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

FORM 10-QSB/A

|      |  |                                                                                   
|----- |  | ----------------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|     
|      |  | For the quarterly period ended September 30, 2003.                                
|     
|or   
|     
|[   ] |  | 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(State or other jurisdiction of
incorporation or organization) |  | 52-2088326(I.R.S. Employer
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.

Check 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 preceding
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 [   ] No [X]

The number of shares of the Registrants Common Stock outstanding as of
September 30, 2003 was 30,213,261 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Transitional Small Business Disclosure Format (Check one): Yes [   ]
No [X]



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Introductory Note

This report is being amended to make certain technical corrections to
the unaudited financial statements and notes presented herein. None
of these changes is to any of the numbers or values presented herein
nor has any impact on the Companys balance sheet or results of operations.



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SAVE THE WORLD AIR, INC.

FORM 10-QSB

INDEX

|              |  |                                      |    |  |    |      |  | 
|------------- |  | ------------------------------------ | -- |  | -- | ---- |  | 
|              |  |                                      |    |  |    | Page
|              |  |                                      |    |  |    |     
|PART I       
|ITEM 1        |  | Financial
Statements                 |    |  | 2  |     
|ITEM 2        |  | Managements
Discussion and Analysis |    |  | 21 |     
|ITEM 3        |  | Controls
and Procedures              |    |  | 23 |     
|PART II      
|ITEM 1        |  | Legal
Proceedings                    |    |  | 23 |     
|ITEM 2        |  | Changes in
Securities                |    |  | 24 |     
|ITEM 6        |  | Exhibits and Reports on Form 8-K     |    |  | 25 |     
|             
|SIGNATURES    |  |                                      | 26 | 
|EXHIBIT
INDEX |  |                                      | 27 | 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32   



1



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PART I Item 1. Financial Statements CONTENTS PageFinancial statementsBalance sheets
    
    
    3-4Statements of operations
    
    
    5Statements of stockholders deficiency
    
    
    6-8Statements of cash flows
    
    
    9-10Notes to financial statements
    
    
    11-20
  2




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SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) 
 BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 September 30,2003
    
    December 31,(unaudited)
    
    2002ASSETSCurrent assetsCash
    
    $
    710,326
    
    
    $
    107,489Total current assets
    
    
    710,326
    
    
    
    107,489Property and equipment, net of accumulated depreciation
    
    
    21,872
    
    
    
    23,924$
    732,198
    
    
    $
    131,413
 See notes to financial statements. 3




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SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS  Continued
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 September 30,2003
    
    December 31,(unaudited)
    
    2002LIABILITIES
AND STOCKHOLDERS DEFICIENCYCurrent liabilitiesIncome taxes payable
    
    $
    5,991
    
    
    $
    4,927Payables to related parties
    
    
    31,876
    
    
    
    533,022Accrued expenses
    
    
    536,394
    
    
    
    436,669Total current liabilities
    
    
    574,261
    
    
    
    994,618Due to founding executive officer
    
    
    1,017,208
    
    
    
    1,017,208Commitments and contingenciesStockholders deficiencyCommon stock, $.001 par value: 200,000,000
shares authorized, 30,213,261 and
20,235,847 shares issued and outstanding
at September 30, 2003 and December 31,
2002, respectively
    
    
    30,213
    
    
    
    20,236Common stock issuable, $.001 par value: 750,000
and 2,305,000 shares at September 30, 2003
and December 31, 2002, respectively
    
    
    187,500
    
    
    
    389,875Additional paid-in capital
    
    
    9,268,968
    
    
    
    7,133,081Deferred compensation
    
    
    (920,833
    )
    
    
    (1,572,060
    )Deficit accumulated during the development stage
    
    
    (9,425,119
    )
    
    
    (7,851,545
    )Total stockholders deficiency
    
    
    (859,271
    )
    
    
    (1,880,423
    )$
    732,198
    
    
    $
    131,413
 See notes to financial statements. 4




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SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) 
 STATEMENTS OF OPERATIONS
(unaudited)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND FOR THE PERIOD FROM INCEPTION
(FEBRUARY 18, 1998) TO SEPTEMBER 30, 2003 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,
    
    Cumulativesince2003
    
    2002
    
    2003
    
    2002
    
    inceptionNet sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expenses
    
    
    526,905
    
    
    
    436,553
    
    
    
    1,572,554
    
    
    
    1,187,843
    
    
    
    9,419,172Net loss before provision for income taxes
    
    
    (526,905
    )
    
    
    (436,553
    )
    
    
    (1,572,554
    )
    
    
    (1,187,843
    )
    
    
    (9,419,172
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    1,020
    
    
    
    1,089
    
    
    
    5,947Net loss
    
    $
    (526,905
    )
    
    $
    (436,553
    )
    
    $
    (1,573,574
    )
    
    $
    (1,188,932
    )
    
    $
    (9,425,119
    )Net loss per share, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.07
    )Weighted average shares outstanding, basic and diluted
    
    
    28,395,500
    
    
    
    18,085,847
    
    
    
    26,077,245
    
    
    
    18,085,847
 See notes to financial statements. 5




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SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) 
 STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2003 Price per
    
    Common Stock
    
    Common stockshare
    
    Shares
    
    Amount
    
    to be issuedBalance, February 18, 1998(date of inception)
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    Issuance of common stock on April 18, 1998
    
    
    .0015  .01
    
    
    
    10,030,000
    
    
    
    10,030
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 1998(as corrected, see Note 1)
    
    
    
    
    
    
    10,030,000
    
    
    
    10,030Issuance of common stock on May 18, 1999
    
    
    1.00  6.40
    
    
    
    198,003
    
    
    
    198
    
    
    
    Issuance of common stock for ZEFS on September 14, 1999
    
    
    .001
    
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    Stock issued for professional services on May 18, 1999
    
    
    0.88
    
    
    
    69,122
    
    
    
    69
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 1999(as corrected, see Note 1)
    
    
    
    
    
    
    15,297,125
    
    
    
    15,297
    
    
    
    Stock issued for employee compensation on February 8, 2000
    
    
    1.03
    
    
    
    20,000
    
    
    
    20
    
    
    
    Stock issued for consulting services on February 8, 2000
    
    
    1.03
    
    
    
    100,000
    
    
    
    100
    
    
    
    Stock issued for professional services on April 18, 2000
    
    
    3.38
    
    
    
    27,000
    
    
    
    27
    
    
    
    Stock issued for directors fees on April 18, 2000
    
    
    3.38
    
    
    
    50,000
    
    
    
    50
    
    
    
    Stock issued for professional services on May 19, 2000
    
    
    4.06
    
    
    
    5,000
    
    
    
    5
    
    
    
    Stock issued for directors fees on June 20, 2000
    
    
    4.44
    
    
    
    6,000
    
    
    
    6
    
    
    
    Stock issued for professional services on June 20, 2000
    
    
    4.44
    
    
    
    1,633
    
    
    
    2
    
    
    
    Stock issued for professional services on June 26, 2000
    
    
    5.31
    
    
    
    1,257
    
    
    
    1
    
    
    
    Stock issued for employee compensation on June 26, 2000
    
    
    5.31
    
    
    
    22,000
    
    
    
    22
    
    
    
    Stock issued for consulting services on June 26, 2000
    
    
    5.31
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for promotional services on July 28, 2000
    
    
    4.88
    
    
    
    9,675
    
    
    
    9
    
    
    
    Stock issued for consulting services on July 28, 2000
    
    
    4.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for consulting services on August 4, 2000
    
    
    2.13
    
    
    
    35,033
    
    
    
    35
    
    
    
    Stock issued for promotional services on August 16, 2000
    
    
    2.25
    
    
    
    25,000
    
    
    
    25
    
    
    
    Stock issued for consulting services on September 5, 2000
    
    
    2.25
    
    
    
    12,833
    
    
    
    13
    
    
    
    Stock issued for consulting services on September 10, 2000
    
    
    1.50
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for consulting services on November 2, 2000
    
    
    0.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for consulting services on November 4, 2000
    
    
    0.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    
   [Continued from above table, first column(s) repeated] Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholderspaid-in
    
    Deferred
    
    during the
    
    developmentcapital
    
    compensation
    
    development stage
    
    stage deficiencyBalance, February 18, 1998(date of inception)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of common stock on April 18, 1998
    
    
    14,270
    
    
    
    
    
    
    
    
    
    
    
    24,300Net loss
    
    
    
    
    
    
    
    
    
    
    (21,307
    )
    
    
    (21,307
    )Balance, December 31, 1998(as corrected, see Note 1)
    
    
    14,270
    
    
    
    
    
    
    
    (21,307
    )
    
    
    2,993Issuance of common stock on May 18, 1999
    
    
    516,738
    
    
    
    
    
    
    
    
    
    
    
    516,936Issuance of common stock for ZEFS on September 14, 1999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock issued for professional services on May 18, 1999
    
    
    49,444
    
    
    
    
    
    
    
    
    
    
    
    49,513Net loss
    
    
    
    
    
    
    
    
    
    
    (1,075,264
    )
    
    
    (1,075,264
    )Balance, December 31, 1999(as corrected, see Note 1)
    
    
    580,452
    
    
    
    
    
    
    
    (1,096,571
    )
    

    
    (500,822
    )Stock issued for employee compensation on February 8, 2000
    
    
    20,580
    
    
    
    
    
    
    
    
    
    
    
    20,600Stock issued for consulting services on February 8, 2000
    
    
    102,900
    
    
    
    
    
    
    
    
    
    
    
    103,000Stock issued for professional services on April 18, 2000
    
    
    91,233
    
    
    
    
    
    
    
    
    
    
    
    91,260Stock issued for directors fees on April 18, 2000
    
    
    168,950
    
    
    
    
    
    
    
    
    
    
    
    169,000Stock issued for professional services on May 19, 2000
    
    
    20,295
    
    
    
    
    
    
    
    
    
    
    
    20,300Stock issued for directors fees on June 20, 2000
    
    
    26,634
    
    
    
    
    
    
    
    
    
    
    
    26,640Stock issued for professional services on June 20, 2000
    
    
    7,249
    
    
    
    
    
    
    
    
    
    
    
    7,251Stock issued for professional services on June 26, 2000
    
    
    6,674
    
    
    
    
    
    
    
    
    
    
    
    6,675Stock issued for employee compensation on June 26, 2000
    
    
    116,798
    
    
    
    
    
    
    
    
    
    
    
    116,820Stock issued for consulting services on June 26, 2000
    
    
    52,203
    
    
    
    
    
    
    
    
    
    
    
    52,213Stock issued for promotional services on July 28, 2000
    
    
    47,205
    
    
    
    
    
    
    
    
    
    
    
    47,214Stock issued for consulting services on July 28, 2000
    
    
    47,975
    
    
    
    
    
    
    
    
    
    
    
    47,985Stock issued for consulting services on August 4, 2000
    
    
    74,585
    
    
    
    
    
    
    
    
    
    
    
    74,620Stock issued for promotional services on August 16, 2000
    
    
    56,225
    
    
    
    
    
    
    
    
    
    
    
    56,250Stock issued for consulting services on September 5, 2000
    
    
    28,861
    
    
    
    
    
    
    
    
    
    
    
    28,874Stock issued for consulting services on September 10, 2000
    
    
    14,740
    
    
    
    
    
    
    
    
    
    
    
    14,750Stock issued for consulting services on November 2, 2000
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    8,653Stock issued for consulting services on November 4, 2000
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    8,653
 See notes to financial statements. 6




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SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF
STOCKHOLDERS DEFICIENCY  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2003 Price per
    
    Common Stock
    
    Common stockshare
    
    Shares
    
    Amount
    
    to be issuedStock issued for consulting services on December 20, 2000
    
    
    0.50
    
    
    
    19,082
    
    
    
    19
    
    
    
    Stock issued for filing services on December 20, 2000
    
    
    0.50
    
    
    
    5,172
    
    
    
    5
    
    
    
    Stock issued for professional services on December 26, 2000
    
    
    0.38
    
    
    
    12,960
    
    
    
    13
    
    
    
    Other stock issuance on August 24, 2000
    
    
    2.13
    
    
    
    2,000
    
    
    
    2
    
    
    
    Common shares cancelled
    
    
    
    
    
    
    (55,000
    )
    
    
    (55
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2000(as corrected, see Note 1)
    
    
    
    
    
    
    15,645,935
    
    
    
    15,646
    
    
    
    Stock issued for consulting services on January 8, 2001
    
    
    0.31
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for consulting services on February 1, 2001
    
    
    0.33
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for consulting services on March 1, 2001
    
    
    0.28
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for legal services on March 13, 2001
    
    
    0.32
    
    
    
    150,000
    
    
    
    150
    
    
    
    Stock issued for consulting services on April 3, 2001
    
    
    0.25
    
    
    
    9,833
    
    
    
    10
    
    
    
    Stock issued for legal services on April 4, 2001
    
    
    0.25
    
    
    
    30,918
    
    
    
    31
    
    
    
    Stock issued for professional services on April 4, 2001
    
    
    0.25
    
    
    
    7,040
    
    
    
    7
    
    
    
    Stock issued for consulting services on April 5, 2001
    
    
    0.25
    
    
    
    132,600
    
    
    
    132
    
    
    
    Stock issued for filing fees on April 30, 2001
    
    
    1.65
    
    
    
    1,233
    
    
    
    1
    
    
    
    Stock issued for filing fees on September 19, 2001
    
    
    0.85
    
    
    
    2,678
    
    
    
    2
    
    
    
    Stock issued for professional services on September 28, 2001
    
    
    0.62
    
    
    
    150,000
    
    
    
    150
    
    
    
    Stock issued for directors services on October 5, 2001
    
    
    0.60
    
    
    
    100,000
    
    
    
    100
    
    
    
    Stock issued for legal services on October 17, 2001
    
    
    0.60
    
    
    
    11,111
    
    
    
    11
    
    
    
    Stock issued for consulting services on October 18, 2001
    
    
    0.95
    
    
    
    400,000
    
    
    
    400
    
    
    
    Stock issued for consulting services on October 19, 2001
    
    
    1.25
    
    
    
    150,000
    
    
    
    150
    
    
    
    Stock issued for exhibit fees on October 22, 2001
    
    
    1.35
    
    
    
    5,000
    
    
    
    6
    
    
    
    Stock issued for directors services on November 2, 2001
    
    
    0.95
    
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    Stock issued for consulting services on November 7, 2001
    
    
    0.85
    
    
    
    20,000
    
    
    
    20
    
    
    
    Stock issued for consulting services on November 20, 2001
    
    
    0.98
    
    
    
    43,000
    
    
    
    43
    
    
    
    Stock issued for consulting services on November 27, 2001
    
    
    0.98
    
    
    
    10,000
    
    
    
    10
    
    
    
    Stock issued for consulting services on November 28, 2001
    
    
    0.98
    
    
    
    187,000
    
    
    
    187
    
    
    
    
   [Continued from above table, first column(s) repeated] Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholderspaid-in
    
    Deferred
    
    during the
    
    developmentcapital
    
    compensation
    
    development stage
    
    stage deficiencyStock issued for consulting services on December 20, 2000
    
    
    9,522
    
    
    
    
    
    
    
    
    
    
    
    9,541Stock issued for filing services on December 20, 2000
    
    
    2,581
    
    
    
    
    
    
    
    
    
    
    
    2,586Stock issued for professional services on December 26, 2000
    
    
    4,912
    
    
    
    
    
    
    
    
    
    
    
    4,925Other stock issuance on August 24, 2000
    
    
    4,258
    
    
    
    
    
    
    
    
    
    
    
    4,260Common shares cancelled
    
    
    (64,245
    )
    
    
    
    
    
    
    
    
    
    
    (64,300
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (1,270,762
    )
    
    
    (1,270,762
    )Balance, December 31, 2000(as corrected, see Note 1)
    
    
    1,437,873
    
    
    
    
    
    
    
    (2,367,333
    )
    
    
    (913,814
    )Stock issued for consulting services on January 8, 2001
    
    
    3,038
    
    
    
    
    
    
    
    
    
    
    
    3,048Stock issued for consulting services on February 1, 2001
    
    
    3,235
    
    
    
    
    
    
    
    
    
    
    
    3,245Stock issued for consulting services on March 1, 2001
    
    
    2,743
    
    
    
    
    
    
    
    
    
    
    
    2,753Stock issued for legal services on March 13, 2001
    
    
    47,850
    
    
    
    
    
    
    
    
    
    
    
    48,000Stock issued for consulting services on April 3, 2001
    
    
    2,448
    
    
    
    
    
    
    
    
    
    
    
    2,458Stock issued for legal services on April 4, 2001
    
    
    7,699
    
    
    
    
    
    
    
    
    
    
    
    7,730Stock issued for professional services on April 4, 2001
    
    
    1,753
    
    
    
    
    
    
    
    
    
    
    
    1,760Stock issued for consulting services on April 5, 2001
    
    
    33,018
    
    
    
    
    
    
    
    
    
    
    
    33,150Stock issued for filing fees on April 30, 2001
    
    
    2,033
    
    
    
    
    
    
    
    
    
    
    
    2,034Stock issued for filing fees on September 19, 2001
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    2,276Stock issued for professional services on September 28, 2001
    
    
    92,850
    
    
    
    
    
    
    
    
    
    
    
    93,000Stock issued for directors services on October 5, 2001
    
    
    59,900
    
    
    
    
    
    
    
    
    
    
    
    60,000Stock issued for legal services on October 17, 2001
    
    
    6,655
    
    
    
    
    
    
    
    
    
    
    
    6,666Stock issued for consulting services on October 18, 2001
    
    
    379,600
    
    
    
    
    
    
    
    
    
    
    
    380,000Stock issued for consulting services on October 19, 2001
    
    
    187,350
    
    
    
    
    
    
    
    
    
    
    
    187,500Stock issued for exhibit fees on October 22, 2001
    
    
    6,745
    
    
    
    
    
    
    
    
    
    
    
    6,751Stock issued for directors services on November 2, 2001
    
    
    949,000
    
    
    
    
    
    
    
    
    
    
    
    950,000Stock issued for consulting services on November 7, 2001
    
    
    16,980
    
    
    
    
    
    
    
    
    
    
    
    17,000Stock issued for consulting services on November 20, 2001
    
    
    42,097
    
    
    
    
    
    
    
    
    
    
    
    42,140Stock issued for consulting services on November 27, 2001
    
    
    9,790
    
    
    
    
    
    
    
    
    
    
    
    9,800Stock issued for consulting services on November 28, 2001
    
    
    183,073
    
    
    
    
    
    
    
    
    
    
    
    183,260
 See notes to financial statements. 7




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF
STOCKHOLDERS DEFICIENCY  Continued
FROM INCEPTION (FEBRUARY 18, 1998) TO SEPTEMBER 30, 2003 Price per
    
    Common Stock
    
    Common stockshare
    
    Shares
    
    Amount
    
    to be issuedIntrinsic value of options issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value of options issued to non-employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2001
    
    
    
    
    
    
    18,085,847
    
    
    
    18,086
    
    
    
    Stock issued for directors services on December 10, 2002
    
    
    0.40
    
    
    
    2,150,000
    
    
    
    2,150
    
    
    
    Common stock paid for, but not issued (2,305,000 shares)
    
    
    0.15-0.25
    
    
    
    
    
    
    
    
    
    
    
    389,875Fair value of options issued to non-employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2002
    
    
    
    
    
    
    20,235,847
    
    
    
    20,236
    
    
    
    389,875Common stock issued, previously paid for
    
    
    0.15
    
    
    
    1,425,000
    
    
    
    1,425
    
    
    
    (213,750
    )Common stock issued, previously paid for
    
    
    0.25
    
    
    
    880,000
    
    
    
    880
    
    
    
    (220,000
    )Stock issued for cash on March 20, 2003
    
    
    0.25
    
    
    
    670,000
    
    
    
    670
    
    
    
    Stock issued for cash on April 4, 2003
    
    
    0.25
    
    
    
    900,000
    
    
    
    900
    
    
    
    Stock issued for cash on April 8, 2003
    
    
    0.25
    
    
    
    100,000
    
    
    
    100
    
    
    
    Stock issued for cash on May 8, 2003
    
    
    0.25
    
    
    
    1,150,000
    
    
    
    1,150
    
    
    
    Stock issued for cash on June 16, 2003
    
    
    0.25
    
    
    
    475,000
    
    
    
    475
    
    
    
    Stock issued for legal services on June 27, 2003
    
    
    0.55
    
    
    
    83,414
    
    
    
    83
    
    
    
    Debt converted to stock on June 27, 2003
    
    
    0.25
    
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    Stock issued for cash on July 11, 2003
    
    
    0.25
    
    
    
    519,000
    
    
    
    519
    
    
    
    Stock issued for cash on September 29, 2003
    
    
    0.25
    
    
    
    1,775,000
    
    
    
    1,775
    
    
    
    Finders fees related to stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,875Common stock paid for, but not issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,500Amortization of deferred comp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss for
nine months ended September 30, 2003 (unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, September 30, 2003 (unaudited)
    
    
    
    
    
    
    30,213,261
    
    
    $
    30,213
    
    
    $
    187,500
   [Continued from above table, first column(s) repeated] Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholderspaid-in
    
    Deferred
    
    during the
    
    developmentcapital
    
    compensation
    
    development stage
    
    stage deficiencyIntrinsic 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
    
    
    6,220,322
    
    
    
    (2,408,333
    )
    
    
    (5,102,346
    )
    
    
    (1,272,271
    )Stock issued for directors services on December 10, 2002
    
    
    857,850
    
    
    
    
    
    
    
    
    
    
    
    860,000Common stock paid for, but not issued (2,305,000 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389,875Fair value of options issued to non-employees for services
    
    
    54,909
    
    
    
    (54,909
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    891,182
    
    
    
    
    
    
    
    891,182Net loss
    
    
    
    
    
    
    
    
    
    
    (2,749,199
    )
    
    
    (2,749,199
    )Balance, December 31, 2002
    
    
    7,133,081
    
    
    
    (1,572,060
    )
    
    
    (7,851,545
    )
    
    
    (1,880,413
    )Common stock issued, previously paid for
    
    
    212,325
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued, previously paid for
    
    
    219,120
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash on March 20, 2003
    
    
    166,830
    
    
    
    
    
    
    
    
    
    
    
    167,500Stock issued for cash on April 4, 2003
    
    
    224,062
    
    
    
    
    
    
    
    
    
    
    
    224,962Stock issued for cash on April 8, 2003
    
    
    24,900
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on May 8, 2003
    
    
    286,330
    
    
    
    
    
    
    
    
    
    
    
    287,480Stock issued for cash on June 16, 2003
    
    
    118,275
    
    
    
    
    
    
    
    
    
    
    
    118,750Stock issued for legal services on June 27, 2003
    
    
    45,794
    
    
    
    
    
    
    
    
    
    
    
    45,877Debt converted to stock on June 27, 2003
    
    
    498,000
    
    
    
    
    
    
    
    
    
    
    
    500,000Stock issued for cash on July 11, 2003
    
    
    129,231
    
    
    
    
    
    
    
    
    
    
    
    129,750Stock issued for cash on September 29, 2003
    
    
    441,976
    
    
    
    
    
    
    
    
    
    
    
    443,751Finders fees related to stock issuances
    
    
    (230,956
    )
    
    
    
    
    
    
    
    
    
    
    (187,081
    )Common stock paid for, but not issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187,500Amortization of deferred comp
    
    
    
    
    
    
    651,227
    
    
    
    
    
    
    
    651,227Net loss for nine months ended September 30, 2003
    
    
    
    
    
    
    
    
    
    
    (1,573,574
    )
    
    
    (1,573,574
    )Balance, September 30, 2003 (unaudited)
    
    $
    9,268,968
    
    
    $
    (920,833
    )
    
    $
    (9,425,119
    )
    
    $
    (859,271
    )
 See notes to financial statements. 8




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) 
 STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998)
TO SEPTEMBER 30, 2003 CumulativeSeptember 30,
    
    September 30,
    
    since2003
    
    2002
    
    inceptionCash flows from operating activitiesNet loss
    
    $
    (1,573,574
    )
    
    $
    (1,188,932
    )
    
    $
    (9,425,119
    )Adjustments to reconcile net loss to
net cash used in operating
activities:Write off of intangible assets
    
    
    
    
    
    
    
    
    
    
    505,000Fair value of options issued for services
    
    
    
    
    
    
    54,909
    
    
    
    642,318Issuance of common stock for services
    
    
    45,877
    
    
    
    
    
    
    
    3,355,731Amortization of deferred compensation
    
    
    651,226
    
    
    
    610,045
    
    
    
    1,734,075Depreciation
    
    
    3,724
    
    
    
    303
    
    
    
    4,251Changes in operating liabilities:Income taxes payable
    
    
    1,064
    
    
    
    1,089
    
    
    
    5,991Accrued expenses
    
    
    (131,230
    )
    
    
    140,983
    
    
    
    305,439Net cash used in operating activities
    
    
    (1,002,913
    )
    
    
    (381,603
    )
    
    
    (2,872,314
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (1,672
    )
    
    
    (1,989
    )
    
    
    (22,573
    )Net cash used in investing activities
    
    
    (1,672
    )
    
    
    (1,989
    )
    
    
    (22,573
    )Cash flows from financing activitiesIncrease (decrease) in payables to related parties
    
    
    (21,146
    )
    
    
    377,854
    
    
    
    528,326Advances from founding executive officer
    
    
    
    
    
    
    
    
    
    
    517,208Issuance of common stock for cash
    
    
    1,441,068
    
    
    
    
    
    
    
    2,372,179Common stock issuable
    
    
    187,500
    
    
    
    
    
    
    
    187,500Net cash provided by financing activities
    
    
    1,607,422
    
    
    
    377,854
    
    
    
    3,605,213Net
increase (decrease) in cash
    
    
    602,837
    
    
    
    (5,738
    )
    
    
    710,326Cash, beginning of period
    
    
    107,489
    
    
    
    6,556
    
    
    
    Cash, end of period
    
    $
    710,326
    
    
    $
    818
    
    
    $
    710,326
 See notes to financial statements. 9




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS
OF CASH FLOWS  Continued (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998)TO SEPTEMBER 30, 2003 CumulativeSeptember 30,
    
    September 30,
    
    since2003
    
    2002
    
    inceptionSupplemental disclosures of cash flow
informationCash paid during the year forInterest
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    Non-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
    
    
    
    
    
    
    54,909
    
    
    
    2,654,909Purchase of property and equipment financed by advance from related party
    
    
    
    
    
    
    3,550
    
    
    
    3,550Conversion of related party debt to equity
    
    
    500,000
    
    
    
    
    
    
    
    500,000
 See notes to financial statements. 10




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) 
 NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  1.
    
    Organization and basis of presentation  Basis of presentation  The accompanying interim condensed financial statements are unaudited,
but in the opinion of management of Save the World Air, Inc. (the
Company), contain all adjustments, which include normal recurring
adjustments, necessary to present fairly the financial position at
September 30, 2003, the results of operations for the three and nine months ended
September 30, 2003 and 2002, and cash flows for the nine months ended
September 30, 2003 and 2002. The balance sheet as of December 31, 2002
is derived from the Companys audited financial statements.Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, although management of the Company believes that the
disclosures contained in these financial statements are adequate to make
the information presented therein not misleading. For further
information, refer to the financial statements and the notes thereto
included in the Companys Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2002, as amended, as filed with the Securities
and Exchange Commission.The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expense
during the reporting period. Actual results could differ from those
estimates.The results of operations for the nine months ended September 30, 2003
are not necessarily indicative of the results of operations to be
expected for the full fiscal year ending December 31, 2003. 11




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  1.
    
    Organization and basis of presentation- Continued  Description of business  Save the World Air, Inc. (the Company) was incorporated in Nevada on
February 18, 1998 under the name Mandalay Capital Corp. The Company
changed its name to Save the World Air, Inc. on February 11, 1999
following the signing of an agreement by and between the Company and
Jeffrey Alan Muller, the Companys founding executive officer and
director, with respect to the Companys purchase of the Zero Emission
Fuel-Saving Device (the Agreement). Under the terms of the Agreement,
the Company issued 5,000,000 shares of its common stock to Mr. Muller
and agreed to pay him a total of $500,000 for the marketing and
distribution rights of the device, and a $10 royalty for every unit of
the device sold (see additional discussion in the Significant Matters
section of this note). The Company acquired the worldwide exclusive
manufacturing, marketing and distribution rights for the Zero Emission
Fuel-Saving Device (ZEFS) by entering into the Agreement. The ZEFS is
a product, which is fitted to an internal combustion engine and is
expected to reduce carbon monoxide hydrocarbons and toxic exhaust
emissions. The ZEFS is currently undergoing testing to determine the
achievable levels of reduced emissions and commercial viability.  Significant matters  On December 19, 2001, the Securities and Exchange Commission (SEC)
filed civil charges in federal district court in New York, New York,
against the Company, Mr. Muller, and Billy Blackwelder, a marketing
consultant for the Company, alleging that they engaged in a fraudulent
scheme to manipulate the market for the Companys stock. 12




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  1.
    
    Organization and basis of presentation- Continued  Significant matters  Continued  The SECs complaint alleges that from at least February 1999 through at
least April 2001, the Company and Mr. Muller carried out a fraudulent
promotional campaign using press releases, Internet postings, an
elaborate Internet website, and televised media events to disseminate
false and materially misleading information about the Companys product
and commercial prospects. The complaint also alleges that the Companys
and Mr. Mullers actions led to the artificial inflation of the price
and trading volume of the Company stock, causing its market
capitalization to be as much as $218,728,062. The promotional
information distributed by the Company and Mr. Muller included: (1)
announcements of significant licensing agreements and other important
business developments, and (2) announcements concerning public
automotive demonstrations that purportedly proved or would prove that
the ZEFS materially reduces emissions and improves fuel economy in motor
vehicles. The complaint further alleges that the purported licensing
agreements and other purported business events simply did not exist, and
the then current ZEFS demonstrations did not prove that the ZEFS
actually worked as represented. At the same time that he publicly
promoted the Company, Mr. Muller privately sold millions of shares of
the Companys restricted stock that, if sold at then-prevailing market
prices, would have provided him with over $9 million in personal
profits. He concealed these sales by failing to disclose in SEC
filings, as required, any changes in his beneficial ownership in the
Company. The SEC complaint also states that the Company and Mr. Muller
made at least nine SEC filings that contain false financial statements
and disclosures.In October 2001, Edward Masry became the Companys new President and
Chief Executive Officer. Because of the nature and scope of the SECs
allegations regarding the Companys financial statements and SEC
filings, Masry has assembled a new management team and advisory board
for the Company, in addition to selecting new independent auditors and
corporate counsel. 13




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  1.
    
    Organization and basis of presentation- Continued  Significant matters  Continued  The Company entered into discussions with the SEC concerning the SECs
complaint and negotiated a consent order in which it agreed, among other
terms, to observe all securities laws. Based upon this consent order
and related judgment, the proceedings against the Company were
terminated. The Company has since caused an investigation into the
facts and circumstances surrounding the allegations in the SECs
complaint. Based upon review of the history leading to the filing of
the complaint, the Companys board of directors authorized the filing of
cross-claims against Mr. Muller and others (including ten offshore
companies) seeking disgorgement of stock obtained from the Company, to
invalidate the transfer of several million shares to Mr. Muller and
family members for inadequate or no consideration, rescission of stock
options transferred to Mr. Muller and/or his family members, for the
transfer of rights to patent claims from Mr. Muller to the Company and
rescission of royalty rights held by Mr. Muller and/or his family
members. Upon filing of the cross complaint, in July 2002, the Company
obtained a temporary restraining order against Mr. Muller which, among
other things, prohibits Mr. Muller from serving as an officer or
director of the Company and enjoins Mr. Muller and others from selling,
conveying, transferring or encumbering any shares which Mr. Muller
controls or in which he has an interest. The Company believes the
temporary restraining order may affect as many as seventeen million
shares or more of the Companys stock, in the form of issued shares and
option rights.In the course of the legal proceedings, the Company has obtained
complete control over all ownership claims to the ZEFS patent rights and
all royalty interests previously held and claimed by Mr. Muller and
certain others.The Company has continued to prosecute its claims and has substantially
completed all pretrial procedures in preparation for the disposition of
the case through dispositive pretrial motions and/or eventual trial on
the merits of the claims. Based upon the substantial discovery
completed and other evidence obtained to date, the Company believes
there is very little risk of an adverse decision on the merits of its
cross complaint.Based on the status of current legal proceedings, the Company believes
it will not have to pay $1,017,208 of advances due to Mr. Muller. The
Company also believes that the option Mr. Muller holds to purchase
10,000,000 shares of the Companys stock will be cancelled. 14




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  1.
    
    Organization and basis of presentation- Continued  Development stage enterprise  The Company is a development stage enterprise as defined by Statement of
Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting
by Development Stage Enterprises. All losses accumulated since the
inception of the Company have been considered as part of the Companys
development stage activities.A team has been assembled for the research and development of the
technology and potential markets for the ZEFS and to establish
relationships with potential customers. Significant design work has been
completed, and patent applications have been filed in 64 countries.
There is no assurance that any of the filed patents will be granted.
The Company is continuing in its product development efforts and several
studies are underway to evaluate the effectiveness of the ZEFS in
eliminating pollutants and emissions from internal combustion engines.
The Company has had no sales to date. As such, the Company continues to
remain a development stage enterprise. The ability of the Company to
commercialize its products will depend on, among other things, the
Companys ability to demonstrate the merits of the ZEFS and develop
markets and distribution channels.  2.
    
    Net loss per share  Basic earnings (loss) per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution, using the treasury stock method, that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. In computing diluted
earnings per share, the treasury stock method assumes that outstanding
options and warrants are exercised and the proceeds are used to purchase
common stock at the average market price during the period. Options and
warrants will have a dilutive effect under the treasury stock method
only when the average market price of the common stock during the period
exceeds the exercise price of the options and warrants. For the nine
months ended September 30, 2003 and the year ended December 31, 2002,
the dilutive impact of outstanding stock options of 14,000,000 and
14,000,000, respectively, and 10,252,414 warrants in 2003 has been
excluded because their impact on the loss per share is antidilutive. 15




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  3.
    
    New accounting pronouncements  In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 nullifies
Emerging Issues Task Force Issue No. 94-3: Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS
No. 146 requires that a liability be recognized for those costs only
when the liability is incurred, that is, when it meets the definition of
a liability in the FASBs conceptual framework. SFAS No. 146 also
establishes fair value as the objective for initial measurement of
liabilities related to exit or disposal activities. SFAS No. 146 is
effective for exit or disposal activities that are initiated after
December 31, 2002, with earlier adoption encouraged. Management does
not expect the adoption of SFAS No. 146 will have a material impact on
the Companys financial position or results of operations.In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based compensation. It also amends the disclosure requirements of
SFAS No. 123. If an entity elects to adopt the recognition provisions
of the fair value based method of accounting for stock-based
compensation in a fiscal year beginning before December 16, 2003, that
change in accounting principle shall be reported using either the (i)
prospective method, (ii) the modified prospective method, or (iii) the
retroactive restatement method as defined in SFAS No. 148. SFAS No. 148
is effective for fiscal years ending after December 15, 2002. Since the
Company has elected to continue accounting for stock-based compensation
under APB No. 25, the adoption of SFAS No. 148 has had no impact to the
Companys financial position or results of operations. The Companys
financial statement disclosures have been designed to conform to the new
disclosure requirements prescribed by SFAS No. 148.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity. SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). The provisions of SFAS
No. 150 are effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities,
which are subject to the provisions of this statement for the first
fiscal period beginning after December 15, 2004. The Company believes
that the adoption of SFAS No. 150 will not have an impact on its
financial position or results of operations. 16




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  3.
    
    New accounting pronouncements- Continued  In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities,  which clarifies the
application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, relating to consolidation of certain entities.
FIN 46 requires identification of a companys participation in variable
interest entities (VIEs), which are defined as entities with a level of
invested equity that is not sufficient to fund future activities to
permit it to operate on a standalone basis. For entities identified as
a VIE, FIN 46 sets forth a model to evaluate potential consolidation
based on an assessment of which party to the VIE (if any) bears a
majority of the exposure to its expected losses, or stands to gain from
a majority of its expected returns. FIN 46 also sets forth certain
disclosures regarding interests in VIEs that are deemed significant,
even if consolidation is not required. The Company is not currently
participating in, or invested in any VIEs, as defined in FIN 46.  4.
    
    Certain relationships and related transactions  Due to founding executive officer  All of the marketing and manufacturing rights for the ZEFS were acquired
from Mr. Muller, for 5,000,000 shares of common stock, $500,000 and a
$10 royalty for each unit sold (see discussion below), pursuant to the
Agreement entered into in December 1998, by and between the Company and
Mr. Muller. Working capital advances in the amount of $517,208 and
payment in the amount of $500,000 for marketing and distribution rights
of the ZEFS are due to Mr. Muller. Such amounts are interest free and
do not have any due dates for payment.In January 2000, the Company entered into an agreement offering Mr.
Muller and Lynne Muller, Mr. Mullers wife, the option to purchase
5,000,000 shares each at $0.10 per share as consideration for work
performed for the Company. Mrs. Muller subsequently transferred her
option to Mr. Muller. 17




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  4.
    
    Certain relationships and related transactions- Continued  Due to founding executive officer  Continued  In connection with the Companys legal proceedings against Mr. Muller,
the Company is attempting to obtain a judgment that will relieve the
Company of $1,017,208, which represents all amounts due Mr. Muller.
These amounts include the $500,000 due for the marketing and
distribution rights of the ZEFS and the working capital advances of
$517,208. As described in the Significant Matters section of Note 1,
the Company has already been relieved of the $10 royalty interest that
Mr. Muller held for each unit sold. In addition, the Company is also
attempting to obtain a judgment that will cancel the options to purchase
10,000,000 shares granted to Mr. and Mrs. Muller, collectively. Based
on the status of current legal proceedings, the Company does not believe
that it will have to pay Mr. Muller the $500,000 for the rights to the
ZEFS device and the $517,208 of advances. The Company also believes
that the option Mr. Muller holds to purchase 10,000,000 shares of the
Companys stock will be cancelled and no longer valid.  Due to related parties  Masry & Vititoe, a law firm in which Edward Masry is a partner, has
advanced $31,876 and $553,022 as of September 30, 2003 and December 31,
2002 to the Company for working capital purposes. The advances payable
to Masry & Vititoe were allocations to the Company for shared expenses,
primarily payroll. These advances are unsecured, non-interest bearing,
and are due on demand. In June 2003, $500,000 of debt was converted to
2,000,000 shares of common stock.  5.
    
    Stockholders deficiency  As of September 30, 2003, the Company has authorized 200,000,000 shares
of its common stock and 30,213,261 shares were issued and outstanding,
and 187,500 shares were issuable. As described in Note 1, estimates and
judgments were used by management to determine the fair value for certain
issuances of the outstanding shares.The Companys significant stockholders are as follows: Number
    
    Percentageof shares
    
    ownershipMr. Jeffrey Muller and controlled by Mr. Muller
through beneficial ownership
    
    
    8,716,710
    
    
    
    28.9
    %Mr. Edward Masry
    
    
    3,000,000
    
    
    
    9.9
    %Remaining stockholders
    
    
    18,496,551
    
    
    
    61.2
    %30,213,261
    
    
    
    100.0
    %
 18




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  6.
    
    Stock warrants The following table summarizes certain information about the companys
stock purchase warrants. Weighted Avg.Warrants
    
    Exercise PriceWarrants outstanding, January 1, 2002
    
    
    
    
    
    $
    Warrants granted
    
    
    1,850,000
    
    
    
    0.35Warrants exercised
    
    
    
    
    
    
    Warrants cancelled
    
    
    
    
    
    
    Warrants outstanding, December 31, 2002
    
    
    1,850,000
    
    
    
    0.35Warrants granted
    
    
    8,402,414
    
    
    
    1.00Warrants exercised
    
    
    
    
    
    
    Warrants cancelled
    
    
    
    
    
    
    Warrants outstanding, September 30, 2003
    
    
    10,252,414
    
    
    $
    0.47
  The Company has elected to account for stock-based compensation using the
intrinsic value method prescribed in APB No. 25 and related
interpretations, and follow the pro forma disclosure requirements of SFAS
No. 123. Accordingly, no compensation expense has been recognized
related to the granting of stock options, except as noted above. The
following table illustrates the effect on net income as if the Company
had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation. CumulativeSeptember 30,
    
    December 31,
    
    since2003
    
    2002
    
    inceptionNet loss, as reported
    
    $
    (1,573,575
    )
    
    $
    (2,749,199
    )
    
    $
    (9,425,120
    )Less: total fair value method stock-based
employee compensation expense
    
    
    (712,483
    )
    
    
    (949,977
    )
    
    
    (1,970,808
    )Add: deferred compensation amortization for
below market employee options
    
    
    637,500
    
    
    
    850,000
    
    
    
    1,679,167Pro forma net loss
    
    $
    (1,648,558
    )
    
    $
    (2,849,176
    )
    
    $
    (9,716,761
    )Pro forma loss per share
    
    $
    (0.06
    )
    
    $
    (0.15
    )
 19




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS  Continued
NINE MONTHS ENDED SEPTEMBER 30, 2003 (unaudited)  7.
    
    Going concern  The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As reflected in the accompanying financial statements, the
company has a net loss of $1,573,574, a negative cash flow from
operations of $1,002,913 and a stockholders deficiency of $859,271.
These factors raise substantial doubt about its ability to continue as a
going concern. The ability to the Company to continue as a going concern
is dependent on the Companys ability to raise additional funds and
implement its business plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue
as a going concern. 20




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##### Table of Contents



Item 2. Managements
Discussion and Analysis

This Quarterly Report
on Form 10-QSB contains forward-looking statements. These
forward-looking statements include predictions regarding our future:



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You can identify these and other forward-looking statements by the use of
words such as may, will, expects, anticipates, believes,
estimates,, continues, or the negative of such terms, or other comparable
terminology. Forward-looking statements also include the assumptions
underlying or relating to any of the foregoing statements.

Such statements, which include statements concerning future revenue
sources and concentration, selling, general and administrative
expenses, research and development expenses, capital resources,
additional financings and additional losses, are subject to risks and
uncertainties, including, but not limited to, those discussed
elsewhere in this Form 10-QSB, that could cause actual results to
differ materially from those projected.

Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth under the heading Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2002. All forward-looking statements
included in this document are based on information available to us on the date
hereof. We assume no obligation to update any forward-looking statements.

The forward-looking statements set forth in this Form 10-QSB are as
of September 30, 2003, and we undertake no duty to update this information.

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##### Table of Contents



Overview

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Financial
Statements and notes thereto included in Part II, Item 1 of this
Form 10-QSB and the Financial Statements and notes thereto
contained in our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2002.

The company is a development stage company that has not yet commenced operations and
does not generate revenue. The companys current focus is on research and development of proprietary devices
that can be installed on motor vehicles and which are designed to reduce harmful emissions, improve fuel efficiency and improve
performance. Our prototype device is called ZEFS. We have devoted the bulk of our efforts to complete the design and
development of our production models and raise the financing required to do so and fund our expenses.

We anticipate that these research and development efforts will continue for at least the
remainder of 2003. We do not envision generating any revenue in 2003.

We will need to complete the current round of financing that began in
November 2002, in order to raise the additional capital needed to find
ongoing research and development activities and meet our operating
expenses for the remainder of 2003 and into the first half of 2004.
We anticipate that this round of financing will be completed in the
fourth quarter of
2003.

Results of Operation

To date, we have not generated any revenues and our business is in the
development stage. We have focused our efforts on verifying and developing the
ZEFS device.

Our operating costs and expenses consist primarily of research and
development expenses and general and administrative expenses. We expect our
operating costs to increase once we begin to manufacture and market the ZEFS
device, which we do not expect to occur earlier than the fourth
quarter of 2004. Our research and development expenses include
contractual payments to RAND Corporation, consultants fees, capital expenditures, cost of services and supplies
We expect our research and development costs to increase as we continue to
develop the ZEFS device and develop new applications of our technology.

Our general and administrative expenses include compensation expenses
related to executive and other administrative personnel, facility lease, the
costs of our insurance and legal and accounting support. We expect our general
and administrative expenses to increase as we expand our infrastructure in
support of our anticipated increased operations, which we do not
expect to occur earlier than the fourth quarter of 2004.

We had a net loss of
$526,905 and $1,573,574 for the three months and nine months ended
September 30, 2003, respectively. This compares to a loss of $436,553 and
$1,188,932 for the three and nine months ended September 30, 2002,
respectively. The increase in loss is primarily attributable to an
increase in research and development expenses as a result of
the agreement we entered into with RAND Corporation in December 2002. We  expect an increase in net loss through 2003 attributable to increased general
and administrative expenses and commencement of marketing.

Liquidity and Capital Resources

We have incurred negative cash flow from operations in the developmental
stage since our inception in 1998. As of September 30, 2003 we had cash of
$710,326 and an accumulated deficit of $9,425,119. Our 2003 negative
operating cash flows were funded primarily through Masry & Vititoe, a law firm
in which our Chief Executive Officer and President, Edward Masry, is a member,
and a private financing that we commenced in November 2002
and which we anticipate will be completed in the fourth quarter of 2003. We anticipate
additional operating losses, which may increase, into 2004 as we
expand our research and development program without the benefit of
revenue.

We believe that we have sufficient cash to fund our operations
until mid-2004. To the extent our capital resources are insufficient to meet
our future capital requirements, we will need to raise additional capital or
incur new debt to fund our operations. However, there can be no assurance that
additional equity or debt financing will be available. If we are unable to
obtain additional capital, we may be required to delay, reduce the
scope of; or eliminate our research and development programs,
or relinquish rights to technologies that we might otherwise seek to
develop or commercialize.

Capitalization

In the action by the
Securities and Exchange Commission (the SEC) against
Jeffrey Muller, the founder and former sole director of the Company,
and others, we seek, among other
relief, the cancellation of all shares of our common stock
controlled, directly or indirectly, by Mr. Muller and his
affiliates, options to purchase an additional 10,000,000
shares of our common stock, and Mr. Mullers original royalty agreement. See
Part II, Item 1, Legal Proceedings. The
cancellation of these shares and options would have a
significant positive effect on our capitalization.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of
operations is based upon our Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these Financial Statements and related
disclosures requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, expenses, and related disclosure of
contingent assets and liabilities. We evaluate, on an on-going basis, our
estimates and judgments, including those related to the useful life of the
assets. We base our estimates on historical experience and assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates.

The methods, estimates and judgments we use in applying our most critical
accounting policies have a significant impact on the results that we report in
our Financial Statements. The SEC considers an entitys most critical
accounting policies to be those policies that are both most important to the
portrayal of a companys financial condition and results of operations and those that require
managements most difficult, subjective or complex judgments, often as a result
of the need to make estimates about matters that are inherently uncertain at
the time of estimation. We believe the following critical accounting policies,
among others, require significant judgments and estimates used in the
preparation of our Financial Statements:

Stock-Based Compensation

We account for stock-based compensation to employees as defined by using
the intrinsic-value method prescribed in Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees.

We account for stock option and warrant grants issued to non-employees
using the guidance of SFAS No. 123, Accounting for Stock-Based Compensation
and EITF No. 96-18: Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services, whereby the fair value of such option and warrant grants is
determined using the Black-Scholes option pricing model at the earlier of the
date at which the non-employees performance is completed or a performance
commitment is reached.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Certain significant estimates were made in connection with
preparing our financial statements as described in Note 1 of our Financial
Statements. See Item 1, Part I, Financial Statements. Actual results could differ
from those estimates.

New Accounting Pronouncements

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based compensation. It also amends the disclosure method of accounting
for stock-based compensation. It also amends the disclosure requirements of
SFAS No. 123. If an entity elects to adopt the recognition provisions of the
fair value based method of accounting for stock-based compensation in a fiscal
year beginning before December 16, 2003, that change in accounting principle
shall be reported using either the (i) prospective method, (ii) the modified
prospective method, or (iii) the retroactive restatement method as defined in
SFAS No. 148. SFAS no. 148 is effective for fiscal years ending after December
15, 2002. Since the Company has elected to continue accounting for stock-based
compensation under APB No. 25, the adoption of SFAS No. 148 has had no impact
to the Companys financial position or results of operations. The Companys
financial statement disclosures have been designed to conform to the new
disclosure requirements prescribed by SFAS No. 148.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities., which are subject to
the provisions of this statement for the first fiscal period beginning after
December 15, 2004. The Company believes that the adoption of SFAS No. 150 will
not have an impact on its financial position or results of operations.

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Item 3. Controls and Procedures

(a) Evaluation of disclosure controls and procedures: Our management
evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on
Form 10-QSB. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. It should be noted that the design of any
system of controls is based in part upon certain assumptions about 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,
regardless of how remote.

(b)  Changes in internal control over financial reporting: There was no
change in our internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-QSB that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

PART II

Item 1. Legal Proceedings

On December 19, 2001, the SEC filed civil charges in the United States
Federal District Court, Southern District of New York, against us, our former
President and then sole director Jeffrey Muller, and others, alleging that we
and the other defendants were engaged in a fraudulent scheme to promote our
stock. The SEC complaint alleged the existence of a promotional campaign using
press releases, Internet postings, an elaborate website, and televised media
events to disseminate false and materially misleading information as part of a
fraudulent scheme to manipulate the market for stock in our corporation, which
was then controlled by Mr. Muller. On March 22, 2002, we signed a Consent to
Final Judgment of Permanent Injunction and Other Relief in settlement of this
action as against the corporation only, which the court approved on July 2,
2002. Under this settlement, we were not required to pay any fines or
restitution. The SECs action continues against Mr. Muller and others.

On July 2, 2002, after an investigation by our newly constituted board of
directors, we filed a cross-complaint in the SEC action against Mr. Muller and
others seeking injunctive relief, disgorgement and financial restitution for a
variety of acts and omissions in connection with sales of our stock and other
transactions occurring between 1998 and 2002. We are also seeking cancellation
of such shares and Mr. Mullers stock option agreement and royalty arrangement.
Among other things, we allege that Mr. Muller and certain others sold stock
without consideration and without registration under federal securities laws;
engaged in self-dealing and entered into various undisclosed related-party
transactions; misappropriated for their own use proceeds from sales of our
stock; and entered into various undisclosed arrangements regarding the control,
voting and disposition of their stock.

On July 30, 2002, the U.S. Federal District Court, Southern District of
New York, granted our application for a preliminary injunction against Mr.
Muller and others, which prevents Mr. Muller and other cross-defendants from
selling, transferring, or encumbering any of our assets and property, from
selling or transferring any of our stock that they may own or control, or from
taking any action to injure us or our business and shareholders. The order also
prevents Mr. Muller from exercising any control over our corporation and
serving as an officer or director of our company. While we believe that we have
valid claims, there can be no assurance that an adverse result or settlement
would not have a material adverse effect on our financial position or cash
flow.

In the course of the litigation, we have obtained control over Mr.
Mullers patent rights to the ZEFS device. Under a Buy-Sell Agreement between
Jeffrey Muller and us dated December 29, 1998, Mr. Muller, who was listed on
the ZEFS devise patent application as the inventor of the ZEFS device, granted
us the marketing, manufacturing and distribution rights to the ZEFS device. In
conjunction with these proceedings, a settlement agreement was reached whereby
the $10 per unit royalty previously due to Mr. Muller was terminated and
replaced with a $.20 per unit royalty payable to the
bankruptcy trustee. On. November 7, 2002, under our settlement with the
Muller bankruptcy trustee, the trustee transferred all ownership and legal
rights to this international patent application for the ZEFS device to us.

The litigation against Mr. Muller and others has been pending before the
Court and will be scheduled for further proceedings and final disposition by
summary judgment motions within the near future. Although the outcome of these
motions cannot be predicted with any degree of certainty, we are optimistic
that the Courts ruling will either significantly narrow the issues for any
later trial or will result in a disposition of the case in a manner favorable
to the company. We contend that we are entitled to a judgment canceling all of
the approximately 8,716,710 shares of our common stock which we believe are
controlled, directly or indirectly, by Mr. Muller, divesting Mr. Muller of any
right to exercise options for 10,000,000 shares of our stock, the entry of an
existing preliminary injunction to prevent Mr. Muller from any involvement with
the company and a monetary judgment against Muller and others in the amount of
several million dollars. While we believe that we have valid claims, there can
be no assurance that an adverse result or settlement would not have a material
adverse effect on our financial position or cash flow.

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Item 2. Changes in Securities

From November 2002 through October 2003, we issued 13,917,414 shares of
our common stock and warrants to purchase an aggregate 13,442,414 shares of
common stock for approximately $2.8 million in cash from a group of private
investors, converting $500,000 in debt held by various lenders and legal
services valued at $20,853. The net proceeds from the financing equals
$2,548,286 after deductions of commissions. We issued two types of warrants in
this private financing. In November 2002, we issued warrants to purchase an
aggregate 950,000 shares of common stock at a purchase price per share of $0.20
exercisable within 18 months. From December 2002 through October 2003, we
issued warrants to purchase an aggregate 12,492,414 shares of common stock at a
per share purchase price of $0.50 exercisable within five years. The issuance
of shares and warrants described above was made in reliance on the exemptions
from registration set forth in Section 4(2) of the Securities Act of 1933 (the
Act), as amended. We made no public solicitation in connection with the
issuance of the above-mentioned securities. We relied on representation from
the recipients of the securities that they purchased the securities for
investment only and not with a view to any distribution thereof and that they
were aware of our business affairs and financial condition and had sufficient
information to reach an informed and knowledgeable decision regarding their
acquisition of the securities.

24



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Item 6. Exhibits and Reports
on Form 8-K

The exhibits listed below are required by Item 601 of Regulation S-B.

|            |  |                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                               
|            |  |                                                                                                                                           
|3.1(1)      |  | Articles of Incorporation, as amended, of the Registrant.                                                                                 
|3.2(1)      |  | Bylaws of the Registrant.                                                                                                                 
|10.1(4)     |  | Commercial Sublease between the Registrant and KZ Golf, Inc., dated October 16, 2003.                                                     
|10.2(4)     |  | General Tenancy Agreement between the Registrant and Autumlee Pty Ltd., dated November 15, 2003.                                          
|10.3(2)     |  | Agreement between the Registrant and RAND, dated December 13, 2002.                                                                       
|10.4(4)*    |  | Agreement between the Registrant and RAND, dated May 7, 2003.                                                                             
|10.5(3)     |  | Deed and Document Conveyance between the Trustee of the Property of Jeffrey Ann Muller and Lynette Anne Muller (Bankrupts).               
|10.6(3)     |  | Assignment and Bill of Sale between Pro Hart and the Registrant dated May 28, 2002.                                                       
|31.1        |  | 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 1350.                                          
|32          |  | 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).



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|*   |  | Confidential Treatment Requested.                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | Incorporated by reference from Registrants Registration Statement on Form
10-SB (Registration Number 000-29185), as amended, filed on March 2, 2000.
|   
|   
|   
|   
|(2) |  | Incorporated by reference from Registrants Form 8-K filed on December
30, 2002.                                                                     
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|   
|   
|   
|(3) |  | Incorporated by reference from Registrants Form 8-K filed on November
12, 2002.                                                                     
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|(4) |  | Incorporated by reference from
Registrants Form 10-KSB for fiscal year ended
December 31, 2002.                                                     

No reports were filed
on Form 8-K during the quarterly period ending March 31,
2003.

Items 3, 4 and 5 are not
applicable and have been omitted.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.

|                   |  |                          |  |                                        
|------------------ |  | ------------------------ |  | ---------------------------------------
|                   |  | SAVE THE WORLD AIR, INC.
|                  
|Date: July 1, 2004 |  | By:                      |  | /s Edward L. Masry                     
|                   |  |                          |  |                                        
|                   |  |                          |  | Edward L. Masry Chief Executive Officer

26



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##### Table of Contents



EXHIBIT INDEX

|            |  |                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                               
|            |  |                                                                                                                                           
|3.1(1)      |  | Articles of Incorporation, as amended, of the Registrant.                                                                                 
|3.2(1)      |  | Bylaws of the Registrant.                                                                                                                 
|10.1(4)     |  | Commercial Sublease between the Registrant and KZ Golf, Inc., dated October 16, 2003.                                                     
|10.2(4)     |  | General Tenancy Agreement between the Registrant and Autumlee Pty Ltd., dated November 15, 2003.                                          
|10.3(2)     |  | Agreement between the Registrant and RAND, dated December 13, 2002.                                                                       
|10.4(4)*    |  | Agreement between the Registrant and RAND, dated May 7, 2003.                                                                             
|10.5(3)     |  | Deed and Document Conveyance between the Trustee of the Property of Jeffrey Ann Muller and Lynette Anne Muller (Bankrupts).               
|10.6(3)     |  | Assignment and Bill of Sale between Pro Hart and the Registrant dated May 28, 2002.                                                       
|31.1        |  | 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 1350.                                          
|32          |  | 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).



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|*   |  | Confidential Treatment Requested.                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | Incorporated by reference from Registrants Registration Statement on Form
10-SB (Registration Number 000-29185), as amended, filed on March 2, 2000.
|   
|   
|   
|   
|(2) |  | Incorporated by reference from Registrants Form 8-K filed on December
30, 2002.                                                                     
|   
|   
|   
|   
|(3) |  | Incorporated by reference from Registrants Form 8-K filed on November
12, 2002.                                                                     
|   
|   
|   
|   
|(4) |  | Incorporated by reference from
Registrants Form 10-KSB for fiscal year ended
December 31, 2002.                                                     

27