##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 o
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-29185
 SAVE THE WORLD AIR, INC.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    52-2088326(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 5125 Lankershim Boulevard
North Hollywood, California 91601  (Address, including zip code, of principal executive offices)  (818) 487-8000  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Exchange Act: None.
 Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value.
 o o
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##### Table of Contents



SAVE THE WORLD AIR, INC.
 
 PagePART
IITEM 1. Financial Statements
    
    
    1Condensed balance sheets
    
    
    1Condensed statements of operations (unaudited)
    
    
    3Condensed statements of changes in stockholders deficiency (unaudited)
    
    
    4Condensed statements of cash flows (unaudited)
    
    
    12Notes to condensed financial statements (unaudited)
    
    
    14ITEM 2. Managements Discussion and Analysis or Plan of Operations
    
    
    33ITEM 3. Controls and Procedures
    
    
    42PART
IIITEM 1. Legal Proceedings
    
    
    43ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46ITEM 3. Defaults Upon Senior Securities
    
    
    46ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    46ITEM 5. Other Information
    
    
    46ITEM 6. Exhibits
    
    
    47SIGNATURES
    
    
    48EXHIBIT INDEXEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 i




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
 SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,2006
    
    
    December 31,(unaudited)
    
    
    2005ASSETSCurrent assetsCash
    
    $
    433,496
    
    
    $
    279,821Inventory
    
    
    3,719
    
    
    
    Other current assets
    
    
    110,081
    
    
    
    9,009Total current assets
    
    
    547,296
    
    
    
    288,830Property and equipment, net of accumulated depreciation
    
    
    362,019
    
    
    
    295,374Other assets
    
    
    4,500
    
    
    
    4,500Total assets
    
    $
    913,815
    
    
    $
    588,704
  1




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED BALANCE SHEETS  Continued
 September 30,2006
    
    
    December 31,(unaudited)
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)Current liabilitiesAccounts payable
    
    $
    99,345
    
    
    $
    155,456Accrued expenses
    
    
    24,833
    
    
    
    179,461Accrued research and development fees
    
    
    195,000
    
    
    
    680,000Accrued professional fees
    
    
    568,822
    
    
    
    450,555Payable to shareholder
    
    
    
    
    
    
    45,000Payable to related parties
    
    
    
    
    
    
    158,732Finders fees payable
    
    
    
    
    
    
    8,916Convertible debentures, net
    
    
    
    
    
    
    318,759Total current liabilities
    
    
    888,000
    
    
    
    1,996,879Commitments and contingenciesStockholders equity (deficiency)Common stock, $.001 par value: 200,000,000 shares
authorized, 39,317,620 and 31,387,418
shares issued
and outstanding at September 30, 2006
and December 31,
2005, respectively
    
    
    39,318
    
    
    
    31,387Common stock to be issued
    
    
    46,658
    
    
    
    612,521Additional paid-in capital
    
    
    28,137,268
    
    
    
    18,336,178Deferred compensation
    
    
    
    
    
    
    (142,187
    )Deficit accumulated during the development stage
    
    
    (28,197,429
    )
    
    
    (20,246,074
    )Total stockholders equity (deficiency)
    
    
    25,815
    
    
    
    (1,408,175
    )Total liabilities and stockholders equity (deficiency)
    
    $
    913,815
    
    
    $
    588,704
  2




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 AND FOR THE PERIOD
FROM INCEPTION (FEBRUARY 18,1998) TO SEPTEMBER 30, 2006
 Three months ended
    
    
    Nine months ended
    
    
    CumulativeSeptember 30,
    
    
    September 30,
    
    
    since2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    inceptionNet sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating expenses
    
    
    1,718,614
    
    
    
    730,817
    
    
    
    5,326,222
    
    
    
    1,954,348
    
    
    
    20,816,971Research and
development expenses
    
    
    95,608
    
    
    
    452,571
    
    
    
    274,713
    
    
    
    1,066,068
    
    
    
    4,078,300Non-cash patent
settlement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,610,066Loss before other
income (expense)
    
    
    (1,814,222
    )
    
    
    (1,183,388
    )
    
    
    (5,600,935
    )
    
    
    (3,020,416
    )
    
    
    (26,505,337
    )Other income
(expense)Other income
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    125Interest income
    
    
    5,966
    
    
    
    
    
    
    
    12,942
    
    
    
    
    
    
    
    13,896Interest expense
    
    
    (152,769
    )
    
    
    (28,270
    )
    
    
    (2,362,687
    )
    
    
    (28,839
    )
    
    
    (2,717,352
    )Settlement of litigation
debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,017,208Loss before provision
for income taxes
    
    
    (1,961,025
    )
    
    
    (1,211,658
    )
    
    
    (7,950,555
    )
    
    
    (3,049,255
    )
    
    
    (28,191,460
    )Provision for income
taxes
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    1,976
    
    
    
    5,969Net loss
    
    $
    (1,961,025
    )
    
    $
    (1,211,658
    )
    
    $
    (7,951,355
    )
    
    $
    (3,051,231
    )
    
    $
    (28,197,429
    )Net loss per share,
basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.23
    )
    
    $
    (0.08
    )Weighted average
shares outstanding, basic
and diluted
    
    
    38,439,668
    
    
    
    39,115,886
    
    
    
    34,711,746
    
    
    
    38,564,191
  3




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)
 FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyBalance, February 18,
1998
(date of inception)
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of common stock
on April 18, 1998
    
    
    .0015 .01
    
    
    
    10,030,000
    
    
    
    10,030
    
    
    
    
    
    
    
    14,270
    
    
    
    
    
    
    
    
    
    
    
    24,300Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,307
    )
    
    
    (21,307
    )Balance,
December 31, 1998
    
    
    
    
    
    
    10,030,000
    
    
    
    10,030
    
    
    
    
    
    
    
    14,270
    
    
    
    
    
    
    
    (21,307
    )
    
    
    2,993Issuance of common stock
on May 18, 1999
    
    
    1.006.40
    
    
    
    198,003
    
    
    
    198
    
    
    
    
    
    
    
    516,738
    
    
    
    
    
    
    
    
    
    
    
    516,936Issuance of common stock
for ZEFS on
September
14, 1999
    
    
    .001
    
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock issued for
professional services
on
May 18, 1999
    
    
    0.88
    
    
    
    69,122
    
    
    
    69
    
    
    
    
    
    
    
    49,444
    
    
    
    
    
    
    
    
    
    
    
    49,513Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,075,264
    )
    
    
    (1,075,264
    )Balance,
December 31, 1999
    
    
    
    
    
    
    15,297,125
    
    
    
    15,297
    
    
    
    
    
    
    
    580,452
    
    
    
    
    
    
    
    (1,096,571
    )
    
    
    (500,822
    )Stock issued for
employee
compensation on
February 8, 2000
    
    
    1.03
    
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    20,580
    
    
    
    
    
    
    
    
    
    
    
    20,600Stock issued for
consulting
services on February
8,
2000
    
    
    1.03
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    102,900
    
    
    
    
    
    
    
    
    
    
    
    103,000Stock issued for
professional services
on
April 18, 2000
    
    
    3.38
    
    
    
    27,000
    
    
    
    27
    
    
    
    
    
    
    
    91,233
    
    
    
    
    
    
    
    
    
    
    
    91,260Stock issued for
directors
fees on April 18,
2000
    
    
    3.38
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    168,950
    
    
    
    
    
    
    
    
    
    
    
    169,000Stock issued for
professional services
on
May 19, 2000
    
    
    4.06
    
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    20,295
    
    
    
    
    
    
    
    
    
    
    
    20,300Stock issued for
directors
fees on June 20,
2000
    
    
    4.44
    
    
    
    6,000
    
    
    
    6
    
    
    
    
    
    
    
    26,634
    
    
    
    
    
    
    
    
    
    
    
    26,640Stock issued for
professional services
on
June 20, 2000
    
    
    4.44
    
    
    
    1,633
    
    
    
    2
    
    
    
    
    
    
    
    7,249
    
    
    
    
    
    
    
    
    
    
    
    7,251Stock issued for
professional services
on
June 26, 2000
    
    
    5.31
    
    
    
    1,257
    
    
    
    1
    
    
    
    
    
    
    
    6,674
    
    
    
    
    
    
    
    
    
    
    
    6,675Stock issued for
employee
compensation on
June
26, 2000
    
    
    5.31
    
    
    
    22,000
    
    
    
    22
    
    
    
    
    
    
    
    116,798
    
    
    
    
    
    
    
    
    
    
    
    116,820Stock issued for
consulting
services on June
26,
2000
    
    
    5.31
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    52,203
    
    
    
    
    
    
    
    
    
    
    
    52,213Stock issued for
promotional services
on
July 28, 2000
    
    
    4.88
    
    
    
    9,675
    
    
    
    9
    
    
    
    
    
    
    
    47,205
    
    
    
    
    
    
    
    
    
    
    
    47,214Stock issued for
consulting
services on July
28,
2000
    
    
    4.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    47,975
    
    
    
    
    
    
    
    
    
    
    
    47,985Stock issued for
consulting
services on August
4,
2000
    
    
    2.13
    
    
    
    35,033
    
    
    
    35
    
    
    
    
    
    
    
    74,585
    
    
    
    
    
    
    
    
    
    
    
    74,620Stock issued for
promotional services
on
August 16, 2000
    
    
    2.25
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    56,225
    
    
    
    
    
    
    
    
    
    
    
    56,250Stock issued for
consulting
services on
September
5, 2000
    
    
    2.25
    
    
    
    12,833
    
    
    
    13
    
    
    
    
    
    
    
    28,861
    
    
    
    
    
    
    
    
    
    
    
    28,874Stock issued for
consulting
services on
September
10, 2000
    
    
    1.50
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    14,740
    
    
    
    
    
    
    
    
    
    
    
    14,750Stock issued for
consulting
services on
November
2, 2000
    
    
    0.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    8,653
  4




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholders'Price per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock issued for consulting
services on November
4, 2000
    
    
    0.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    8,653Stock issued for consulting
services on December
20, 2000
    
    
    0.50
    
    
    
    19,082
    
    
    
    19
    
    
    
    
    
    
    
    9,522
    
    
    
    
    
    
    
    
    
    
    
    9,541Stock issued for filing
services on December
20, 2000
    
    
    0.50
    
    
    
    5,172
    
    
    
    5
    
    
    
    
    
    
    
    2,581
    
    
    
    
    
    
    
    
    
    
    
    2,586Stock issued for
professional services
on
December 26, 2000
    
    
    0.38
    
    
    
    12,960
    
    
    
    13
    
    
    
    
    
    
    
    4,912
    
    
    
    
    
    
    
    
    
    
    
    4,925Other stock issuance on
August 24, 2000
    
    
    2.13
    
    
    
    2,000
    
    
    
    2
    
    
    
    
    
    
    
    4,258
    
    
    
    
    
    
    
    
    
    
    
    4,260Common shares cancelled
    
    
    
    
    
    
    (55,000
    )
    
    
    (55
    )
    
    
    
    
    
    
    (64,245
    )
    
    
    
    
    
    
    
    
    
    
    (64,300
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,270,762
    )
    
    
    (1,270,762
    )Balance, December 31, 2000
    
    
    
    
    
    
    15,645,935
    
    
    
    15,646
    
    
    
    
    
    
    
    1,437,873
    
    
    
    
    
    
    
    (2,367,333
    )
    
    
    (913,814
    )Stock issued for consulting
services on January 8,
2001
    
    
    0.31
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    3,038
    
    
    
    
    
    
    
    
    
    
    
    3,048Stock issued for consulting
services on February
1,
2001
    
    
    0.33
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    3,235
    
    
    
    
    
    
    
    
    
    
    
    3,245Stock issued for consulting
services on March 1,
2001
    
    
    0.28
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    
    
    
    
    2,753Stock issued for legal
services on March 13,
2001
    
    
    0.32
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    47,850
    
    
    
    
    
    
    
    
    
    
    
    48,000Stock issued for consulting
services on April 3,
2001
    
    
    0.25
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    2,448
    
    
    
    
    
    
    
    
    
    
    
    2,458Stock issued for legal
services on April 4,
2001
    
    
    0.25
    
    
    
    30,918
    
    
    
    31
    
    
    
    
    
    
    
    7,699
    
    
    
    
    
    
    
    
    
    
    
    7,730Stock issued for
professional services
on
April 4, 2001
    
    
    0.25
    
    
    
    7,040
    
    
    
    7
    
    
    
    
    
    
    
    1,753
    
    
    
    
    
    
    
    
    
    
    
    1,760Stock issued for consulting
services on April 5,
2001
    
    
    0.25
    
    
    
    132,600
    
    
    
    132
    
    
    
    
    
    
    
    33,018
    
    
    
    
    
    
    
    
    
    
    
    33,150Stock issued
for filing fees
on April 30, 2001
    
    
    1.65
    
    
    
    1,233
    
    
    
    1
    
    
    
    
    
    
    
    2,033
    
    
    
    
    
    
    
    
    
    
    
    2,034Stock issued for filing fees
on September 19, 2001
    
    
    0.85
    
    
    
    2,678
    
    
    
    2
    
    
    
    
    
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    2,276Stock issued for
professional services
on
September 28, 2001
    
    
    0.62
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    92,850
    
    
    
    
    
    
    
    
    
    
    
    93,000Stock issued for directors
services on October 5,
2001
    
    
    0.60
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    59,900
    
    
    
    
    
    
    
    
    
    
    
    60,000Stock issued for legal
services on October
17,
2001
    
    
    0.60
    
    
    
    11,111
    
    
    
    11
    
    
    
    
    
    
    
    6,655
    
    
    
    
    
    
    
    
    
    
    
    6,666Stock issued for consulting
services on October
18,
2001
    
    
    0.95
    
    
    
    400,000
    
    
    
    400
    
    
    
    
    
    
    
    379,600
    
    
    
    
    
    
    
    
    
    
    
    380,000Stock issued for consulting
services on October
19,
2001
    
    
    1.25
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    187,350
    
    
    
    
    
    
    
    
    
    
    
    187,500Stock issued for exhibit fees
on October 22, 2001
    
    
    1.35
    
    
    
    5,000
    
    
    
    6
    
    
    
    
    
    
    
    6,745
    
    
    
    
    
    
    
    
    
    
    
    6,751Stock issued for directors
services on November
2, 2001
    
    
    0.95
    
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    
    
    
    
    949,000
    
    
    
    
    
    
    
    
    
    
    
    950,000
  5




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock issued for
consulting
services on November
7, 2001
    
    
    0.85
    
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    16,980
    
    
    
    
    
    
    
    
    
    
    
    17,000Stock issued for
consulting
services on November
20, 2001
    
    
    0.98
    
    
    
    43,000
    
    
    
    43
    
    
    
    
    
    
    
    42,097
    
    
    
    
    
    
    
    
    
    
    
    42,140Stock issued for
consulting
services on November
27, 2001
    
    
    0.98
    
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,790
    
    
    
    
    
    
    
    
    
    
    
    9,800Stock issued for
consulting
services on November
28, 2001
    
    
    0.98
    
    
    
    187,000
    
    
    
    187
    
    
    
    
    
    
    
    183,073
    
    
    
    
    
    
    
    
    
    
    
    183,260Intrinsic value of
options
issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,600,000
    
    
    
    (2,600,000
    )
    
    
    
    
    
    
    Fair value of options
issued
to non-employees for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142,318
    
    
    
    
    
    
    
    
    
    
    
    142,318Amortization of
deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,667
    
    
    
    
    
    
    
    191,667Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,735,013
    )
    
    
    (2,735,013
    )Balance, December 31,
2001
    
    
    
    
    
    
    18,085,847
    
    
    
    18,086
    
    
    
    
    
    
    
    6,220,322
    
    
    
    (2,408,333
    )
    
    
    (5,102,346
    )
    
    
    (1,272,271
    )Stock issued for
directors
services on December
10, 2002
    
    
    0.40
    
    
    
    2,150,000
    
    
    
    2,150
    
    
    
    
    
    
    
    857,850
    
    
    
    
    
    
    
    
    
    
    
    860,000Common stock paid for,
but
not issued
(2,305,000
shares)
    
    
    0.15-0.25
    
    
    
    
    
    
    
    
    
    
    
    389,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389,875Fair value of options
issued
to non-employees for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,909
    
    
    
    (54,909
    )
    
    
    
    
    
    
    Amortization of
deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    891,182
    
    
    
    
    
    
    
    891,182Net loss for the year
ended
December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,749,199
    )
    
    
    (2,749,199
    )Balance, December 31,
2002
    
    
    
    
    
    
    20,235,847
    
    
    
    20,236
    
    
    
    389,875
    
    
    
    7,133,081
    
    
    
    (1,572,060
    )
    
    
    (7,851,545
    )
    
    
    (1,880,413
    )Common stock issued,
previously paid for
    
    
    0.15
    
    
    
    1,425,000
    
    
    
    1,425
    
    
    
    (213,750
    )
    
    
    212,325
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued,
previously paid for
    
    
    0.25
    
    
    
    880,000
    
    
    
    880
    
    
    
    (220,000
    )
    
    
    219,120
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash
on
March 20, 2003
    
    
    0.25
    
    
    
    670,000
    
    
    
    670
    
    
    
    
    
    
    
    166,830
    
    
    
    
    
    
    
    
    
    
    
    167,500Stock issued for cash
on
April 4, 2003
    
    
    0.25
    
    
    
    900,000
    
    
    
    900
    
    
    
    
    
    
    
    224,062
    
    
    
    
    
    
    
    
    
    
    
    224,962Stock issued for cash
on
April 8, 2003
    
    
    0.25
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    24,900
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash
on
May 8, 2003
    
    
    0.25
    
    
    
    1,150,000
    
    
    
    1,150
    
    
    
    
    
    
    
    286,330
    
    
    
    
    
    
    
    
    
    
    
    287,480Stock issued for cash
on
June 16, 2003
    
    
    0.25
    
    
    
    475,000
    
    
    
    475
    
    
    
    
    
    
    
    118,275
    
    
    
    
    
    
    
    
    
    
    
    118,750Stock issued for legal
services on June 27,
2003
    
    
    0.55
    
    
    
    83,414
    
    
    
    83
    
    
    
    
    
    
    
    45,794
    
    
    
    
    
    
    
    
    
    
    
    45,877Debt converted to stock
on
June 27, 2003
    
    
    0.25
    
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    
    
    
    
    498,000
    
    
    
    
    
    
    
    
    
    
    
    500,000Stock and warrants
issued
for cash on July 11,
2003
    
    
    0.25
    
    
    
    519,000
    
    
    
    519
    
    
    
    
    
    
    
    129,231
    
    
    
    
    
    
    
    
    
    
    
    129,750Stock and warrants
issued
for cash on
September
29, 2003
    
    
    0.25
    
    
    
    1,775,000
    
    
    
    1,775
    
    
    
    
    
    
    
    441,976
    
    
    
    
    
    
    
    
    
    
    
    443,751Stock and warrants
issued
for cash on October
21,
2003
    
    
    0.25
    
    
    
    1,845,000
    
    
    
    1,845
    
    
    
    
    
    
    
    459,405
    
    
    
    
    
    
    
    
    
    
    
    461,250
  6




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock and warrants issued
for cash on October 28,
2003
    
    
    0.25
    
    
    
    1,570,000
    
    
    
    1,570
    
    
    
    
    
    
    
    390,930
    
    
    
    
    
    
    
    
    
    
    
    392,500Stock and warrants issued
for cash on November
19, 2003
    
    
    0.25
    
    
    
    500,000
    
    
    
    500
    
    
    
    
    
    
    
    124,500
    
    
    
    
    
    
    
    
    
    
    
    125,000Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,875
    
    
    
    (312,582
    )
    
    
    
    
    
    
    
    
    
    
    (268,707
    )Common stock paid for, but
not issued (25,000
shares)
    
    
    0.25
    
    
    
    
    
    
    
    
    
    
    
    6,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,250Amortization of deferred
comp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    863,727
    
    
    
    
    
    
    
    863,727Net loss for year ended
December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,476,063
    )
    
    
    (2,476,063
    )Balance, December 31, 2003
    
    
    
    
    
    
    34,128,261
    
    
    
    34,128
    
    
    
    6,250
    
    
    
    10,162,177
    
    
    
    (708,333
    )
    
    
    (10,327,608
    )
    
    
    (833,386
    )Common stock issued,
previously paid for
    
    
    0.25
    
    
    
    25,000
    
    
    
    25
    
    
    
    (6,250
    )
    
    
    6,225
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for director
services on March 31,
2004
    
    
    1.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued for finders
fees on March 31, 2004
    
    
    0.15
    
    
    
    82,500
    
    
    
    82
    
    
    
    
    
    
    
    12,293
    
    
    
    
    
    
    
    
    
    
    
    12,375Stock issued for finders
fees on March 31, 2004
    
    
    0.25
    
    
    
    406,060
    
    
    
    407
    
    
    
    
    
    
    
    101,199
    
    
    
    
    
    
    
    
    
    
    
    101,606Stock issued for services on
April 2, 2004
    
    
    1.53
    
    
    
    65,000
    
    
    
    65
    
    
    
    
    
    
    
    99,385
    
    
    
    
    
    
    
    
    
    
    
    99,450Debt converted to stock on
April 2, 2004
    
    
    1.53
    
    
    
    60,000
    
    
    
    60
    
    
    
    
    
    
    
    91,740
    
    
    
    
    
    
    
    
    
    
    
    91,800Stock issued upon exercise
of warrants on May 21,
2004
    
    
    0.20
    
    
    
    950,000
    
    
    
    950
    
    
    
    
    
    
    
    189,050
    
    
    
    
    
    
    
    
    
    
    
    190,000Stock issued for directors
services on June 8,
2004
    
    
    1.70
    
    
    
    600,000
    
    
    
    600
    
    
    
    
    
    
    
    1,019,400
    
    
    
    
    
    
    
    
    
    
    
    1,020,000Stock issued for cash on
August 25, 2004
    
    
    1.00
    
    
    
    550,000
    
    
    
    550
    
    
    
    
    
    
    
    549,450
    
    
    
    
    
    
    
    
    
    
    
    550,000Stock issued upon exercise
of options on August
30,
2004
    
    
    0.40
    
    
    
    4,000
    
    
    
    4
    
    
    
    
    
    
    
    1,596
    
    
    
    
    
    
    
    
    
    
    
    1,600Stock issued for cash on
September 8, 2004
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for consulting
services on September
15, 2004
    
    
    1.31
    
    
    
    50,000
    
    
    
    49
    
    
    
    
    
    
    
    65,451
    
    
    
    
    
    
    
    
    
    
    
    65,500Stock issued for patent
settlement on
September 22, 2004
    
    
    1.24
    
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    24,780
    
    
    
    
    
    
    
    
    
    
    
    24,800Stock issued for research
and development on
October 6, 2004
    
    
    1.40
    
    
    
    65,000
    
    
    
    65
    
    
    
    
    
    
    
    90,935
    
    
    
    
    
    
    
    
    
    
    
    91,000Stock issued for cash on
October 6, 2004
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on
October 15, 2004
    
    
    1.00
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    149,850
    
    
    
    
    
    
    
    
    
    
    
    150,000Stock issued upon exercise
of stock options on
October 21, 2004
    
    
    0.40
    
    
    
    6,500
    
    
    
    6
    
    
    
    
    
    
    
    2,594
    
    
    
    
    
    
    
    
    
    
    
    2,600Stock issued for cash on
November 3, 2004
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on
November 18, 2004
    
    
    1.00
    
    
    
    172,500
    
    
    
    173
    
    
    
    
    
    
    
    172,327
    
    
    
    
    
    
    
    
    
    
    
    172,500
  7




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY  (A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid -in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock issued for cash on
December 9, 2004
    
    
    1.00
    
    
    
    75,000
    
    
    
    75
    
    
    
    
    
    
    
    74,925
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued for cash on
December 23, 2004
    
    
    1.00
    
    
    
    250,000
    
    
    
    250
    
    
    
    
    
    
    
    249,750
    
    
    
    
    
    
    
    
    
    
    
    250,000Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88,384
    )
    
    
    
    
    
    
    
    
    
    
    (88,384
    )Common stock paid for, but
not issued (119,000
shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,000Intrinsic value of options
issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248,891
    
    
    
    (248,891
    )
    
    
    
    
    
    
    Fair value of options issued
to non-employees for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,381
    
    
    
    (55,381
    )
    
    
    
    
    
    
    Fair value of warrants
issued for settlement
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,585,266
    
    
    
    
    
    
    
    
    
    
    
    1,585,266Fair value of warrants
issued to non-
employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,872
    
    
    
    
    
    
    
    
    
    
    
    28,872Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    936,537
    
    
    
    
    
    
    
    936,537Net loss for year ended
December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,803,280
    )
    
    
    (6,803,280
    )Balance, December 31, 2004
    
    
    
    
    
    
    37,784,821
    
    
    
    37,784
    
    
    
    119,000
    
    
    
    15,043,028
    
    
    
    (76,068
    )
    
    
    (17,130,888
    )
    
    
    (2,007,144
    )Common stock issued,
previously paid for
    
    
    1.00
    
    
    
    69,000
    
    
    
    69
    
    
    
    (69,000
    )
    
    
    68,931
    
    
    
    
    
    
    
    
    
    
    
    Stock issued upon exercise
of warrants, previously
paid for
    
    
    1.00
    
    
    
    50,000
    
    
    
    50
    
    
    
    (50,000
    )
    
    
    49,950
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash on
January 20, 2005
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued upon exercise
of warrants on January
31, 2005
    
    
    0.40
    
    
    
    500
    
    
    
    1
    
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    200Stock issued for cash on
February 17, 2005
    
    
    1.00
    
    
    
    325,000
    
    
    
    325
    
    
    
    
    
    
    
    324,675
    
    
    
    
    
    
    
    
    
    
    
    325,000Stock issued for cash on
March 31, 2005
    
    
    1.00
    
    
    
    215,000
    
    
    
    215
    
    
    
    
    
    
    
    214,785
    
    
    
    
    
    
    
    
    
    
    
    215,000Stock issued for cash on
May 17, 2005
    
    
    1.00
    
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    4,995
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock issued for cash on
June 7, 2005
    
    
    1.00
    
    
    
    300,000
    
    
    
    300
    
    
    
    
    
    
    
    299,700
    
    
    
    
    
    
    
    
    
    
    
    300,000Stock issued for cash on
August 5, 2005
    
    
    1.00
    
    
    
    480,500
    
    
    
    480
    
    
    
    
    
    
    
    480,020
    
    
    
    
    
    
    
    
    
    
    
    480,500Stock issued for cash on
August 9, 2005
    
    
    1.00
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    99,900
    
    
    
    
    
    
    
    
    
    
    
    100,000Stock issued for cash on
October 27, 2005
    
    
    1.00
    
    
    
    80,000
    
    
    
    80
    
    
    
    
    
    
    
    79,920
    
    
    
    
    
    
    
    
    
    
    
    80,000Common stock cancelled
on December 7, 2005
    
    Various
    
    
    (8,047,403
    )
    
    
    (8,047
    )
    
    
    
    
    
    
    8,047
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for settlement
of payables on
December 21, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,092Stock issued for settlement
of payables on
December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555,429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555,429Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,840
    )
    
    
    
    
    
    
    
    
    
    
    (109,840
    )Intrinsic value of options
issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243,750
    
    
    
    (243,750
    )
    
    
    
    
    
    
    Fair value of options issued
for settlement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,500
    
    
    
    
    
    
    
    
    
    
    
    31,500
  8




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY  (A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid -in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyFair value of warrants
issued for settlement
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,957
    
    
    
    
    
    
    
    
    
    
    
    4,957Fair value of warrants
issued to non-
employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,505
    
    
    
    
    
    
    
    
    
    
    
    13,505Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,631
    
    
    
    
    
    
    
    177,631Warrants issued with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    756,768
    
    
    
    
    
    
    
    
    
    
    
    756,768Intrinsic value of beneficial
conversion associated
with convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    696,413
    
    
    
    
    
    
    
    
    
    
    
    696,413Net loss for year ended
December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,115,186
    )
    
    
    (3,115,186
    )Balance, December 31, 2005
    
    
    
    
    
    
    31,387,418
    
    
    $
    31,387
    
    
    $
    612,521
    
    
    $
    18,336,178
    
    
    $
    (142,187
    )
    
    $
    (20,246,074
    )
    
    $
    (1,408,175
    )Stock issued, for previously
settled payables
(unaudited)
    
    
    
    
    
    
    846,549
    
    
    
    847
    
    
    
    (612,521
    )
    
    
    611,674
    
    
    
    
    
    
    
    
    
    
    
    Stock issued upon exercise
of warrants on March
23, 2006 (unaudited)
    
    
    1.50
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    37,475
    
    
    
    
    
    
    
    
    
    
    
    37,500Stock issued upon exercise
of warrants on March
27, 2006 (unaudited)
    
    
    1.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued upon exercise
of warrants on March
27, 2006 (unaudited)
    
    
    0.50
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    12,475
    
    
    
    
    
    
    
    
    
    
    
    12,500Stock issued upon exercise
of warrants on March
30, 2006 (unaudited)
    
    
    1.00
    
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,990
    
    
    
    
    
    
    
    
    
    
    
    10,000Stock issued upon exercise
of warrants on April 10,
2006 (unaudited)
    
    
    0.50
    
    
    
    36,250
    
    
    
    36
    
    
    
    
    
    
    
    18,089
    
    
    
    
    
    
    
    
    
    
    
    18,125Common stock issued for
convertible debt on April
10, 2006 (unaudited)
    
    
    0.70
    
    
    
    269,600
    
    
    
    270
    
    
    
    
    
    
    
    188,450
    
    
    
    
    
    
    
    
    
    
    
    188,720Stock issued for cash April
24, 2006 (unaudited)
    
    
    1.56
    
    
    
    473,000
    
    
    
    473
    
    
    
    
    
    
    
    737,408
    
    
    
    
    
    
    
    
    
    
    
    737,881Stock issued upon exercise
of warrants on April 26,
2006 (unaudited)
    
    
    0.50
    
    
    
    125,000
    
    
    
    125
    
    
    
    
    
    
    
    62,375
    
    
    
    
    
    
    
    
    
    
    
    62,500Stock issued upon exercise
of warrants on April 26,
2006 (unaudited)
    
    
    1.50
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    149,900
    
    
    
    
    
    
    
    
    
    
    
    150,000Common stock issued for
convertible debt on April
26, 2006 (unaudited)
    
    
    0.70
    
    
    
    35,714
    
    
    
    36
    
    
    
    
    
    
    
    24,964
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued upon exercise
of warrants on May 6,
2006 (unaudited)
    
    
    0.50
    
    
    
    200,000
    
    
    
    200
    
    
    
    
    
    
    
    99,800
    
    
    
    
    
    
    
    
    
    
    
    100,000Stock issued upon exercise
of warrants on May 15,
2006 (unaudited)
    
    
    1.50
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    37,475
    
    
    
    
    
    
    
    
    
    
    
    37,500Stock issued upon exercise
of warrants on May 15,
2006 (unaudited)
    
    
    0.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    24,950
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on
June 7, 2006
(unaudited)
    
    
    1.89
    
    
    
    873,018
    
    
    
    872
    
    
    
    
    
    
    
    1,649,136
    
    
    
    
    
    
    
    
    
    
    
    1,650,008Common stock issued for
convertible debt on June
7, 2006 (unaudited)
    
    
    0.70
    
    
    
    1,535,715
    
    
    
    1,536
    
    
    
    
    
    
    
    1,073,464
    
    
    
    
    
    
    
    
    
    
    
    1,075,000
  9




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY  (A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock issued upon exercise
of warrants on June 8,
2006 (unaudited)
    
    
    0.50
    
    
    
    900,000
    
    
    
    900
    
    
    
    
    
    
    
    449,100
    
    
    
    
    
    
    
    
    
    
    
    450,000Stock issued upon exercise
of warrants on June 9,
2006 (unaudited)
    
    
    0.50
    
    
    
    9,000
    
    
    
    9
    
    
    
    
    
    
    
    4,491
    
    
    
    
    
    
    
    
    
    
    
    4,500Stock issued upon exercise
of warrants on June 23,
2006 (unaudited)
    
    
    0.50
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    74,850
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued upon exercise
of warrants on June 23,
2006 (unaudited)
    
    
    1.50
    
    
    
    15,000
    
    
    
    15
    
    
    
    
    
    
    
    22,485
    
    
    
    
    
    
    
    
    
    
    
    22,500Common stock issued for
convertible debt on June
30, 2006 (unaudited)
    
    
    0.70
    
    
    
    219,105
    
    
    
    219
    
    
    
    
    
    
    
    153,155
    
    
    
    
    
    
    
    
    
    
    
    153,374Common stock issued for
convertible debt on July
11, 2006 (unaudited)
    
    
    0.70
    
    
    
    14,603
    
    
    
    15
    
    
    
    
    
    
    
    10,207
    
    
    
    
    
    
    
    
    
    
    
    10,222Common stock issued for
convertible debt on
August 7, 2006
(unaudited)
    
    
    0.70
    
    
    
    1,540,160
    
    
    
    1,540
    
    
    
    
    
    
    
    1,076,572
    
    
    
    
    
    
    
    
    
    
    
    1,078,112Common stock issued upon
exercise of warrants on
August 7,
2006(unaudited)
    
    
    1.50
    
    
    
    175,000
    
    
    
    175
    
    
    
    
    
    
    
    262,325
    
    
    
    
    
    
    
    
    
    
    
    262,500Common stock upon
exercise of warrants on
August 21, 2006
(unaudited)
    
    
    1.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Common stock issued for
cash on August 22,
2006 (unaudited)
    
    
    1.00
    
    
    
    14,519
    
    
    
    15
    
    
    
    
    
    
    
    14,504
    
    
    
    
    
    
    
    
    
    
    
    14,519Common stock issued upon
exercise of warrants on
August 23, 2006
(unaudited)
    
    
    1.00
    
    
    
    3,683
    
    
    
    4
    
    
    
    
    
    
    
    3,679
    
    
    
    
    
    
    
    
    
    
    
    3,683Common stock issued upon
exercise of warrants on
August 28, 2006
(unaudited)
    
    
    1.50
    
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    7,495
    
    
    
    
    
    
    
    
    
    
    
    7,500Common stock issued for
convertible debt on
September 13, 2006
(unaudited)
    
    
    0.70
    
    
    
    4,286
    
    
    
    4
    
    
    
    
    
    
    
    2,996
    
    
    
    
    
    
    
    
    
    
    
    3,000Common stock issued upon
exercise of warrants on
September 13, 2006
(unaudited)
    
    
    0.50
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    74,850
    
    
    
    
    
    
    
    
    
    
    
    75,000Common stock to be issued
for conversion of
convertible debt
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,658
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,658Fair value of options issued
to employees and
officers for services
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,809,493
    
    
    
    
    
    
    
    
    
    
    
    1,809,493Fair value of warrants
issued for services
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401,130
    
    
    
    
    
    
    
    
    
    
    
    401,130Write off of deferred
compensation
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142,187
    )
    
    
    142,187
    
    
    
    
    
    
    
    
  10




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY  (A DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2006 (UNAUDITED)
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyWarrants issued for
consulting services
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,499
    
    
    
    
    
    
    
    
    
    
    
    62,499Warrants issued with
convertible notes
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290,248
    
    
    
    
    
    
    
    
    
    
    
    290,248Intrinsic value of beneficial
conversion associated
with convertible notes
(unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    620,252
    
    
    
    
    
    
    
    
    
    
    
    620,252Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284,579
    )
    
    
    
    
    
    
    
    
    
    
    (284,579
    )Net loss for nine months
ended September 30,
2006 (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,951,355
    )
    
    
    (7,951,355
    )Balance, September 30, 2006
(unaudited)
    
    
    
    
    
    
    39,317,620
    
    
    $
    39,318
    
    
    $
    46,658
    
    
    $
    28,137,268
    
    
    $
    
    
    
    $
    (28,197,429
    )
    
    $
    25,815
  11




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY  (A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998)
TO SEPTEMBER 30, 2006
 CumulativeSeptember 30,
    
    
    September 30,
    
    
    since2006
    
    
    2005
    
    
    inceptionCash flows from operating
activitiesNet loss
    
    $
    (7,951,355
    )
    
    $
    (3,051,231
    )
    
    $
    (28,197,429
    )Adjustments to reconcile net
loss to net cash
used in operating activities:Write off of intangible assets
    
    
    
    
    
    
    
    
    
    
    505,000Settlement of litigation and debt
    
    
    
    
    
    
    
    
    
    
    (1,017,208
    )Fair value of options and
warrants issued for
services
    
    
    2,273,121
    
    
    
    13,505
    
    
    
    2,444,312Issuance of common stock for
services
    
    
    
    
    
    
    
    
    
    
    4,668,102Issuance of options for legal
settlement
    
    
    
    
    
    
    31,500
    
    
    
    31,500Issuance of warrants for legal
settlement
    
    
    
    
    
    
    4,957
    
    
    
    18,462Patent acquisition cost
    
    
    
    
    
    
    
    
    
    
    1,610,066Amortization of issuance cost
    
    
    2,257,620
    
    
    
    22,066
    
    
    
    2,576,378Amortization of deferred
compensation
    
    
    
    
    
    
    116,693
    
    
    
    3,060,744Depreciation
    
    
    101,328
    
    
    
    6,987
    
    
    
    135,090Changes in operating assets and
liabilities:Inventory
    
    
    (3,719
    )
    
    
    
    
    
    
    (3,719
    )Prepaid expenses and other
    
    
    (101,072
    )
    
    
    (1,898
    )
    
    
    (110,081
    )Other assets
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Accounts payable and accrued
expenses
    
    
    (582,680
    )
    
    
    789,625
    
    
    
    1,724,340Net cash used in operating
activities
    
    
    (4,006,757
    )
    
    
    (2,067,796
    )
    
    
    (12,558,943
    )Cash flows from investing
activitiesPurchase of property and
equipment
    
    
    (167,973
    )
    
    
    (25,259
    )
    
    
    (493,559
    )Net cash used in investing
activities
    
    
    (167,973
    )
    
    
    (25,259
    )
    
    
    (493,559
    )Cash flows from financing
activitiesIncrease (decrease) in payables
to related
parties
    
    
    (158,733
    )
    
    
    163,083
    
    
    
    517,208Advances from founding
executive officer
    
    
    
    
    
    
    
    
    
    
    556,450Net proceeds from convertible
debentures
    
    
    865,500
    
    
    
    858,440
    
    
    
    2,318,682Net proceeds from issuance of
common stock
and common stock issuable
    
    
    3,621,638
    
    
    
    1,416,460
    
    
    
    10,093,658Net cash provided by
financing activities
    
    
    4,328,405
    
    
    
    2,437,983
    
    
    
    13,485,998Net increase in cash
    
    
    153,675
    
    
    
    344,928
    
    
    
    433,496Cash, beginning of period
    
    
    279,821
    
    
    
    84,826
    
    
    
    Cash, end of period
    
    $
    433,496
    
    
    $
    429,754
    
    
    $
    433,496
  12




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY  (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  Continued
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998)
TO SEPTEMBER 30, 2006
 CumulativeSeptember 30,
    
    
    September 30,
    
    
    since2006
    
    
    2005
    
    
    inceptionSupplemental disclosures of cash flow informationCash paid during the year forInterest
    
    $
    128,045
    
    
    $
    
    
    
    $
    140,884Income taxes
    
    $
    800
    
    
    $
    1,976
    
    
    $
    5,969Non-cash investing and financing activitiesAcquisition of intangible asset through advance from related
party and issuance of common stock
    
    $
    
    
    
    $
    
    
    
    $
    505,000Deferred compensation for stock options issued for services
    
    
    
    
    
    
    243,750
    
    
    
    3,202,931Purchase of property and equipment financed by advance
from related party
    
    
    
    
    
    
    
    
    
    
    3,550Conversion of related party debt to equity
    
    
    
    
    
    
    
    
    
    
    515,000Issuance of common stock in settlement of payable
    
    
    
    
    
    
    
    
    
    
    113,981Finders fees accrued for issuance of common stock
    
    
    
    
    
    
    1,000
    
    
    
    113,492Value of warrants and beneficial conversion feature of
convertible notes
    
    
    910,500
    
    
    
    858,440
    
    
    
    2,576,379Cancellation of stock
    
    
    
    
    
    
    
    
    
    
    8,047Conversion of common stock to be issued for accounts
payable and accrued expenses to common stock issued
    
    
    612,521
    
    
    
    
    
    
    
    612,521Conversion of related party debt to convertible debentures
    
    
    45,000
    
    
    
    
    
    
    
    45,000Conversion of convertible debentures to common stock
    
    
    2,576,379
    
    
    
    
    
    
    
    2,576,379Conversion of interest on convertible debentures to common
stock
    
    
    3,707
    
    
    
    
    
    
    
    3,707Write off of deferred compensation
    
    
    142,187
    
    
    
    
    
    
    
    142,187
  13




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 1.
    
    Organization and basis of presentation
     14




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 1.
    
    Organization and basis of presentation  Continued
        15




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
         16




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 Three months
    
    
    Nine monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net loss as reported
    
    $
    (1,211,658
    )
    
    $
    (3,051,231
    )Add: total fair value method
stock-based employee based
compensation expense
    
    
    286,226
    
    
    
    609,930Less: deferred compensation
amortization for below market
employee options
    
    
    (40,625
    )
    
    
    (116,693
    )Pro forma net loss
    
    $
    (966,057
    )
    
    $
    (2,557,994
    )Net loss per share:As reported  basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.08
    )Pro forma  basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.07
    )
   17




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
       2.
    
    Net loss per share
  18




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 3.
    
    Recent accounting pronouncements
       4.
    
    Inventories
  19




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 5.
    
    Certain relationships and related transactions
           20




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
     6.
    
    Equity line of credit
   7.
    
    Convertible debentures
  21




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
          22




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 8.
    
    Capital stock
        23




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 9.
    
    Stock options and warrants
   Weighted Avg.
    
    
    Weighted Avg.Options
    
    
    Exercise PriceOptions, January 1, 2004
    
    
    13,250,000
    
    
    
    0.11Options granted
    
    
    1,172,652
    
    
    
    1.03Options exercised
    
    
    
    
    
    
    Options cancelled
    
    
    
    
    
    
    Options, December 31, 2004
    
    
    14,422,652
    
    
    
    0.18Options granted
    
    
    2,085,909
    
    
    
    0.92Options exercised
    
    
    
    
    
    
    Options cancelled
    
    
    (10,000,000
    )
    
    
    0.10Options, December 31, 2005
    
    
    6,508,561
    
    
    
    0.53Options granted (unaudited)
    
    
    1,313,605
    
    
    
    1.21Options exercised (unaudited)
    
    
    
    
    
    
    Options forfeited (unaudited)
    
    
    (493,867
    )
    
    
    0.90Options cancelled (unaudited)
    
    
    
    
    
    
    Options, September 30, 2006 (unaudited)
    
    
    7,328,299
    
    
    $
    0.63
  24




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
  Total
    
    
    
    
    
    
    ExercisableWeighted
    
    
    weighted
    
    
    
    
    
    
    weightedaverage
    
    
    average
    
    
    
    
    
    
    averageExercise
    
    Total options
    
    
    remaining
    
    
    exercise
    
    
    Options
    
    
    exerciseprices
    
    outstanding
    
    
    life in years
    
    
    price
    
    
    exercisable
    
    
    price$  0.10
    
    
    3,000,000
    
    
    
    3.84
    
    
    $
    0.10
    
    
    
    3,000,000
    
    
    $
    0.100.40
    
    
    250,000
    
    
    
    3.17
    
    
    
    0.40
    
    
    
    250,000
    
    
    
    0.400.85
    
    
    400,000
    
    
    
    4.58
    
    
    
    0.85
    
    
    
    
    
    
    
    0.85
    
    
    1,225,000
    
    
    
    9.58
    
    
    
    0.85
    
    
    
    
    
    
    
    0.98
    
    
    900,000
    
    
    
    3.17
    
    
    
    0.98
    
    
    
    900,000
    
    
    
    0.981.00
    
    
    370,000
    
    
    
    9.58
    
    
    
    1.00
    
    
    
    
    
    
    
    1.10
    
    
    90,909
    
    
    
    4.58
    
    
    
    1.10
    
    
    
    
    
    
    
    1.15
    
    
    193,912
    
    
    
    3.17
    
    
    
    1.15
    
    
    
    193,912
    
    
    
    1.151.27
    
    
    78,740
    
    
    
    3.17
    
    
    
    1.27
    
    
    
    78,740
    
    
    
    1.27$0.10-$1.27
    
    
    6,508,561
    
    
    
    5.26
    
    
    $
    0.53
    
    
    
    4,422,652
    
    
    $
    0.36
  WeightedWeighted
    
    AverageNumber
    
    Average
    
    Remainingof
    
    Exercise
    
    Contractual
    
    Intrinsicshares
    
    Price
    
    Life (Years)
    
    ValueAs of December 31, 2005:Outstanding
    
    
    6,508,561
    
    
    $
    0.53
    
    
    
    5.26
    
    
    $
    2,600,000Expected to Vest
    
    
    6,017,652
    
    
    $
    0.43
    
    
    
    5.31
    
    
    $
    2,600,000Exercisable
    
    
    4,422,652
    
    
    $
    0.52
    
    
    
    3.62
    
    
    $
    2,600,000
  25




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
  Total
    
    
    
    
    
    
    ExercisableWeighted
    
    
    weighted
    
    
    
    
    
    
    weightedaverage
    
    
    average
    
    
    
    
    
    
    averageExercise
    
    Total options
    
    
    remaining
    
    
    exercise
    
    
    
    
    
    
    exerciseprices
    
    outstanding
    
    
    life in years
    
    
    price
    
    
    Options exercisable
    
    
    price$  0.10
    
    
    3,000,000
    
    
    
    3.09
    
    
    $
    0.10
    
    
    
    3,000,000
    
    
    $
    0.100.40
    
    
    250,000
    
    
    
    2.42
    
    
    
    0.40
    
    
    
    250,000
    
    
    
    0.400.85
    
    
    2,075,000
    
    
    
    8.83
    
    
    
    0.85
    
    
    
    1,225,000
    
    
    
    0.850.98
    
    
    900,000
    
    
    
    2.42
    
    
    
    0.98
    
    
    
    900,000
    
    
    
    0.981.00
    
    
    370,000
    
    
    
    8.83
    
    
    
    1.00
    
    
    
    370,000
    
    
    
    1.001.15
    
    
    193,912
    
    
    
    2.42
    
    
    
    1.15
    
    
    
    193,912
    
    
    
    1.151.27
    
    
    78,740
    
    
    
    2.42
    
    
    
    1.27
    
    
    
    78,740
    
    
    
    1.271.69
    
    
    310,647
    
    
    
    9.40
    
    
    
    1.69
    
    
    
    
    
    
    
    2.26
    
    
    150,000
    
    
    
    4.86
    
    
    
    2.26
    
    
    
    30,000
    
    
    
    2.26$0.10-$2.26
    
    
    7,328,299
    
    
    
    5.28
    
    
    $
    0.59
    
    
    
    6,047,652
    
    
    $
    0.51
     26




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
   Expected life (years)
    
    
    5.26Risk free interest rate
    
    
    4.02
    %Volatility
    
    
    188.83
    %Expected dividend yield
    
    
    0.00
    %
    Weighted Avg.Warrants
    
    
    Exercise PriceWarrants outstanding, January 1, 2004
    
    
    14,252,414
    
    
    $
    0.48Warrants granted
    
    
    2,372,500
    
    
    
    1.27Warrants exercised
    
    
    (960,500
    )
    
    
    0.20Warrants cancelled
    
    
    
    
    
    
    Warrants outstanding, December 31, 2004
    
    
    15,664,414
    
    
    
    0.62Warrants granted
    
    
    5,198,574
    
    
    
    1.16Warrants exercised
    
    
    (50,500
    )
    
    
    0.99Warrants cancelled
    
    
    (20,000
    )
    
    
    1.50Warrants outstanding, December 31, 2005
    
    
    20,792,488
    
    
    
    0.75Warrants granted (unaudited)
    
    
    3,264,600
    
    
    
    1.33Warrants exercised (unaudited)
    
    
    (2,118,452
    )
    
    
    0.69Warrants cancelled (unaudited)
    
    
    (755,119
    )
    
    
    1.48Warrants outstanding, September 30, 2006 (unaudited)
    
    
    21,183,517
    
    
    $
    0.82
  27




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
   10.
    
    Research and development
  11.
    
    Going concern
  28




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
 12.
    
    Commitments and contingencies
     29




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
      30




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
      31




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)
  13.
    
    Subsequent events
      32




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##### Table of Contents



Item 2. Managements Discussion and Analysis or Plan of Operations
  
    
    revenues and profits;
    
    customers;
    
    research and development expenses and efforts;
    
    scientific test results;
    
    sales and marketing expenses and efforts;
    
    liquidity and sufficiency of existing cash;
    
    pending and future financings;
    
    the success of new product development;
    
    market acceptance and commercial viability of our existing and new products;
    
    the outcome of pending or threatened litigation; and
    
    the effect of recent accounting pronouncements on our financial condition
and results of operations.
   Overview
  33




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34




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35




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Results of Operations
     36




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Liquidity and Capital Resources
   37




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,
    38




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39




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##### Table of Contents



Critical Accounting Policies and Estimates
    40




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##### Table of Contents



Stock-Based Compensation
   Recent Accounting Pronouncements
   41




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##### Table of Contents



Item 3. Controls and Procedures
 Evaluation of disclosure controls and procedures:
 Changes in internal control over financial reporting:
 42




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##### Table of Contents



PART II
 
 Item 1. Legal Proceedings
    43




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44




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45




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
   46




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer of Quarterly Report
Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e)31.2
    
    Certification of Chief Financial Officer of Quarterly Report
Pursuant to 18 U.S.C. Section 135032
    
    Certification of Chief Executive Officer and Chief Financial
Officer of Quarterly Report pursuant to Rule 13(a)-15(e) or
Rule 15(d)-15(e)
 47




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##### Table of Contents



SIGNATURES
  SAVE THE WORLD AIR, INC.Date: November 14, 2006
    By:
    /s/ EUGENE E. EICHLEREugene E. EichlerChief Financial Officer 48




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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer of Quarterly Report
Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e)31.2
    
    Certification of Chief Financial Officer of Quarterly Report
Pursuant to 18 U.S.C. Section 135032
    
    Certification of Chief Executive Officer and Chief Financial
Officer of Quarterly Report pursuant to Rule 13(a)-15(e) or
Rule 15(d)-15(e)