency
 
                                                       
BALANCE – January 1, 2013
   
184,195
   
$
184
     
561,343,935
   
$
561,343
   
$
40,423,615
   
$
(5,768
)
 
$
(431,025
)
 
$
(45,031,457
)
 
$
(4,483,108
)
                                                                         
Sale of common stock for cash:
   
--
     
--
     
106,066,743
     
106,067
     
464,733
     
--
     
--
     
--
     
570,800
 
                                                                         
Common stock issued for settlement of notes payable
   
--
     
--
     
23,021,012
     
23,021
     
102,442
     
--
     
--
     
--
     
125,463
 
                                                                         
Common stock issued in for settlement of convertible debt
   
--
     
--
     
67,465,348
     
67,465
     
93,212
     
--
     
--
     
--
     
160,677
 
                                                                         
Common stock issued for service
   
--
     
--
     
74,509,222
     
74,509
     
182,491
     
--
     
--
     
--
     
257,000
 
                                                                         
Common stock issued for employee compensation
   
--
     
--
     
27,200,000
     
27,200
     
144,100
     
--
     
--
     
--
     
171,300
 
                                                                         
Common stock issued for penalty shares
   
--
     
--
     
4,856,726
     
4,857
     
5,342
     
--
     
--
     
--
     
10,199
 
                                                                         
Returned for no consideration
   
(51
)
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                                         
Reclassification of derivative liability
   
--
     
--
     
--
     
--
     
(108,700
)
   
--
     
--
     
--
     
(108,700
)
                                                                         
Warrants granted for services
   
--
     
--
     
--
     
--
     
250,400
     
--
     
--
     
--
     
250,400
 
                                                                         
Accrued interest
   
--
     
--
     
--
     
--
     
--
     
--
     
(10,032
)
   
--
     
(10,032
)
                                                                         
Net loss
                                                           
(2,155,431
)
   
(2,155,431
)
                                                                         
BALANCE- JUNE 30, 2013
   
184,144
     
184
     
864,462,986
     
864,462
     
41,557,635
     
(5,768
)
   
(441,057
)
   
(47,186,888
)
   
(5,211,432
)

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

 
6

 
PureSafe Water Systems Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited) 
 
   
Six Months Ended June 30,
 
Cash Flows from Operating Activities:
 
2013
   
2012
 
Net loss
  $ (2,155,431 )   $ (1,006,560 )
Adjustments to reconcile net loss to net cash used in operating activities –
    (7,286 )     -  
Gain on sale of property and equipment                
Abandonment of property and equipment
            34,708  
Depreciation and amortization
    11,295       11,659  
Amortization of patents and trademarks
    3,052       3,052  
Interest expense – amortization of deferred financing
    5,041       2,727  
Interest expense – penalty interest
    10,199       --  
Stock based compensation
    678,700       252,800  
Interest receivable
    (10,032 )     (10,087 )
Deferred rent
    --       (25,750 )
Accretion of debt discount
    75,744       180,026  
Change in fair value of warrants and embedded conversion option
    550,100       (397,900 )
Change in assets and liabilities -
               
Prepaid expenses and other current assets
    (22,829 )     3,737  
Inventories
    129,482       121,031  
Customer deposits
    (149,588 )     271,768  
Other assets
    --       32,375  
Accounts payable, accrued expenses, accrued dividends, accrued compensation, accrued consulting and director fees,
customer deposits and other current liabilities
    209,960       134,557  
Net Cash Used in Operating Activities
    (671,593 )     (391,857 )
                 
Cash Flows from Investing Activities:
               
Patent costs
    (7,458 )     --  
Proceeds from sale of property & equipment
    20,000       --  
Net Cash Provided by Investing Activities
    12,542       --  
                 
Cash Flows from Financing Activities:
               
Proceeds from sale of common stock
    570,800       55,000  
Proceeds from exercise of warrants
    --       --  
Proceeds from sale of common stock to be issued
    19,532       --  
                 
Proceeds from officers and directors loans
    16,177       --  
Proceeds from convertible promissory note
    90,000       564,608  
Cash paid for loan costs
    --       (110,649 )
Proceeds from notes payables
    --       --  
Repayment of convertible notes payable
    (32,500 )     --  
Repayment of officers and directors loans
    (52,125 )     (6,000 )
Repayment of notes payable
    (8,500 )     (141,323 )
Net Cash Provided by Financing Activities
    603,384       361,636  
                 
Net decrease in cash
    (55,667 )     (30,221 )
                 
Cash at beginning of period
    63,571       118,228  
                 
Cash at end of period
  $ 7,904     $ 88,007  
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the year for interest
    11,699       14,855  
                 
Non-Cash Investing and Financing Activities:
               
                 
Common stock issued in connection with debt conversion
    160,677       157,050  
Common stock issued in satisfaction of liability
    125,463       --  
Reclassification of equity instrument to derivative liabilities
    (108,700 )     (300 )
Debt discount for beneficial conversion feature and warrants
    13,600       --  

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

 
7

PureSafe Water Systems Inc. and Subsidiary
 Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
NOTE 1: DESCRIPTION OF BUSINESS.

PureSafe Water Systems, Inc.  (the "Company")  is a Delaware corporation engaged in the design, development, manufacturing  and sales of the  PureSafe™ First Response Water System (the “FRWS”), both within and outside of the United States. The Company's corporate headquarters and factory are located in Plainview, New York.

NOTE 2: BASIS OF PRESENTATION AND ACCOUNTING POLICIES.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included.
 
The operating results for the six month period ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. These financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on April 16, 2013.

Use of Estimates

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

Principles of Consolidation
 
The consolidated financial statements of PureSafe Water Systems, Inc. include accounts of the Company and its wholly-owned subsidiary, PureSafe Manufacturing and Research Corporation. Intercompany transactions and balances are eliminated in consolidation.
 
Revenue Recognition
 
The Company generally recognizes revenues under Staff Accounting Bulletin No. 104 when the following criteria are met, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectibility is reasonably assured. In addition the Company may enter agreements that include multiple elements (i.e., products and services/training).  Revenue under multiple element arrangements is recognized in accordance with FASB ASC 605-25 Multiple-Element Arrangements (“ASC 605”).  When vendor specific objective evidence or third party evidence of selling price for deliverables in an arrangement cannot be determined, the Company develops a best estimate of the selling price to separate deliverables and allocates arrangement consideration using the relative selling price method. Additionally, this guidance eliminates the residual method of allocation.  If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, we defer the fair value of the undelivered elements with the residual revenue allocated to the delivered elements. Fair value is determined based upon the price charged when the element is sold separately. If there is not sufficient evidence of the fair value of the undelivered elements, no revenue is allocated to the delivered elements and the total consideration received is deferred until delivery of those elements for which objective and reliable evidence of the fair value is not available.  For the six months ended June 30, 2013and 2012, the Company did not have any multiple deliverable elements.
 
 
8

 
Inventories

Inventory amounts are stated at lower of first-in, first-out (“FIFO”) cost or market.

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 and is included as a component of other assets.

Derivative Liabilities

In connection with the issuance of certain convertible promissory notes, the terms of the convertible notes included an embedded conversion feature; which provided for the settlement of certain 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 agreements and at fair value as of each subsequent balance sheet date.  As a result of entering into the convertible promissory notes, the Company is required to classify all other non-employee warrants as derivative liabilities and record them at their fair values at each balance sheet date.  Any change in fair value was recorded as a change in the fair value of derivative liabilities 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.

The fair value of conversion options that are convertible at a fixed number of shares or at a fixed conversion price are recorded using the intrinsic value method and conversion options at variable rates are deemed to be a “down-round protection” and therefore, do not meet the scope exception for treatment as a derivative under ASC 815.  Since, “down-round protection” is not an input into the calculation of the fair value of the conversion option and cannot be considered “indexed to the Company’s own stock” which is a requirement for the scope exception as outlined under ASC 815. The Company determined the fair value of the Binomial Lattice Model and the Intrinsic Value Method to be materially the same. Warrants that have been reclassified to derivative liability that did not contain “down-round protection” were valued using the  black-scholes model. The Company’s outstanding warrants did not contain any down round protection.

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 were as follows:

   
For the six
months ended
June 30,
2013
 
Assumptions:
     
Risk-free interest rate
    0.36%- 1.96 %
Expected life
    3  
Expected volatility
    125%-175 %
Dividends
    0.0 %
 
 
9

 
Stock-Based Compensation

The Company reports stock-based compensation under Accounting Standard Codification (“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.

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 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 values of options. The model includes subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the subject options or warrants.
 
The principal assumptions used in applying the Black-Scholes model were as follows:
 
   
For the six
months ended
June 30,
2013
 
Assumptions:
     
Risk-free interest rate
   
0.36 - 1.96
%
Expected life
   
3
 
Expected volatility
   
125% - 175
%
Dividends
   
0.0
%
 
NOTE 3: GOING CONCERN.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred a net loss of approximately $2,155,000 and $1,007,000 for the six months ended June 30, 2013 and 2012, respectively.  The Company has a working capital deficit of approximately $5.3 million and $4.6 million as of June 30, 2013 and December 31, 2012, respectively.  The Company continues to incur recurring losses from operations and has an accumulated deficit since inception of approximately $47.2 million.  These conditions raise substantial doubt about the Company's ability to continue as a going concern.

The Company’s continuation as a going concern is dependent upon its ability to bring the Company’s products to market and generate revenues, control costs, and obtain additional financing, as required and on reasonable terms. The Company’s plans with respect to these matters include restructuring its existing debt and raising additional financing in the next twelve months through issuance of stock and/or debt. On January 23, 2013, The Company signed an Engineering Package Agreement (“ETG Agreement”) with Engineering Technologies Group, Inc. (“ETG”), Hopkinton, Massachusetts.  Under the engineering agreement, ETG will provide detailed electronic engineering drawings and purchase specifications for the Company’s water purification and filtration product and to facilitate the outsourcing of the assembly, sub-assembly and manufacturing. On January 25, 2013, the Company entered into an Exclusive Sales and Marketing Agreement (the “Distribution Agreement”) with Global Equipment Marketing, Inc. (“GEM”), Hopkinton, Massachusetts, a distribution and marketing company. Under the Distribution Agreement, on an exclusive basis, GEM is responsible for promoting and selling the Company’s products at their cost and expense.  In exchange, GEM will receive a discount from the list prices of PureSafe products in connection with sales to its dealers, distributors, representatives and resellers. The Company remains responsible for the design and manufacturing of the products.
 
 
10

 
The Company can give no assurance that such financing will be available on terms advantageous to the Company, or at all.  Should the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all of its operational activities. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
 
On February 28, 2013, the Company increased the authorized Common Shares of the Company from 800,000,000 to 2,000,000,000.  The Company filed a Schedule 14C Information Statement with SEC in connection with such increase.
 
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS.

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.
 
NOTE 5: INVENTORIES

Inventories consist of the following at June 30, 2013,

Raw materials
 
$
51,600
 
Finished Goods
   
141,636
 
Total
 
$
193,236
 
 
NOTE 6: NET LOSS PER SHARE OF COMMON STOCK.
 
Basic loss per share was computed using the weighted average number of outstanding common shares. Diluted loss per share includes the effect of dilutive common stock equivalents from the assumed exercise of options, warrants, convertible preferred stock and convertible notes. Common stock equivalents were excluded in the computation of diluted loss per share since their inclusion would be anti-dilutive.
 
Total shares issuable upon the exercise of warrants and conversion of preferred stock and convertible promissory notes for the six months ended June 30, 2013 and 2012 were as follows:

   
June 30,
 
   
2013
   
2012
 
Warrants
   
155,056,588
     
29,430,536
 
Convertible promissory notes
   
35,144,346
     
42,435,258
 
Convertible preferred stock
   
1,545,760
     
1,545,760
 
Total
   
191,746,694
     
73,411,554
 
 
 
11


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.
  
Liabilities measured at fair value on a recurring basis at June 30, 2013 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
June 30,
2013
 
                         
Embedded conversion feature
  $ --     $ --     $ 105,900     $ 105,900  
Warrant liability
    --       --       829,800       829,800  
Balance at June 30, 2013
  $ --     $ --     $ 935,700     $ 935,700  

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 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.
 
 
12


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 six months ended June 30, 2013.
 
   
Warrants
   
Conversion
Feature
   
Total
 
Balance at - January 1, 2013
 
$
39,300
   
$
224,000
   
$
263,300
 
                         
Included in stock based compensation
   
--
     
--
     
--
 
Change in fair value of derivative liability
   
573,200
     
(23,100
   
550,100
 
Included in liabilities (debt discount)
   
5,600
     
8,000
     
13,600
 
Included in stockholder's equity
   
211,700
     
(103,000
)
   
108,700
 
Transfers in and /or out of Level 3
   
--
     
--
     
--
 
Balance at - June 30, 2013
 
$
829,800
   
$
105,900
   
$
935,700
 
 
NOTE 7: STOCKHOLDERS' DEFICIENCY.

Debt

During the six months ended June 30, 2013, the Company issued a total of 67,465,348 shares of common stock upon the requests from note holders to convert principal plus accrued interest totaling $160,677 into the Company’s common stock based on the terms set forth in the loans.  The conversion rates were from $0.00102 to $0.0096 per share.

During the six months ended June 30, 2013, the Company issued a total of 23,021,012 shares of common stock to settle notes payable and accrued interest of $125,463.
 
On February 4, 2013, the Company issued 4,856,726 shares of common stock to a note lender as penalty shares for failing to issue shares timely upon received the conversion notice from the lender.  The Company recorded $10,199 of interest expense for such issuance.

Cash

Through Equity Financing:
During the six months ended June 30, 2013, for gross proceeds of $570,800 the Company sold 106,066,743 shares of common stock and warrants to purchase additional 26,516,687 shares of common stock at exercise prices of $0.0039 to $0.017 per share. The warrants have a term of three years and are fully vested on the date of issuance.

On June 27, 2013, the Company received $19,532 from multiple investors who exercised their warrants to purchase 3,301,282 shares-of common stock.  The exercises prices are $0.0036_ to $0.0094 per share. As of June 30, 2013 the Company has not issued the shares and has recorded the transaction as common stock to be issued.
 
 
13


Services

On March 18, 2013, the Company issued to its Chief Executive Officer 15,000,000 shares of common stock and warrants to purchase additional 15,000,000 shares of common stock at the exercise price of $0.0033 per share. The issuance was approved by the Company’s Compensation Committee on February 11, 2013. The warrants have a term of five years.  Both shares and warrants are fully vested on the date of grant.   The Company recorded $188,700 of stock-based compensation which includes $97,500 for the shares issuance and $91,200 for the warrants granted.
 
On March 18, 2013, the Company issued to its Chief Financial Officer 10,000,000 shares of common stock and warrants to purchase additional 10,000,000 shares of common stock at the exercise price of $0.0033 per share. The issuance was approved by the Company’s Compensation Committee on February 11, 2013. The warrants have a term of five years.  Both shares and warrants are fully vested on the date of grant.  The Company recorded $125,800 of stock-based compensation which includes $65,000 for the shares issuance and $60,800 for the warrants granted.
 
On March 25, 2013, the Company issued 950,000 shares of common stock to its employees. The issuance was approved by the Board of Directors on January 7, 2013 and the shares are fully vested on the date of grant. The Company recorded $3,800 stock-based compensation in connection with such issuance.

On March 25, 2013, the Company issued 1,250,000 shares of common stock to multiple consultants. The issuance was approved by the Board of Directors on January 7, 2013 and the shares are fully vested on the date of grant. The Company recorded $5,000 of stock-based compensation in connection with such issuance.

On March 14, 2013 and June 25, 2013, per the terms of an agreement entered into on January 24, 2013, the Company issued 50,000,000 shares of common stock to Engineering Technologies Group, Inc.  The shares were fully vested on the date of issuance.  The Company recorded a stock-based compensation charge of $150,000 for the fair value of the shares included in connection with such issuance.


On March 19, 2013, the Company issued 3,000,000 shares of common stock to a consultant for services received. The shares are fully vested on the date of issuance.  The Company recorded $27,000 of consultant fees in connection with such issuance.

On April 5, 2013, the Company issued 21,509,222 shares of common stock to an investment banker for services received. The shares are fully vested on the date of issuance.  The Company recorded $80,000 of consultant fees in connection with such issuance.
 
NOTE 8:  NOTES PAYABLE
 
During the six months ended June 30, 2013, at the request of a lender the Company repaid $133,963 of debt and accrued interest for  $8,500 in cash and the issuance of 23,021,012 shares of common stock.
 
 
NOTE 9:  CONVERTIBLE PROMISSORY NOTES PAYABLE

(a)
 
On January 8, 2013 for gross proceeds of $25,000 the Company issued a lender a convertible promissory note bearing interest at the rate of 10% per annum with a maturity date of January 8, 2014.  The loan and accrued interest are to be paid on the maturity date.  The promissory note contains conversion clauses that allow the lender the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock at a conversion rate of $0.03 per share.  In addition, the Company also issued 1,666,667 warrants to the lender to purchase additional shares of common stock at an exercise price of $0.0036 per share.  These warrants have a term of 5 years.  
 
The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”.  Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period.  The gross proceeds from the sale of the note are recorded net of a discount of $13,600.  The debt discount relates to the beneficial conversion feature embedded in the conversion option and the fair value of the warrants attached to the notes.  The debt discount is charged to interest expense ratably over the term of the convertible note.

(b)
On February 26, 2013, at the request of a lender, the Company repaid $49,961 of debt per the terms of the loan entered into on August 28, 2012.  The repayment includes $17,461 of accrued interest.

(c)
 
On May 16, 2013, the Company in conjunction with the existing noteholder entered into a loan agreement with a new lender for the sale and transfer of a $20,000 note plus $4,895 accrued interest.   The Company issued the new lender a convertible promissory note of $29,895 bearing interest rate of 10% per annum with a maturity date of January 1, 2014.  The loan and accrued interest are to be paid on the maturity date.  The promissory note contains  conversion clauses that allow the lender the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock at a conversion rate of the lesser of a.) 60% of the low traded price of the Company’s common stock for the twenty trading day period immediately preceding the date at the which Holder, by written notice gives notice to the Company of its election to convert or b.)$0.01.  The Company recorded $5,000 loan cost in connection with the increase of the principal. The loan cost will be amortized over the life of the loan. Subsequent to closing of the loan agreement, at the request of the lender, the Company converted $21,330 debt into 2,500,000 shares of common stock.

(d)
 
On May 22, 2013, the Company entered into a loan agreement with a lender for the Principal Sum of $335,000 plus accrued and unpaid interest and any other fees.  The components of the principal are $300,000 proceeds of the loan plus $35,000 original issue discount.  The Maturity Date is one year from the effective date of each payment.  The loan and accrued interest are to be paid on the maturity date.  There is zero percent interest for the first three months.  After three months, a one-time interest charge of 12% will be charged and added to the principal sum.
 
The promissory note contains conversion clauses that allow the lender, at any time from 180 days after the Effective Date, the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock at a conversion price per share of the lesser of $0.018 or 60% of the lowest trade price in the 25 trading days preceding the conversion. The Company received $65,000 consideration upon entering the agreement on May 22, 2013 and the Company recorded $6,500 loan cost in connection with this transaction and the loan cost will be amortized over the life of the loan.
 
The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”.  Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period.  The gross proceeds from the sale of the note are recorded net of a discount of $48,000.  The debt discount relates to the beneficial conversion feature embedded in the conversion option.  The debt discount is charged to interest expense ratably over the term of the convertible note.

(e)
 
During the six months ended June 30, 2013, the Company issued a total of 64,965,348 shares of common stock upon requests from note holders to convert loans with principal plus accrued interest totaling $139,347 based on the terms set forth in the loans.  The conversion rates were from $0.00102 to $0.0096 per share.
 
 
15

 
NOTE 10: RELATED PARTY TRANSACTIONS.

(a)
 
On January 2, 2013, the Company issued a total of 12,820,512 warrants to purchase common stock to its four directors, including warrants issued to its Chief Executive Officer and Chief Financial Officer, each of which received 3,205,128 warrants for their first quarter of 2013 director fees. The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on December 6, 2011, when the Board approved replacing directors’ annual compensation of $50,000 with three year warrants payable quarterly. The warrants have a term of three years and are fully vested on the date of issuance.  The Company recorded $70,800 of stock-based compensation in connection with this issuance.
 
(b)
 
On March 18, 2013, the Company issued to its Chief Executive Officer 15,000,000 shares of common stock and warrants to purchase an additional 15,000,000 shares of common stock at the exercise price of $0.0033 per share. The issuance was approved by the Company’s Compensation Committee on February 11, 2013. The warrants have a term of five years.  The shares and warrants are fully vested on the date of grant.   The Company recorded $188,700 of stock-based compensation which includes $97,500 for the share issuance and $91,200 for the warrants granted.
 
(c )
 
On March 18, 2013, the Company issued to its Chief Financial Officer 10,000,000 shares of common stock and warrants to purchase an additional 10,000,000 shares of common stock at the exercise price of $0.0033 per share. The issuance was approved by the Company’s Compensation Committee on February 11, 2013. The warrants have a term of five years.  The shares and warrants are fully vested on the date of grant.  The Company recorded $125,800 of stock-based compensation which includes $65,000 for the share issuance and $60,800 for the warrants granted.

(d)
 
On April 5, 2013, the Company issued a total of 3,846,152 warrants to purchase common stock to its four directors, including warrants issued to its Chief Executive Officer and Chief Financial Officer, each of which received 961,538 warrants for their second quarter of 2013 director fees. The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on December 6, 2011, when the Board approved replacing directors’ annual compensation of $50,000 with three year warrants payable quarterly. The warrants have a term of three years and are fully vested on the date of issuance.  The Company recorded $27,600 of stock-based compensation in connection with this issuance
 
NOTE 11: COMMITMENTS AND CONTINGENCIES.

Litigation

The Company is a defendant in a suit in the Supreme Court of the State of New York, County of Nassau, filed by Fairchild Warehouse Associates, LLC, as plaintiff, for recovery of past rental payments for the Company’s former office space at 25 Fairchild Avenue, Plainview, New York 11803, with money damages requested in the amount of $ 141,721, which have been accrued for as of June 30, 2013.

The Company on April 4, 2013, was served with a summons and complaint, filed with the Supreme Court of the State of New York, County of New York, Levin Consulting Group, LLC, as plaintiff, where the plaintiff is claiming that additional shares of the Company’s Common Stock are issuable by the Company to plaintiff in connection with the exercise by plaintiff of a common stock purchase warrant issued by the Company. As of June 30, 2013 the company has not accrued any amount for this claim as an amount cannot reasonably be determined.
 
The Company is in default under a May 30, 2012, Securities Purchase Agreement entered into with TCA Global Credit Master Fund, LP, providing for the issuance of $275,000 principal amount of senior secured redeemable and convertible debentures due November 30, 2012.    The Company has not received a notice of default and is currently negotiating a forbearance agreement with the lender. As of June 30, 2013 the Company has accounted for the principal and accrued interest of $283,250.  However, the Company has not accrued any additional amounts for this contingency as an amount cannot be reasonably estimated.
 
 
16


NOTE 12: SUBSEQUENT EVENTS.

 (a)
On July 1, 2013, the Company issued a total of 2,702,704 warrants to purchase common stock to its four directors, including warrants issued to its Chief Executive Officer and Chief Financial Officer, each of which received 675,676 warrants for their third quarter of 2013 director fees. The issuance is part of the annual compensation that was authorized by the Company’s Board of Directors on December 6, 2011, when the Board approved replacing directors’ annual compensation of $50,000 with three year warrants payable quarterly. The warrants have a term of three years at an exercise price of $0.0185 per share and are fully vested on the date of issuance.  The Company recorded $40,800 of stock-based compensation in connection with this issuance.
 
 (b)
From July 1, 2013 through August 4, 2013, the Company issued a total of 3,301,282 shares of common stock to investors who exercised their warrants to purchase the Company’s common stock.  Total funds of $19,532 for such exercises were received in June 2013. The exercise prices are between $0.0036 and $0.0094.
 
 (c)
From July 1, 2013 through August 4, 2013, the Company issued a total of 7,255,748 shares of common stock to investors who exercised their warrants to purchase the Company’s common stock.  The Company received total $44,981 for such exercises. The exercise prices are between $0.00352 and $0.0098.
 
(d)
On July 15, 2013, the Company issued 526,312 shares for the exercise of a cashless warrant.
 
 
17

 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
 
Introductory Comment

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q, as well as our audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2013.
 
Note Regarding Forward-Looking Statements

This quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  To the extent that any statements made in this Form 10-Q contain information that is not historical, these statements are essentially forward-looking.  Forward-looking statements can be identified by the use of words such as “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-Q and, from time to time, in our other filings with the Securities and Exchange Commission.
 
 
18

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

PureSafe Water Systems, Inc. (herein referred to as the “Company”, “Puresafe”, “we”, “us” or “our”) was incorporated in Delaware in 1987. 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. Between January 2002 and November 2012, we have generated nominal revenues and were deemed for accounting purposes to be a development stage enterprise.  

We have generated our first sale of the FRWS in December of 2012 followed by our second sale in the first quarter of 2012 and the third sale in November 2012.  Accordingly, we are no longer deemed to be a development stage enterprise.  We are, however, an early stage commercial enterprise.  The accompanying unaudited consolidated financial statements have been prepared assuming our company will continue as a going concern. The PureSafe FRWS is the product line by which we have generated our first significant sales since 2001.  
 
Comparison of Results of Operations for the Three Months ended June 30, 2013 and 2012

Revenues.  We recognized $0 revenues for the three month period ended June 30, 2013 as compared with $0 for the same period in 2012.  

Cost of goods sold.  Cost of goods sold for the three month period ended June 30, 2013 was $0 as compared with $85,659 for the same period in 2012.  

Selling, general and administrative.  Selling, general and administrative expenses for the three month period ended June 30, 2013 was $454,754 compared to $464,325 for the same period in 2012, a $9,571 or a 2% decrease. 

The following is an analysis of Selling, general and administrative expenses fluctuations between 2013 and 2012.

Compensation and related benefits expenses for the three month period ended June 30, 2013 was $208,469, compared to $207,534 for the same period in 2012, a small increase of $935.  

 Insurance & medical benefits expense for the three month period ended June 30, 2013 was $21,206, compared to $20,191 for the same period in 2012, a $1,015 or 5% increase.

Research and development.  Research and development expenses for the three month period ended June 30, 2013 were $36,230 compared to $22,725 in the same period of 2012, a $13,505 or 59% increase. The reason we spent more fund in research and development in 2013 compared to 2012 is that in 2012 we were focused on production of our PSWS units, and this year, based on this experience we are making some changes on our existing units to improve the design and enhance the performance.  We understand the vital importance of research and development for our overall success. We are committed to continue to conduct research and development activities to ensure PureSafe FRWS has the most advanced technology within the water filtration equipment industry.
 
 
19


Professional, legal and consulting fees expenses for the three month period ended June 30, 2013 were $73,752, compared to $63,512 for the same period in 2012, a $10,240 or 16% increase.

Consultant fees expense for the three month period ended June 30, 2013 was $80,000, compared to $3,750 for the same period in 2012, a $76,250 or 2,000% increase.  We issued 21,509,222 shares of common stock to an investment banker for the advisory services in 2013.  We recorded $80,000 as consultant fees in connection with such issuance.  The increase in consultant fees for the three month period ended June 30, 2013 was largely offset by the $69,759 decrease in professional fees for the same period in 2013.  Due to a one-time fee adjustment, total professional fee expense was ($6,248), compared to $63,512 in the same period of 2012, a $69,759 or 110% decrease
 
Marketing expenses, including stock-based compensation decreased $5,340 from $6,175 for the three month period ended June 30, 2012 to $835 for the same period in 2013.   
 
Occupancy related expenses decreased $6,414 from $70,210 for the three month period ended June 30, 2012 to $63,796 for the same period in 2013.   The decrease in occupancy related expenses in 2013 compared to the same period in 2012 is the result of small decreases in many different areas, such as a reduction in cleaning services and repairs and maintenance, etc.

Gain on disposal of equipment we sold our Ford truck in the 2nd quarter of 2013 and realized a $7,286 gain after writing-off the balance of the asset.   We did not have any gain or loss for the same period in 2012.

Other administrative and general expenses decreased $16,226 from $73,978 for the three month period ended June 30, 2012 to $57,752 for the same period in 2013.  The $16,226 or 22% decrease resulted from a combination of reductions of other expenses that were not included in the above discussed sections.   In 2012, we incurred $11,585 commission expense in connection with a PSWS unit sale in February 2012, and we did not incur such expense in the same period of 2013.

Other Income (Expenses)

We incurred $309,903 of non-operating expenses for the three months ended June 30, 2013 compared to $7,011 for the same period in 2012

The following is a detailed analysis for such increase:

Interest expense - non-debt discount related incurred in the three month periods ended June 30, 2013 and 2012 was $51,466 and $56,787, respectively, a $5,321 or 9% decrease. 

Interest expense - debt discount related incurred in the three month period ended June 30, 2013 and 2012 was $39,580 and $108,668, respectively, a $69,088 or a 64% decrease.  The main reason for the decrease in debt-discount related interest expense is that we fully amortized the debt discount of most of our loans that we entered in 2011 and 2012, and we entered into fewer loan agreements in the second quarter of 2013 compared to the same period of 2012.
 
Changes in fair value of warrants and embedded conversion options for the three months ended June 30, 2013 and 2012 were $223,900 and $(153,400), respectively.

The accounting treatment, pursuant to ASC 815 “Derivatives and Hedging”, 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 issuing the convertible promissory notes, we were required to reclassify all other non-employee warrants and options as derivative liabilities and record them at their fair values at each balance sheet date.  Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date.  We reassess the classification of the instruments at each balance sheet date.  If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

 
20


Comparison of Results of Operations for the Six Months ended June 30, 2013and 2012

Revenues.  We recognized $0 revenues for the six month period ended June 30, 2013 as compared with $265,000 for the same period in 2012.  

Cost of goods sold.  Cost of goods sold for the six month period ended June 30, 2013 was $0 as compared with $282,718 for the same period in 2012.  

Selling, general and administrative.  Selling, general and administrative expenses for the six month period ended June 30, 2013 was $1,412,482 compared to $1,100,197 for the same period in 2012, a $312,285 or 28% increase. 

The following is an analysis of Selling, general and administrative expenses fluctuations between 2013 and 2012.

Compensation and related benefits expenses, including directors’ fees for the six month period ended June 30, 2013 was $808,041, compared to $564,044 for the same period in 2012, a $243,997 or 43% increase

Directors’ fees increased $23,200 from $75,200 for the six month period ended June 30, 2012 to $98,400 for the same period in 2013.  The $23,200 or 31% increase for the directors’ fees is the result of the market price fluctuation between the fair value of the market price on the date of warrant issuance and the warrant exercise.  Salaries expenses, excluding Stock-based compensation, increased $220,797 from $488,844 for the six month period ended June 30, 2012 to $709,641 for the same period in 2013.  In 2012, we treated the compensation to the production staff as part of the Cost of Sales, and in 2013, we recognized it as part of general salaries because we scaled back our production activities and the compensation to the same group of staff was primarily for the general activities they performed during this period.  Stock Based Compensation, excluding directors’ fees and consulting fees, increased $156,600 from $166,700 for the six month period ended in June 30, 2012 to $323,300 for the same period in 2013.  We issued 22,000,000 shares of common stock to our employees and contractors in the six months ended June 30, 2013 and recorded $171,300 stock-based compensation for such issuance.  This is in comparison to 2,300,000 shares of common stock issued and $149,500 of stock-based compensation recorded in the same period of 2012, an increase of 24,900,000 shares and $21,800.  In addition, on February 11, 2013, the Compensation Committee granted our Chief Executive Officer and Chief Financial Officer a total of 25,000,000 warrants to purchase 25,000,000 shares of common stock at an exercise price of $0.0033 per share.  We recorded $152,000 of stock-based compensation in connection with such grant.
  
Insurance & medical benefits expense for the six month period ended June 30, 2013 was $33,750, compared to $43,849 for the same period in 2012, a $10,099 or 23% decrease.  The decrease in total insurance premium is the net result of the reduction in our workers’ compensation insurance premium due to the reduction of production staff in 2013 and the increase the general liability premium in the same period.

Research and development.  The research and development expenses in the first quarter increased by $13,505 compared to the same period in 2012 (see discussion from previous section). But in the six month period ending June 30, 2013, there is a $11,557 reduction from $ 46,682 in 2013 to $58,239 in 2012, or 19.8%.  In the past two years, due to cash restrictions, we have curtailed the expenses on research and development and have focused our resources on production.  However, we understand the vital importance of research and development for our overall success. We are committed to continue to conduct research and development activities to ensure PureSafe FRWS has the most advanced technology within the water filtration equipment industry.

Professional, legal and consulting fees expenses for the six month period ended June 30, 2013 were $279,018, compared to $110,098 for the same period in 2012, $168,920 or 153% increase.  The main reason for the $168,920 increase is that, in the six month period ending June 30, 2013, we recorded $257,000 of stock-based consulting fees represented by 74,509,222 shares of our common stock being issued to two consultants and one investment banker for services we received.  In the same period of 2012, we only issued 186,538 shares of common stock representing $10,900 of stock-based consulting fees.
 
Marketing expenses, including stock-based compensation, increased $12,181 from $13,654 for the six month period ended June 30, 2012 to $25,835 for the same period in 2013.     
 
 
21

 
Occupancy related expenses decreased $17,899 from $139,632 for the six month period ended June 30, 2012 to $121,733 for the same period in 2013. The decrease in occupancy related expenses in 2013 compared to the same period in 2012 is the result of small decreases in many different areas, such as a reduction in cleaning services and repairs and maintenance, etc.
 
Gain on disposal of equipment—we sold our Ford truck in the 2nd quarter of 2013 and realized a $7,286 gain after writing-off the balance of the asset. We did not have any gain or loss for the same period in 2012.
 
Other administrative and general expenses decreased $31,264 from $135,973 for the six month period ended June 30, 2012 to $104,709 for the same period in 2013. The $31,264 or 23% decrease is a combination of reductions of other expenses that were not included in the above discussion. In 2012, we incurred a $11,585 commission expense in connection with a PSWS unit sale in February 2012, and we did not incur such expense in the same period of 2013.
 
Other Income (Expenses)
 
We incurred $742,949 in non-operating expenses for the six months ended June 30, 2013 compared to $111,355 in non-operating income generated for the same period in 2012, a $631,594 or 567% increase in spending.
 
The following is a detailed analysis for such increase:
 
Interest expense - non-debt discount related incurred in the six month period ended June 30, 2013 and 2012 was $150,675 and $116,607, respectively, a $34,068 or 29% increase. In the first six months of 2013, we incurred approximately $27,000 in interest expense as the result of failing to issue conversion shares in a timely manner that was dictated by the terms of outstanding notes where such expense was immaterial in the same period of 2012.
 
Interest expense - debt discount related incurred in the six month periods ended June 30, 2013 and 2012 was $75,744 and $180,026, respectively, a $104,282 or a 58% decrease. The main reason for the decrease in debt-discount related interest expense is that we fully amortized the debt discount of most of our loans that we entered in 2011 and 2012, and we entered into fewer loan agreements in the second quarter of 2013 compared to the same period of 2012.
 
Changes in fair value of warrants and embedded conversion options for six months ended June 30, 2013and 2012 were $550,100 and $(397,900), respectively.
 
The accounting treatment, pursuant to ASC 815 “Derivatives and Hedging”, 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 issuing the convertible promissory notes, we were required to reclassify all other non-employee warrants and options as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. We reassess the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
 
The change in fair value of warrants and embedded conversion options for any period is always primarily the result of the following factors. The first factor is the fair value we recorded as the result of new issuances of warrants and the embedded conversion value. The second factor is the reduction of outstanding options or warrants at the end of each period due to warrant/options exercise or warrants/options expired during the same period. The third factor is the fluctuation of the Company’s stock price.

 
22


Liquidity and Capital Resources
 
As of June 30, 2013, we maintained a cash balance of $7,904 as compared to $63,571 as of December 31, 2012.
 
Net cash used in the operating activities in the six months ended June 30, 2013 was $671,593, compared to 391,857 used in the same period of 2012, a $279,736 or 71% increase. The main factor for the increase of net cash used in operating activities is we did not receive any cash from operating activities, such as sales, in 2013, compared to approximately $395,000 received through sales and other operating activities in the same period of 2012.
 
Net cash received in investing activities in the six month period ended June 30, 2013 and 2012 was $12,542 and $0, respectively. We sold our Ford truck in the 2nd quarter of 2013 and received $20,000 cash. We wrote-off the asset and recorded a $7,286 gain in connection with the sale. We paid $7,458 cash for a patent related activity and capitalized such transaction.
 
In the six months ended June 30, 2013 and 2012, respectively, we received $570,800 and $55,000 through sales of our common stock and warrant exercises. We received $19,532 from two investors exercised their warrants to purchase 3,301,282 shares of common stock at exercise prices between $0.0036 and $0.0094. As of June 30, 2013, we have not issued the shares in connections with such warrant exercises yet.
 
Funds received from officers’ and directors’ convertible loan was $16,177 and $0. Cash received from issuing convertible promissory notes was $90,000 and $564,608. We paid $0 and $110,649 in financing costs associated with loans created in the six month period ended June 30, 2013, 2012, respectively. Cash used to repay convertible notes payable was $32,500 and $0, respectively. Cash used to repay officers and directors notes was $52,125 and $0, respectively. Cash used to repay notes payable was $8,500 and $147,323. From the above activities, net cash provided by financing activities in the six months ended June 30, 2013and 2012 was $603,383 and $361,636, respectively.
 
From all the above activities, net cash used for six month periods ended June 30, 2013 and 2013 was $55,667 and $30,221, respectively.
 
At June 30, 2013, we had a working capital deficit of approximately $5.3 million. We continue to suffer recurring losses from operations and have an accumulated deficit since inception of approximately $47.2 million. These conditions raise substantial doubt about our ability to continue as a going concern.
 
Our continuation as a going concern is dependent upon its ability to bring our products to market and generate revenues, control costs, 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 financing in the next twelve months through issuance of stock and/or debt. On January 23, 2013, we signed an Engineering Package Agreement (“ETG Agreement”) with ETG/Engineering Technologies Group, Inc. (“ETG”), Hopkinton, Massachusetts. Under the engineering agreement, ETG will provide detailed electronic engineering drawings and purchase specifications for our water purification and filtration product and to facilitate the outsourcing of the assembly, sub-assembly and manufacturing of our product. On January 25, 2013, we entered into an Exclusive Sales and Marketing Agreement (the “Distribution Agreement”) with Global Equipment Marketing, Inc. (“GEM”), Hopkinton, Massachusetts, a distribution and marketing company. Under the Distribution Agreement, GEM is responsible, on an exclusive basis, for promoting and selling our products at their cost and expense. In exchange, GEM will receive a discount from the list prices of PureSafe products in connection with sales to its dealers, distributors, representatives and resellers. We remain responsible for the design and manufacturing of our products.
 
 
23


We can give no assurance that such financing will be available on terms advantageous to us, or at all. Should we not be successful in obtaining the necessary financing to fund our operations, we would need to curtail certain or all of our operational activities. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
 
Recent Accounting Pronouncements
 
Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.
 
Critical Accounting Policies and Estimates
 
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities and estimating expenses. The following is a list of what we believe are the most critical estimations that we make when preparing our consolidated financial statements.
 
Stock-Based Compensation
 
We reports stock-based compensation under ASC 718. 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.
 
We account for equity instruments issued to non-employees as compensation in accordance with the provisions of ASC 718 and 505, which require that each such equity instrument is recorded at its fair value on the measurement date, which is typically the date the services are performed.
 
The Black-Scholes option valuation model is used to estimate the fair value of the options or their equivalent granted. The model includes subjective input assumptions that can materially affect the fair value estimates.
 
The model was developed for use in estimating the fair value of traded options or warrants that have no vesting restrictions and that are fully transferable. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the options granted.
 
We have issued equity instruments in the past to raise capital and as a means of compensation to employees and for the settlement of debt.
 
Income taxes
 
We account for income taxes under guidance provided by ASC 740 “Income Taxes” which 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.
 
 
24

 
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.”
 
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 2008.
 

This Item is not applicable to smaller reporting companies.
 

Evaluation of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
A 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 June 30, 2013.
 
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. In addition we have not established an independent audit committee and the board of directors have assumed this responsibility.
 
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. Due to our limited personnel and resources we are not always in compliance with these procedures.

Complex Accounting Transactions: Due to our limited resources and personnel management has concluded that, as of June 30, 2013, a material weakness exists because the Company does not currently employ a sufficient number of qualified accounting personnel to ensure proper and timely evaluation of complex accounting, tax, and disclosure issues that may arise during the course of the Company’s business. 
 
 
25


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. Due to our limited personnel and resources we do not have an independent audit committee overseeing this process.

Segregation of Duties: Our administrative staff consists of three officers, one Controller and one receptionist and segregation of duties conflicts exist with our day to day operations. Therefore, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties.
 
Management intends to address these material weakness by reviewing the Company’s accounting and finance processes to identify any improvements thereto that might enhance the Company’s internal control over financial reporting and determine the feasibility of implementing such improvements and by seeking qualified employees and/or outside consultants who possess the knowledge needed to eliminate this weakness with our available resources.  To mediate the material weaknesses management has increased its level of monitoring activities and has prepared additional analyses of key financial accounts. In addition the Company hires an outside consultant to assist management with its annual and quarterly SEC reporting. The Company’s ability to remediate these weaknesses, however, has been delayed or limited by resource constraints. 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.
 
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The design of any system of controls is also based in part on certain assumptions regarding the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Given these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.
 
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first quarter of our 2013 fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
26

PART II - OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.

The Company is a defendant in a suit in the Supreme Court of the State of New York, County of Nassau, filed by Fairchild Warehouse Associates, LLC, as plaintiff, for recovery of past rental payments for the Company’s former office space at 25 Fairchild Avenue, Plainview, New York 11803, with money damages requested in the amount of $ 141,721, which have been accrued for as of June 30, 2013.

The Company on April 4, 2013, was served with a summons and complaint, filed with the Supreme Court of the State of New York, County of New York, Levin Consulting Group, LLC, as plaintiff, where the plaintiff is claiming that additional shares of the Company’s Common Stock are issuable by the Company to plaintiff in connection with the exercise by plaintiff of a common stock purchase warrant issued by the Company. The Company has filed an answer to the complaint.  

ITEM 1A. RISK FACTORS.
 
This Item is not applicable to smaller reporting companies.
 

The following table sets forth the sales of unregistered securities by the Company in the quarterly period ended June 30, 2013.
 
Date
 Title and Amount(1) 
Purchaser
Principal Underwriter
Total Offering Price/
Underwriting Discounts
February 13, 2013
42,424,242 shares of common stock and three year warrants to purchase 10,606,061 shares of common stock at exercise price $0.0039 through 2012 Private Placement.
Private investor
NA
 $0.0033/NA
March 4, 2013
15,151,515 shares of common stock and three year warrants to purchase 3,787,879 shares of common stock at exercise price $0.0039 through 2012 Private Placement.
Private investor
NA
 $0.0033/NA
March 4, 2013
15,151,515 shares of common stock and three year warrants to purchase 3,787,879 shares of common stock at exercise price $0.0039 through 2012 Private Placement.
Private investor
NA
 $0.0033/NA
March 4, 2013
3,205,128 shares of common stock and three year warrants to purchase 801,282 shares of common stock at exercise price $0.0094 through 2012 Private Placement.
Private investor
NA
 $0.0078/NA
March 14, 2013
3,048,780 shares of common stock and three year warrants to purchase 762,195 shares of common stock at exercise price $0.0098 through 2012 Private Placement.
Private investor
NA
 $0.0082/NA
January 16, 2013
4,000,000 shares of common stock issued through loan conversion.
Private investor
NA
 $0.00156/NA
January 22, 2013
8,823,529 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0017/NA
January 22, 2013
8,012,228 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0027/NA
January 28, 2013
10,000,000 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0012/NA
January 31, 2013
7,000,000 shares of common stock issued through loan conversion.
Private investor
NA
 $0.00108/NA
February 4, 2013
5,666,667 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0012/NA
February 4, 2013
8,388,890 shares of common stock issued through loan conversion.
Private investor
NA
 $0.003/NA
March 5, 2013
2,443,333 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0009/NA
March 26, 2013
6,000,000 shares of common stock issued through loan conversion.
Private investor
NA
 $0.00102/NA
 
 
27

 
January 18, 2013
8,774,761 shares of common stock issued to settle debt
Private investor
NA
$0.00156/NA
February 14, 2013
6,597,799 shares of common stock issued to settle debt
Private investor
NA
$0.006426/NA
March 14, 2013
6,748,452 shares of common stock issued to settle debt
Private investor
NA
$0.008336/NA
March 19, 2013
3,000,000 shares of common stock issued for service
Consultant
NA
$0.009/NA
March 19, 2013
25,000,000 shares of common stock issued for service
Consultant
NA
$0.006/NA
March 18, 2013
15,000,000 shares of common stock issued for compensation
CEO
NA
$0.0065/NA
March 18, 2013
10,000,000 shares of common stock issued for compensation
CFO
NA
$0.0065/NA
March 25, 2013
950,000 shares of common stock issued for compensation
Employee
NA
$0.004/NA
March 25, 2013
1,250,000 shares of common stock issued for service
Consultant
NA
$0.004/NA
January 8, 2013
Five-year warrants to purchase 1,666,667 shares of common stock at an exercise price of $0.0036 per share issued in connection with loan issuance
Private investor
NA
$-0-/NA
January 17, 2013
Five-year warrants to purchase 12,820,512 shares of common stock at an exercise price of $0.0039 per share issued for director fees for 1st quarter of 2013
Board of directors
NA
$-0-/NA
February 11, 2013
Five-year warrants to purchase 15,000,000 shares of common stock at an exercise price of $0.0033 per share issued for compensation
 CEO
NA
$-0-/NA
April 3, 2013
5,000,000 shares of common stock and three year warrants to purchase 1,250,000 shares of common stock at exercise price $0.012 through 2012 Private Placement.
Private investor
NA
 $0.01/NA
April 11, 2013
1,760,563 shares of common stock and three year warrants to purchase 440,141 shares of common stock at exercise price $0.017 through 2012 Private Placement.
Private investor
NA
 $0.0142/NA
April 16, 2013
7,200,000 shares of common stock and three year warrants to purchase 1,800,000 shares of common stock at exercise price $0.0168 through 2012 Private Placement.
Private investor
NA
 $0.014/NA
April 1, 2013
Three-year warrants to purchase 3,846,152 shares of common stock at an exercise price of $0.013 per share issued for director fees for 2nd quarter of 2013
Board of directors
NA
$-0-/NA
May 24, 2013
2,083,333 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0096/NA
May 28, 2013
1,000,000 shares of common stock issued through loan conversion.
Private investor
NA
 $0.00948/NA
June 6, 2013
2,547,368 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0095/NA
June 20, 2013
1,500,000 shares of common stock issued through loan conversion.
Private investor
NA
 $0.0079/NA
June 21, 2013
900,000 shares of common stock issued to settle debt
Private investor
NA
$0.0145/NA
June 25, 2013
25,000,000 shares of common stock issued for service
Consultant
NA
$-0-/NA

(1) The issuances to executives, employees, lenders, consultants and investors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D promulgated by the SEC under the Securities Act.
 
 
28

 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
None.
 
ITEM 5. OTHER INFORMATION.

The Company is in default under a May 30, 2012, Securities Purchase Agreement entered into with TCA Global Credit Master Fund, LP, providing for the issuance of $275,000 principal amount of senior secured redeemable and convertible debentures due November 30, 2012.    The Company has not received a notice of default and is negotiating a forbearance agreement with the lender. 
 

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

Exhibit
Number
 
Description
 
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.
 
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

* Filed herewith
** Furnished herewith
 
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
 
SEC Ref. No.
 
Title of Document
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Label Linkbase Document
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
PureSafe Water Systems, Inc.
 
       
Dated:  August 21, 2013
By:
/s/ Leslie J. Kessler
 
   
Leslie J. Kessler
 
   
Chief Executive Officer
 
       
 
By:
/s/ Terry R. Lazar  
 
   
Terry R. Lazar
 
   
Chief Financial Officer
 
 
 
 
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