UNITED STATES
SECURITIES AND EXCHANGE COMMISSION





FORM 10-QSB





S
         QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008



£
         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______ to _______

Commission File Number:  000-51256

``



|POWER AIR CORPORATION                                            
|-----------------------------------------------------------------
|(Exact name of small business issuer as specified in its charter)
|Nevada                                                           
|(State or other jurisdiction of incorporation or organization)   
|4777 Bennett Drive, Suite E, Livermore, California, 94551        
|(Address of principal executive offices)                         
|(925) 960-8777                                                   
|(Issuer's telephone number)                                      



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  S
   No  £
..

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  £
   No  S
..

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:   66,453,675 shares of Common Stock as of May 12, 2008.

Transitional Small Business Disclosure Format (Check one):   Yes  £
   No  S
..





---



POWER AIR CORPORATION

Quarterly Report On Form 10-QSB
For The Quarterly Period Ended March 31, 2008

FORWARD-LOOKING STATEMENTS

This Form 10-QSB for the quarterly period ended March 31, 2008 contains forward-looking statements that involve risks and uncertainties. Forward-looking statements in this document include, among others, statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve assumptions, risks and uncertainties regarding, among others, the success of our business plan, availability of funds, government regulations, operating costs, our ability to achieve significant revenues, our business model and products and other factors. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties set forth in reports and other documents we have filed with or furnished to the SEC, including, without limitation, our Annual Report on Form 10-KSB for the year ended September 30, 2007. These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this document. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. The forward-looking statements in this document are made as of the date of this document and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.





- 2 -



---



PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

The following unaudited interim consolidated financial statements of Power Air Corporation are included in this Quarterly Report on Form 10-QSB:



|Description                                                                                                                                                                              |  | Page
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Balance Sheets as at March 31, 2008 and September 30, 2007:                                                                                                                 |  | 4   
|Interim Consolidated Statements of Operations for the Six and Three Months Ended March 31, 2008 and 2007 and for the Period from October 15, 1997 (Date of Inception) to March 31, 2008: |  | 5   
|Interim Consolidated Statements of Cash Flows for the Six and Three Months Ended March 31, 2008 and 2007:                                                                                |  | 6   
|Interim Consolidated Statement of Stockholders' Equity from October 15, 1997 (Date of Inception) to March 31, 2008:                                                                      |  | 7   
|Notes to Interim Consolidated Financial Statements:                                                                                                                                      |  | 8   



- 3 -



---



Power Air Corporation
(A Development Stage Company)
Consolidated Balance Sheets





|                                                                                                                                                | March 31,2008$(Unaudited) |  | September 30,2007$
|----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- |  | ------------------
|                                                                                                                                                |                           |  |                   
|ASSETS                                                                                                                                          |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Current Assets                                                                                                                                  |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Cash and cash equivalents                                                                                                                       | 748,258                   |  | 2,260,326         
|Other current assets                                                                                                                            | 134,764                   |  | 138,513           
|                                                                                                                                                |                           |  |                   
|Total current assets                                                                                                                            | 883,022                   |  | 2,398,839         
|                                                                                                                                                |                           |  |                   
|Property and Equipment (Note 3)                                                                                                                 | 373,360                   |  | 296,510           
|                                                                                                                                                |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Total Assets                                                                                                                                    | 1,256,382                 |  | 2,695,349         
|                                                                                                                                                |                           |  |                   
|                                                                                                                                                |                           |  |                   
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                            |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Current Liabilities                                                                                                                             |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Accounts payable                                                                                                                                | 220,003                   |  | 143,209           
|Accrued liabilities (Note 4(d))                                                                                                                 | 132,733                   |  | 16,666            
|                                                                                                                                                |                           |  |                   
|Total current liabilities                                                                                                                       | 352,736                   |  | 159,875           
|                                                                                                                                                |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Commitments and Contingencies (Note 7)                                                                                                          |                           |  |                   
|                                                                                                                                                |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Stockholders' Equity                                                                                                                            |                           |  |                   
|                                                                                                                                                |                           |  |                   
|Common Stock (Note 6), 375,000,000 shares authorized, $0.001 par 
value; 66,453,675 and 45,348,318 shares issued and outstanding, 
respectively | 66,453                    |  | 66,453            
|                                                                                                                                                |                           |  |                   
|Additional Paid-In Capital                                                                                                                      | 20,592,631                |  | 20,592,631        
|                                                                                                                                                |                           |  |                   
|Deficit Accumulated During the Development Stage                                                                                                | (19,755,438)              |  | (18,123,610)      
|                                                                                                                                                |                           |  |                   
|Total Stockholders' Equity                                                                                                                      | 903,646                   |  | 2,535,474         
|                                                                                                                                                |                           |  |                   
|Total Liabilities and Stockholders' Equity                                                                                                      | 1,256,382                 |  | 2,695,349         
|                                                                                                                                                |                           |  |                   











(The Accompanying Notes are an Integral Part of These Financial Statements)





- 4 -



---





Power Air Corporation
(A Development Stage Company)
Consolidated Statements of Operations
(unaudited)



|                                       | Three
Months
Ended
March 31,
2008$ |  | Three
Months
Ended
March 31,
2007$ |  | Six Months
Ended
March 31,
2008$ |  | Six Months
Ended
March 31,
2007$ |  | From
October 15, 1997
(Date of Inception)
to March 31,
2008$
|-------------------------------------- | ---------------------------------- |  | ---------------------------------- |  | -------------------------------- |  | -------------------------------- |  | ------------------------------------------------------------
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|Expenses                               |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|Depreciation                           | 24,210                             |  | 10,225                             |  | 45,983                           |  | 19,654                           |  | 111,392                                                     
|Development & engineering (Note 8)     | 204,464                            |  | 206,409                            |  | 524,020                          |  | 554,809                          |  | 4,550,574                                                   
|General and administration             | 510,693                            |  | 297,306                            |  | 841,674                          |  | 819,476                          |  | 9,662,743                                                   
|License fees                           | 28,245                             |  | 27,830                             |  | 53,245                           |  | 52,830                           |  | 489,608                                                     
|Marketing and selling                  | 61,392                             |  | 170,567                            |  | 201,306                          |  | 308,099                          |  | 1,536,006                                                   
|Interest and finance fees              | (34,400)                           |  | 296,148                            |  | (34,400)                         |  | 296,148                          |  | 3,405,115                                                   
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|Total Expenses                         | 794,604                            |  | 1,008,485                          |  | 1,631,828                        |  | 2,051,016                        |  | 19,755,438                                                  
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|Net Loss                               | (794,604)                          |  | (1,008,485)                        |  | (1,631,828)                      |  | (2,051,016)                      |  | (19,755,438)                                                
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|Net Loss Per Share - Basic and Diluted | (.01)                              |  | (.02)                              |  | (.02)                            |  | (.05)                            |  |                                                             
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             
|Weighted Average Shares Outstanding    | 66,453,675                         |  | 45,611,818                         |  | 66,453,675                       |  | 45,563,000                       |  |                                                             
|                                       |                                    |  |                                    |  |                                  |  |                                  |  |                                                             



















(The Accompanying Notes are an Integral Part of These Financial Statements)



- 5 -



---



Power Air Corporation
(A Development Stage Company)
Consolidated Statements of Cash Flows
(unaudited)







|                                                                                 | Six Months Ended
March 31,
2008$ |  | Six Months Ended
March 31,
2007$
|-------------------------------------------------------------------------------- | -------------------------------- |  | --------------------------------
|                                                                                 |                                  |  |                                 
|Operating Activities                                                             |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Net loss                                                                         | (1,631,828)                      |  | (2,051,016)                     
|                                                                                 |                                  |  |                                 
|Adjustments to reconcile net loss to cash used in operating 
        activities: |                                  |  |                                 
|Amortization of deferred financing costs                                         | -                                |  | 268,007                         
|Depreciation                                                                     | 45,983                           |  | 19,654                          
|Shares issued for consulting services                                            | -                                |  | 100,625                         
|Stock-based compensation                                                         | -                                |  | 111,815                         
|                                                                                 |                                  |  |                                 
|Changes in operating assets and liabilities:                                     |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Other current assets                                                             | 3,749                            |  | (77,245)                        
|Accounts payable and accrued liabilities                                         | 192,861                          |  | 90,218                          
|                                                                                 |                                  |  |                                 
|Net Cash Used in Operating Activities                                            | (1,389,235)                      |  | (1,537,942)                     
|                                                                                 |                                  |  |                                 
|Investing Activities                                                             |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Purchase of property and equipment                                               | (122,833)                        |  | (27,045)                        
|                                                                                 |                                  |  |                                 
|Net Cash Used in Investing Activities                                            | (122,833)                        |  | (27,045)                        
|                                                                                 |                                  |  |                                 
|Financing Activities                                                             |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Proceeds from related party loans                                                | -                                |  | 107,094                         
|Repayment of related party loans                                                 | -                                |  | (67,094)                        
|Proceeds from debt financing                                                     | -                                |  | 2,075,000                       
|Debt issuance costs                                                              | -                                |  | (157,500)                       
|                                                                                 |                                  |  |                                 
|Net Cash Provided by Financing Activities                                        | -                                |  | 1,957,500                       
|                                                                                 |                                  |  |                                 
|Increase (Decrease) in Cash                                                      | (1,512,068)                      |  | 392,513                         
|                                                                                 |                                  |  |                                 
|Cash, Beginning of Period                                                        | 2,260,326                        |  | 924,928                         
|                                                                                 |                                  |  |                                 
|Cash, End of Period                                                              | 748,258                          |  | 1,317,441                       
|                                                                                 |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Supplemental Disclosures                                                         |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Interest paid                                                                    |                                  |  | 13,873                          
|                                                                                 |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|                                                                                 |                                  |  |                                 
|Equity certificates issued for deferred financing costs                          | -                                |  | 1,996,866                       
|                                                                                 |                                  |  |                                 









(The Accompanying Notes are an Integral Part of These Financial Statements)



- 6 -



---



Power Air Corporation
(A Development Stage Company)
Consolidated Statement of Stockholder's Equity
From October 15, 1997 (Date of Inception) to March 31, 2008
(unaudited)

|                                                                                                            | Common Stock |         | Accumulated |             
|----------------------------------------------------------------------------------------------------------- | ------------ | ------- | ----------- | ------------
|                                                                                                            |              | Deficit |            
|                                                                                                            | Number       |         | Additional  |             
|                                                                                                            | of           |         | Paid-In     | Subscription
|                                                                                                            | Shares       | Amount  | Capital     | Receivable  
|                                                                                                            |              | $       | $           | $           
|Balance from October 15, 1997 (date of inception) to June 30, 2005                                          | 10,000       | 1,000   | -           | -           
|Adjustment for change in par value                                                                          | -            | (990)   | 990         | -           
|Re-capitalization transactions (Note 1)                                                                     |              |         |             |             
|Shares of Power Air Corporation                                                                             | 18,750,000   | 18,750  | -           | -           
|Cancellation of founders stock                                                                              | (1,550,000)  | (1,550) | 1,550       | -           
|Shares issued to shareholders of Power Air Tech, Inc. to 
      effect the reverse merger                   | 14,693,423   | 14,693  | (14,693)    | -           
|Shares issued for compensation                                                                              | 4,545,456    | 4,545   | 2,506,819   | -           
|Shares acquired by legal parent                                                                             | (10,000)     | (10)    | -           | -           
|Shares issued to settle debt                                                                                | 3,378,396    | 3,378   | 1,864,180   | -           
|Forgiveness of related party debt of PAT as a condition 
      precedent to the reverse merger              | -            | -       | 2,173,045   | -           
|Net liabilities assumed in recapitalization                                                                 | -            | -       | (89,482)    | -           
|Unit private placement - $0.65 (Note 6(d))                                                                  | 2,077,454    | 2,078   | 1,348,267   | -           
|Share subscription                                                                                          | -            | -       | -           | (161,850)   
|Share issuance costs                                                                                        | -            | -       | (155,035)   | -           
|Net loss                                                                                                    | -            | -       | -           | -           
|Balance, September 30, 2005                                                                                 | 41,894,729   | 41,894  | 7,635,641   | (161,850)   
|Subscription received                                                                                       | -            | -       | -           | 161,850     
|Unit private placement - $0.65 (Note 6(d))                                                                  | 1,105,917    | 1,106   | 717,740     | -           
|Unit private placement - $1.10 (Note 6(e))                                                                  | 1,792,572    | 1,793   | 1,970,036   | -           
|Shares issued for share issuance costs                                                                      | 17,600       | 18      | (18)        | -           
|Shares issued for employee bonuses (Note 4(b))                                                              | 300,000      | 300     | 254,700     | -           
|Shares issued for consulting services (Note 6(a))                                                           | 87,500       | 87      | 61,163      | -           
|Shares issued for options exercised (Note 6(g))                                                             | 150,000      | 150     | 97,350      | -           
|Share issuance costs                                                                                        | -            | -       | (250,241)   | -           
|Fair value of vested stock options                                                                          | -            | -       | 1,819,298   | -           
|Net loss                                                                                                    | -            | -       | -           | -           
|                                                                                                            |              |         |             |             
|Balance, September 30, 2006                                                                                 | 45,348,318   | 45,348  | 12,305,669  | -           
|Shares issued for consulting services (Note 6(a))                                                           | 262,500      | 262     | 100,363     | -           
|Shares issued pursuant to a private placement (Note 6(c))                                                   | 200,000      | 200     | 79,800      | -           
|Shares issued for employee bonuses (Note 4(b))                                                              | 100,000      | 100     | 32,900      |             
|Shares issued pursuant to a unit private placement at $0.35 per share (Note 6(b)                            | 14,285,714   | 14,286  | 4,985,714   | -           
|Shares issued pursuant to conversion of equity certificates at a fair value of $0.345 per share (Note 6(f)) | 6,257,143    | 6,257   | 2,152,993   | -           
|Warrants issued pursuant to conversion of equity certificates (Note 6(f))                                   | -            | -       | 736,709     | -           
|Fair value of vested stock options                                                                          | -            | -       | 198,483     | -           
|Net loss                                                                                                    | -            | -       | -           | -           
|                                                                                                            |              |         |             |             
|Balance, September 30, 2007                                                                                 | 66,453,675   | 66,453  | 20,592,631  | -           
|Net loss                                                                                                    | -            | -       | -           |             
|Balance, March 31, 2008                                                                                     | 66,453,675   | 66,453  | 20,592,631  |             









(The Accompanying Notes are an Integral Part of These Financial Statements)

- 7 -



---



POWER AIR CORPORATION





1.     Nature of Operations and Continuance of Business

Power Air Corporation (the "Company" or "PAC") (formerly Fortune Partners, Inc. or "FPI") was incorporated in the State of Nevada on August 26, 2004. Pursuant to a Share Exchange Agreement (the "Agreement") dated September 30, 2005, the Company acquired all of the issued and outstanding shares of Power Air Tech, Inc. ("PAT") and issued, in total, 22,617,275 common shares to the shareholder of PAT, the Chief Operating Officer of PAT and the majority of creditors of PAT resulting in PAT shareholders and related parties and creditors gaining a 57% control position of PAC (collectively the "PAT Acquisition"). Prior to the PAT Acquisition, the Company's principal business was the acquisition and exploration of mineral properties. The Company had not determined whether its mineral properties contained mineral reserves that were economically recoverable and had not been active exploring these properties since July, 2005. As such, the PAT Acquisition by the Company was considered a re-capitalization of PAT and PAT is considered the acquirer for accounting and financial reporting purposes. The consolidated financial statements include the accounts of the Company since the PAT Acquisition on September 30, 2005, and the historical accounts of PAT since the date of its inception, October 15, 1997. All significant inter-company balances and transactions have been eliminated upon consolidation. The name of the combined company was changed on December 21, 2005 to Power Air Corporation pursuant to a Form 14A proxy/consent statement, which was filed by the Company with the United States Securities and Exchange Commission (the "SEC") on November 9, 2005 and approved by a majority of the Company's shareholders on December 20, 2005.

PAT was incorporated in the State of Delaware on October 15, 1997 and operated its business in the State of California. PAC, through its acquisition of PAT, is in the business of developing, manufacturing and marketing fuel cell based commercial products. PAT has the exclusive worldwide license to the Zinc-Air Fuel Cell ("ZAFC") Technology that was developed at the Lawrence Livermore National Laboratory ("LLNL"), in Livermore, California, for all fields of use (stationary, portable and mobile applications) and commercialization.

The ZAFC uses a combination of oxygen and zinc pellets in a liquid alkaline mixture that generates electricity and at the same time creates residual zinc oxide that can be recycled back into reusable zinc, via electrolysis, so that it can again be used to create zinc pellets which can again be fed into the ZAFC stack.

The Company is a development stage company as defined by Statement of Financial Accounting Standards ("SFAS") No. 7 "Accounting and Reporting by Development Stage Enterprises". In a development stage company, management devotes most of its activities in developing a market for its products. The Company is presently in its developmental stage and currently has no sources of revenue to provide incoming cash flows to sustain future operations. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to enter into Original Equipment Manufacturer ("OEM") joint venture agreements, to successfully complete technology and product development activity, to raise additional equity financing and generate revenue, cash flow and attain profitable operations. Management has plans to seek additional capital through equity offerings. There is no guarantee that the Company will be able to complete any of the above objectives. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at March 31, 2008, the Company has working capital of $530,286 and accumulated losses of $19,755,438 since inception. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.     Summary of Significant Accounting Policies

a)     Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned Delaware subsidiary, PAT, and its 50% owned Canadian subsidiary, Power Air (Canada) Corp., which is considered a variable interest entity due to mind and management and funding criteria, thus is 100% consolidated. All inter-company transactions and balances have been eliminated upon consolidation.

- 8 -



---





POWER AIR CORPORATION



b)     Variable Interest Entity

The Financial Accounting Standards Board ("FASB") finalized FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities-An Interpretation of ARB51" ("FIN46R") in December 2003. FIN46R expands the scope of ARB51 and can require consolidation of "variable interest entities" ("VIEs"). Once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. On May 31, 2006 the Company's inactive Canadian subsidiary, Power Air (Canada) Corp. was 50% owned by a Canadian resident individual and 50% owned by the Company. On June 1, 2006 this subsidiary became active and Power Air (Canada) Corp. began conducting scientific research and experimental development activities in Canada and will apply for Canadian Scientific Research and Experimental Development tax credits. The Company funds 100% of the expenditures and is at risk for 100% of its losses and as a result is the party with the controlling financial interest and the primary beneficiary. Power Air (Canada) Corp. has no other financing other than amounts received from Power Air Corporation. As a result of the above, accumulated losses for the period from June 1, 2006 to March 31, 2008 of $1,361,727 has been included in the consolidated financial statements.

c)     Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of fair value of stock based compensation and other stock based payments, revenues and expenses during the reporting period. Actual results could differ from those estimates.

d)     Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share". SFAS No. 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

e)     Comprehensive Loss

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. For all periods presented the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

f)     Development and Engineering Expenditures

Due to the Company's lack of revenues and forecast of significant capital required to develop products and a market for its products, the net realizable value of prototype material and intangible assets is not reasonably determinable. Accordingly, all research and development expenditures under Cooperative Research and Development Agreement (CRADA) contracts, including the costs of prototype material and the cost of obtaining intangible assets such as patents, have been charged to operations.

- 9 -



---



POWER AIR CORPORATION



Scientific Research and Experimental Development ("SR&ED") investment tax credits from the Canadian Government are accounted for as a recovery of development and engineering expenditures in the period the claim is received.

g)     Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

h)     Financial Instruments

Financial instruments, which include cash, other current assets, accounts payable and accrued liabilities were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

i)     Revenue Recognition

The Company will recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements." Revenue will be recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is provided and collection is reasonably assured.

The Company has not generated any revenue since inception on October 15, 1997. The Company plans to receive funding from OEM's to engineer products to OEM specifications. The Company then plans to receive license and product fees under OEM contracts. Revenue recognition will be specific to the terms of the contracts and will thus be determined in a later period.

j)     Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until it is estimated that realization is more likely than not. The Company has adopted SFAS No. 109 as of its inception. Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

k)     Deferred Finance Costs

Deferred finance costs are recorded at cost and include costs relating to undertaking debt financing activities. Upon successful completion of the related financing, these costs will be recorded as a reduction of share capital if an equity financing or, as interest expense if a debt financing over the life to maturity of the debt. If related financing is not successfully completed, these costs will be charged to the statement of operations.

l)     Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash. Cash was deposited with a high quality credit institution.

- 10 -



---



POWER AIR CORPORATION



m)     Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R "Share Based Payments" using the modified retrospective transition method. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of each award as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of the Company's stock price.

n)     Foreign Currency Translation

The Company's functional and reporting currency is the United States dollar. Foreign currency transactions mainly occur in Canadian currency, and management has adopted SFAS No. 52, "Foreign Currency Translation". Monetary assets and liabilities denominated in Canadian dollars are translated into United States dollars at rates of exchange in effect at the balance sheet date. Non-monetary assets, liabilities and items recorded in income arising from transactions denominated in Canadian currencies are translated at rates of exchange in effect at the date of the transaction. Any gain or loss on foreign currency translation is included in operations. To date, such amounts have not been significant.

o)     Property and Equipment

Depreciation is provided on all property and equipment utilizing the straight-line method over their estimated useful lives of five years, except leasehold improvements, which are amortized over the term of the lease.

p)     Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (Revised) "Business Combinations". SFAS 141 (Revised) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 141 (Revised) will have on the Company's financial statements upon adoption.

In December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51". SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 160 will have on the Company's financial statements upon adoption.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115". This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, "Fair Value Measurements". The adoption of this statement is not expected to have a material effect on the Company's financial statements.

- 11 -



---



POWER AIR CORPORATION



In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for uncertainty in Income Taxes," ("FIN 48") an interpretation of FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires that the entities recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an adjustment to the opening balance of retained earnings. The Company adopted FIN 48 on January 1, 2007 and it has not had an impact on its financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".  The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.  The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007.  The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity's liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS 161 will be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, will be adopted by the Company beginning in the first quarter of 2009. The Company does not expect there to be any significant impact of adopting SFAS 161 on its financial position, cash flows and results of operations.



3.     Property and Equipment



|                                   | Cost$   |  | Accumulated
Depreciation$ |  | Net Carrying
Value
March 31
2008$ |  | Net Carrying
Value
September 30
2007$
|---------------------------------- | ------- |  | ------------------------- |  | --------------------------------- |  | -------------------------------------
|                                   |         |  |                           |  |                                   |  |                                      
|Computer hardware                  | 51,108  |  | 17,496                    |  | 33,612                            |  | 36,937                               
|Computer software                  | 12,901  |  | 3,647                     |  | 9,254                             |  | 7,924                                
|Furniture, equipment and machinery | 353,399 |  | 75,795                    |  | 277,604                           |  | 194,643                              
|Leasehold improvements             | 66,779  |  | 13,889                    |  | 52,890                            |  | 57,006                               
|                                   |         |  |                           |  |                                   |  |                                      
|                                   | 484,187 |  | 110,827                   |  | 373,360                           |  | 296,510                              
|                                   |         |  |                           |  |                                   |  |                                      



4.     Related Party Transactions and Balances

(a)    Directors' fees of $30,000 were charged to operations. Unpaid director's fees of $58,333 are due to five directors at March 31, 2008.

(b)     See Note 7(c) regarding employment contract commitments with related parties.



- 12 -



---



POWER AIR CORPORATION



5.     Promissory Notes and Equity Certificates

On March 5, 2007 and April 5, 2007, the Company completed a debt financing (the "Financing") consisting of the following consideration for gross proceeds of $2,190,000:

(a)     Promissory notes totalling $2,190,000, bearing interest at 10% per annum payable quarterly in arrears, secured against the Company's tangible and intangible assets, repayable on the Maturity Date, being the earlier of September 30, 2007 and the third business day following the completion of a public offering or private placement resulting in gross proceeds of $5,000,000 or more (the "Qualified Offering").

(b)     As additional consideration for the loan the Company issued Equity Consideration Certificates which allow the holder, at the holder's option, to receive either:

(i)     Primary equity consideration consisting of the number of shares of common stock of the Company computed by dividing the face amount of the equity consideration certificate by the price of the identical securities issued under a planned Qualified Offering; or

(ii)    Alternate equity consideration consisting of the number of shares of common stock of the Company computed by dividing the face amount of the equity consideration certificate by $0.40 and the equivalent number of warrants, exercisable at a price of $0.50 for a term of 7 years from the date of issuance.

These Equity Consideration Certificates were considered a separate and direct finance fee and the estimated fair values were based on the estimated number of shares to be issued, 5,500,000 common shares valued at a combined average fair value of $0.3926 per share for $2,159,250 and the estimated value of the warrants to be issued, 5,500,000 warrants valued at a combined average fair value of $0.134 per warrant for $736,709. The warrants were valued pursuant to the Black-Scholes option pricing model using the following combined average input variables: fair value of stock price on grant date - $0.39; exercise price - $0.50; expected life - 1 year; volatility - 105%; annual expected dividends - nil; risk-free interest rate - 4.63%. The total value of the underlying shares and warrants totalling $2,895,959, a placement commission of $219,000, and expenses of $122,608 were included in deferred financing costs which totalled $3,237,567 which were subsequently charged to operations in the quarter ended June 30, 2007.



6.     Common Stock

a)     Pursuant to a Consulting Agreement dated August 1, 2006 the Company issued 87,500 restricted common shares at a fair market value of $61,250, which was charged to operations during the month of September 2006. The Company issued an additional 262,500 restricted common shares having a fair market value of $100,625, which was charged to operations during the three months ended December 31, 2006.

b)     Unit Private Placement - $0.35

On June 5, 2007 the Company received $5,000,000 and issued 14,285,714 units at $0.35 per unit. Each unit contained one common share and one common share purchase warrant to acquire one additional share at $0.50 per share expiring June 5, 2009.

c)     Private Placement - $0.40

On June 5, 2007 the Company received $80,000 and issued 200,000 common shares at $0.40 per share.

d)     Unit Private Placement - $0.65

Between August 22, 2005 and September 30, 2005, the Company received common stock subscriptions for 2,077,454 units at a price of $0.65 per unit for total proceeds and subscriptions receivable of $1,350,345. The subscriptions receivable were received in October 2005. These units were issued on September 30, 2005.

- 13 -



---



POWER AIR CORPORATION



During the quarter ended December 31, 2005, the Company received common stock subscriptions for an additional 1,090,532 units at a price of $0.65 per unit for total additional proceeds of $708,846. These units were issued on November 30, 2005. On March 15, 2006, the Company received a common stock subscription for an additional 15,385 units at a price of $0.65 per unit for total additional proceeds of $10,000. These units were issued on March 15, 2006. Total units issued were 3,183,371 and total gross proceeds received were $2,069,191. A total of $278,081 of share issuance costs were incurred including $75,495 of legal costs and $202,586 of finders' fees. Of these share costs, $155,035 was recorded in 2005 and the balance in 2006. Each unit consisted of one common share and one share purchase warrant. Each warrant entitles the holder to purchase an additional share of common stock at a price of $1.00 per share for a period of two years from the date of issuance. The Company has filed an SB-2 Registration Statement to remove the trading restrictions on the above shares and warrants.

e)     Unit Private Placement - $1.10

On June 28, 2006 the Company issued 1,792,572 units at $1.10 per unit for gross proceeds of $1,971,829. Each unit consisted of one common share and one-half share purchase warrant. Each whole warrant (896,286 warrants in total) is exercisable into one common share at a price of $1.50 per share expiring June 28, 2008. The Company paid $127,583 for share issuance costs including $102,583 for finders' fees and $25,000 for legal fees.

f)     Equity Consideration Certificates Converted

The Company completed an equity financing, as disclosed in (b) and (c) above totalling $5,080,000 thus triggering immediate repayment of the promissory notes totalling $2,190,000 plus interest of $42,710. Also on June 5, 2007 the Equity Consideration Certificates were converted into 6,257,143 units at $0.345 per unit being the value of the Equity Certificates disclosed in Note 5. Each unit consisted of one common share and one common share purchase warrant to acquire one additional share at $0.50 per share expiring June 5, 2009. As the debt was extinguished the Company charged the related deferred finance costs of $3,237,567 to operations in the quarter ended June 30, 2007.

g)     Stock Options

On April 1, 2006 the Board of Directors adopted a comprehensive "2006 Stock Incentive Plan" to issue stock-based compensation of up to 4,000,000 common shares including stock options, to officers, directors, employees and consultants of the Company. On October 16, 2006 the Board of Directors approved an increase of common shares authorized to be issued pursuant to the 2006 Stock Incentive Plan to 8,000,000 common shares.



|A summary of the Company's stock option activity is as follows: |                   |  |                                  
|--------------------------------------------------------------- | ----------------- |  | ---------------------------------
|                                                                | Number of Options |  | Weighted
Average
Exercise
Price
$
|                                                                |                   |  |                                  
|Balance, September 30, 2007                                     | 3,115,000         |  | 0.62                             
|Expired                                                         | (1,300,000)       |  | 0.66                             
|                                                                |                   |  |                                  
|Balance, March 31, 2008                                         | 1,815,000         |  | 0.59                             



- 14 -



---



POWER AIR CORPORATION







|The following table summarizes stock options outstanding at March 31, 2008:
|---------------------------------------------------------------------------
|Outstanding                                                                
|Number of Shares                                                           
|                                                                           
|1,815,000                                                                  





h)     Warrants



|The following table summarizes warrants outstanding at March 31, 2008:
|----------------------------------------------------------------------
|Number of Warrants                                                    
|                                                                      
|20,542,857                                                            
|896,286                                                               
|21,439,125                                                            

Warrants outstanding having a weighted average remaining life of 1.14 years and a weighted average exercise price of $0.54.  On November 30, 2007 a total of 1,090,532 warrants expired unexercised.



7.     Commitments and Contingencies

a)     PAT entered into a Limited Exclusive Patent License Agreement with the Lawrence Livermore National Laboratory in March, 2001 (the "License Agreement"). Under the terms of the License Agreement the Company must prepay annual foreign filing fees and make minimum royalty payments of $100,000 due on February 28th, being two months after the start of each calendar year and each year thereafter until either party terminates the License Agreement. The fee for 2007 was paid in March, 2007. The fee is amortized quarterly. The License Agreement also provides for royalty payments ranging from 0.45% to 3.55% of net sales that incorporate the licensed ZAFC technology.  The company has payment plan with LLNC whereas, the company will pay LLNC $10,000 before April 30, 2008, $30,000 on June 30, 2008, $31,000 on July 31, 2008 and $31,000 on August 31, 2008.

b)     Lease commitments

(i)     On October 17, 2005, the Company entered into a long-term office and laboratory premises lease in Livermore, California. The term is for 30 months expiring October 31, 2008. The monthly base rent effective November 1, 2006 was $7,000 per month and effective November 1, 2007 will be $7,933 per month and the estimated monthly operating charge is $2,050 per month. On July 23, 2007 the Company entered into a long-term laboratory premises lease adjacent to the premises above. The term is for 36 months expiring July 31, 2010. The monthly base rent is $4,518 per month and the estimated monthly operating charge is $1,100. Effective August 1, 2008 the base rent is $4,800 per month and effective August 1, 2009 the base rent is $5,083 per month.

c)     As at March 31, 2008 the Company is committed pursuant to three employment contracts including two officers and one employee of the Company. In total the annual commitment is $330,000, each having a 90-day termination clause.

- 15 -



---



POWER AIR CORPORATION(a Development Stage Company)Notes to the Financial Statements(unaudited)



d)     On September 27, 2006 the Company entered into a four phase Development and Pre-Manufacturing Agreement (the "Agreement") with Mid States Tool and Machine Inc. of Decatur, Indiana ("Mid States"). Pursuant to the Agreement, Mid States will re-design, cost-reduce, tool and manufacture the ZAFC. The Company paid $25,000 upon execution of this Agreement and will issue 350,000 stock options, in phases, exercisable at $0.755 per share. Upon completion of Phase 1 (Planning) a total of 50,000 stock options will be granted. Upon starting Phase 2 (Engineering Prototype) a cash payment of $25,000 made and upon completion of Phase 2 an additional 100,000 stock options will be granted. A final payment of $27,000 will be made upon Mid States delivering 4 demonstration prototypes at the end of Phase 2. A total of 100,000 stock options will be granted at the completion of Phase 3 (Manufacturing Prototype) and Phase 4 (Pilot Production). The cash payments do not include the costs of materials, labour (at Mid States' cost) or moulds. There have been no triggering events for the granting of the above options and the Company is in the process of renegotiating the time-lines and deliverables for the Mid-States Agreement to include Zinc Air Powerpacks ("ZPAC") and ZAFC cells.  It is still intended that Mid States will be the Company's contract manufacturer for the initial ZPAC and ZAFC cells for use in the Company's first commercial products in North America.

e)     The Company signed a Letter of Intent on December 6, 2006 with H-Plus Eco Ltd., a Korean based company focused on environment and alternative energy. This Letter of Intent defines the structure and scope of the Asian Joint Venture between the companies. This Joint Venture will develop, manufacture and commercialize back-up power systems for Korean and Asian markets. H-Plus Eco Ltd. will contribute up to KRW 5 billion (US$5 million) to the Joint Venture and the Company will license its technology to the Joint Venture. The Joint Venture will include a shareholder agreement, a license agreement, a territory agreement and a supply agreement. The Letter of Intent expired 6 months after signing, however, it is referenced as part of a Heads of Agreement signed by the Company and its six largest shareholders on May 15, 2007. This Heads of Agreement extends the intent of the original document indefinitely with the support of the majority shareholders of the Company and the Chairman and Chief Executive Officer of H-Plus Eco Ltd.

f)     The Company entered into an agreement with Elite Financial Communications Group, LLC ("Elite") to manage all aspects of the Company's investor and media relations program. The Company has paid Elite $21,000 for the period July 1, 2007 to September 30, 2007 and thereafter will pay a monthly amount of $8,500 to December 31, 2007 and thereafter will pay a monthly amount of $10,000. Elite will also receive a warrant to purchase up to 150,000 common shares at $0.45 per share vesting on July 16, 2007 and the right to acquire an additional 150,000 common shares vesting on January 13, 2008 at $0.60 per share. These warrants will expire July 16, 2009. These warrants have not been issued to date and accordingly their fair value has been recorded in accrued liabilities and charged to operations as a marketing and selling.  The warrants were valued pursuant to the Black-Scholes option pricing model using the following input variables:  fair value of stock price on grant date - $0.32; exercise price - $0.45; expected life - 2 years; volatility - 111%;  annual expected dividends - nil; risk-free interest rate - 4.87%; and fair value of stock price on grant date - $0.20; exercise price - $0.60; expected life - 1.5 years; volatility - 130%;  annual expected dividends - nil; risk-free interest rate - 2.58%.  The resulting values were recorded as $24,587 and $10,310 respectively for a total of $34,897.

g)     On November 3, 2007 the Company signed a Collaborative Development Agreement (CDA) with the National Research Council of Canada (NRC) with an effective date of January 1, 2008 expiring December 31, 2009. Under the terms of the CDA; the Company and NRC will develop an optimal non-noble catalyst, a support structure for the catalyst and a low cost process suited to mass production of the related air cathodes.  The Company will have the exclusive right to commercially exploit the Intellectual Property arising from this collaboration in relation to Zinc Air-based energy systems and the first right of refusal in fields of use other than Zinc Air-based energy systems.  The Company will pay NRC $256,840 over 18 months for services in 4 equal payments of $64,210 starting January 1, 2008. Both parties will review progress after 12 months to determine if results are promising enough to warrant continuation.



8.     Development and engineering expense

In March of 2008, the Company's Canadian subsidiary, Power Air (Canada) Corp received  SR&ED Investment Tax Credits from the Canadian Government  totalling $187,972.  The Company incurred expenses totalling $40,037 in consulting fees associated with processing these claims. The Net amount of $146,934 was credited to Development and engineering expenses, thus offsetting development cost incurred during the quarter.



- 16 -



---



POWER AIR CORPORATION(a Development Stage Company)Notes to the Financial Statements(unaudited)



9.     Subsequent Events

On April 8, 2008, the Board of Directors granted effective April 11, 2008 fully vested stock options to each of the five current independent Directors of the Company to purchase up to an aggregate each of 100,000 common shares of the common stock of the Company, at a exercise price of the closing price of the Company's common shares on the FINRA OTCBB on April 11, 2008, for an entire period of up to five years commencing on April 11 2008, all in accordance with the terms and conditions of the Company's present Stock Incentive Plan.



10.    Segment Disclosures

The Company operates as one operating segment which is in the business of developing, manufacturing and marketing fuel cell based commercial products. The Chief Executive Officer is the Company's Chief Operating Decision Maker (CODM) as defined by SFAS 131, "Disclosure about Segments of an Enterprise and Related Information". The CODM allocates resources and assesses the performance of the Company based on the results of operations.











- 17 -



---

Item 2.   Management's Discussion and Analysis or Plan of Operations

As used in this Quarterly Report: (i) the terms "we", "us", "our" and the "Company" mean Power Air Corporation and its wholly-owned subsidiaries, Power Air Tech, Inc. and Power Air (Canada) Corporation, unless the context otherwise requires; (ii) "SEC" refers to the United States Securities and Exchange Commission; (iii) "Securities Act" refers to the United States Securities Act of 1933, as amended; (iv) "Exchange Act" refers to the Unites States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

The following discussion of our plan of operations, results of operations and financial condition as at and for the six months ended March 31, 2008 should be read in conjunction with our unaudited interim consolidated financial statements and related notes for the six months ended March 31, 2008 included in this Quarterly Report, as well as our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007.

Overview

Corporate Organization

Our company was formed under the laws of the State of Nevada on August 26, 2004.  Our principal business offices are located at 4777 Bennett Drive, Suite E, Livermore, California, 94551, our telephone number is (925) 960-8777 and our facsimile number is (925) 960-9197.

We own all of the issued and outstanding share capital of Power Air Tech, Inc., which was formed under the laws of the State of Delaware in October of 1997, as well as 50% of the issued and outstanding shares of Power Air (Canada) Corp. ("Power Air Canada"), which was formed under the laws of the Province of British Columbia, Canada, on December 12, 2005. For accounting purposes, Power Air Canada is considered a variable interest entity due to our control over its operations and full funding of its costs to date and, accordingly, Power Air Canada has been consolidated into our financial results as a wholly-owned subsidiary.

Our Business

We are a development stage company engaged in the business of developing, manufacturing and marketing of fuel cell based commercial products.  We hold the exclusive world-wide license for the development and commercialization of the zinc air fuel cell ("ZAFC") technology developed through an extensive joint collaboration effort with Lawrence Livermore National Laboratory ("LNLL") and the United States Department of Energy ("DOE").  We also have exclusive world-wide rights to a second LLNL patent pertaining to a low-cost process for recovering zinc and converting it to pellet form for reuse in the ZAFC system.  LLNL is a leading United States government research and development facility located in Livermore, California.

Our ZAFC technology is a metal oxide fuel cell using simple physical chemistry.  It uses a combination of atmospheric oxygen and zinc pellets in a liquid alkaline electrolyte mixture referred to as an "electrolyte" to generate electricity.  The by-products from the chemical reaction are zinc oxide and potassium zincates.  The electrolyte used in the ZAFC fuel cells is potassium hydroxide, a chemical which is readily available in commercial quantities.  In operation, the fuel cell consumes all of the zinc; and is operationally quiet, providing instantaneous stable electrical energy with zero greenhouse gas emissions.

Our objective is to commercialize the ZAFC technology to the stage where the technology can be incorporated into ZAFC products that can be manufactured and sold for use in power supply commercial applications.  We have completed initial development work on prototype zinc air fuel cells incorporating our technology.  We plan to continue this development work in order to develop products incorporating our ZAFC technology that can be commercially marketed to consumers and businesses.  In pursing this objective, we plan to undertake strategic relationships with original equipment manufacturers ("OEMs") who would incorporate our ZAFC technology into fuel cell powered products to be manufactured and sold by the OEM.

- 18 -



---

We have determined to focus our initial development efforts on the design and development of one ZAFC product that we envision would be manufactured and marketed by an OEM. This initial ZAFC product will be a small, pocket-sized zinc air power pac ("ZPAC") that will allow end-users to recharge their portable electronics devices (cell phones, PDAs, etc.) anywhere, anytime. In parallel, we will develop a ZAFC based portable emergency generator designed for back-up or emergency use in homes and small businesses.  We have developed prototypes of both of these products using our ZAFC technology.  In order to complete development of commercial products, we will have to complete the following phases of development:

- the design, manufacture and testing of engineering prototypes;
- the design, manufacture and testing of manufacturing prototypes; and
- pilot production of commercial products.

Our long-term goal is to be a commercially viable fuel cell company, powering low cost, silent, zero emission fuel cell based products developed with OEM partners for portable, stationary, light mobility and transportation markets.  However, we have not yet completed the development of any products incorporating our ZAFC fuel cell technology that can be commercially marketed and sold.  Further, we have not achieved any revenues to date and we do not anticipate achieving any revenues over the next twelve months.  As a result, we are considered a development stage company.  We will require substantial additional financing for us to pursue our business objectives.  There can be no assurance that we will be able to obtain any necessary financing.

For more information, see our Annual Report on Form 10-KSB for the year ended September 30, 2007 filed with the SEC on January 15, 2008.

Plan of Operations

We plan to complete the following development work over the next 12 months:

|Phase | Description of Development Phase | Description of Development Work                                                                                                                                                                  | Planned Timing       
|----- | -------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------
|7     | Engineering Prototype            | With input of OEM and channel partners, we plan to complete the design, and testing of an engineering prototype based on our ZPAC design                                                         | July 2008            
|8     | Engineering Verification         | This phase will consist of further design construction and field testing of engineering prototypes                                                                                               | October 2008         
|9     | Manufacturing Prototype          | With input from a manufacturing partner, we plan to design a commercial product with product design freeze and quality plan                                                                      | December 2008        
|10    | Manufacturing Verification       | This phase will consist of the construction and beta testing of manufacturing prototypes and completion of plan for launching the product into the market-place including product certifications | January 2009         
|11    | Pilot Production                 | This phase will consist of manufacturing pilot units of the product for shipping to channels and confirmation that our initial required cost and quality targets have been met                   | First quarter of 2009

- 19 -



---

Our planned expenditures over the next 12 months are estimated to be approximately $3.5.  We had cash of $748,258 and working capital of $530,286 at March 31, 2008, which, together with a planned equity financing in mid-2008 of a minimum of $2.7 million, we anticipate will be sufficient to enable us to complete the design, manufacture and testing of engineering prototypes and the design of a manufacturing prototype for the ZPAC.  Our ability to complete the certification and pilot production of commercial ZPAC products will require that we obtain additional financing before March 30, 2009.  There can be no assurance that we will obtain the necessary financing.

Subsequent to the 12 month period following the date of this Quarterly Report, we will be required to obtain additional financing in order to continue to pursue our business plan.  We believe that debt financing will not be an alternative for funding as we do not have tangible assets to secure any debt financing.  We anticipate that additional funding will be in the form of equity financing from the sale of our common stock.  We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our business plan going forward.  In the absence of such financing, our business plan will fail.  Even if we are successful in obtaining equity financing to fund our business plan, there is no assurance that we will obtain the funding necessary to pursue our plan over the long-term.

Results of Operations

Six Months Ended March 31, 2008 Compared to the Six Months Ended March 31, 2007

The following table sets out our consolidated loss during the six months ended March 31, 2008 and 2007:

|                                       | Six Months Ended
March 31, 2008 |  | Six Months Ended
March 31, 2007
|-------------------------------------- | ------------------------------- |  | -------------------------------
|                                       | (Unaudited)                     |  | (Unaudited)                    
|                                       | $                               |  | $                              
|Expenses                               |                                 |  |                                
|Depreciation of property and equipment | 45,983                          |  | 19,654                         
|Development and engineering            | 524,020                         |  | 554,809                        
|General and administration             | 841,674                         |  | 818,476                        
|License fees                           | 53,245                          |  | 52,830                         
|Marketing and selling                  | 201,306                         |  | 308,099                        
|Interest and finance fees              | (34,400)                        |  | 296,148                        
|Total Expenses                         | 1,631,828                       |  | 2,051,016                      
|Net Loss                               | (1,631,828)                     |  | (2,051,016)                    

The Company recorded a net loss of $1,631,828 for the six months ended March 31, 2008 as compared to a net loss of $2,051,016 for the period ended March 31, 2007, a net decrease of $419,188.  The decrease in net loss was due to the following significant components: a reduction in interest and finance fees by $296,000, receipt of an Investment Tax Credit from the Canadian Federal Government and the British Columbia totaling $140,000 net of expenses, the reduction in investor relations spending by $210,000 and a reduction of $107,000 in Sales and Marketing costs.  Offsetting these reductions was an increase in Development and engineering costs of $165,000 and an increase in facilities costs of $54,000, increased Administrative staff of $52,000, higher consulting fees of $52,000 and increased director fees of $19,000.  Depreciation expenses increased $26,000 due to increased purchase of laboratory equipment.

Liquidity and Capital Resources

|                     | As at
March 31, 2008(Unaudited) | As at
September 30, 2007(Audited)
|-------------------- | ------------------------------- | ---------------------------------
|Cash                 | $  748,258                      |                                  
|Working capital      | 530,286                         |                                  
|Total assets         | 1,256,382                       |                                  
|Total liabilities    | 352,736                         |                                  
|Shareholders' equity | 903,646                         |                                  

- 20 -



---

We plan to spend approximately $3.5 million over the next twelve months in carrying out our plan of operations.  We had cash of $748,258 and working capital of $530,286 at March 31, 2008, which, together with a planned equity financing in mid-2008 of a minimum of $2.7 million, we anticipate will be sufficient to enable us to complete the design, manufacture and testing of engineering prototypes and the design of a manufacturing prototype for the ZPAC.  Our ability to complete the certification and pilot production of commercial ZPAC products will require that we obtain additional financing before March 30, 2009.  There can be no assurance that we will obtain the necessary financing.

Operating Activities

Operatin

Investing Activities

In the six months ended March 31, 2008, investing activities used cash of $122,833, compared to $27,045 in the prior period of 2007, to purchase property and equipment.

Financing Activities

There were no financing activities in the six months ended March 31, 2008.  Financing activities in the six months ended March 31, 2007 provided cash of $1,957,500, primarily from the proceeds of debt financing.

Going Concern

We currently have no revenue to provide incoming cash flows to sustain future operations.  Our ability to emerge from the development stage with respect to any planned principal business activity is dependent upon our successful efforts to enter into OEM joint venture agreements, to raise additional equity financing and generate revenue, cash flow and attain profitable operations.  There can be no assurance that we will be able to complete any of the above objectives.  These factors raise substantial doubt regarding our ability to continue as a going concern.

The consolidated financial statements included herein have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business.  As at March 31, 2008, we had accumulated losses of $19,755,438 since inception.  The consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis.  The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements.  In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates made by management.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of fair value of stock based compensation and other stock based payments, revenues and expenses during the reporting period. Actual results could differ from those estimates.

- 21 -



---

Variable Interest Entity

The Financial Accounting Standards Board ("FASB") finalized FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities-An Interpretation of ARB51" ("FIN46R") in December 2003. FIN46R expands the scope of ARB51 and can require consolidation of "variable interest entities" ("VIEs"). Once an entity is determined to be a VIE, the party with the controlling financial interest, the primary beneficiary, is required to consolidate it. On May 31, 2006 the Company's inactive Canadian subsidiary, Power Air (Canada) Corp. was 50% owned by a Canadian resident individual and 50% owned by the Company. On June 1, 2006 this subsidiary became active and Power Air (Canada) Corp. began conducting scientific research and experimental development activities in Canada and will apply for Canadian Scientific Research and Experimental Development tax credits. The Company funds 100% of the expenditures and is at risk for 100% of its losses and as a result is the party with the controlling financial interest and the primary beneficiary. Power Air (Canada) Corp. has no other financing other than amounts received from Power Air Corporation. As a result of the above, accumulated losses for the period from June 1, 2006 to March 31, 2008 of $1,361,727 has been included in the consolidated financial statements.

Research and Development Expenditures

Due to the Company's lack of revenues and forecast of significant capital required to develop a market for its products, the net realizable value of prototype material and intangible assets is not reasonably determinable. Accordingly, all research and development expenditures under Cooperative Research and Development Agreement contracts, including the costs of prototype material and the cost of obtaining intangible assets such as patents, have been charged to operations.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R "Share Based Payments" using the modified retrospective transition method. SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service periods. The Company has estimated the fair value of each award as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable. The Black-Scholes option pricing model considers, among other factors, the expected life of the award and the expected volatility of the Company's stock price.

Foreign Currency Translation

The Company's functional and reporting currency is the United States dollar. Foreign currency transactions mainly occur in Canadian currency, and management has adopted SFAS No. 52, "Foreign Currency Translation". Monetary assets and liabilities denominated in Canadian dollars are translated into United States dollars at rates of exchange in effect at the balance sheet date. Non-monetary assets, liabilities and items recorded in income arising from transactions denominated in Canadian currencies are translated at rates of exchange in effect at the date of the transaction. Any gain or loss on foreign currency translation is included in operations. To date, such amounts have not been significant.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (Revised) "Business Combinations". SFAS 141 (Revised) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 141 (Revised) will have on the Company's financial statements upon adoption.

- 22 -



---

In December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51". SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective for the fiscal year beginning after December 15, 2008. The management is in the process of evaluating the impact SFAS 160 will have on the Company's financial statements upon adoption.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115". This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, "Fair Value Measurements". The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for uncertainty in Income Taxes," ("FIN 48") an interpretation of FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires that the entities recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an adjustment to the opening balance of retained earnings. The Company adopted FIN 48 on January 1, 2007 and it has not had an impact on its financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".  The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.  The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007.  The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity's liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS 161 will be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, will be adopted by the Company beginning in the first quarter of 2009. The Company does not expect there to be any significant impact of adopting SFAS 161 on its financial position, cash flows and results of operations.

Item 3.  Controls And Procedures

As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer.  Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective as at the end of the period covered by this quarterly report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC.

- 23 -



---

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal controls over financial reporting that occurred during our most recent quarterly period that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

We currently are not a party to any material legal proceedings and, to our knowledge, no such proceedings are threatened or contemplated.

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

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

Item 5.   Other Information

None.

Item 6.   Exhibits

The following exhibits are included with this Quarterly Report on Form 10-QSB:



|ExhibitNumber | Description of Exhibit                                                                                                                               
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|3.1           | Articles of Incorporation(1)                                                                                                                         
|3.2           | Bylaws(1)                                                                                                                                            
|10.1          | Share Exchange Agreement among the Company, the Vendor, Power Air, the HDH Group and Dean Haley, dated for reference effective on August 22, 2005.(2)
|10.2          | Stephen Williams Services Contract between the Company and Stephen Williams, dated for reference effective on October 1, 2005, as amended.(2)(3)     



- 24 -



---



|ExhibitNumber | Description of Exhibit                                                                                                                                                                                                                                                                                                   
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3          | Sales and Marketing Employment Agreement among the Company, Power Air and Donald Ceci, dated for reference effective on October 3, 2005.(2)                                                                                                                                                                              
|10.4          | Corporate Development Employment Agreement among the Company, Power Air and Remy Kozak, dated for reference effective on October 3, 2005, as amended.(2)(3)                                                                                                                                                              
|10.5          | Development and Pre-Manufacturing Agreement dated September 27, 2006 between the Company and Mid States Tool and Machine Inc.(5)                                                                                                                                                                                         
|10.6          | 2006 Stock Incentive Plan(4)                                                                                                                                                                                                                                                                                             
|10.7          | Financing Agreement dated March 4, 2007 among the Company, Paulson Investment Company, Inc. and High Capital Funding, LLC (including the form of the Secured Promissory Note, the form of the Equity Consideration Certificate, the form of the Security Agreement and the form of the Security and Pledge Agreement).(6)
|10.8          | Form of the Subscription Agreement between the Company and each of the purchasers for the Note and the Equity Consideration Certificates.(6)                                                                                                                                                                             
|10.9          | Form of the $0.35 Unit Private Placement Subscription Agreement between the Company and each of the purchasers of the Units under the Private Placement Offering.(7)                                                                                                                                                     
|10.10         | Form of the Non-U.S. Share Purchase Warrant Certificate utilized with the Private Placement Offering. (7)                                                                                                                                                                                                                
|10.11         | Service Agreement dated July 16, 2007 between the Company and Elite Financial Communications Group, LLC regarding the Company's investor and media relations program.(8)                                                                                                                                                 
|21.1          | Subsidiaries of the Company:  Power Air Tech, Inc. (Delaware) (100%) Power Air (Canada) Corp. (British Columbia) (50%)                                                                                                                                                                                                   
|31.1          | Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|31.2          | Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|32.1          | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                           

(1)   Previously filed with the SEC as an exhibit to our Registration Statement on Form SB-2 as originally filed with the SEC on December 2, 2004.

(2)   Previously filed with the SEC as an exhibit to our Current Report on  Form 8-K as originally filed with the SEC on October 7, 2005.

(3)   Previously filed with the SEC as an exhibit to our Form SB-2 as originally filed with the SEC on June 12, 2006.

(4)   Previously filed with the SEC as an exhibit to our Form S-8 as originally filed with the SEC on July 3, 2006.

(5)   Previously filed with the SEC as an exhibit to our Form 10-QSB as originally filed with the SEC on February 14, 2007.

(6)   Previously filed with the SEC as an exhibit to our Form 8-K as originally filed with the SEC on April 16, 2007.

(7)   Previously filed with the SEC as an exhibit to our Form 8-K as originally filed with the SEC on June 5, 2007.

(8)   Previously filed with the SEC as an exhibit to our Form 8-K as originally filed with the SEC on July 16, 2007.

- 25 -



---

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

POWER AIR CORPORATION

/s/ H. Dean Haley______________________________H. Dean HaleyExecutive Chairman, President, Chief Executive Officer
Chief Operating Officer and Principal Executive Officer

Date:  May 13, 2008.









> 

>