##### 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 June 30, 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 235 Tennant Avenue
Morgan Hill, California 95037  (Address, including zip code, of principal executive offices)
 (408) 778-0101  (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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##### 



SAVE THE WORLD AIR, INC.
 
 PagePART IITEM 1. Financial Statements
    
    
    1Condensed consolidated balance sheets
    
    
    1Condensed
consolidated statements of operations (unaudited)
    
    
    3Condensed consolidated statements of changes in stockholders deficiency (unaudited)
    
    
    4Condensed consolidated statements of cash flows (unaudited)
    
    
    13Notes to condensed consolidated financial statements (unaudited)
    
    
    15ITEM 2. Managements Discussion and Analysis or Plan of Operations
    
    
    41ITEM 3. Controls and Procedures
    
    
    53PART IIITEM 1. Legal Proceedings
    
    
    54ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    56ITEM 3. Defaults Upon Senior Securities
    
    
    57ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    57ITEM 5. Other Information
    
    
    57ITEM 6. Exhibits
    
    
    59SIGNATURES
    
    
    60EXHIBIT INDEXEXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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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
 June 30, 2007
    
    
    December 31,(unaudited)
    
    
    2006ASSETSCurrent assetsCash
    
    $
    223,882
    
    
    $
    244,228Inventory
    
    
    41,193
    
    
    
    21,314Other current assets
    
    
    73,282
    
    
    
    81,232Total current assets
    
    
    338,357
    
    
    
    346,774Property and equipment, net of accumulated depreciation
    
    
    257,701
    
    
    
    322,023Other assets
    
    
    4,500
    
    
    
    4,500Total assets
    
    $
    600,558
    
    
    $
    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
 June 30, 2007
    
    
    December 31,(unaudited)
    
    
    2006LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent liabilitiesAccounts payable
    
    $
    708,145
    
    
    $
    233,707Accrued expenses
    
    
    587,985
    
    
    
    468,413Accrued research and development fees
    
    
    95,000
    
    
    
    95,000Accrued professional fees
    
    
    489,407
    
    
    
    594,945Convertible debentures, net
    
    
    1,247,098
    
    
    
    177,926Total current liabilities
    
    
    3,127,635
    
    
    
    1,569,991Commitments and contingenciesStockholders deficiencyCommon stock, $.001
par value: 200,000,000 shares
authorized, 41,962,178 and
40,081,758 shares issued and
outstanding at June 30, 2007
and December 31, 2006,
respectively
    
    
    41,963
    
    
    
    40,082Common stock to be issued
    
    
    60,000
    
    
    
    60,000Additional paid-in capital
    
    
    31,240,901
    
    
    
    29,430,821Deficit accumulated during
the development stage
    
    
    (33,869,941
    )
    
    
    (30,427,597
    )Total stockholders deficiency
    
    
    (2,527,077
    )
    
    
    (896,694
    )Total liabilities and
stockholders deficiency
    
    $
    600,558
    
    
    $
    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)
 For the PeriodFrom February 18,For the Three months ended
    
    
    For the Six months ended
    
    
    1998 (Date ofJune 30,
    
    
    June 30,
    
    
    Inception) through2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    June 30, 2007Net sales
    
    $
    
    
    
    $
    
    
    
    $
    22,000
    
    
    $
    
    
    
    $
    52,000Cost of goods sold
    
    
    
    
    
    
    
    
    
    
    5,360
    
    
    
    
    
    
    
    18,760Gross profit
    
    
    
    
    
    
    
    
    
    
    16,640
    
    
    
    
    
    
    
    33,240Operating expenses
    
    
    1,023,787
    
    
    
    1,852,870
    
    
    
    2,303,562
    
    
    
    3,607,840
    
    
    
    25,206,538Research and development expenses
    
    
    100,731
    
    
    
    121,111
    
    
    
    441,183
    
    
    
    178,873
    
    
    
    4,646,597Non-cash patent settlement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,610,066Loss before other income (expense)
    
    
    (1,124,518
    )
    
    
    (1,973,981
    )
    
    
    (2,728,105
    )
    
    
    (3,786,713
    )
    
    
    (31,429,961
    )Other income (expense)Other income
    
    
    90
    
    
    
    125
    
    
    
    177
    
    
    
    125
    
    
    
    302Interest income
    
    
    33
    
    
    
    6,976
    
    
    
    50
    
    
    
    6,976
    
    
    
    16,301Interest expense
    
    
    (265,996
    )
    
    
    (1,025,345
    )
    
    
    (473,668
    )
    
    
    (2,209,918
    )
    
    
    (3,229,511
    )Financing
fees
    
    
    
    
    
    
    
    
    
    
    (47,104
    )
    
    
    
    
    
    
    (47,104
    )Placement fee
    
    
    (6,000
    )
    
    
    
    
    
    
    (48,000
    )
    
    
    
    
    
    
    (48,000
    )Loss on
valuation of warrants
    
    
    (131,792
    )
    
    
    
    
    
    
    (144,894
    )
    
    
    
    
    
    
    (144,894
    )Settlement of litigation and debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,017,208Total other income (expense)
    
    
    (403,665
    )
    
    
    (1,018,244
    )
    
    
    (713,439
    )
    
    
    (2,202,817
    )
    
    
    (2,435,698
    )Loss before provision for income taxes
    
    
    (1,528,183
    )
    
    
    (2,992,225
    )
    
    
    (3,441,544
    )
    
    
    (5,989,530
    )
    
    
    (33,865,659
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800
    
    
    
    4,282Net loss
    
    $
    (1,528,183
    )
    
    $
    (2,992,225
    )
    
    $
    (3,442,344
    )
    
    $
    (5,990,330
    )
    
    $
    (33,869,941
    )Net loss per share, basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.18
    )Weighted average shares outstanding, basic and diluted
    
    
    39,746,015
    
    
    
    33,661,360
    
    
    
    37,297,407
    
    
    
    32,816,890
  - 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 JUNE 30, 2007
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    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 JUNE 30, 2007
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    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 JUNE 30, 2007
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development 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 JUNE 30, 2007
 Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholdersCommon Stock
    
    Common stock
    
    paid-in
    
    Deferred
    
    during the
    
    developmentShares
    
    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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 JUNE 30, 2007
 Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholdersCommon Stock
    
    Common stock
    
    paid-in
    
    Deferred
    
    during the
    
    developmentShares
    
    Amount
    
    to be issued
    
    capital
    
    compensation
    
    development 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 JUNE 30, 2007
 Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholdersCommon Stock
    
    Common stock
    
    paid-in
    
    Deferred
    
    during the
    
    developmentShares
    
    Amount
    
    to be issued
    
    capital
    
    compensation
    
    development 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
    
    
    1.50
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    37,475
    
    
    
    
    
    
    
    
    
    
    
    37,500Stock issued upon
exercise of
warrants on March
27, 2006
    
    
    1.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    74,950
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued upon
exercise of
warrants on March
27, 2006
    
    
    0.50
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    12,475
    
    
    
    
    
    
    
    
    
    
    
    12,500Stock issued upon
exercise of
warrants on March
30, 2006
    
    
    1.00
    
    
    
    10,000
    
    
    
    10
    
    
    
    
    
    
    
    9,990
    
    
    
    
    
    
    
    
    
    
    
    10,000Stock issued upon
exercise of
warrants on April
10, 2006
    
    
    0.50
    
    
    
    36,250
    
    
    
    36
    
    
    
    
    
    
    
    18,089
    
    
    
    
    
    
    
    
    
    
    
    18,125Common stock
issued for
convertible debt
on April 10, 2006
    
    
    0.70
    
    
    
    269,600
    
    
    
    270
    
    
    
    
    
    
    
    188,450
    
    
    
    
    
    
    
    
    
    
    
    188,720Stock issued for
cash on April 24,
2006
    
    
    1.56
    
    
    
    473,000
    
    
    
    473
    
    
    
    
    
    
    
    737,408
    
    
    
    
    
    
    
    
    
    
    
    737,881Stock issued upon
exercise of
warrants on April
26, 2006
    
    
    0.50
    
    
    
    125,000
    
    
    
    125
    
    
    
    
    
    
    
    62,375
    
    
    
    
    
    
    
    
    
    
    
    62,500Stock issued upon
exercise of
warrants on April
26, 2006
    
    
    1.50
    
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    149,900
    
    
    
    
    
    
    
    
    
    
    
    150,000Common stock
issued for
convertible debt
on April 26, 2006
    
    
    0.70
    
    
    
    35,714
    
    
    
    36
    
    
    
    
    
    
    
    24,964
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued upon
exercise of
warrants on May 6,
2006
    
    
    0.50
    
    
    
    200,000
    
    
    
    200
    
    
    
    
    
    
    
    99,800
    
    
    
    
    
    
    
    
    
    
    
    100,000Stock issued upon
exercise of
warrants on May
15, 2006
    
    
    1.50
    
    
    
    25,000
    
    
    
    25
    
    
    
    
    
    
    
    37,475
    
    
    
    
    
    
    
    
    
    
    
    37,500Stock issued upon
exercise of
warrants on May
15, 2006
    
    
    0.50
    
    
    
    50,000
    
    
    
    50
    
    
    
    
    
    
    
    24,950
    
    
    
    
    
    
    
    
    
    
    
    25,000Stock issued for
cash on June 7,
2006
    
    
    1.89
    
    
    
    873,018
    
    
    
    872
    
    
    
    
    
    
    
    1,649,136
    
    
    
    
    
    
    
    
    
    
    
    1,650,008Common stock
issued for
convertible debt
on June 7, 2006
    
    
    0.70
    
    
    
    1,535,716
    
    
    
    1,536
    
    
    
    
    
    
    
    1,073,464
    
    
    
    
    
    
    
    
    
    
    
    1,075,000Stock issued upon
exercise of
warrants on June
8, 2006
    
    
    0.50
    
    
    
    900,000
    
    
    
    900
    
    
    
    
    
    
    
    449,100
    
    
    
    
    
    
    
    
    
    
    
    450,000Stock issued upon
exercise of
warrants on June
9, 2006
    
    
    0.50
    
    
    
    9,000
    
    
    
    9
    
    
    
    
    
    
    
    4,491
    
    
    
    
    
    
    
    
    
    
    
    4,500Stock issued upon
exercise of
warrants on June
23, 2006
    
    
    0.50
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    74,850
    
    
    
    
    
    
    
    
    
    
    
    75,000Stock issued upon
exercise of
warrants on June
23, 2006
    
    
    1.50
    
    
    
    15,000
    
    
    
    15
    
    
    
    
    
    
    
    22,485
    
    
    
    
    
    
    
    
    
    
    
    22,500Common stock
issued for
convertible debt
on June 30, 2006
    
    
    0.70
    
    
    
    219,104
    
    
    
    219
    
    
    
    
    
    
    
    153,155
    
    
    
    
    
    
    
    
    
    
    
    153,374Common stock
issued for
convertible debt
on July 11, 2006
    
    
    0.70
    
    
    
    14,603
    
    
    
    15
    
    
    
    
    
    
    
    10,207
    
    
    
    
    
    
    
    
    
    
    
    10,222Common stock
issued for
convertible debt
on August 7, 2006
    
    
    0.70
    
    
    
    1,540,160
    
    
    
    1,540
    
    
    
    
    
    
    
    1,076,572
    
    
    
    
    
    
    
    
    
    
    
    1,078,112Common stock
issued upon
exercise of
warrants on August
7, 2006
    
    
    1.50
    
    
    
    175,000
    
    
    
    175
    
    
    
    
    
    
    
    262,325
    
    
    
    
    
    
    
    
    
    
    
    262,500Common stock
issued upon
exercise of
warrants on August
21, 2006
    
    
    1.50
    
    
    
    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 JUNE 30, 2007
 Additional
    
    
    
    
    
    Deficit accumulated
    
    Total stockholdersCommon Stock
    
    Common stock
    
    paid-in
    
    Deferred
    
    during the
    
    developmentShares
    
    Amount
    
    to be issued
    
    capital
    
    compensation
    
    development stage
    
    stage deficiencyCommon stock
issued for cash on
August 22, 2006
    
    
    1.00
    
    
    
    14,519
    
    
    
    15
    
    
    
    
    
    
    
    14,504
    
    
    
    
    
    
    
    
    
    
    
    14,519Common stock
issued upon
exercise of
warrants on August
23, 2006
    
    
    1.00
    
    
    
    3,683
    
    
    
    4
    
    
    
    
    
    
    
    3,679
    
    
    
    
    
    
    
    
    
    
    
    3,683Common stock
issued upon
exercise of
warrants on August
28, 2006
    
    
    1.50
    
    
    
    5,000
    
    
    
    5
    
    
    
    
    
    
    
    7,495
    
    
    
    
    
    
    
    
    
    
    
    7,500Common stock
issued for
convertible debt
on September 13,
2006
    
    
    0.70
    
    
    
    4,286
    
    
    
    4
    
    
    
    
    
    
    
    2,996
    
    
    
    
    
    
    
    
    
    
    
    3,000Common stock
issued upon
exercise of
warrants on
September 13, 2006
    
    
    0.50
    
    
    
    150,000
    
    
    
    150
    
    
    
    
    
    
    
    74,850
    
    
    
    
    
    
    
    
    
    
    
    75,000Common stock
issued for
convertible debt
on October 16,
2006
    
    
    0.70
    
    
    
    66,654
    
    
    
    67
    
    
    
    
    
    
    
    46,591
    
    
    
    
    
    
    
    
    
    
    
    46,658Common stock
issued upon
exercise of
warrants on
November 3, 2006
    
    
    0.50
    
    
    
    210,000
    
    
    
    210
    
    
    
    
    
    
    
    104,790
    
    
    
    
    
    
    
    
    
    
    
    105,000Common stock
issued for put on
equity line of
credit on November
7, 2006
    
    
    1.22
    
    
    
    94,470
    
    
    
    94
    
    
    
    
    
    
    
    115,368
    
    
    
    
    
    
    
    
    
    
    
    115,462Common stock
issued for put on
equity line of
credit on November
14, 2006
    
    
    1.14
    
    
    
    7,300
    
    
    
    7
    
    
    
    
    
    
    
    8,349
    
    
    
    
    
    
    
    
    
    
    
    8,356Common stock
issued for put on
equity line of
credit on November
27, 2006
    
    
    0.83
    
    
    
    27,500
    
    
    
    28
    
    
    
    
    
    
    
    22,913
    
    
    
    
    
    
    
    
    
    
    
    22,941Common stock
issued for put on
equity line of
credit on November
28, 2006
    
    
    0.82
    
    
    
    36,500
    
    
    
    36
    
    
    
    
    
    
    
    30,059
    
    
    
    
    
    
    
    
    
    
    
    30,095Common stock
issued for put on
equity line of
credit on December
6, 2006
    
    
    0.78
    
    
    
    73,863
    
    
    
    74
    
    
    
    
    
    
    
    57,244
    
    
    
    
    
    
    
    
    
    
    
    57,318Common stock
issued for put on
equity line of
credit on December
26, 2006
    
    
    0.55
    
    
    
    18,800
    
    
    
    19
    
    
    
    
    
    
    
    10,377
    
    
    
    
    
    
    
    
    
    
    
    10,396Common stock
issued for put on
equity line of
credit on December
31, 2006
    
    
    0.59
    
    
    
    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 JUNE 30, 2007
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development 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 an officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,302
    
    
    
    
    
    
    
    
    
    
    
    16,302Common stock issued for
put on equity line of
credit on April 9, 2007
    
    
    
    
    
    
    56,300
    
    
    
    56
    
    
    
    
    
    
    
    35,441
    
    
    
    
    
    
    
    
    
    
    
    35,497Common stock issued for
put on equity line of
credit on April 17, 2007
    
    
    
    
    
    
    73,835
    
    
    
    74
    
    
    
    
    
    
    
    41,466
    
    
    
    
    
    
    
    
    
    
    
    41,540Common stock issued for
put on equity line of
credit on April 24, 2007
    
    
    
    
    
    
    122,857
    
    
    
    123
    
    
    
    
    
    
    
    68,996
    
    
    
    
    
    
    
    
    
    
    
    69,119Common stock issued for
put on equity line of
credit on May 1, 2007
    
    
    
    
    
    
    226,081
    
    
    
    226
    
    
    
    
    
    
    
    124,774
    
    
    
    
    
    
    
    
    
    
    
    125,000Common stock issued for
put on equity line of
credit on May 8, 2007
    
    
    
    
    
    
    29,400
    
    
    
    29
    
    
    
    
    
    
    
    19,363
    
    
    
    
    
    
    
    
    
    
    
    19,392Common stock issued for
put on equity line of
credit on May 15, 2007
    
    
    
    
    
    
    403,502
    
    
    
    404
    
    
    
    
    
    
    
    171,811
    
    
    
    
    
    
    
    
    
    
    
    172,215Common stock issued for
put on equity line of
credit on May 22, 2007
    
    
    
    
    
    
    119,800
    
    
    
    120
    
    
    
    
    
    
    
    46,362
    
    
    
    
    
    
    
    
    
    
    
    46,482
 - 11 -




---



##### 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 JUNE 30, 2007
 Additional
    
    
    
    
    
    
    Deficit accumulated
    
    
    Total stockholdersCommon Stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    during the
    
    
    developmentShares
    
    
    Amount
    
    
    to be issued
    
    
    capital
    
    
    compensation
    
    
    development stage
    
    
    stage deficiencyCommon stock issued for
put on equity line of
credit on May 30, 2007
    
    
    
    
    
    
    80,996
    
    
    
    81
    
    
    
    
    
    
    
    26,631
    
    
    
    
    
    
    
    
    
    
    
    26,712Common stock issued for
put on equity line of
credit on June 6, 2007
    
    
    
    
    
    
    54,700
    
    
    
    55
    
    
    
    
    
    
    
    17,454
    
    
    
    
    
    
    
    
    
    
    
    17,509Common stock issued for
put on equity line of
credit on June 15, 2007
    
    
    
    
    
    
    94,500
    
    
    
    95
    
    
    
    
    
    
    
    25,571
    
    
    
    
    
    
    
    
    
    
    
    25,666Common stock issued for
put on equity line of
credit on June 21, 2007
    
    
    
    
    
    
    12,500
    
    
    
    12
    
    
    
    
    
    
    
    3,868
    
    
    
    
    
    
    
    
    
    
    
    3,880Fees paid on equity line
of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,641
    )
    
    
    
    
    
    
    
    
    
    
    (46,641
    )Warrants issued with
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,718
    
    
    
    
    
    
    
    
    
    
    
    260,718Fair value of options
issued to an officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,898
    
    
    
    
    
    
    
    
    
    
    
    8,898Net loss for six months
ended June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,442,344
    )
    
    
    (3,442,344
    )Balance, June 30, 2007
(unaudited)
    
    
    
    
    
    
    41,962,178
    
    
    
    41,963
    
    
    
    60,000
    
    
    
    31,240,901
    
    
    $
    
    
    
    
    (33,869,941
    )
    
    
    (2,527,077
    )
 - 12 -




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the PeriodFrom February 18,For the Six months ended June 30,
    
    
    1998 (Date ofInception) through2007
    
    
    2006
    
    
    June 30, 2007Cash flows from operating activitiesNet loss
    
    $
    (3,442,344
    )
    
    $
    (5,990,330
    )
    
    $
    (33,869,941
    )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
    
    
    25,200
    
    
    
    1,659,565
    
    
    
    2,926,784Issuance 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 financing fees
    
    
    47,104
    
    
    
    
    
    
    
    47,104Loss on valuation of warrants
    
    
    144,894
    
    
    
    
    
    
    
    144,894Patent acquisition cost
    
    
    
    
    
    
    
    
    
    
    1,610,066Amortization of interest on debt discount
    
    
    3,500
    
    
    
    
    
    
    
    3,500Amortization of issuance costs and original issue debt
    
    
    463,994
    
    
    
    2,113,825
    
    
    
    3,263,299Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    3,060,744Depreciation
    
    
    110,035
    
    
    
    57,217
    
    
    
    298,254Changes in operating assets and
liabilities:Inventory
    
    
    (19,879
    )
    
    
    (3,719
    )
    
    
    (41,193
    )Prepaid expenses and other
    
    
    7,950
    
    
    
    (113,579
    )
    
    
    (73,282
    )Other assets
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Accounts payable and accrued expenses
    
    
    457,068
    
    
    
    (172,872
    )
    
    
    2,689,182Net cash used in operating activities
    
    
    (2,202,478
    )
    
    
    (2,449,893
    )
    
    
    (15,752,738
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (45,713
    )
    
    
    (129,115
    )
    
    
    (552,405
    )Net cash used in investing activities
    
    
    (45,713
    )
    
    
    (129,115
    )
    
    
    (552,405
    )Cash flows from financing activitiesNet proceeds under equity line of credit
    
    
    912,691
    
    
    
    
    
    
    
    1,262,386Increase (decrease) in payables to related parties and shareholder
    
    
    31,404
    
    
    
    (158,732
    )
    
    
    542,854Advances from founding executive officer
    
    
    
    
    
    
    
    
    
    
    517,208Net proceeds from issuance of convertible notes and warrants
    
    
    1,310,000
    
    
    
    865,500
    
    
    
    3,977,878Repayment of convertible notes
    
    
    (26,250
    )
    
    
    
    
    
    
    (26,250
    )Net proceeds from issuance of common stock and common stock issuable
    
    
    
    
    
    
    3,220,936
    
    
    
    10,254,949Net cash provided by financing activities
    
    
    2,227,845
    
    
    
    3,927,704
    
    
    
    16,529,025Net increase (decrease) in cash
    
    
    (20,346
    )
    
    
    1,348,696
    
    
    
    223,882Cash, beginning of period
    
    
    244,228
    
    
    
    279,821
    
    
    
    Cash, end of period
    
    $
    223,882
    
    
    $
    1,628,517
    
    
    $
    223,882
  - 13 -




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##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the PeriodFrom February 18,For the Six months ended June 30,
    
    
    1998 (Date ofInception)through2007
    
    
    2006
    
    
    June 30, 2007Supplemental disclosures of cash flow
informationCash paid during the period forInterest
    
    $
    7,674
    
    
    $
    93,688
    
    
    $
    149,153Income 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
    
    $
    
    
    
    $
    612,521
    
    
    $
    612,521Conversion of related party debt to convertible debentures
    
    $
    
    
    
    $
    45,000
    
    
    $
    45,000Conversion of convertible debentures to common stock
    
    $
    
    
    
    $
    1,452,319
    
    
    $
    2,580,086Write off of deferred compensation
    
    $
    
    
    
    $
    142,187
    
    
    $
    142,187Consulting fee for issuance of stock options
    
    $
    25,200
    
    
    $
    
    
    
    $
    25,200Financing fee for issuance of warrants
    
    $
    47,104
    
    
    $
    
    
    
    $
    47,104
  - 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
 SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
 1. Organization and basis of presentation
 Basis of presentation
    Going Concern
  - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
 Description of business
      - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
 2. Development stage enterprise
    3. Significant Accounting Policies
 Revenue Recognition
  
    
    Persuasive evidence of an arrangement exists;
    
    Delivery has occurred or services have been rendered;
    
    The sellers price to the buyer is fixed or determinable; and
    
    Collectibility is reasonably assured.
  Inventories
  - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
 Estimates
  Stock-based compensation
     - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
  4. Recent Accounting Pronouncements
      - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
       - 20 -




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
  5. Net loss per share
  6. Certain relationships and related transactions
 Advances from founding executive officer
    - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
  Loans from related parties
  Lease agreement
      Marketing and promotional services agreement
  - 22 -




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
  7. Equity line of credit
   8. Convertible debentures
   - 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
SIX MONTHS ENDED JUNE 30, 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
          - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
        - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
    9. Capital stock
    - 27 -




---



##### Table of Contents



SAVE THE WORLD AIR, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  Continued
SIX MONTHS ENDED JUNE 30, 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
   10. Stock options and warrants
   Weighted Avg.
    
    
    Weighted Avg.Options
    
    
    Exercise PriceOptions, 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)
    
    
    40,000
    
    
    
    0.85Options exercised (unaudited)
    
    
    
    
    
    
    Options forfeited (unaudited)
    
    
    
    
    
    
    Options cancelled (unaudited)
    
    
    
    
    
    
    Options, June 30, 2007 (unaudited)
    
    
    4,039,559
    
    
    $
    0.99
  Expected life (years)
    
    
    5.00Risk free interest rate
    
    
    4.42
    %Volatility
    
    
    117.64
    %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
SIX MONTHS ENDED JUNE 30, 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
    
    
    2,115,000
    
    
    8.34
    
    
    
    0.85
    
    
    
    2,115,000
    
    
    
    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
    
    
    4,039,559
    
    
    7.43
    
    
    $
    0.99
    
    
    
    3,919,559
    
    
    $
    0.95
 Black-Scholes value of employee options
  Expected life (years)
    
    
    5.00Risk free interest rate
    
    
    4.42
    %Volatility
    
    
    117.64
    %Expected dividend yield
    
    
    0.00
    %
  Warrants
  - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
 Weighted Avg.Warrants
    
    
    Exercise PriceWarrants 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)
    
    
    1,974,886
    
    
    
    0.79Warrants exercised (unaudited)Warrants cancelled (unaudited)
    
    
    (1,241,000
    )
    
    
    1.50Warrants outstanding, June 30, 2007 (unaudited)
    
    
    21,631,197
    
    
    
    0.76
    11. Research and development
  - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
  12. Commitments and contingencies
 Legal matters
 Litigation Involving Jeffrey A. Muller
   - 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
SIX MONTHS ENDED JUNE 30, 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
SIX MONTHS ENDED JUNE 30, 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
    Litigation Involving Sublessor of Former Corporate Offices
   - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
   Employment agreements
    - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
   Consulting agreements
  Leases
     - 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
SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED)
     Years Ending December 31,2007
    
    $
    44,9522008
    
    
    69,2702009
    
    
    44,800Total
    
    $
    159,022
 13. 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
SIX MONTHS ENDED JUNE 30, 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
SIX MONTHS ENDED JUNE 30, 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 proceeds of $50,000 (net proceeds of
$44,000) 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 $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 .
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2007 PIPE Offering
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2007 Spring Offering .
     - 46 -




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Contractual Obligations
  Year ending December 31,
    
    Operating Leases(1)
    
    
    Guaranteed Payments2007
    
    $
    136,376
    (1)
    
    $
    1,501,667
    (3)2008
    
    $
    69,270
    
    
    $
    439,030
    (4)2009
    
    $
    44,800
    (2)
    
    $
    75,000
    (5)Total
    
    $
    250,446
    
    
    $
    2,015,697
 
 (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 did not renew the sublease for our
corporate offices at North Hollywood, California, and vacated the
premises prior to the expiration of the sublease on July 31,
2007. See Part II, Item 5, Other Information and Notes 12 and
13 to Notes to Condensed Consolidated Financial Statements, for
additional information regarding this matter. We have renewed the
lease for our engineering, production and testing facility at
Morgan Hill, California, which facility now also serves as our
corporate offices, for an additional two-year period, expiring on
August 15, 2009.(2)
    
    Does not include rent for 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 $462,617 in total compensation,
including base salary and certain contractually-provided benefits
to one present and one former executive officer pursuant to
employment agreements that expire on December 31, 2007 and to one
new executive officer pursuant to an employment agreement that
expires on July 17, 2008; $385,000 in licensing fees to Temple
University; $287,300 in severance payments to a former officer;
$240,000 in consulting fees to Spencer Clarke; $80,000 to RAND
Corporation; and $47,750 in fees to a consultant.(4)
    
    Consists of licensing fees in the amount of $290,000 due to
Temple University; base salary and certain contractually-provided
benefits in the amount of $120,683 to an officer pursuant to an
employment agreement that expires on July 17, 2008; and $28,347
to RAND Corporation. Does not include compensation to one present
and one former executive officer, whose employment agreements
expire - 47 -




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




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Critical Accounting Policies and Estimates
     Revenue Recognition
  
    
    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
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Stock-Based Compensation
       - 51 -




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Recent Accounting Pronouncements
 Statement No. 157
  Statement No. 159
  Interpretation No. 48
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EITF 00-19-2
  
 Item 3. Controls and Procedures
 a) Evaluation of disclosure controls and procedures.
 (b) Changes
in internal control over financial reporting.
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PART II
 
 Item 1. Legal Proceedings
 Litigation Involving Jeffrey A. Muller
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Litigation Involving Sublessor of Former Corporate Offices
     
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   - 56 -




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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
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Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Addendum to Lease Agreement dated August 15, 2005
regarding 235 Tennant Avenue, Morgan Hill,
California31.1
    
    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)
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SIGNATURES
  SAVE THE WORLD AIR, INC.Date:
August 20, 2007
    
    By:
    
    /s/ CHARLES K. DARGAN II

Charles K. Dargan IIChief Financial Officer
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EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Addendum to Lease Agreement dated August 15, 2005
regarding 235 Tennant Avenue, Morgan Hill,
California31.1
    
    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)