##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 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 
incorporation or organization)
    
    (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.
 o þ
 o þ
  o þ




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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
    
    
    41ITEM 3. Controls and Procedures
    
    
    54PART IIITEM 1. Legal Proceedings
    
    
    55ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    57ITEM 3. Defaults Upon Senior Securities
    
    
    57ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    58ITEM 5. Other Information
    
    
    58ITEM 6. Exhibits
    
    
    60SIGNATURES
    
    
    61EXHIBIT INDEX
    
    
    62EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 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
MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
 
 March 31, 2007
    
    
    December 31,(unaudited)
    
    
    2006ASSETSCurrent assetsCash
    
    $
    92,336
    
    
    $
    244,228Inventory
    
    
    25,722
    
    
    
    21,314Other current assets
    
    
    94,143
    
    
    
    81,232Total current assets
    
    
    212,201
    
    
    
    346,774Property and equipment, net of accumulated depreciation
    
    
    307,128
    
    
    
    322,023Other assets
    
    
    4,500
    
    
    
    4,500Total assets
    
    $
    523,829
    
    
    $
    673,297
  1




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED BALANCE SHEETS  Continued
MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006
 
 March 31, 2007
    
    
    December 31,(unaudited)
    
    
    2006LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent liabilitiesAccounts payable
    
    $
    412,518
    
    
    $
    233,707Accrued expenses
    
    
    473,043
    
    
    
    468,413Accrued research and development fees
    
    
    95,000
    
    
    
    95,000Accrued professional fees
    
    
    687,526
    
    
    
    594,945Convertible debentures, net
    
    
    660,623
    
    
    
    177,926Total current liabilities
    
    
    2,328,710
    
    
    
    1,569,991Commitments and contingenciesStockholders deficiencyCommon stock, $.001 par value: 200,000,000 shares
authorized, 40,687,707 and 40,081,758 shares issued
and outstanding at March 31, 2007 and December 31,
2006, respectively
    
    
    40,688
    
    
    
    40,082Common stock to be issued
    
    
    60,000
    
    
    
    60,000Additional paid-in capital
    
    
    30,436,189
    
    
    
    29,430,821Deficit accumulated during the development stage
    
    
    (32,341,758
    )
    
    
    (30,427,597
    )Total stockholders deficiency
    
    
    (1,804,881
    )
    
    
    (896,694
    )Total liabilities and stockholders deficiency
    
    $
    523,829
    
    
    $
    673,297
  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 MONTHS ENDED MARCH 31, 2007 AND 2006 AND FOR THE PERIOD FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 CumulativeMarch 31,
    
    
    March 31,
    
    
    since2007
    
    
    2006
    
    
    inceptionNet sales
    
    $
    22,000
    
    
    $
    
    
    
    $
    52,000Cost of goods sold
    
    
    5,360
    
    
    
    
    
    
    
    18,760Gross profit
    
    
    16,640
    
    
    
    
    
    
    
    33,240Operating expenses
    
    
    1,279,775
    
    
    
    1,755,438
    
    
    
    24,182,751Research and development expenses
    
    
    340,452
    
    
    
    57,294
    
    
    
    4,545,866Non-cash patent settlement cost
    
    
    
    
    
    
    
    
    
    
    1,610,066Loss before other income(expense)
    
    
    (1,603,587
    )
    
    
    (1,812,732
    )
    
    
    (30,305,443
    )Other income(expense)Other income
    
    
    87
    
    
    
    
    
    
    
    212Interest income
    
    
    17
    
    
    
    
    
    
    
    16,268Interest expense
    
    
    (207,672
    )
    
    
    (1,184,573
    )
    
    
    (2,963,515
    )Financing fee
    
    
    (47,104
    )
    
    
    
    
    
    
    (47,104
    )Placement fee
    
    
    (42,000
    )
    
    
    
    
    
    
    (42,000
    )Other expense
    
    
    (13,102
    )
    
    
    
    
    
    
    (13,102
    )Settlement of litigation and debt
    
    
    
    
    
    
    
    
    
    
    1,017,208Loss before provision for income taxes
    
    
    (1,913,361
    )
    
    
    (2,997,305
    )
    
    
    (32,337,476
    )Provision for income taxes
    
    
    800
    
    
    
    800
    
    
    
    4,282Net loss
    
    $
    (1,914,161
    )
    
    $
    (2,998,105
    )
    
    $
    (32,341,758
    )Net loss per common share, basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.10
    )Weighted average common shares outstanding, basic and diluted
    
    
    39,012,446
    
    
    
    31,468,333
  3




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficit
    
    
    Totalaccumulated
    
    
    stockholdersAdditional
    
    
    
    
    
    
    during the
    
    
    developmentCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    stageShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    deficiencyBalance, February 18, 1998(date of inception)
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of common stock on April 18, 1998
    
    
    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
    
    
    198,003
    
    
    
    198
    
    
    
    
    
    
    
    516,738
    
    
    
    
    
    
    
    
    
    
    
    516,936Issuance of common stock for ZEFS on September 14, 1999
    
    
    5,000,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock issued for professional services on May 18, 1999
    
    
    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
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    20,580
    
    
    
    
    
    
    
    
    
    
    
    20,600Stock issued for consulting services on February 8, 2000
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    102,900
    
    
    
    
    
    
    
    
    
    
    
    103,000Stock issued for professional services on April 18, 2000
    
    
    27,000
    
    
    
    27
    
    
    
    
    
    
    
    91,233
    
    
    
    
    
    
    
    
    
    
    
    91,260Stock issued for directors fees on April 18, 2000
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    168,950
    
    
    
    
    
    
    
    
    
    
    
    169,000Stock issued for professional services on May 19, 2000
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    20,295
    
    
    
    
    
    
    
    
    
    
    
    20,300Stock issued for directors fees on June 20, 2000
    
    
    6,000
    
    
    
    6
    
    
    
    
    
    
    
    26,634
    
    
    
    
    
    
    
    
    
    
    
    26,640Stock issued for professional services on June 20, 2000
    
    
    1,633
    
    
    
    2
    
    
    
    
    
    
    
    7,249
    
    
    
    
    
    
    
    
    
    
    
    7,251Stock issued for professional services on June 26, 2000
    
    
    1,257
    
    
    
    1
    
    
    
    
    
    
    
    6,674
    
    
    
    
    
    
    
    
    
    
    
    6,675Stock issued for employee compensation on June 26, 2000
    
    
    22,000
    
    
    
    22
    
    
    
    
    
    
    
    116,798
    
    
    
    
    
    
    
    
    
    
    
    116,820Stock issued for consulting services on June 26, 2000
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    52,203
    
    
    
    
    
    
    
    
    
    
    
    52,213Stock issued for promotional services on July 28, 2000
    
    
    9,675
    
    
    
    9
    
    
    
    
    
    
    
    47,205
    
    
    
    
    
    
    
    
    
    
    
    47,214Stock issued for consulting services on July 28, 2000
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    47,975
    
    
    
    
    
    
    
    
    
    
    
    47,985Stock issued for consulting services on August 4, 2000
    
    
    35,033
    
    
    
    35
    
    
    
    
    
    
    
    74,585
    
    
    
    
    
    
    
    
    
    
    
    74,620Stock issued for promotional services on August 16, 2000
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    56,225
    
    
    
    
    
    
    
    
    
    
    
    56,250Stock issued for consulting services on September 5, 2000
    
    
    12,833
    
    
    
    13
    
    
    
    
    
    
    
    28,861
    
    
    
    
    
    
    
    
    
    
    
    28,874Stock issued for consulting services on September 10, 2000
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    14,740
    
    
    
    
    
    
    
    
    
    
    
    14,750Stock issued for consulting services on November 2, 2000
    
    
    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)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficit
    
    
    Totalaccumulated
    
    
    stockholdersAdditional
    
    
    
    
    
    during the
    
    
    developmentCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    stageShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    deficiencyStock issued for consulting services on November 4, 2000
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    8,653Stock issued for consulting services on December 20, 2000
    
    
    19,082
    
    
    
    19
    
    
    
    
    
    
    
    9,522
    
    
    
    
    
    
    
    
    
    
    
    9,541Stock issued for filing services on December 20, 2000
    
    
    5,172
    
    
    
    5
    
    
    
    
    
    
    
    2,581
    
    
    
    
    
    
    
    
    
    
    
    2,586Stock issued for professional services on December 26, 2000
    
    
    12,960
    
    
    
    13
    
    
    
    
    
    
    
    4,912
    
    
    
    
    
    
    
    
    
    
    
    4,925Other stock issuance on August 24, 2000
    
    
    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
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    3,038
    
    
    
    
    
    
    
    
    
    
    
    3,048Stock issued for consulting services on February 1, 2001
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    3,235
    
    
    
    
    
    
    
    
    
    
    
    3,245Stock issued for consulting services on March 1, 2001
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    
    
    
    
    2,753Stock issued for legal services on March 13, 2001
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    47,850
    
    
    
    
    
    
    
    
    
    
    
    48,000Stock issued for consulting services on April 3, 2001
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    2,448
    
    
    
    
    
    
    
    
    
    
    
    2,458Stock issued for legal services on April 4, 2001
    
    
    30,918
    
    
    
    31
    
    
    
    
    
    
    
    7,699
    
    
    
    
    
    
    
    
    
    
    
    7,730Stock issued for professional services on April 4, 2001
    
    
    7,040
    
    
    
    7
    
    
    
    
    
    
    
    1,753
    
    
    
    
    
    
    
    
    
    
    
    1,760Stock issued for consulting services on April 5, 2001
    
    
    132,600
    
    
    
    132
    
    
    
    
    
    
    
    33,018
    
    
    
    
    
    
    
    
    
    
    
    33,150Stock issued for filing fees on April 30, 2001
    
    
    1,233
    
    
    
    1
    
    
    
    
    
    
    
    2,033
    
    
    
    
    
    
    
    
    
    
    
    2,034Stock issued for filing fees on September 19, 2001
    
    
    2,678
    
    
    
    2
    
    
    
    
    
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    2,276Stock issued for professional services on September 28, 2001
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    92,850
    
    
    
    
    
    
    
    
    
    
    
    93,000Stock issued for directors services on October 5, 2001
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    59,900
    
    
    
    
    
    
    
    
    
    
    
    60,000Stock issued for legal services on October 17, 2001
    
    
    11,111
    
    
    
    11
    
    
    
    
    
    
    
    6,655
    
    
    
    
    
    
    
    
    
    
    
    6,666Stock issued for consulting services on October 18, 2001
    
    
    400,000
    
    
    
    400
    
    
    
    
    
    
    
    379,600
    
    
    
    
    
    
    
    
    
    
    
    380,000Stock issued for consulting services on October 19, 2001
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    187,350
    
    
    
    
    
    
    
    
    
    
    
    187,500Stock issued for exhibit fees on October 22, 2001
    
    
    5,000
    
    
    
    6
    
    
    
    
    
    
    
    6,745
    
    
    
    
    
    
    
    
    
    
    
    6,751Stock issued for directors services on November 2, 2001
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    
    
    
    
    949,000
    
    
    
    
    
    
    
    
    
    
    
    950,000Stock issued for consulting services on November 7, 2001
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    16,980
    
    
    
    
    
    
    
    
    
    
    
    17,000
 5




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 Deficitaccumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    during the
    
    
    stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    stage deficiencyStock issued for consulting services on November 20, 2001
    
    
    43,000
    
    
    
    43
    
    
    
    
    
    
    
    42,097
    
    
    
    
    
    
    
    
    
    
    
    42,140Stock issued for consulting services on November 27, 2001
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,790
    
    
    
    
    
    
    
    
    
    
    
    9,800Stock issued for consulting services on November 28, 2001
    
    
    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
    
    
    2,150,000
    
    
    
    2,150
    
    
    
    
    
    
    
    857,850
    
    
    
    
    
    
    
    
    
    
    
    860,000Common stock paid for, but not issued (2,305,000 shares)
    
    
    
    
    
    
    
    
    
    
    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
    
    
    1,425,000
    
    
    
    1,425
    
    
    
    (213,750
    )
    
    
    212,325
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued, previously paid for
    
    
    880,000
    
    
    
    880
    
    
    
    (220,000
    )
    
    
    219,120
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash on March 20, 2003
    
    
    670,000
    
    
    
    670
    
    
    
    
    
    
    
    166,830
    
    
    
    
    
    
    
    
    
    
    
    167,500Stock issued for cash on April 4, 2003
    
    
    900,000
    
    
    
    900
    
    
    
    
    
    
    
    224,062
    
    
    
    
    
    
    
    
    
    
    
    224,962Stock issued for cash on April 8, 2003
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    24,900
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on May 8, 2003
    
    
    1,150,000
    
    
    
    1,150
    
    
    
    
    
    
    
    286,330
    
    
    
    
    
    
    
    
    
    
    
    287,480Stock issued for cash on June 16, 2003
    
    
    475,000
    
    
    
    475
    
    
    
    
    
    
    
    118,275
    
    
    
    
    
    
    
    
    
    
    
    118,750Stock issued for legal services on June 27, 2003
    
    
    83,414
    
    
    
    83
    
    
    
    
    
    
    
    45,794
    
    
    
    
    
    
    
    
    
    
    
    45,877Debt converted to stock on June 27, 2003
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    
    
    
    
    498,000
    
    
    
    
    
    
    
    
    
    
    
    500,000Stock and warrants issued for cash on July 11, 2003
    
    
    519,000
    
    
    
    519
    
    
    
    
    
    
    
    129,231
    
    
    
    
    
    
    
    
    
    
    
    129,750Stock and warrants issued for cash on September 29, 2003
    
    
    1,775,000
    
    
    
    1,775
    
    
    
    
    
    
    
    441,976
    
    
    
    
    
    
    
    
    
    
    
    443,751Stock and warrants issued for cash on October 21, 2003
    
    
    1,845,000
    
    
    
    1,845
    
    
    
    
    
    
    
    459,405
    
    
    
    
    
    
    
    
    
    
    
    461,250Stock and warrants issued for cash on October 28, 2003
    
    
    1,570,000
    
    
    
    1,570
    
    
    
    
    
    
    
    390,930
    
    
    
    
    
    
    
    
    
    
    
    392,500Stock and warrants issued for cash on November 19, 2003
    
    
    500,000
    
    
    
    500
    
    
    
    
    
    
    
    124,500
    
    
    
    
    
    
    
    
    
    
    
    125,000
 6




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficitaccumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    during the
    
    
    stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    stage deficiencyFinders fees related to stock issuances
    
    
    
    
    
    
    
    
    
    
    43,875
    
    
    
    (312,582
    )
    
    
    
    
    
    
    
    
    
    
    (268,707
    )Common stock paid for, but not issued (25,000 shares)
    
    
    
    
    
    
    
    
    
    
    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
    
    
    25,000
    
    
    
    25
    
    
    
    (6,250
    )
    
    
    6,225
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for director services on March 31, 2004
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued for finders fees on March 31, 2004
    
    
    82,500
    
    
    
    82
    
    
    
    
    
    
    
    12,293
    
    
    
    
    
    
    
    
    
    
    
    12,375Stock issued for finders fees on March 31, 2004
    
    
    406,060
    
    
    
    407
    
    
    
    
    
    
    
    101,199
    
    
    
    
    
    
    
    
    
    
    
    101,606Stock issued for services on April 2, 2004
    
    
    65,000
    
    
    
    65
    
    
    
    
    
    
    
    99,385
    
    
    
    
    
    
    
    
    
    
    
    99,450Debt converted to stock on April 2, 2004
    
    
    60,000
    
    
    
    60
    
    
    
    
    
    
    
    91,740
    
    
    
    
    
    
    
    
    
    
    
    91,800Stock issued upon exercise of warrants on May 21, 2004
    
    
    950,000
    
    
    
    950
    
    
    
    
    
    
    
    189,050
    
    
    
    
    
    
    
    
    
    
    
    190,000Stock issued for directors services on June 8, 2004
    
    
    600,000
    
    
    
    600
    
    
    
    
    
    
    
    1,019,400
    
    
    
    
    
    
    
    
    
    
    
    1,020,000Stock issued for cash on August 25, 2004
    
    
    550,000
    
    
    
    550
    
    
    
    
    
    
    
    549,450
    
    
    
    
    
    
    
    
    
    
    
    550,000Stock issued upon exercise of options on August 30, 2004
    
    
    4,000
    
    
    
    4
    
    
    
    
    
    
    
    1,596
    
    
    
    
    
    
    
    
    
    
    
    1,600Stock issued for cash on September 8, 2004
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for consulting services on September 15, 2004
    
    
    50,000
    
    
    
    49
    
    
    
    
    
    
    
    65,451
    
    
    
    
    
    
    
    
    
    
    
    65,500Stock issued for patent settlement on September 22, 2004
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    24,780
    
    
    
    
    
    
    
    
    
    
    
    24,800Stock issued for research and development on October 6, 2004
    
    
    65,000
    
    
    
    65
    
    
    
    
    
    
    
    90,935
    
    
    
    
    
    
    
    
    
    
    
    91,000Stock issued for cash on October 6, 2004
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on October 15, 2004
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    149,850
    
    
    
    
    
    
    
    
    
    
    
    150,000Stock issued upon exercise of stock options on October 21, 2004
    
    
    6,500
    
    
    
    6
    
    
    
    
    
    
    
    2,594
    
    
    
    
    
    
    
    
    
    
    
    2,600Stock issued for cash on November 3, 2004
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on November 18, 2004
    
    
    172,500
    
    
    
    173
    
    
    
    
    
    
    
    172,327
    
    
    
    
    
    
    
    
    
    
    
    172,500Stock issued for cash on December 9, 2004
    
    
    75,000
    
    
    
    75
    
    
    
    
    
    
    
    74,925
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued for cash on December 23, 2004
    
    
    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
    )
    
    
    
    
    
    
    
 7




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficitaccumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    during the
    
    
    stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    stage deficiencyFair 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
    
    
    69,000
    
    
    
    69
    
    
    
    (69,000
    )
    
    
    68,931
    
    
    
    
    
    
    
    
    
    
    
    Stock issued upon exercise of warrants, previously paid for
    
    
    50,000
    
    
    
    50
    
    
    
    (50,000
    )
    
    
    49,950
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash on January 20, 2005
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued upon exercise of warrants on January 31, 2005
    
    
    500
    
    
    
    1
    
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    200Stock issued for cash on February 17, 2005
    
    
    325,000
    
    
    
    325
    
    
    
    
    
    
    
    324,675
    
    
    
    
    
    
    
    
    
    
    
    325,000Stock issued for cash on March 31, 2005
    
    
    215,000
    
    
    
    215
    
    
    
    
    
    
    
    214,785
    
    
    
    
    
    
    
    
    
    
    
    215,000Stock issued for cash on May 17, 2005
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    4,995
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock issued for cash on June 7, 2005
    
    
    300,000
    
    
    
    300
    
    
    
    
    
    
    
    299,700
    
    
    
    
    
    
    
    
    
    
    
    300,000Stock issued for cash on August 5, 2005
    
    
    480,500
    
    
    
    480
    
    
    
    
    
    
    
    480,020
    
    
    
    
    
    
    
    
    
    
    
    480,500Stock issued for cash on August 9, 2005
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    99,900
    
    
    
    
    
    
    
    
    
    
    
    100,000Stock issued for cash on October 27, 2005
    
    
    80,000
    
    
    
    80
    
    
    
    
    
    
    
    79,920
    
    
    
    
    
    
    
    
    
    
    
    80,000Common stock cancelled on December 7, 2005
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    31,500Fair 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
    )
 8




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficitaccumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    during the
    
    
    stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    stage deficiencyBalance, 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
    
    
    846,549
    
    
    
    847
    
    
    
    (612,521
    )
    
    
    611,674
    
    
    
    
    
    
    
    
    
    
    
    Stock issued upon
exercise of
warrants on March
23, 2006
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    37,475
    
    
    
    
    
    
    
    
    
    
    
    37,500Stock issued upon
exercise of
warrants on March
27, 2006
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued upon
exercise of
warrants on March
27, 2006
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    12,475
    
    
    
    
    
    
    
    
    
    
    
    12,500Stock issued upon
exercise of
warrants on March
30, 2006
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,990
    
    
    
    
    
    
    
    
    
    
    
    10,000Stock issued upon
exercise of
warrants on April
10, 2006
    
    
    36,250
    
    
    
    36
    
    
    
    
    
    
    
    18,089
    
    
    
    
    
    
    
    
    
    
    
    18,125Common stock
issued for
convertible debt
on April 10, 2006
    
    
    269,600
    
    
    
    270
    
    
    
    
    
    
    
    188,450
    
    
    
    
    
    
    
    
    
    
    
    188,720Stock issued for
cash on April 24,
2006
    
    
    473,000
    
    
    
    473
    
    
    
    
    
    
    
    737,408
    
    
    
    
    
    
    
    
    
    
    
    737,881Stock issued upon
exercise of
warrants on April
26, 2006
    
    
    125,000
    
    
    
    125
    
    
    
    
    
    
    
    62,375
    
    
    
    
    
    
    
    
    
    
    
    62,500Stock issued upon
exercise of
warrants on April
26, 2006
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    149,900
    
    
    
    
    
    
    
    
    
    
    
    150,000Common stock
issued for
convertible debt
on April 26, 2006
    
    
    35,714
    
    
    
    36
    
    
    
    
    
    
    
    24,964
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued upon
exercise of
warrants on May 6,
2006
    
    
    200,000
    
    
    
    200
    
    
    
    
    
    
    
    99,800
    
    
    
    
    
    
    
    
    
    
    
    100,000Stock issued upon
exercise of
warrants on May
15, 2006
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    37,475
    
    
    
    
    
    
    
    
    
    
    
    37,500Stock issued upon
exercise of
warrants on May
15, 2006
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    24,950
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for
cash on June 7,
2006
    
    
    873,018
    
    
    
    872
    
    
    
    
    
    
    
    1,649,136
    
    
    
    
    
    
    
    
    
    
    
    1,650,008Common stock
issued for
convertible debt
on June 7, 2006
    
    
    1,535,716
    
    
    
    1,536
    
    
    
    
    
    
    
    1,073,464
    
    
    
    
    
    
    
    
    
    
    
    1,075,000Stock issued upon
exercise of
warrants on June
8, 2006
    
    
    900,000
    
    
    
    900
    
    
    
    
    
    
    
    449,100
    
    
    
    
    
    
    
    
    
    
    
    450,000Stock issued upon
exercise of
warrants on June
9, 2006
    
    
    9,000
    
    
    
    9
    
    
    
    
    
    
    
    4,491
    
    
    
    
    
    
    
    
    
    
    
    4,500Stock issued upon
exercise of
warrants on June
23, 2006
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    74,850
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued upon
exercise of
warrants on June
23, 2006
    
    
    15,000
    
    
    
    15
    
    
    
    
    
    
    
    22,485
    
    
    
    
    
    
    
    
    
    
    
    22,500Common stock
issued for
convertible debt
on June 30, 2006
    
    
    219,104
    
    
    
    219
    
    
    
    
    
    
    
    153,155
    
    
    
    
    
    
    
    
    
    
    
    153,374Common stock
issued for
convertible debt
on July 11, 2006
    
    
    14,603
    
    
    
    15
    
    
    
    
    
    
    
    10,207
    
    
    
    
    
    
    
    
    
    
    
    10,222Common stock
issued for
convertible debt
on August 7, 2006
    
    
    1,540,160
    
    
    
    1,540
    
    
    
    
    
    
    
    1,076,572
    
    
    
    
    
    
    
    
    
    
    
    1,078,112Common stock
issued upon
exercise of
warrants on August
7, 2006
    
    
    175,000
    
    
    
    175
    
    
    
    
    
    
    
    262,325
    
    
    
    
    
    
    
    
    
    
    
    262,500Common stock issued
upon exercise of warrants
on August 21, 2006
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000
 9




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficitaccumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    during the
    
    
    stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    stage deficiencyCommon stock issued for
cash on August 22, 2006
    
    
    14,519
    
    
    
    15
    
    
    
    
    
    
    
    14,504
    
    
    
    
    
    
    
    
    
    
    
    14,519Common stock issued upon
exercise of warrants on
August 23, 2006
    
    
    3,683
    
    
    
    4
    
    
    
    
    
    
    
    3,679
    
    
    
    
    
    
    
    
    
    
    
    3,683Common stock issued upon
exercise of warrants on
August 28, 2006
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    7,495
    
    
    
    
    
    
    
    
    
    
    
    7,500Common stock issued for
convertible debt on
September 13, 2006
    
    
    4,286
    
    
    
    4
    
    
    
    
    
    
    
    2,996
    
    
    
    
    
    
    
    
    
    
    
    3,000Common stock issued upon
exercise of warrants on
September 13, 2006
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    74,850
    
    
    
    
    
    
    
    
    
    
    
    75,000Common stock issued for
convertible debt on
October 16, 2006
    
    
    66,654
    
    
    
    67
    
    
    
    
    
    
    
    46,591
    
    
    
    
    
    
    
    
    
    
    
    46,658Common stock issued upon
exercise of warrants on
November 3, 2006
    
    
    210,000
    
    
    
    210
    
    
    
    
    
    
    
    104,790
    
    
    
    
    
    
    
    
    
    
    
    105,000Common stock issued for
put on equity line of
credit on November 7,
2006
    
    
    94,470
    
    
    
    94
    
    
    
    
    
    
    
    115,368
    
    
    
    
    
    
    
    
    
    
    
    115,462Common stock issued for
put on equity line of
credit on November 14,
2006
    
    
    7,300
    
    
    
    7
    
    
    
    
    
    
    
    8,349
    
    
    
    
    
    
    
    
    
    
    
    8,356Common stock issued for
put on equity line of
credit on November 27,
2006
    
    
    27,500
    
    
    
    28
    
    
    
    
    
    
    
    22,913
    
    
    
    
    
    
    
    
    
    
    
    22,941Common stock issued for
put on equity line of
credit on November 28,
2006
    
    
    36,500
    
    
    
    36
    
    
    
    
    
    
    
    30,059
    
    
    
    
    
    
    
    
    
    
    
    30,095Common stock issued for
put on equity line of
credit on December 6,
2006
    
    
    73,863
    
    
    
    74
    
    
    
    
    
    
    
    57,244
    
    
    
    
    
    
    
    
    
    
    
    57,318Common stock issued for
put on equity line of
credit on December 26,
2006
    
    
    18,800
    
    
    
    19
    
    
    
    
    
    
    
    10,377
    
    
    
    
    
    
    
    
    
    
    
    10,396Common stock issued for
put on equity line of
credit on December 31,
2006
    
    
    229,050
    
    
    
    229
    
    
    
    
    
    
    
    135,300
    
    
    
    
    
    
    
    
    
    
    
    135,529Common stock paid for,
but not issued
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000Fair value of options
issued to employees and
officers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,253,263
    
    
    
    
    
    
    
    
    
    
    
    2,253,263Fair value of warrants
issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401,130
    
    
    
    
    
    
    
    
    
    
    
    401,130Write off of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142,187
    )
    
    
    142,187
    
    
    
    
    
    
    
    Warrants issued for
consulting services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,497
    
    
    
    
    
    
    
    
    
    
    
    62,497Warrants issued with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    408,596
    
    
    
    
    
    
    
    
    
    
    
    408,596Intrinsic value of
beneficial conversion
associated with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    851,100
    
    
    
    
    
    
    
    
    
    
    
    851,100Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284,579
    )
    
    
    
    
    
    
    
    
    
    
    (284,579
    )Fees paid on equity line
of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,402
    )
    
    
    
    
    
    
    
    
    
    
    (30,402
    )Net loss for year ended
December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    (10,181,523
    )
    
    
    (10,181,523
    )
 10




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY  Continued
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
 
 Deficitaccumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    during the
    
    
    stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    development
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    stage
    
    
    stage deficiencyBalance, December 31, 2006
    
    
    40,081,757
    
    
    $
    40,082
    
    
    $
    60,000
    
    
    $
    29,430,821
    
    
    $
    
    
    
    $
    (30,427,597
    )
    
    $
    (896,694
    )Common stock issued for
put on equity line of
credit on January 11, 2007
    
    
    63,000
    
    
    
    63
    
    
    
    
    
    
    
    39,659
    
    
    
    
    
    
    
    
    
    
    
    39,722Common stock issued for
put on equity line of
credit on January 22, 2007
    
    
    58,150
    
    
    
    58
    
    
    
    
    
    
    
    42,246
    
    
    
    
    
    
    
    
    
    
    
    42,304Common stock issued for
put on equity line of
credit on February 9, 2007
    
    
    35,800
    
    
    
    36
    
    
    
    
    
    
    
    26,009
    
    
    
    
    
    
    
    
    
    
    
    26,045Common stock issued for
put on equity line of
credit on February 16,
2007
    
    
    162,000
    
    
    
    162
    
    
    
    
    
    
    
    112,979
    
    
    
    
    
    
    
    
    
    
    
    113,141Common stock issued for
put on equity line of
credit on February 26,
2007
    
    
    71,000
    
    
    
    71
    
    
    
    
    
    
    
    46,761
    
    
    
    
    
    
    
    
    
    
    
    46,832Common stock issued for
put on equity line of
credit on March 5, 2007
    
    
    42,600
    
    
    
    43
    
    
    
    
    
    
    
    28,056
    
    
    
    
    
    
    
    
    
    
    
    28,099Common stock issued for
put on equity line of
credit on March 12, 2007
    
    
    92,900
    
    
    
    93
    
    
    
    
    
    
    
    62,085
    
    
    
    
    
    
    
    
    
    
    
    62,178Common stock issued for
put on equity line of
credit on March 19, 2007
    
    
    47,500
    
    
    
    48
    
    
    
    
    
    
    
    30,362
    
    
    
    
    
    
    
    
    
    
    
    30,410Common stock issued for
put on equity line of
credit on March 26, 2007
    
    
    7,500
    
    
    
    7
    
    
    
    
    
    
    
    4,722
    
    
    
    
    
    
    
    
    
    
    
    4,729Common stock issued for
put on equity line of
credit on March 31, 2007
    
    
    25,500
    
    
    
    25
    
    
    
    
    
    
    
    15,558
    
    
    
    
    
    
    
    
    
    
    
    15,583Fees paid on equity line
of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,723
    )
    
    
    
    
    
    
    
    
    
    
    (32,723
    )Warrants issued with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291,936
    
    
    
    
    
    
    
    
    
    
    
    291,936Intrinsic value of
beneficial conversion
associated with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274,312
    
    
    
    
    
    
    
    
    
    
    
    274,312Fair value of warrants
issued to non-employee for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,104
    
    
    
    
    
    
    
    
    
    
    
    47,104Fair value of options
issued to officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,302
    
    
    
    
    
    
    
    
    
    
    
    16,302Net loss for three months
ended March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,914,161
    )
    
    
    (1,914,161
    )Balance,
March 31, 2007 (unaudited)
    
    
    40,687,707
    
    
    
    40,688
    
    
    
    60,000
    
    
    
    30,436,189
    
    
    
    
    
    
    
    (32,341,758
    )
    
    
    (1,804,881
    )
 11




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2007 AND 2006 AND FOR THE PERIOD
FEBRUARY 18, 1998 (DATE OF INCEPTION) TO MARCH 31, 2007
  CumulativeMarch 31,
    
    
    March 31,
    
    
    since2007
    
    
    2006
    
    
    inceptionCash flows from operating activitiesNet loss
    
    $
    (1,914,161
    )
    
    $
    (2,998,105
    )
    
    $
    (32,341,758
    )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
    )Stock based compensation expense
    
    
    63,406
    
    
    
    879,619
    
    
    
    2,964,990Issuance of common stock for services
    
    
    
    
    
    
    
    
    
    
    4,668,102Issuance of options for legal settlement
    
    
    
    
    
    
    
    
    
    
    31,500Issuance of warrants for legal settlement
    
    
    
    
    
    
    
    
    
    
    4,957Loss on valuation of warrants
    
    
    13,102
    
    
    
    
    
    
    
    13,102Patent acquisition cost
    
    
    
    
    
    
    
    
    
    
    1,610,066Amortization of issuance costs and original issue debt
    
    
    204,593
    
    
    
    1,133,935
    
    
    
    3,003,898Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    3,060,744Depreciation
    
    
    53,832
    
    
    
    23,312
    
    
    
    242,051Changes in operating assets and liabilities:Inventory
    
    
    (4,409
    )
    
    
    
    
    
    
    (25,723
    )Prepaid expenses and other
    
    
    (12,911
    )
    
    
    269
    
    
    
    (94,143
    )Other assets
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Accounts payable and accrued expenses
    
    
    276,023
    
    
    
    25,007
    
    
    
    2,508,137Net cash used in operating activities
    
    
    (1,320,525
    )
    
    
    (935,963
    )
    
    
    (14,870,785
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (38,937
    )
    
    
    (42,141
    )
    
    
    (545,629
    )Net cash used in investing activities
    
    
    (38,937
    )
    
    
    (42,141
    )
    
    
    (545,629
    )Cash flows from financing activitiesNet proceeds under equity line of credit
    
    
    376,320
    
    
    
    
    
    
    
    726,015Increase in payables to related parties and shareholder
    
    
    
    
    
    
    
    
    
    
    511,450Advances from founding executive officer
    
    
    
    
    
    
    
    
    
    
    517,208Net proceeds from issuance of convertible notes and warrants
    
    
    850,000
    
    
    
    865,500
    
    
    
    3,517,878Repayment of convertible notes
    
    
    (18,750
    )
    
    
    
    
    
    
    (18,750
    )Net proceeds from issuance of common stock and common stock issuable
    
    
    
    
    
    
    153,127
    
    
    
    10,254,949Net cash provided by financing activities
    
    
    1,207,570
    
    
    
    1,018,627
    
    
    
    15,508,750Net increase (decrease) in cash
    
    
    (151,892
    )
    
    
    40,523
    
    
    
    92,336Cash, beginning of period
    
    
    244,228
    
    
    
    279,821
    
    
    
    Cash, end of period
    
    $
    92,336
    
    
    $
    320,344
    
    
    $
    92,336
  12




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  Continued
THREE MONTHS ENDED MARCH 31, 2007 AND 2006 AND FOR THE PERIOD FROM
INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2007
  CumulativeMarch 31,
    
    
    March 31,
    
    
    since2007
    
    
    2006
    
    
    inceptionSupplemental disclosures of cash flow informationCash paid during the period forInterest
    
    $
    3,079
    
    
    $
    
    
    
    $
    144,558Income taxes
    
    $
    800
    
    
    $
    800
    
    
    $
    4,282Non-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
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    113,981Cancellation of stock
    
    
    
    
    
    
    
    
    
    
    8,047Conversion of accounts payable and accrued expenses to common stock issued
    
    
    
    
    
    
    
    
    
    
    612,521Conversion of related party debt to convertible debentures
    
    
    
    
    
    
    
    
    
    
    45,000Conversion of convertible debentures to common stock
    
    
    
    
    
    
    
    
    
    
    2,580,086Write off of deferred compensation
    
    
    
    
    
    
    
    
    
    
    142,187Consulting fee for issuance of stock options
    
    
    16,302
    
    
    
    
    
    
    
    16,302Financing fee for issuance of warrants
    
    
    47,104
    
    
    
    
    
    
    
    47,104
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
  1. Organization and basis of presentation
 Basis of presentation
    Description of business
    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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
     2. Development stage enterprise
   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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
   3. Significant Accounting Policies
 Revenue Recognition
  
    
    Persuasive evidence of an arrangement exists;
    
    Delivery has Delivery has occurred or services rendered;
    
    The sellers price to the buyer is fixed or determinable; and
    
    Collectibility is reasonably assured.
  Inventories
  Estimates
  Stock-based compensation
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
        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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
    4. Recent Accounting Pronouncements
        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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
  5. Net loss per share
  6. Certain relationships and related transactions
 Advances from founding executive officer
    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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
  Loans from related parties
  Lease agreement
     Marketing and promotional services agreement
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
  7. Equity line of credit
   8. 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
THREE MONTHS ENDED MARCH 31, 2007 (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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
          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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
        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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
     9. Capital stock
     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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
       10. Stock options and warrants
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
   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
    
    
    1,313,605
    
    
    
    1.21Options exercised
    
    
    (2,860,000
    )
    
    
    0.10Options forfeited
    
    
    (962,607
    )
    
    
    0.84Options cancelled
    
    
    
    
    
    
    Options, December 31, 2006
    
    
    3,999,559
    
    
    
    0.99Options granted (unaudited)
    
    
    20,000
    
    
    
    0.85Options exercised (unaudited)
    
    
    
    
    
    
    Options forfeited (unaudited)
    
    
    
    
    
    
    Options cancelled (unaudited)
    
    
    
    
    
    
    Options, March 31, 2007 (unaudited)
    
    
    4,019,559
    
    
    $
    0.99
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
 Total
    
    
    
    
    
    
    ExercisableWeighted
    
    
    weighted
    
    
    
    
    
    
    weightedaverage
    
    
    average
    
    
    
    
    
    
    AverageExercise
    
    Total options
    
    
    remaining
    
    
    exercise
    
    
    
    
    
    
    exerciseprices
    
    outstanding
    
    
    life in years
    
    
    price
    
    
    Options exercisable
    
    
    price0.40
    
    
    250,000
    
    
    
    4.55
    
    
    
    0.40
    
    
    
    250,000
    
    
    
    0.400.85
    
    
    2,095,000
    
    
    
    8.58
    
    
    
    0.85
    
    
    
    2,095,000
    
    
    
    0.850.98
    
    
    650,000
    
    
    
    6.16
    
    
    
    0.98
    
    
    
    650,000
    
    
    
    0.981.00
    
    
    370,000
    
    
    
    8.23
    
    
    
    1.00
    
    
    
    370,000
    
    
    
    1.001.15
    
    
    193,912
    
    
    
    6.93
    
    
    
    1.15
    
    
    
    193,912
    
    
    
    1.151.69
    
    
    310,647
    
    
    
    8.90
    
    
    
    1.69
    
    
    
    310,647
    
    
    
    1.692.26
    
    
    150,000
    
    
    
    3.56
    
    
    
    2.26
    
    
    
    30,000
    
    
    
    2.26$0.40-$2.26
    
    
    4,019,559
    
    
    
    7.56
    
    
    $
    0.99
    
    
    
    3,899,559
    
    
    $
    0.95
 Intrinsic value of employee options
   Black-Scholes value of employee options
  Expected life (years)
    
    
    5.26Risk free interest rate
    
    
    4.02
    %Volatility
    
    
    188.83
    %Expected dividend yield
    
    
    0.00
    %
 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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
  Warrants
  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
    
    
    3,624,894
    
    
    
    1.28Warrants exercised
    
    
    (2,328,452
    )
    
    
    0.68Warrants cancelled
    
    
    (1,191,619
    )
    
    
    1.46Warrants outstanding, December 31, 2006
    
    
    20,897,311
    
    
    
    0.81Warrants granted (unaudited)
    
    
    1,262,501
    
    
    
    0.90Warrants exercised (unaudited)Warrants cancelled (unaudited)
    
    
    (750,000
    )
    
    
    1.50Warrants outstanding, March 31, 2007 (unaudited)
    
    
    21,409,812
    
    
    
    0.78
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
   11. Research and development
  12. Going concern
  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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
 13. Commitments and contingencies
 Legal matters
    32




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
        33




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
       34




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
    Employment agreements
    35




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
    Year2007
    
    $
    741,0002008
    
    $
    10,000Total
    
    $
    751,000
  Consulting agreements
  Leases
   36




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
       Years Ending December 31,2007
    
    $
    88,3482008
    
    
    55,6802009
    
    
    37,120Total
    
    $
    181,148
 37




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
 14. Subsequent events
        38




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
      39




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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
THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)
 
        40




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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 and other third-party test results;
    
    sales and marketing expenses and efforts;
    
    liquidity and sufficiency of existing cash;
    
    technology and products;
    
    the outcome of pending or threatened litigation; and
    
    the effect of recent accounting pronouncements on our financial
condition and results of operations.
   Overview
    41




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##### Table of Contents



Results of Operations
    42




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##### Table of Contents



Liquidity and Capital Resources
 General
      43




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##### Table of Contents




    
    Gross and net proceeds of $500,000 from the issuance of a convertible note and
related warrants in a private offering to Morale Orchard, LLC (Morale) on January
10, 2007. The face amount of the note is $612,500 and is due on January 9, 2008.
    
    Gross proceeds of $350,000 (net proceeds of $30,000) from the issuance of notes and
related warrants in a private offering (the 2007 PIPE Offering) conducted by Spencer
Clarke, LLC (Spencer Clarke), as exclusive placement agent, that began in January
2007 and was completed on April 27, 2007.
    
    Gross proceeds of $409,043 (net proceeds of $376,320) from the issuance of stock
under our equity line of credit from Dutchess.
  
    
    Gross proceeds of $50,000 (net proceeds of $44,000) from the issuance of notes and
related warrants in the 2007 PIPE Offering.
    
    Gross proceeds of $583,012 (net proceeds of $536,371) from the issuance of stock
under our equity line of credit from Dutchess.
    
    Gross and net proceeds of $410,000 from the issuance of convertible notes and
related warrants in a private offering (the Spring 2007 Offering).
 Details of Recent Financing Transactions
 Equity Line of Credit .
     44




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##### Table of Contents



Morale Transaction
      2007 PIPE Offering
 45




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##### Table of Contents



2007 Spring Offering .
   46




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##### Table of Contents



Contractual Obligations
  Year ending December 31,
    
    Operating Leases(1)
    
    
    Guaranteed Payments2007
    
    $
    149,156
    (1)
    
    $
    1,585,338
    (3)2008
    
    $
    55,680
    
    
    $
    300,000
    (4)2009
    
    $
    37,120
    (2)
    
    $
    75,000
    (5)$
    241,956
    
    
    $
    1,960,338
 
 (1)
    
    This amount includes, with respect to the North Hollywood facility: (i)
unpaid base rent from February 2007 through July 2007, in the aggregate amount of
$43,032; (ii) $963 with respect to partially unpaid rent for January 2007; and (iii) a
$100 per day penalty from January 1, 2006 through July 31, 2007, in the aggregate
amount of $57,700, for unpaid rent and/or unpaid late fees claimed by the landlord,
for which the landlord claims we are liable pursuant to a certain provision of the
sublease. We believe that there are numerous reasons why we should not be liable for
most, or all, of any such penalties; however, no assurance can be given that we would
not be liable for any or all of such penalties. We have not renewed the sublease for
our corporate offices at North Hollywood, California, which expires on July 31, 47




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##### Table of Contents



2007. See Part II, Item 5, Other Information and Notes 13 and 14 to Notes to
Condensed Consolidated Financial Statements, for additional information regarding this
matter. We have assumed that we will renew the lease for our engineering, production
and testing facility at Morgan Hill, California when it expires on August 31, 2007, on
the existing terms, including rent, for an additional two-year period, expiring on July
31, 2009. We currently intend to renew this lease.(2)
    
    Does not include rent for (i) our corporate offices at North Hollywood,
California beyond July 31, 2007 or (ii) our engineering, production and testing
facility at Morgan Hill, California beyond August 31, 2009, which are the expiration
dates of the respective renewal terms for those two leases.(3)
    
    Consists of an aggregate $545,600 in total compensation, including base
salary and certain contractually-provided benefits, to two executive officers,
pursuant to employment agreements that expire on December 31, 2007, and to one
additional officer, pursuant to an employment agreement that expires on February 28,
2008; $385,000 in licensing fees to Temple University; $322,800 in severance payments
to a former officer; $240,000 in consulting fees to Spencer Clarke; and $91,938 in
fees to certain other consultants.(4)
    
    Consists of licensing fees in the amount of $290,000 due to Temple
University; and salary in the amount of $10,000 for two months to an officer, pursuant
to an employment agreement that expires on February 28, 2008. Does not include
compensation to our two executive officers, whose employment agreements expire on
December 31, 2007.(5)
    
    Consists of licensing fees due to Temple University. Does not include
compensation to our two executive officers, whose employment agreements expire on
December 31, 2007. Licensing Fees to Temple University.
   48




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##### Table of Contents



Severance Payments to Former Officers.
     Transactions with Spencer Clarke.
  49




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##### Table of Contents



Critical Accounting Policies and Estimates
     Revenue Recognition
  50




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##### Table of Contents




    
    Persuasive evidence of an arrangement exists;
    
    Delivery has occurred or services rendered;
    
    The sellers price to the buyer is fixed or determinable; and
    
    Collectibility is reasonably assured.
  Long-lived assets
  Stock-Based Compensation
    CumulativeDecember 31,
    
    
    Since2005
    
    
    InceptionNet loss, as reported
    
    $
    (3,115,186
    )
    
    $
    (30,427,597
    )Add: total fair value method
stock-based employee
compensation expense
    
    
    (1,039,268
    )
    
    
    (5,010,310
    )Less: deferred compensation
amortization for below market
employee options
    
    
    177,631
    
    
    
    3,060,744Pro forma net loss
    
    $
    (3,976,823
    )
    
    $
    (32,377,163
    )Net loss per share:As reported  basic and diluted
    
    $
    (0.08
    )Pro forma  basic and diluted
    
    $
    (0.10
    )
 51




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##### Table of Contents



52
    Table of Contents  Business and credit concentrations
  Inventories
  Estimates
  Fair value of financial instruments
  Recent Accounting Pronouncements
 Statement No. 157
  Interpretation No. 48
   EITF
00-19-2
  53
    Table of Contents  Item 3. Controls and Procedures
 a) Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 54
    Table of Contents  PART II
 
 Item 1. Legal Proceedings
 Litigation Involving Jeffrey A. Muller
      55
    Table of Contents  56
    Table of Contents      Litigation Involving Sublessor of Corporate Offices
     
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      
 Item 3. Defaults Upon Senior Securities
  57    Table of Contents  Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
        58
    Table of Contents  59
    Table of Contents  Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    
    Separation Agreement and General Mutual Release of Claims dated as of June 15, 2007
between the Company and Bruce H. McKinnon10.2
    
    
    Employment Agreement dated as of July 18, 2007 between the Company and Charles Blum31.1
    
    
    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)
    
    
    Management contract or compensatory plan or arrangement.
 60
    Table of Contents  SIGNATURES
  SAVE THE WORLD AIR, INC.Date: July 24, 2007
    By:
    /s/ CHARLES K. DARGAN IICharles K. Dargan IIChief Financial Officer 61
    Table of Contents  EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Separation Agreement and General Mutual Release of Claims dated as of June 15, 2007
between the Company and Bruce H. McKinnon10.2
    
    
    Employment Agreement dated as of July 18, 2007 between the Company and Charles Blum31.1
    
    
    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)
    
    
    Management contract or compensatory plan or arrangement.
 62