##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 o
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-29185
 SAVE THE WORLD AIR, INC.
 (Exact name of registrant as specified in its charter)
 Nevada
    
    52-2088326(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 5125 Lankershim Boulevard
North Hollywood, California 91601  (Address, including zip code, of principal executive offices)  (818) 487-8000  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Exchange Act: None. Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value.
 þ o
 o þ
  o þ




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##### 



SAVE THE WORLD AIR, INC.
 
 PagePART I
    
    
    1ITEM 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)
    
    
    10Notes to condensed financial statements (unaudited)
    
    
    12ITEM 2. Managements Discussion and Analysis or Plan of Operations
    
    
    27ITEM 3. Controls and Procedures
    
    
    32PART II
    
    
    32ITEM 1. Legal Proceedings
    
    
    32ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35ITEM 3. Defaults Upon Senior Securities
    
    
    36ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    36ITEM 5. Other Information
    
    
    36ITEM 6. Exhibits
    
    
    37SIGNATURES
    
    
    38EXHIBIT INDEX
    
    
    39Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32
  i




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
 SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED BALANCE SHEETS
 MARCH 31, 2006 (UNAUDITED) AND DECEMBER 31, 2005
 March 31, 2006
    
    
    December 31,(unaudited)
    
    
    2005ASSETSCurrent assetsCash
    
    $
    320,344
    
    
    $
    279,821Other current assets
    
    
    8,740
    
    
    
    9,009Total current assets
    
    
    329,084
    
    
    
    288,830Property and equipment, net of accumulated depreciation
    
    
    314,203
    
    
    
    295,374Other assets
    
    
    4,500
    
    
    
    4,500$
    647,787
    
    
    $
    588,704
  1




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED BALANCE SHEETS  Continued
MARCH 31, 2006 (UNAUDITED) AND DECEMBER 31, 2005
 March 31, 2006
    
    
    December 31,(unaudited)
    
    
    2005LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent liabilitiesAccounts payable
    
    $
    128,423
    
    
    $
    155,456Accrued expenses
    
    
    246,337
    
    
    
    179,461Accrued research and development fees
    
    
    595,000
    
    
    
    680,000Accrued professional fees
    
    
    523,970
    
    
    
    450,555Payable to shareholder
    
    
    
    
    
    
    45,000Payable to related parties
    
    
    158,732
    
    
    
    158,732Finders fees payable
    
    
    5,666
    
    
    
    8,916Convertible debentures, net
    
    
    1,245,974
    
    
    
    318,759Total current liabilities
    
    
    2,904,102
    
    
    
    1,996,879Commitments and contingenciesStockholders deficiencyCommon stock, $.001 par value: 200,000,000 shares
authorized, 32,343,967 and 31,387,418 shares issued
and outstanding at March 31, 2006 and December 31,
2005, respectively
    
    
    32,344
    
    
    
    31,387Common stock to be issued
    
    
    224,845
    
    
    
    612,521Additional paid-in capital
    
    
    20,730,675
    
    
    
    18,336,178Deferred compensation
    
    
    
    
    
    
    (142,187
    )Deficit accumulated during the development stage
    
    
    (23,244,179
    )
    
    
    (20,246,074
    )Total stockholders deficiency
    
    
    (2,256,315
    )
    
    
    (1,408,175
    )$
    647,787
    
    
    $
    588,704
  2




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
 THREE MONTHS ENDED MARCH 31, 2006 AND 2005 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
 CumulativeMarch 31,
    
    
    March 31,
    
    
    since2006
    
    
    2005
    
    
    inceptionNet sales
    
    $
    
    
    
    $
    
    
    
    $
    Operating expenses
    
    
    2,940,011
    
    
    
    661,595
    
    
    
    18,785,425Research and development expenses
    
    
    57,294
    
    
    
    401,485
    
    
    
    3,860,881Non-cash patent settlement cost
    
    
    
    
    
    
    
    
    
    
    1,610,066Loss before other income
    
    
    (2,997,305
    )
    
    
    (1,063,080
    )
    
    
    (24,256,372
    )Other incomeInterest income
    
    
    
    
    
    
    
    
    
    
    954Settlement of litigation and debt
    
    
    
    
    
    
    
    
    
    
    1,017,208Loss before provision for income taxes
    
    
    (2,997,305
    )
    
    
    (1,063,080
    )
    
    
    (23,238,210
    )Provision for income taxes
    
    
    800
    
    
    
    1,976
    
    
    
    5,969Net loss
    
    $
    (2,998,105
    )
    
    $
    (1,065,056
    )
    
    $
    (23,244,179
    )Net loss per common share, basic and diluted
    
    $
    (0.10
    )
    
    $
    (0.03
    )Weighted average common shares outstanding, basic and diluted
    
    
    31,468,333
    
    
    
    38,036,260
  3




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##### Table of Contents



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




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholders'Price per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock issued for consulting services on November 4, 2000
    
    
    0.88
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    8,643
    
    
    
    
    
    
    
    
    
    
    
    8,653Stock issued for consulting services on December 20, 2000
    
    
    0.50
    
    
    
    19,082
    
    
    
    19
    
    
    
    
    
    
    
    9,522
    
    
    
    
    
    
    
    
    
    
    
    9,541Stock issued for filing services on December 20, 2000
    
    
    0.50
    
    
    
    5,172
    
    
    
    5
    
    
    
    
    
    
    
    2,581
    
    
    
    
    
    
    
    
    
    
    
    2,586Stock issued for professional services on December 26, 2000
    
    
    0.38
    
    
    
    12,960
    
    
    
    13
    
    
    
    
    
    
    
    4,912
    
    
    
    
    
    
    
    
    
    
    
    4,925Other stock issuance on August 24, 2000
    
    
    2.13
    
    
    
    2,000
    
    
    
    2
    
    
    
    
    
    
    
    4,258
    
    
    
    
    
    
    
    
    
    
    
    4,260Common shares cancelled
    
    
    
    
    
    
    (55,000
    )
    
    
    (55
    )
    
    
    
    
    
    
    (64,245
    )
    
    
    
    
    
    
    
    
    
    
    (64,300
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,270,762
    )
    
    
    (1,270,762
    )Balance, December 31, 2000
    
    
    
    
    
    
    15,645,935
    
    
    
    15,646
    
    
    
    
    
    
    
    1,437,873
    
    
    
    
    
    
    
    (2,367,333
    )
    
    
    (913,814
    )Stock issued for consulting services on January 8, 2001
    
    
    0.31
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    3,038
    
    
    
    
    
    
    
    
    
    
    
    3,048Stock issued for consulting services on February 1, 2001
    
    
    0.33
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    3,235
    
    
    
    
    
    
    
    
    
    
    
    3,245Stock issued for consulting services on March 1, 2001
    
    
    0.28
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    
    
    
    
    2,753Stock issued for legal services on March 13, 2001
    
    
    0.32
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    47,850
    
    
    
    
    
    
    
    
    
    
    
    48,000Stock issued for consulting services on April 3, 2001
    
    
    0.25
    
    
    
    9,833
    
    
    
    10
    
    
    
    
    
    
    
    2,448
    
    
    
    
    
    
    
    
    
    
    
    2,458Stock issued for legal services on April 4, 2001
    
    
    0.25
    
    
    
    30,918
    
    
    
    31
    
    
    
    
    
    
    
    7,699
    
    
    
    
    
    
    
    
    
    
    
    7,730Stock issued for professional services on April 4, 2001
    
    
    0.25
    
    
    
    7,040
    
    
    
    7
    
    
    
    
    
    
    
    1,753
    
    
    
    
    
    
    
    
    
    
    
    1,760Stock issued for consulting services on April 5, 2001
    
    
    0.25
    
    
    
    132,600
    
    
    
    132
    
    
    
    
    
    
    
    33,018
    
    
    
    
    
    
    
    
    
    
    
    33,150Stock issued for filing fees on April 30, 2001 1.65
    
    
    
    
    
    
    1,233
    
    
    
    1
    
    
    
    
    
    
    
    2,033
    
    
    
    
    
    
    
    
    
    
    
    2,034Stock issued for filing fees on September 19, 2001
    
    
    0.85
    
    
    
    2,678
    
    
    
    2
    
    
    
    
    
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    2,276Stock issued for professional services on September 28, 2001
    
    
    0.62
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    92,850
    
    
    
    
    
    
    
    
    
    
    
    93,000Stock issued for directors services on October 5, 2001
    
    
    0.60
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    59,900
    
    
    
    
    
    
    
    
    
    
    
    60,000Stock issued for legal services on October 17, 2001
    
    
    0.60
    
    
    
    11,111
    
    
    
    11
    
    
    
    
    
    
    
    6,655
    
    
    
    
    
    
    
    
    
    
    
    6,666Stock issued for consulting services on October 18, 2001
    
    
    0.95
    
    
    
    400,000
    
    
    
    400
    
    
    
    
    
    
    
    379,600
    
    
    
    
    
    
    
    
    
    
    
    380,000Stock issued for consulting services on October 19, 2001
    
    
    1.25
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    187,350
    
    
    
    
    
    
    
    
    
    
    
    187,500Stock issued for exhibit fees on October 22, 2001
    
    
    1.35
    
    
    
    5,000
    
    
    
    6
    
    
    
    
    
    
    
    6,745
    
    
    
    
    
    
    
    
    
    
    
    6,751Stock issued for directors services on November 2, 2001
    
    
    0.95
    
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    
    
    
    
    949,000
    
    
    
    
    
    
    
    
    
    
    
    950,000Stock issued for consulting services on November 7, 2001
    
    
    0.85
    
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    16,980
    
    
    
    
    
    
    
    
    
    
    
    17,000
 5




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholders'Price per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyStock issued for consulting services on November 20, 2001
    
    
    0.98
    
    
    
    43,000
    
    
    
    43
    
    
    
    
    
    
    
    42,097
    
    
    
    
    
    
    
    
    
    
    
    42,140Stock issued for consulting services on November 27, 2001
    
    
    0.98
    
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,790
    
    
    
    
    
    
    
    
    
    
    
    9,800Stock issued for consulting services on November 28, 2001
    
    
    0.98
    
    
    
    187,000
    
    
    
    187
    
    
    
    
    
    
    
    183,073
    
    
    
    
    
    
    
    
    
    
    
    183,260Intrinsic value of options issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,600,000
    
    
    
    (2,600,000
    )
    
    
    
    
    
    
    Fair value of options issued to non-employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142,318
    
    
    
    
    
    
    
    
    
    
    
    142,318Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,667
    
    
    
    
    
    
    
    191,667Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,735,013
    )
    
    
    (2,735,013
    )Balance, December 31, 2001
    
    
    
    
    
    
    18,085,847
    
    
    
    18,086
    
    
    
    
    
    
    
    6,220,322
    
    
    
    (2,408,333
    )
    
    
    (5,102,346
    )
    
    
    (1,272,271
    )Stock issued for directors services on December 10, 2002
    
    
    0.40
    
    
    
    2,150,000
    
    
    
    2,150
    
    
    
    
    
    
    
    857,850
    
    
    
    
    
    
    
    
    
    
    
    860,000Common stock paid for, but not issued (2,305,000 shares)
    
    
    0.15-0.25
    
    
    
    
    
    
    
    
    
    
    
    389,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389,875Fair value of options issued to non-employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,909
    
    
    
    (54,909
    )
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    891,182
    
    
    
    
    
    
    
    891,182Net loss for the year ended December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,749,199
    )
    
    
    (2,749,199
    )Balance, December 31, 2002
    
    
    
    
    
    
    20,235,847
    
    
    
    20,236
    
    
    
    389,875
    
    
    
    7,133,081
    
    
    
    (1,572,060
    )
    
    
    (7,851,545
    )
    
    
    (1,880,413
    )Common stock issued, previously paid for
    
    
    0.15
    
    
    
    1,425,000
    
    
    
    1,425
    
    
    
    (213,750
    )
    
    
    212,325
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued, previously paid for
    
    
    0.25
    
    
    
    880,000
    
    
    
    880
    
    
    
    (220,000
    )
    
    
    219,120
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash on March 20, 2003
    
    
    0.25
    
    
    
    670,000
    
    
    
    670
    
    
    
    
    
    
    
    166,830
    
    
    
    
    
    
    
    
    
    
    
    167,500Stock issued for cash on April 4, 2003
    
    
    0.25
    
    
    
    900,000
    
    
    
    900
    
    
    
    
    
    
    
    224,062
    
    
    
    
    
    
    
    
    
    
    
    224,962Stock issued for cash on April 8, 2003
    
    
    0.25
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    24,900
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on May 8, 2003
    
    
    0.25
    
    
    
    1,150,000
    
    
    
    1,150
    
    
    
    
    
    
    
    286,330
    
    
    
    
    
    
    
    
    
    
    
    287,480Stock issued for cash on June 16, 2003
    
    
    0.25
    
    
    
    475,000
    
    
    
    475
    
    
    
    
    
    
    
    118,275
    
    
    
    
    
    
    
    
    
    
    
    118,750Stock issued for legal services on June 27, 2003
    
    
    0.55
    
    
    
    83,414
    
    
    
    83
    
    
    
    
    
    
    
    45,794
    
    
    
    
    
    
    
    
    
    
    
    45,877Debt converted to stock on June 27, 2003
    
    
    0.25
    
    
    
    2,000,000
    
    
    
    2,000
    
    
    
    
    
    
    
    498,000
    
    
    
    
    
    
    
    
    
    
    
    500,000Stock and warrants issued for cash on July 11, 2003
    
    
    0.25
    
    
    
    519,000
    
    
    
    519
    
    
    
    
    
    
    
    129,231
    
    
    
    
    
    
    
    
    
    
    
    129,750Stock and warrants issued for cash on September 29, 2003
    
    
    0.25
    
    
    
    1,775,000
    
    
    
    1,775
    
    
    
    
    
    
    
    441,976
    
    
    
    
    
    
    
    
    
    
    
    443,751Stock and warrants issued for cash on October 21, 2003
    
    
    0.25
    
    
    
    1,845,000
    
    
    
    1,845
    
    
    
    
    
    
    
    459,405
    
    
    
    
    
    
    
    
    
    
    
    461,250Stock and warrants issued for cash on October 28, 2003
    
    
    0.25
    
    
    
    1,570,000
    
    
    
    1,570
    
    
    
    
    
    
    
    390,930
    
    
    
    
    
    
    
    
    
    
    
    392,500Stock and warrants issued for cash on November 19, 2003
    
    
    0.25
    
    
    
    500,000
    
    
    
    500
    
    
    
    
    
    
    
    124,500
    
    
    
    
    
    
    
    
    
    
    
    125,000
 6




---



##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyFinders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,875
    
    
    
    (312,582
    )
    
    
    
    
    
    
    
    
    
    
    (268,707
    )Common stock paid for, but
not issued (25,000
shares)
    
    
    0.25
    
    
    
    
    
    
    
    
    
    
    
    6,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,250Amortization of deferred
comp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    863,727
    
    
    
    
    
    
    
    863,727Net loss for year ended
December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,476,063
    )
    
    
    (2,476,063
    )Balance, December 31, 2003
    
    
    
    
    
    
    34,128,261
    
    
    
    34,128
    
    
    
    6,250
    
    
    
    10,162,177
    
    
    
    (708,333
    )
    
    
    (10,327,608
    )
    
    
    (833,386
    )Common stock issued,
previously paid for
    
    
    0.25
    
    
    
    25,000
    
    
    
    25
    
    
    
    (6,250
    )
    
    
    6,225
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for director
services on March 31,
2004
    
    
    1.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued for finders
fees on March 31, 2004
    
    
    0.15
    
    
    
    82,500
    
    
    
    82
    
    
    
    
    
    
    
    12,293
    
    
    
    
    
    
    
    
    
    
    
    12,375Stock issued for finders
fees on March 31, 2004
    
    
    0.25
    
    
    
    406,060
    
    
    
    407
    
    
    
    
    
    
    
    101,199
    
    
    
    
    
    
    
    
    
    
    
    101,606Stock issued for services on
April 2, 2004
    
    
    1.53
    
    
    
    65,000
    
    
    
    65
    
    
    
    
    
    
    
    99,385
    
    
    
    
    
    
    
    
    
    
    
    99,450Debt converted to stock on
April 2, 2004
    
    
    1.53
    
    
    
    60,000
    
    
    
    60
    
    
    
    
    
    
    
    91,740
    
    
    
    
    
    
    
    
    
    
    
    91,800Stock issued upon exercise
of warrants on May 21,
2004
    
    
    0.20
    
    
    
    950,000
    
    
    
    950
    
    
    
    
    
    
    
    189,050
    
    
    
    
    
    
    
    
    
    
    
    190,000Stock issued for directors
services on June 8,
2004
    
    
    1.70
    
    
    
    600,000
    
    
    
    600
    
    
    
    
    
    
    
    1,019,400
    
    
    
    
    
    
    
    
    
    
    
    1,020,000Stock issued for cash on
August 25, 2004
    
    
    1.00
    
    
    
    550,000
    
    
    
    550
    
    
    
    
    
    
    
    549,450
    
    
    
    
    
    
    
    
    
    
    
    550,000Stock issued upon exercise
of options on August 30,
2004
    
    
    0.40
    
    
    
    4,000
    
    
    
    4
    
    
    
    
    
    
    
    1,596
    
    
    
    
    
    
    
    
    
    
    
    1,600Stock issued for cash on
September 8, 2004
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for consulting
services on September
15, 2004
    
    
    1.31
    
    
    
    50,000
    
    
    
    49
    
    
    
    
    
    
    
    65,451
    
    
    
    
    
    
    
    
    
    
    
    65,500Stock issued for patent
settlement on
September 22, 2004
    
    
    1.24
    
    
    
    20,000
    
    
    
    20
    
    
    
    
    
    
    
    24,780
    
    
    
    
    
    
    
    
    
    
    
    24,800Stock issued for research
and development on
October 6, 2004
    
    
    1.40
    
    
    
    65,000
    
    
    
    65
    
    
    
    
    
    
    
    90,935
    
    
    
    
    
    
    
    
    
    
    
    91,000Stock issued for cash on
October 6, 2004
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on
October 15, 2004
    
    
    1.00
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    149,850
    
    
    
    
    
    
    
    
    
    
    
    150,000Stock issued upon exercise
of stock options on
October 21, 2004
    
    
    0.40
    
    
    
    6,500
    
    
    
    6
    
    
    
    
    
    
    
    2,594
    
    
    
    
    
    
    
    
    
    
    
    2,600Stock issued for cash on
November 3, 2004
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for cash on
November 18, 2004
    
    
    1.00
    
    
    
    172,500
    
    
    
    173
    
    
    
    
    
    
    
    172,327
    
    
    
    
    
    
    
    
    
    
    
    172,500Stock issued for cash on
December 9, 2004
    
    
    1.00
    
    
    
    75,000
    
    
    
    75
    
    
    
    
    
    
    
    74,925
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued for cash on
December 23, 2004
    
    
    1.00
    
    
    
    250,000
    
    
    
    250
    
    
    
    
    
    
    
    249,750
    
    
    
    
    
    
    
    
    
    
    
    250,000Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88,384
    )
    
    
    
    
    
    
    
    
    
    
    (88,384
    )Common stock paid for, but
not issued (119,000
shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119,000
 7




---



##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyIntrinsic value of options
issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248,891
    
    
    
    (248,891
    )
    
    
    
    
    
    
    Fair value of options issued
to non-employees for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,381
    
    
    
    (55,381
    )
    
    
    
    
    
    
    Fair value of warrants
issued for settlement
costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,585,266
    
    
    
    
    
    
    
    
    
    
    
    1,585,266Fair value of warrants
issued to non-
employees for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,872
    
    
    
    
    
    
    
    
    
    
    
    28,872Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    936,537
    
    
    
    
    
    
    
    936,537Net loss for year ended
December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,803,280
    )
    
    
    (6,803,280
    )Balance, December 31, 2004
    
    
    
    
    
    
    37,784,821
    
    
    
    37,784
    
    
    
    119,000
    
    
    
    15,043,028
    
    
    
    (76,068
    )
    
    
    (17,130,888
    )
    
    
    (2,007,144
    )Common stock issued,
previously paid for
    
    
    1.00
    
    
    
    69,000
    
    
    
    69
    
    
    
    (69,000
    )
    
    
    68,931
    
    
    
    
    
    
    
    
    
    
    
    Stock issued upon exercise
of warrants, previously
paid for
    
    
    1.00
    
    
    
    50,000
    
    
    
    50
    
    
    
    (50,000
    )
    
    
    49,950
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for cash on
January 20, 2005
    
    
    1.00
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    24,975
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued upon exercise
of warrants on January
31, 2005
    
    
    0.40
    
    
    
    500
    
    
    
    1
    
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    200Stock issued for cash on
February 17, 2005
    
    
    1.00
    
    
    
    325,000
    
    
    
    325
    
    
    
    
    
    
    
    324,675
    
    
    
    
    
    
    
    
    
    
    
    325,000Stock issued for cash on
March 31, 2005
    
    
    1.00
    
    
    
    215,000
    
    
    
    215
    
    
    
    
    
    
    
    214,785
    
    
    
    
    
    
    
    
    
    
    
    215,000Stock issued for cash on
May 17, 2005
    
    
    1.00
    
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    4,995
    
    
    
    
    
    
    
    
    
    
    
    5,000Stock issued for cash on
June 7, 2005
    
    
    1.00
    
    
    
    300,000
    
    
    
    300
    
    
    
    
    
    
    
    299,700
    
    
    
    
    
    
    
    
    
    
    
    300,000Stock issued for cash on
August 5, 2005
    
    
    1.00
    
    
    
    480,500
    
    
    
    480
    
    
    
    
    
    
    
    480,020
    
    
    
    
    
    
    
    
    
    
    
    480,500Stock issued for cash on
August 9, 2005
    
    
    1.00
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    99,900
    
    
    
    
    
    
    
    
    
    
    
    100,000Stock issued for cash on
October 27, 2005
    
    
    1.00
    
    
    
    80,000
    
    
    
    80
    
    
    
    
    
    
    
    79,920
    
    
    
    
    
    
    
    
    
    
    
    80,000Common stock cancelled
on December 7, 2005
    
    Various
    
    
    (8,047,403
    )
    
    
    (8,047
    )
    
    
    
    
    
    
    8,047
    
    
    
    
    
    
    
    
    
    
    
    Stock issued for settlement
of payables on
December 21, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,092Stock issued for settlement
of payables on
December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555,429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    555,429Finders fees related to
stock issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,840
    )
    
    
    
    
    
    
    
    
    
    
    (109,840
    )Intrinsic value of options
issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    243,750
    
    
    
    (243,750
    )
    
    
    
    
    
    
    Fair value of options issued
for settlement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,500
    
    
    
    
    
    
    
    
    
    
    
    31,500Fair 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
    
    
    
    
    
    
    
    
    
    
    
    756,768
 8




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY FROM
INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersPrice per
    
    
    Common Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentshare
    
    
    Shares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyIntrinsic value of beneficial
conversion associated
with convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    696,413
    
    
    
    
    
    
    
    
    
    
    
    696,413Net loss for year ended
December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,115,186
    )
    
    
    (3,115,186
    )Balance, December 31, 2005
    
    
    
    
    
    
    31,387,418
    
    
    $
    31,387
    
    
    $
    612,521
    
    
    $
    18,336,178
    
    
    $
    (142,187
    )
    
    $
    (20,246,074
    )
    
    $
    (1,408,175
    )Stock issued, for previously
settled payables
    
    
    
    
    
    
    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
    
    
    
    
    
    
    75,000
    
    
    
    75
    
    
    
    
    
    
    
    87,425
    
    
    
    
    
    
    
    
    
    
    
    87,500Stock issued upon exercise
of warrants on March
30, 2006
    
    
    
    
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,990
    
    
    
    
    
    
    
    
    
    
    
    10,000Common stock paid for, but
not issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,125Common stock for
convertible notes
converted to stock, but
not issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,720
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,720Fair value of options issued
to employees and
officers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    478,490
    
    
    
    
    
    
    
    
    
    
    
    478,490Fair value of warrants
issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401,130
    
    
    
    
    
    
    
    
    
    
    
    401,130Write off of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142,187
    )
    
    
    142,187
    
    
    
    
    
    
    
    Warrants issued with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    620,252
    
    
    
    
    
    
    
    
    
    
    
    620,252Intrinsic value of beneficial
conversion associated
with convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290,248
    
    
    
    
    
    
    
    
    
    
    
    290,248Net loss for three months
ended March 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,998,105
    )
    
    
    (2,998,105
    )Balance, March 31, 2006
(unaudited)
    
    
    
    
    
    
    32,343,967
    
    
    $
    32,344
    
    
    $
    224,845
    
    
    $
    20,730,675
    
    
    $
    
    
    
    $
    (23,244,179
    )
    
    $
    (2,256,315
    )
  9




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO
MARCH 31, 2006
 CumulativeMarch 31,
    
    
    March 31,
    
    
    since2006
    
    
    2005
    
    
    inceptionCash flows from operating activitiesNet loss
    
    $
    (2,998,105
    )
    
    $
    (1,065,056
    )
    
    $
    (23,244,179
    )Adjustments to reconcile net loss to net cash
used in operating activities:Write off of intangible assets
    
    
    
    
    
    
    
    
    
    
    505,000Settlement of litigation and debt
    
    
    
    
    
    
    
    
    
    
    (1,017,208
    )Fair value of options and warrants issued for services
    
    
    879,619
    
    
    
    
    
    
    
    1,050,809Issuance of common stock for services
    
    
    
    
    
    
    
    
    
    
    4,668,102Issuance of options for legal settlement
    
    
    
    
    
    
    
    
    
    
    31,500Issuance of warrants for legal settlement
    
    
    
    
    
    
    
    
    
    
    4,957Issuance of warrants for services
    
    
    
    
    
    
    
    
    
    
    13,505Patent acquisition cost
    
    
    
    
    
    
    
    
    
    
    1,610,066Amortization of issuance costs
    
    
    1,133,935
    
    
    
    
    
    
    
    1,452,694Amortization of deferred compensation
    
    
    
    
    
    
    76,068
    
    
    
    3,060,744Depreciation
    
    
    23,312
    
    
    
    2,268
    
    
    
    57,074Changes in operating assets and liabilities:Prepaid expenses and other
    
    
    269
    
    
    
    (2,800
    )
    
    
    (13,240
    )Income taxes payable
    
    
    
    
    
    
    1,176
    
    
    
    Accounts payable and accrued expenses
    
    
    25,007
    
    
    
    338,633
    
    
    
    1,824,930Net cash used in operating activities
    
    
    (935,963
    )
    
    
    (649,711
    )
    
    
    (9,995,246
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (42,141
    )
    
    
    
    
    
    
    (367,727
    )Net cash used in investing activities
    
    
    (42,141
    )
    
    
    
    
    
    
    (367,727
    )Cash flows from financing activitiesIncrease (decrease) in payables to related parties and shareholder
    
    
    
    
    
    
    100,000
    
    
    
    715,183Advances from founding executive officer
    
    
    
    
    
    
    
    
    
    
    517,208Net proceeds from convertible debentures
    
    
    865,500
    
    
    
    
    
    
    
    2,318,683Issuance of common stock for cash
    
    
    135,002
    
    
    
    530,800
    
    
    
    7,114,118Common stock issuable
    
    
    18,125
    
    
    
    25,000
    
    
    
    18,125Net cash provided by financing activities
    
    
    1,018,627
    
    
    
    655,800
    
    
    
    10,683,317Net increase in cash
    
    
    40,523
    
    
    
    6,089
    
    
    
    320,344Cash, beginning of period
    
    
    279,821
    
    
    
    84,826
    
    
    
    Cash, end of period
    
    $
    320,344
    
    
    $
    90,915
    
    
    $
    320,344
  10




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED STATEMENTS OF CASH FLOWS  Continued (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO
MARCH 31, 2006
 CumulativeMarch 31,
    
    
    March 31,
    
    
    since2006
    
    
    2005
    
    
    inceptionSupplemental disclosures of cash flow informationCash paid during the year forInterest
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes
    
    $
    800
    
    
    $
    800
    
    
    $
    5,957Non-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
    
    
    
    
    
    
    
    
    
    
    113,981Common stock, previously paid for
    
    
    
    
    
    
    100,000
    
    
    
    Finders fees accrued for issuance of common stock
    
    
    
    
    
    
    
    
    
    
    510,806Value of warrants and beneficial conversion feature of convertible notes
    
    
    865,500
    
    
    
    
    
    
    
    2,318,683Cancellation of stock
    
    
    
    
    
    
    
    
    
    
    8,047Conversion of accounts payable and accrued expenses to common stock issued
    
    
    612,521
    
    
    
    
    
    
    
    612,521Conversion of related party debt to convertible debentures
    
    
    45,000
    
    
    
    
    
    
    
    45,000Conversion of convertible debentures to common stock
    
    
    206,720
    
    
    
    
    
    
    
    206,720Write off of deferred compensation
    
    
    142,187
    
    
    
    
    
    
    
    142,187
  11




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 1.
    
    Organization and basis of presentation
 Basis of presentation
    12




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 1.
    
    Organization and basis of presentation  Continued
 Description of business
  Development stage enterprise
   13




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 2.
    
    Net loss per share
  3.
    
    Recent accounting pronouncements
   14




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 3.
    
    Recent accounting pronouncements  Continued
  Net loss as reported
    
    $
    (1,065,056
    )Plus: Stock-based expense recognized in the Statement of Operations  intrinsic value
    
    
    60,938Less: Stock-based expense determined under fair-value based method (SFAS 123)
    
    
    (290,102
    )Pro forma net loss
    
    $
    (1,294,220
    )Net loss per shareAs reported  basic and diluted
    
    $
    (0.03
    )Pro forma  basic and diluted
    
    $
    (0.04
    )
  15




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 3.
    
    Recent accounting pronouncements  Continued
     16




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 4.
    
    Certain relationships and related transactions
 Advances from founding executive officer
    Loans from related parties
   Lease agreement
  17




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 5.
    
    Convertible debentures and warrants
       18




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 5.
    
    Convertible debentures and warrants  Continued
    6.
    
    Capital stock
 Sale of equity securities
     19




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 6.
    
    Capital stock  Continued
 Sale of equity securities  Continued
  Warrants
   Intrinsic value of employee options
  20




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 6.
    
    Capital stock  Continued
 Black-Scholes value of employee options
     WeightedAverageWeighted
    
    RemainingNumber
    
    Average
    
    Contractualof
    
    Exercise
    
    Life
    
    Intrinsicshares
    
    Price
    
    (Years)
    
    ValueAs of December 31, 2005:Outstanding
    
    
    6,508,561
    
    
    $
    0.27
    
    
    
    5.26
    
    
    $
    2,600,000Expected to Vest
    
    
    6,017,652
    
    
    $
    0.43
    
    
    
    5.31
    
    
    $
    2,600,000Exercisable
    
    
    4,422,652
    
    
    $
    0.52
    
    
    
    3.62
    
    
    $
    2,600,000
  21




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 6.
    
    Capital stock  Continued
 Black-Scholes value of employee options  Continued
   7.
    
    Research and developmentThe Company has research and development facilities in Morgan Hill, California and
Queensland, Australia. The Company has expanded research and development to include
application of the technologies utilized by the ZEFS and CAT-MATE device for diesel engines,
motorbikes, boats, generators, lawnmowers and other small engines. The Company has
purchased test vehicles, test engines and testing equipment. The Company has completed
testing on ZEFS and CAT-MATE devices for multiple automobiles, trucks, motorcycles, off-road
vehicles and stationary engines, the results of which have been provided to RAND Corporation
(RAND) for evaluation. RAND oversees the research and development facilities. The Company
also uses third party research and development facilities in Los Angeles, California for the
development of the ZEFS and CAT-MATE devices. The Company spent $57,294 and $401,485 for
the three months ended March 31, 2006 and 2005, respectively.
 8.
    
    Going concernThe 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 had a net loss of $2,998,105 and a negative cash flow from operations of $953,963
for the three months ended March 31, 2006, and had a working capital deficiency of
$2,575,017 and a stockholders deficiency of $2,256,314 at March 31, 2006. These factors
raise substantial doubt about its ability to continue as a going concern. The ability of
the Company to continue as a going concern is dependent upon 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.
 22




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 9.
    
    Commitments and contingencies
 Legal matters
   23




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 9.
    
    Commitments and contingencies  Continued
 Legal matters  Continued
     24




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 9.
    
    Commitments and contingencies  Continued
 Legal matters  Continued
     25




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##### Table of Contents



SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
 9.
    
    Commitments and contingencies  Continued
 Legal matters  Continued
   26




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##### Table of Contents



Item 2. Managements Discussion and Analysis or Plan of Operations
  
    
    revenues and profits;
    
    customers;
    
    research and development expenses and efforts;
    
    scientific test results;
    
    sales and marketing expenses and efforts;
    
    liquidity and sufficiency of existing cash;
    
    pending and future financings;
    
    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
    27




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##### Table of Contents



Results of Operations
   28




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##### Table of Contents



Liquidity and Capital Resources
   $
  29




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##### Table of Contents



,
     Critical Accounting Policies and Estimates
  30




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##### Table of Contents



Stock-Based Compensation
   Recent Accounting Pronouncements
  31




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##### Table of Contents



Item 3. Controls and Procedures
 Evaluation of disclosure controls and procedures:
 Changes in internal control over financial reporting:
 
 PART II
 
 Item 1. Legal Proceedings
  32




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33




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##### Table of Contents



34




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    35




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
    36




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##### Table of Contents



Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Commercial Sublease dated as of January 1, 2006 between KZG
and the Company31.1
    
    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)
 37




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##### Table of Contents



SIGNATURES
  Date: May 17, 2006
    
    SAVE THE WORLD AIR, INC.By:
    
    /s/ EUGENE E. EICHLEREugene E. EichlerChief Executive Officer
 38




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Commercial Sublease dated as of January 1, 2006 between KZG
and the Company31.1
    
    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)
 39