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





FORM 10-QSB





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

For the quarterly period ended June 30, 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                                                         | Not applicable                   
|-------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)





|4777 Bennett Drive, Suite E, Livermore, California, 94551
|---------------------------------------------------------
|(Address of principal executive offices)                 





|(925) 960-8777                                                                    
|----------------------------------------------------------------------------------
|(Issuer's telephone number)                                                       
|Not applicable                                                                    
|(Former name, former address and former fiscal year, if changed since last report)

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:   81,453,675 shares of Common Stock as of August 14, 2008.

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



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POWER AIR CORPORATION

Quarterly Report On Form 10-QSB
For The Quarterly Period Ended June 30, 2008

FORWARD-LOOKING STATEMENTS

This Form 10-QSB for the quarterly period ended June 30, 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



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PART I - FINANCIAL INFORMATION

Item 1.            Financial Statements



Power Air Corporation
(A Development Stage Company)
Consolidated Balance Sheet
(unaudited)



|                                                                                                                                                | June 30,
2008
$
(unaudited) |  | September 30,
2007
$
|----------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- |  | --------------------
|                                                                                                                                                |                             |  |                     
|ASSETS                                                                                                                                          |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Current Assets                                                                                                                                  |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Cash                                                                                                                                            | 1,255,236                   |  | 2,260,326           
|Other current assets                                                                                                                            | 130,240                     |  | 138,513             
|                                                                                                                                                |                             |  |                     
|Total current assets                                                                                                                            | 1,385,476                   |  | 2,398,839           
|                                                                                                                                                |                             |  |                     
|Property and Equipment (Note 3)                                                                                                                 | 356,426                     |  | 296,510             
|                                                                                                                                                |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Total Assets                                                                                                                                    | 1,741,902                   |  | 2,695,349           
|                                                                                                                                                |                             |  |                     
|                                                                                                                                                |                             |  |                     
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                            |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Current Liabilities                                                                                                                             |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Accounts payable                                                                                                                                | 51,358                      |  | 143,209             
|Accrued liabilities                                                                                                                             | 39,888                      |  | 16,666              
|                                                                                                                                                |                             |  |                     
|Total current liabilities                                                                                                                       | 91,246                      |  | 159,875             
|                                                                                                                                                |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Commitments and Contingencies (Note 7)                                                                                                          |                             |  |                     
|                                                                                                                                                |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Stockholders' Equity                                                                                                                            |                             |  |                     
|                                                                                                                                                |                             |  |                     
|Common Stock (Note 6), 375,000,000 shares authorized, $0.001 
par value; 81,453,675 and 66,353,675 shares issued and 
outstanding, respectively | 81,453                      |  | 66,453              
|                                                                                                                                                |                             |  |                     
|Additional Paid-In Capital                                                                                                                      | 22,276,031                  |  | 20,592,631          
|                                                                                                                                                |                             |  |                     
|Deficit Accumulated During the Development Stage                                                                                                | (20,706,828)                |  | (18,123,610)        
|                                                                                                                                                |                             |  |                     
|Total Stockholders' Equity                                                                                                                      | 1,650,656                   |  | 2,535,474           
|                                                                                                                                                |                             |  |                     
|Total Liabilities and Stockholders' Equity                                                                                                      | 1,741,902                   |  | 2,695,349           
|                                                                                                                                                |                             |  |                     

3



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



|                                       | Three
Months
Ended
June 30,
2008
$ |  | Three
Months
Ended
June 30,
2007 |  | Nine Months
Ended
June 30,
2008
$ |  | Nine Months
Ended
June 30,
2007
$ |  | From
October 15, 1997
(Date of Inception)
to June 30,
2008
$
|-------------------------------------- | ---------------------------------- |  | -------------------------------- |  | --------------------------------- |  | --------------------------------- |  | ------------------------------------------------------------
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|Expenses                               |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|Amortization of property and equipment | 24,552                             |  | 11,547                           |  | 70,535                            |  | 31,201                            |  | 135,944                                                     
|Development and engineering            | 288,097                            |  | 306,053                          |  | 812,117                           |  | 860,861                           |  | 4,838,671                                                   
|General and administration             | 564,470                            |  | 365,103                          |  | 1,406,144                         |  | 1,184,579                         |  | 10,227,213                                                  
|License fees                           | 26,377                             |  | 25,000                           |  | 79,622                            |  | 77,830                            |  | 515,985                                                     
|Marketing                              | 51,729                             |  | 207,516                          |  | 253,035                           |  | 515,615                           |  | 1,587,735                                                   
|Interest and finance fees (income)     | (3,835)                            |  | 3,094,036                        |  | (38,235)                          |  | 3,390,184                         |  | 3,401,280                                                   
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|Total Expenses                         | 951,390                            |  | 4,009,255                        |  | 2,583,218                         |  | 6,060,270                         |  | 20,706,828                                                  
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|Net Loss                               | (951,390)                          |  | (4,009255)                       |  | (2,583,218)                       |  | (6,060,270)                       |  | (20,706,828)                                                
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|Net Loss Per Share - Basic & Diluted   | (0.01)                             |  | (0.08)                           |  | (0.04)                            |  | (0.13)                            |  |                                                             
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|Weighted Average Shares Outstanding    | 69,091,038                         |  | 51,309,000                       |  | 67,329,587                        |  | 47,480,858                        |  |                                                             
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             
|                                       |                                    |  |                                  |  |                                   |  |                                   |  |                                                             





4



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



|                                                                         | Nine Months Ended
June 30,
|------------------------------------------------------------------------ | --------------------------
|                                                                         | 2008
$                    
|                                                                         |                           
|Operating Activities                                                     |                           
|                                                                         |                           
|Net loss                                                                 | (2,583,218)               
|                                                                         |                           
|Adjustments to reconcile net loss to cash used in operating activities:  |                           
|Deferred finance costs written-off                                       | -                         
|Amortization of property and equipment                                   | 70,535                    
|Shares issued for consulting services                                    | -                         
|Warrants issued for consulting services                                  | 34,897                    
|Stock-based compensation                                                 | 163,503                   
|                                                                         |                           
|Changes in operating assets and liabilities:                             |                           
|                                                                         |                           
|Other current assets                                                     | 8,273                     
|Accounts payable and accrued liabilities                                 | (68,629)                  
|                                                                         |                           
|Net Cash Used in Operating Activities                                    | (2,374,639)               
|                                                                         |                           
|Investing Activities                                                     |                           
|                                                                         |                           
|Purchases of property and equipment                                      | (130,451)                 
|                                                                         |                           
|Net Cash Used in Investing Activities                                    | (130,451)                 
|                                                                         |                           
|Financing Activities                                                     |                           
|                                                                         |                           
|Proceeds from related party loans                                        | -                         
|Repayment of related party loans                                         | -                         
|Proceeds from promissory notes                                           | -                         
|Repayment of promissory notes                                            | -                         
|Proceeds from issuance of common stock                                   | 1,500,000                 
|Debt issuance costs                                                      | -                         
|                                                                         |                           
|Net Cash Provided by Financing Activities                                | 1,500,000                 
|                                                                         |                           
|Increase (decrease) in Cash                                              | (1,005,090)               
|                                                                         |                           
|Cash, Beginning of Period                                                | 2,260,326                 
|                                                                         |                           
|Cash, End of Period                                                      | 1,255,236                 
|                                                                         |                           
|                                                                         |                           
|Supplemental Disclosures                                                 |                           
|                                                                         |                           
|Interest paid                                                            | -                         
|Income taxes paid                                                        | -                         
|                                                                         |                           
|                                                                         |                           
|Non-cash Investing and Financing Activities                              |                           
|                                                                         |                           
|Shares and warrants issued pursuant to conversion of equity certificates | -                         
|                                                                         |                           



5



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Power Air Corporation
(A Development Stage Company)
Consolidated Statement of Stockholder's Equity
From October 15, 1997 (Date of Inception) to June 30, 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                                                                               | 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                                                                               | 1,105,917    | 1,106   | 717,740     | -           
|Unit private placement - $1.10                                                                               | 1,792,572    | 1,793   | 1,970,036   | -           
|Shares issued for share issuance costs                                                                       | 17,600       | 18      | (18)        | -           
|Shares issued for employee bonuses                                                                           | 300,000      | 300     | 254,700     | -           
|Shares issued for consulting services                                                                        | 87,500       | 87      | 61,163      | -           
|Shares issued for options exercised                                                                          | 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(b))                                                           | 262,500      | 262     | 100,363     | -           
|Shares issued pursuant to a private placement  (Note 6(d))                                                   | 200,000      | 200     | 79,800      | -           
|Shares issued for employee bonuses                                                                           | 100,000      | 100     | 32,900      |             
|Shares issued pursuant to a unit private placement at $0.35 per share  (Note 6(c))                           | 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(g)) | 6,257,143    | 6,257   | 2,152,993   | -           
|Warrants issued pursuant to conversion of equity certificates  (Note 5)                                      | -            | -       | 736,709     | -           
|Fair value of vested stock options                                                                           | -            | -       | 198,483     | -           
|Net loss                                                                                                     | -            | -       | -           | -           
|                                                                                                             |              |         |             |             
|Balance, September 30, 2007                                                                                  | 66,453,675   | 66,453  | 20,592,631  | -           
|Warrants issued for consulting services (Note7(f))                                                           |              |         | 34,897      |             
|Shares issued pursuant to a unit private placement at $0.10 per share  (Note 6(a))                           | 15,000,000   | 15,000  | 1,485,000   |             
|Fair value of vested stock options                                                                           |              |         | 163,503     |             
|Net loss                                                                                                     | -            | -       | -           |             
|Balance, June 30, 2008                                                                                       | 81,453,675   | 81,453  | 22,276,031  |             

``

6



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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 zinc air 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 and/or collaboration 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 June 30, 2008, the Company has working capital of $1,294,230 and accumulated losses of $20,706,828 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.

7



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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 ("SR&ED") and is eligible 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 June 30, 2008 of $1,497,722 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.

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.

8



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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.

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.

9



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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.

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.

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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.



In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS No.162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.



In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60".  SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise's risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted.  The adoption of this statement is not expected to have a material effect on the Company's financial statements.



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3.     Property and Equipment



|                                   | Cost$   |  | Accumulated
Depreciation$ |  | Net Carrying
Value
June 30
2008
$(unaudited) |  | Net Carrying
Value
September 30
2007$
|---------------------------------- | ------- |  | ------------------------- |  | -------------------------------------------- |  | -------------------------------------
|                                   |         |  |                           |  |                                              |  |                                      
|Computer hardware                  | 51,108  |  | 20,141                    |  | 30,967                                       |  | 36,937                               
|Computer software                  | 13,896  |  | 4,308                     |  | 9,588                                        |  | 7,924                                
|Furniture, equipment and machinery | 360,022 |  | 93,702                    |  | 266,320                                      |  | 194,643                              
|Leasehold improvements             | 66,779  |  | 17,228                    |  | 49,551                                       |  | 57,006                               
|                                   |         |  |                           |  |                                              |  |                                      
|                                   | 491,805 |  | 135,379                   |  | 356,426                                      |  | 296,510                              
|                                   |         |  |                           |  |                                              |  |                                      

4.     Related Party Transactions and Balances

(a)    Directors' fees of $28,333 were charged to operations. Unpaid director's fees of $48,333 are due to five directors at June 30, 2008.

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

(c)    See Note 6(a) regarding equity financing raised during the period from a related party.

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 totaling $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 totaling $2,895,959, a placement commission of $219,000, and expenses of $122,608 were included in deferred financing costs which totaled $3,237,567 which were subsequently charged to operations in the quarter ended June 30, 2007.

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6.     Common Stock

a)     Unit Private Placement - $0.10

On May 14, 2008, the Company received $1,500,000 and issued 15,000,000 units at $0.10 per unit.  Each unit contained one common share and one common share purchase warrant to acquire one additional share at $0.25 per share expiring on May 14, 2010.

The proceeds were received from H-Plus Eco Ltd., a company whose President and Chief executive Officer is also a director of Power Air Corporation.

b)     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.

c)     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.

d)     Private Placement - $0.40

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

e)     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.

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.

f)     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.

g)     Equity Consideration Certificates Converted

The Company completed an equity financing, as disclosed in (b) and (c) above totaling $5,080,000 thus triggering immediate repayment of the promissory notes totaling $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.

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h)     Stock Options

On June 19, 2008, the Board of Directors granted effective June 19, 2008 fully vested stock options to Don Ceci, President and CEO, and Dean Haley, Chairman, to purchase up to an aggregate each of 200,000 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 June 19, 2008 ($0.14 per share), for an entire period of up to five years commencing on June 19, 2008, all in accordance with the terms and conditions of the Company's present Stock Incentive Plan.

i)     On June 19, 2008, the Board of Directors granted effective June 19, 2008 fully vested stock options to various employees of the company to purchase up to an aggregate of 570,000 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 June 19, 2008 ($0.14 per share), for an entire period of up to two years commencing on June 19, 2008, all in accordance with the terms and conditions of the Company's present Stock Incentive Plan.

j)     Stock Options

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 ($0.16 per share), 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.

k)     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                     | (2,620,000)       |  | 0.65                            
|Issued                      | 1,470,000         |  | 0.15                            
|                            |                   |  |                                 
|Balance, June 30, 2008      | 1,965,000         |  | 0.22                            



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The following table summarizes stock options outstanding at June 30, 2008:



|Outstanding      |                                                    | Exercisable                      
|---------------- | -------------------------------------------------- | ---------------------------------
|Number of Shares | Weighted
Average
Remaining
ContractualLife (years) | Weighted
Average 
Exercise Price$
|                 |                                                    |                                  
|1,965,000        | 3.02                                               | 0.22                             

l)     Warrants

The following table summarizes warrants outstanding at June 30, 2008:



|Number of Warrants |  | Exercise Price$ |  | Expiry Date  
|------------------ |  | --------------- |  | -------------
|                   |  |                 |  |              
|14,285,716         |  | 0.50            |  | May 30, 2009 
|6,257,118          |  | 0.50            |  | June 5, 2009 
|150,000            |  | 0.45            |  | July 16, 2009
|150,000            |  | 0.60            |  | July 16, 2009
|15,000,000         |  | 0.25            |  | May 14, 2010 
|35,842,834         |  |                 |  |              

Warrants outstanding having a weighted average remaining life of 1.32 years and a weighted average exercise price of $0.40.  On May 14, 2008, the Company issued 15,000,000 warrants at an exercise price of $0.25 to expire on May 14, 2010 (See note 6(a)).  On June 27, 2008 a total of 896,286 warrants expired unexercised.

7.     Commitments

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 2008 was paid in May, 2008. 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.

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.

(ii)    On March 30, 2007, the company entered into a short-term premises lease at the National Research Council in Vancouver, Canada.  This lease was renewed for one year and expires on March 31, 2009.  The monthly rent is CND$2,338 per month.

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c)     As at June 30, 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 $360,000, each having a 90-day termination clause.

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.  It is still an option that Mid States will be one of the Company's contract manufacturer for the initial ZAFC cells for use in the Company's first Zinc Air Fuel Cell powered 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 had not been issued as of March 31, 2008 and accordingly their fair value was recorded in accrued liabilities and charged to operations as a marketing expense.  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.  These warrants were issued on May 21, 2008, and the accrued liabilities relieved and paid in capital adjusted accordingly.

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.   In June, 2008, the Company announced that the National Research Council of Canada's (NRC) Industrial Research Assistance Program (IRAP) had granted Power Air a $365,000 funding contribution towards a Collaborative R&D Project with the NRC Institute for Fuel Cell Innovation (IFCI) to develop a proprietary Air Cathode suitable for use in Zinc Air based energy systems.  This funding will be in the form of reimbursement of costs incurred by the Company.  As of June 30, 2008, none of these funds had been received.

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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.

9.     Segment Disclosures

The Company operates in one operating segment being 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.













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Item 2.  Plan of Operation

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 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 nine months ended June 30, 2008 should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the nine months ended June 30, 2008 included in this quarterly report, as well as our annual report on Form 10-KSB for the year ended September 30, 2007.

Overview

Name and Incorporation

Our Company was formed under the laws of the State of Nevada on August 26, 2004 under the name "Fortune Partners, Inc."  By an amendment to our Articles of Incorporation we changed our name to "Power Air Corporation" effective on December 22, 2005.

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 100% 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, together with 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. Power Air (Canada) Corp. is considered a variable interest entity due to the Company's control over the operations and 100% funding of costs to date, thus, is considered a 100% consolidated subsidiary.

Our Corporate History

On September 30, 2005, we acquired all of the issued and outstanding shares of Power Air Tech, Inc.  As a result of such acquisition, we are a development stage company engaged in the business of developing, manufacturing and marketing of fuel cell based commercial products.

This acquisition represented a change in control of our Company.  The change in control, for accounting purposes, constitutes a re-capitalization of our Company and, therefore, the transaction has been accounted for as a reverse merger whereby Power Air Corporation is considered the acquired entity and the operations of Power Air Tech, Inc. have become the continuing operations of the Company.

Prior to the completion of the acquisition, the operations of Power Air Tech, Inc. focused on raising funds through a reverse merger with a public company, settling outstanding debt and maintaining its license with Lawrence Livermore National Laboratory ("LLNL") in Livermore, California.  Accordingly, we did not have any significant operating results in the year ended September 30, 2005.

Our Business

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.

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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 as the 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.  As well, we plan to develop and design end-user commercial products that will be manufactured by third party Contract Manufacturers, and marketed and distributed by Power Air directly.

We have determined to focus our initial technology and product development efforts on the design and development of a series ("Z Series") of Powerpacks ("Zpowerpac") product that  would be developed and designed by Power Air, manufactured by a Contract Manufacturer, and marketed by Power Air. The initial  product will be a small, pocket-sized Zpowerpac that will allow end-users to recharge their portable electronics devices (cell phones, PDAs, etc.) anywhere, anytime. In parallel, we will continue technology development to 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:

- completion of technology development required to complete a "technology transfer" to product development
- completion of the design, manufacture and testing of engineering prototypes;
- completion of the design, manufacture, testing and certification of manufacturing prototypes; and
- pilot production of commercial products.

We anticipate that our working capital at June 30, 2008  will be sufficient to enable us to complete the design and testing of engineering prototypes and the design of a manufacturing prototype for the Zpowerpacs.  Our ability to complete the certification and pilot production of commercial ZPAC products will require that we obtain additional equity financing in the fourth calendar quarter of 2008.  We intend to raise additional equity financing to continue our technology and product development projects, to fund the manufacturing and packaging of our initial Powerpac inventories, to test and certify our Powerpacs, and to expand our engineering and sales/marketing headcount.  However, we do not currently have such financing in place.

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 are currently considered a development stage company.  We anticipate achieving initial product revenues beginning in the first calendar quarter of 2009, and growing over the 2009 and 2010 calendar years, although there is no guarantee that we will achieve these results  We will require substantial additional financing for us to achieve our business objectives.

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Industry Background

Generic Fuel Cells

A fuel cell is an electrochemical device, which cleanly converts chemical energy of a fuel and oxidant directly into low voltage direct current (DC) electricity. A fuel cell produces electricity and heat using a "fuel source" and oxygen.  There is no conversion into heat by combustion of the fuel, and no conversion into mechanical energy, as is the case of a heat driven generator system.  Thus, the efficiency of fuel cells is not a function of operating temperature.

The principal components of a fuel cell are catalytically activated electrodes for the fuel (anode) and the oxidant (cathode) plus an electrolyte to conduct between the two electrodes.  In its operation the fuel cell creates DC power, which can be converted to AC power through an inverter.  The fuel cell offers an alternative to existing power plants as a source of electrical power.

Commercialization of Fuel Cells

While generic fuel cells have been in existence for over a century, a recent expansion in demand for more efficient, stable and continuous supply of power, which can operate cleanly and quietly, has led to attempts to commercialize fuel cells as a source of power.  Currently, batteries and engines provide reasonable power solutions in a broad number of markets and applications.  However, each of these power solutions has its own inherent disadvantages.  Engines are not suitable for many applications as they are noisy, polluting and unreliable as a power source.  Batteries are not suitable for many applications as they are heavy, have to be recharged, have a variable life span and gradually lose power.

Fuel cells have been presented as an alternative technology for power solutions as they do not possess some of the limitations of batteries and engines.  Fuel cells offer an alternative solution as they can operate without the noise and emissions associated with hydrocarbon combustion and can provide a continuous source of electrical power.

Initial commercialization efforts have focused on polymer electrolyte membrane ("PEM") fuel cells that use hydrogen as a source of fuel.  While PEM fuel cell prototypes have been tested in a variety of applications, conventional PEM fuel cells are costly to produce and operate, and the fuel (hydrogen) is difficult to distribute and store.  These limitations have made commercialization of products powered by conventional PEM fuel cells difficult at present.

Our ZAFC Technology Solution

We believe that fuel cells incorporating our ZAFC technology offer the opportunity to deliver a fuel cell solution without the limitations of commercial products powered by conventional PEM fuel cells.  We believe that our ZAFC technology offers the ability to develop and manufacture a fuel cell that has lower manufacturing and operating cost than conventional PEM fuel cells and that uses inexpensive, abundant and non-volatile zinc as its fuel, rather than hydrogen which is volatile and is difficult to distribute and store.  Accordingly, our business objective is to develop ZAFC fuel cells that we will target for those segments of the power generation market that we believe will be most ready to accept a ZAFC fuel cell as an acceptable alternative to conventional sources of power.  Based on our initial mapping of market opportunities, two markets show an immediate need that can be addressed in the short (next 24 months) to medium (24 to 48 months) term:

- Mobile electronic devices are an emerging $6.5 Billion application opportunity for fuel cells.  As devices increase in functionality, the larger screens, faster processors and extended RAM all require more power. This applies to cell phones, smart phones, laptop PCs and almost every portable device.  For the more than 50 Million mobile workers in the US, these energy hungry devices have become mission critical and running out of power is not an option.

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Power outages are becoming more and more frequent and widespread.  Too often we are witnessing apartment and home occupants inconvenienced and in fact put into dangerous situations due to power outages caused by storms and technical failures.  Residents are forced to cope with no lights, no heat, no information, spoiled food, and no working appliances for hours, days or even weeks at a time.  Back-up generators are the current solution, but these generators cannot be used indoors, are noisy and polluting, heavy and messy.  No back-up solution is offered whatsoever for apartment residents unless the whole building is backed up with a large diesel or natural gas generator. In the medium to long term (48 to 72 months), we anticipate the steady emergence of Hybrid Electric Vehicles which will require low cost, safe, rechargeable batteries or powerpacks, and the long term eventual emergence of fuel cell powered vehicles requiring safe, reliable, cost effective fuel cells.  Currently Hybrid Vehicles are using nickel metal hydride batteries, and much development is being done to improve lithium based batteries to make them safer and less costly for this application.  Zinc air offers an excellent alternative to lithium as zinc is abundant, relatively inexpensive, intrinsically safe, and sustainable (recyclable for use over and over again).  Recent publications by independent third parties have identified zinc air as the most logical choice for Hybrid Electric Vehicles.  Power Air recognizes this long term opportunity and is positioning to participate in this market with technology development initiatives which are intended to result in rechargeable zinc air powerpacks and batteries for this application.

- Anticipated Markets for Fuel Cells

Fuel cells have not yet reached the stage where they have achieved widespread commercial adoption.  As such, we believe that the market for fuel cells is in its early stages and is still developing.  Based on industry experience to date, and learning from the experience of other fuel cell manufacturers, particularly PEM fuel cell based companies where prototypes have been tested in a variety of applications, PAC  believes that the markets for fuel cell based products will evolve as follows:

First-to-Market

Occasional use products, such as generator and battery substitutes for industrial, residential, and personal back-up power solutions, with low operating lifetime requirements:

| | Emergency and mobile power packs
Emergency generators for residential and small business
Uninterruptible Power Supply ("UPS") back-up (PC's, Servers, Data Centres)
Telecom, Utility, Cable TV and Commercial Building back-up
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Next-to-Market

Intermittent use products, such as longer running generators and light mobility vehicles, requiring longer operating life (i.e.: to 10,000 hours and over) and on-board fuel storage and re-fuelling logistics:

| | Alternate Power Units ("APUs") that power non-drive train functions for trucks, boats, RV's, and Military vehicles.
Seasonal (i.e.: cabins, cottages) and special events power supply units.
Light mobility fleet units such as forklifts, golf carts, scooters, airport ground support vehicles, military vehicles, small hybrid vehicles.
Hybrid electric vehicles.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Last-to-Market

Continuous use products, requiring operating lifetimes to 40,000 hours and fuel infrastructure support in place:

| | Co-Generation - residential or commercial heating and electricity supply using the existing natural gas (or other) infrastructure and reformers.
Grid replacement and "peaker" products.
Fuel cell automobiles
Large and Heavy Vehicles - e.g. Buses
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Our Technology License Agreement

We hold our rights to the ZAFC technology pursuant to a limited exclusive patent license agreement between Power Air Tech and Lawrence Livermore National Security, LLC  ("LLNS") dated October 15, 2007 (the "License Agreement").  Under the terms of the License Agreement, LLNS granted to Power Air Tech an exclusive, non-transferable, royalty-bearing license to make, use, sell, offer for sale and import products that incorporate the licensed patents in the United States and worldwide where the patent rights to the technology exist.  The license rights are limited to a "field of use" described as the zinc air fuel technology for stationary and mobile applications.  LLNS also granted to Power Air Tech the right to issue royalty-bearing sublicenses to third parties to the zinc air fuel technology for stationary and mobile applications.

The licensed patents are those inventions with respect to the ZAFC technology that are summarized as follows:

United States Patents Granted



|Invention Disclosure Number | US Patent Number | Title                                                                       | Inventors      | Issue Date
|--------------------------- | ---------------- | --------------------------------------------------------------------------- | -------------- | ----------
|8776                        | 5,434,020        | Continuous-feed Electrochemical Cell with Non-Packing Particulate Electrode | John F. Cooper | 7/18/95   
|9407                        | 5,578,183        | Production of Zinc Pellets                                                  | John F. Cooper | 11/26/96  

Foreign Patents Granted



|Invention Disclosure Number | AU Patent Number | Title                      | Inventors      | Issue Date
|--------------------------- | ---------------- | -------------------------- | -------------- | ----------
|9407                        | 714879           | Production of Zinc Pellets | John F. Cooper | 5/4/00    

Foreign Patent Applications



|Invention Disclosure Number | International Serial Number             | Title                      | Inventors      | Issue Date
|--------------------------- | --------------------------------------- | -------------------------- | -------------- | ----------
|9407                        | Europe - 96916453.2
Japan - 534285/1996 | Production of Zinc Pellets | John F. Cooper | 5/10/96   

The United States government retained the rights to practice the licensed patents for its own purposes.  LLNS retained the right to use the licensed patents for educational and research purposes.

In order to maintain our license rights, we are required to:

- pay royalty payments on net sales of end-use, stand-alone products that incorporate the licensed technology equal to 0.8% in 2006 and 1.2% in any year after;
- pay royalty payments on net sales of individual zinc air fuel cells equal to 2.3% for any sales made in 2006 and 3.3% in any year thereafter; and
- pay royalty payments on net sales by any sub-licensees equal to the earned royalty that would be payable by us had the sales been made by us, provided that we will also pay an additional 0.25% royalty on net sales to foreign entities by any sub-licensees.

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We have also agreed to pay a minimum royalty to LLNS which will equal $100,000 for each remaining year of the license.  This minimum royalty amount is payable on February 28th of each year of the License Agreement.

Power Air Tech is obligated to diligently proceed with the development, manufacture and sale of products incorporating the licensed technology.  LLNS have also maintained mandatory sublicensing rights that may require us to grant sublicenses to third parties if (i) we fail to meet market demand for prospective licensed products not included in our business plan projections, or (ii) we fail to introduce into the marketplace licensed products listed in our business plan within two years of an agreed upon schedule of product introduction dates.  The License Agreement also specifies performance obligations that must be met by us.  These performance obligations are measured in terms of gross sales revenues from sales of licensed products.  If we fail to meet these performance obligations, LLNS may, at their sole option: (i) converted the limited exclusive license to a non-exclusive license, (ii) negotiate a new schedule of performance obligations and conditions for continuation of the limited exclusive license, or (iii) terminate the License Agreement.  We are in the process of renegotiating certain provisions of the License Agreement with the Regents and, at present, LLNS have not claimed that Power Air Tech is in default of the License Agreement or taken any action to enforce its rights under the License Agreement.

The term of the License Agreement commenced March 13, 2001 and will remain in effect until the expiration or abandonment of the last of the licensed patents, unless terminated earlier in accordance with the terms of the License Agreement.

Power Air has also filed the following Provisional Patents which are intended to add to the Intellectual Property of the Company:

1. Electrolyte life extension.
2. Powerpack design.

Our Fuel Cell Technology

The Zinc Air Fuel Cell

Our fuel cell 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.

LLNL scientists and engineers achieved significant breakthroughs in the design of the ZAFC which were subsequently patented and now exclusively licensed to PAC. The current, self-feeding design incorporates a hopper from which the zinc pellets, less than 1mm in size, feed through a restricted opening into a wedge shaped cell to react with the flowing electrolyte during operation. The size of the lightweight fuel cell stack determines power (measured in kilowatts); and the electrolyte reserve tank (together with the amount of zinc in the hopper) determines, the total energy capacity (measured in kilowatt-hours) and operational cycle of the device.

The ZAFC Stack

The zinc-air fuel cell is constructed in a modular form of unit cells known as a ZAFC stack.  The ZAFC stack forms the base platform component of our planned products.  The ZAFC stack incorporates individual unit cells into a stack of fuel cells in a configuration that will enable us to specifically design, engineer, package and brand a range of products that can be targeted at a range of applications suitable for the customers' requirements.  By designing and incorporating ZAFC stacks into our products, we will be able to provide customized power/energy requirements.

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The ZAFC stack is constructed in a modular form of unit cells, each of which is made up of a hopper, a self-feeding galvanic cell with air and refuelling ports.  The hoppers in each cell act as buffers to protect the air electrodes during refuelling and handling.  The cells are joined or moulded together in a fuel stack module that is connected to an electrolyte storage tank that contains the electrolyte and discharge products.  Each cell contains a lightweight plastic frame, a current collector/mesh, and a paper-thin air electrode.  The plastic frame extends upwards to create a hopper which can hold additional zinc pellets that are fed into the cell as the zinc is used up in the cell.  The lightweight cells generate the power from the ZAFC stack.  The size of the lightweight fuel cell stack determines power (measured in kilowatts); and the electrolyte reserve tank (together with the amount of zinc in the hopper) determines, the total energy capacity (measured in kilowatt-hours) and operational cycle of the device.

The ZAFC system components are divided into five categories:

- air cathodes
- cell frames and stand-offs
- current collector, metal plates and discs
- controllers, pumps and blowers
- containers and filters

The current, self-feeding design incorporates a hopper from which the zinc pellets, less than 1mm in size, feed through a restricted opening into a wedge shaped cell to react with the flowing electrolyte during operation.  The stack module is connected to an electrolyte storage tank containing electrolyte and discharge products, a blower to circulate air, a pump to circulate the electrolyte through the cells and over the zinc, and several other ancillary components depending on the specific application.   A diagram presenting a cross-section view of a ZAFC fuel cell within a ZAFC stack is presented below:

|
|

In operation zinc pellets, less than 1 mm in diameter, are pushed along the base of horizontal fill tubes by the flowing electrolyte.  The zinc pellets flow through slots to load each individual cell situated above the reaction cell.

The very narrow (less than 3mm wide) cell openings allow the particles to feed informally into the cell to form an open, loosely packed structure, which permits the oxidation of the zinc and easy flow of electrolyte.  The electrolyte flows upward through the cell and hopper to remove heat and reaction by products.

The ZAFC based devices are self-contained and the electric power required to drive the ancillary air and electrolyte pumps is negligible, consuming less than four percent of the fuel cell stacks gross output.

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The ZAFC has refuelling capability in that the invariant materials (zinc and electrolyte) can be replaced during the discharge cycle.  Topping up of ZAFC's electrolyte storage tank and zinc hopper can be performed in minutes.  The residual zinc oxide can be recycled.

Recycling and Recovery of Fuel

During operation, zinc is converted into zinc oxides that are retained in the electrolyte.  At any period during discharge zinc can be recovered from the electrolyte and recycled for later re-use.  The zinc is not consumed, in the sense of gasoline or diesel; rather, it operates as a carrier of electrical energy.  Residual zinc oxide created during this process can be recycled back into reusable zinc (via electrolysis) so that it can again be processed into pellets and fed into the ZAFC stack.

Zinc oxides can be recycled to form new zinc by electrolysis using a simple process, which may be incorporated in the overall system or sited at a central or service station location.

Our license rights include exclusive world-wide rights to the second LLNL patent pertaining to a low-cost process for recovering zinc and converting it to pellet form for reuse in the ZAFC system.  We may pursue the development of a zinc recovery and recycling unit in conjunction with a zinc partner; however, there are zinc recovery systems using other processes that may be adaptable to our purposes with less development.

Advantages of our Zinc Air Fuel Cell Technology

We believe that our ZAFC technology offers a unique combination of advantages over alternative competing technologies and power solutions.  These advantages include:

- Economical Energy Source.  We currently estimate that fuel cell products based on our ZAFC technology offer can be manufactured and marketed at lower costs than can be achieved for conventional PEM fuel cell power solutions.  We believe that lower manufacturing and marketing costs will result in products based on our ZAFC technology being able to be competitively priced against incumbent technologies.  The low capital cost of the ZAFC is as a result of its simple design and low operating temperature which allow the majority of components to be conventionally sourced and combined with low-cost fabrication techniques.  In addition, the consumables used comprise zinc and potassium hydroxide, both of which are inexpensive and easily sourced.  High Specific Energy.  The ZAFC has an energy output of approximately five to six times that of lead acid batteries of the same weight.
- Rapid Refuelling and Continuous Use.  Products incorporating our ZAFC technology can be designed to be rapidly refuelable through an exchange of electrolyte and addition of zinc pellets, rather than being slowly recharged using electricity.  This will allow products incorporating our ZAFC technology to be used for applications requiring near continuous use.
- Environmental.  Zero Airborne Emissions.  Products incorporating our ZAFC technology will not produce any significant airborne emissions.  The reaction by-product, zinc-oxide, is retained in the electrolyte and can be recycled via electrolysis.
- Technology Safety Issues. Products incorporating our ZAFC technology will not face the safety, distribution, storage and siting issues inherent in competing technologies, such as PEM fuel cells and generators that rely on flammable and explosive fuel types such as hydrogen orgasoline.

The ZPACCells

The Zinc Air Power PAC (ZPAC) cell forms the base platform component of the small scale portfolio of PAC products, which will be specifically designed, engineered, packaged and branded in a range of applications suitable for the electronic mobile and portable device requirements. For selected applications, the lightweight cells will provide the power/energy requirements (measured in watts) and the total energy capacity (measured in watt-hours).

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The ZPAC cell leverages the high energy density of Zinc and robustness of the larger format Air Cathode used in the ZAFC to allow for higher powered yet simple designs and construction. The result is a product that can be lower cost and/or higher energy than the best Lithium-based primary batteries and is easily configurable to meet the minimal space requirements of users. We estimate that zinc air powerpacks will be manufactured in volume at lower costs than lithium based products, as lithium is not as abundant as zinc, and zinc is recyclable.

In the case of a ZPAC cell, zinc pellets may be replaced by a fine zinc powder which, together with a gelled form of electrolyte, forms a paste. The configuration of the current collector also changes.

In operation, the air cathode side of the device is simply exposed to air (similar to zinc air button cells used in hearing aids), allowing for the immediate production of electricity. A charge-pump (low cost DC-DC converter) allows a single 1V cell to step up to 5V or even higher.

Development of our Zinc Air Fuel Cell Technology

Historical Development

Our ZAFC technology was developed through a joint collaboration effort between Lawrence Livermore National Laboratory and the United States Department of Energy.  LLNL is a leading United States Government research and development facility located in Livermore, California.  LLNL created the ZAFC using internal support and additional support from the International Lead Zinc Research Organization and the U.S. Department of Energy.  Prior to September 30, 2005, over $6.0 million had been invested in the technology.  From 1992 to 1997 LLNL and the DOE spent over $1 million on the original research concept and development of the ZAFC. Between 1998 and 2005, the Company's now largest shareholders invested a further $5 million to bring the ZAFC to the prototype level.  In the fiscal year ended September 30, 2006, approximately $772,000 was spent in the development, engineering and testing of the technology.  In the fiscal year ended September 30, 2007 approximately $1,316,000 was spent in the further development, engineering and testing of this technology.

LLNL scientists and engineers achieved significant breakthroughs in the design of the ZAFC which were subsequently patented by LLNL and exclusively licensed to Power Air Tech.  LLNL developed prototypes of the ZAFC stack that were designed to prove power and energy assumptions.  Power Air Tech continued this development by updating the ZAFC stack in order to reduce weight and design costs, improve robustness and simplify the assembly process.

Current State of Development

The following development of the technology and product concepts for ZAFC and ZPAC has been completed to date:

|Phase | Description                                            | Development Work
Completed by:                                                       | Dates Work Completed
|----- | ------------------------------------------------------ | ------------------------------------------------------------------------------------ | --------------------
|0     | Initial Development of Zinc Air unit                   | LLNL, the Department of Energy and the International Lead Zinc Research Organization | 1995                
|1     | Patenting of cell design                               | LLNL                                                                                 | 1995 and 1996       
|2     | Experimentation with various air cathodes and sealants | LLNL and PAT                                                                         | 1998                
|3     | Completion of multi-cell ZAFC unit for demonstration   | LLNL and PAT                                                                         | 2000                
|4     | Proof of Power Curve - successful testing of ZAFC      | LLNL, PAT and Argonne National Laboratories                                          | 2001                

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|Phase | Description                                                                                               | Development Work
Completed by: | Dates Work Completed
|----- | --------------------------------------------------------------------------------------------------------- | ------------------------------ | --------------------
|5     | Product Concept 
-   ZAFC-based Emergency 
     Backup Generator
-   ZPAC-based Portable 
     Power Pack | Power Air Corporation          | Q3/2006
Q3/2007     
|6     | Program Concept 
-   ZAFC-based Emergency 
     Backup Generator
-   ZPAC-based Mobile 
     Power Pack   |                                | Ongoing
Q4/2007     

As a result of the completion of this development work, we have developed and configured initial prototypes based on individual ZPAC cells and ZAFC cell stacks (with an electrolyte storage tank to form a six-cell or twelve-cell basic unit).  We have established in principal that a single ZPAC cell can be configured with off-the-shelf electronics to provide 5V output at up to 2 W and with a 40 Wh capacity.  In addition, stacks of six or twelve full-size ZAFC cells can be linked together (or scaled) to provide the desired power and energy capacity for a particular application.  We have not experienced any adverse chemical or electrical side-effects as a result of combining fuel cells into stacks, however we plan to continue testing and monitoring of these issues as we proceed with further development

Plan of Operations

Smaller and shorter run-time products are, in general, easier to bring to market provided that miniaturization is not required. As such, PAC will focus on delivering products to the growing Emergency Mobile Power markets first.  All products will require a rigorous prototyping, testing and certification process before final tooling for manufacturing can be completed. At the same time, once product specifications are finalized and can be demonstrated, it is reasonable to begin building an order book.

- Z Series Powerpacks

Under an internally separate project  two versions of the  ZPAC, one for mobile devices and one for laptops, will be developed. Both products are being designed as packages with protective casing, connectors for the device (mobile or laptop) being charged, electronics to meet the minimum voltage requirements of the device, and other customizable parts.

The unit will be activated by the presence of oxygen and can be stored by stopping oxygen from reaching the air cathode.

We plan to complete the following development work in order to achieve this objective:

|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 | June 2008 - Designed
August 2008 - Testing

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|Phase | Description of 
Development Phase | Description of Development Work                                                                                                                                                                  | Planned Timing        
|----- | --------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------
|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                                                                      | October 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

The above timetable is an estimate prepared by PAC management based on our plans and objectives as they presently exist, and there are a number of contingencies that could cause our timetable not to be met.

ZAFC Portable Emergency Generator

In parallel to the commercialization of ZPAC products, we will continue to focus technology resources on the development of our core ZAFC product as capital permits. We envision ZAFC products would be manufactured and marketed by an original equipment manufacturer or contract manufacturer under agreement with us.  Our initial ZAFC product will initially be targeted to OEMs delivering power solutions to the business and residential backup and emergency power segment.

We will design our initial prototype for OEM integration into a ZAFC based portable emergency generator designed for back-up or emergency use in homes and small businesses.  This generator will be designed to be suitable for use both indoor use, as it will not generate emissions, and outdoor use.  The generator will be designed to generate AC power at a rated power output of 1.25 or 2.5 Kilowatts, and to run for four to six hours continuously at fully rated power when fully fuelled.

We plan to complete the following development work in order to achieve this objective:

|Phase | Description of 
Development Phase | Description of Development Work                                                                                                                                                                                                                                | Planned Timing        
|----- | --------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|6     | Program Concept                   | We plan to complete the matching of engineering requirements and performance on key areas including electrolyte capacity and air cathode life - in parallel market opportunities will less stringent requirements will be evaluated and pursued if attractive; | Fourth quarter of 2008

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|Phase | Description of 
Development Phase | Description of Development Work                                                                                                                                 | Planned Timing
|----- | --------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------
|7     | Engineering Prototype             | With input of an OEM, we plan to complete the design, manufacture and testing of an engineering prototype incorporating our ZAFC fuel cell technology           | Mid-2009      
|8     | Engineering Verification          | This phase will consist of further construction and field testing of engineering prototypes                                                                     | 2009          
|9     | Manufacturing Prototype           | With input from a manufacturing partner, we plan to design a commercial product with product design freeze and quality plan                                     | 2010          
|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 | 2010          
|11    | Pilot Production                  | This phase will consist of manufacturing pilot units of the product and confirmation that our initial required cost and quality targets have been met           | 2010          

The above timetable is an estimate prepared by company management based on our plans and objectives as they presently exist, and there are a number of contingencies that could cause our timetable not to be met.

It should be noted that certain core technology development projects will be conducted in parallel with the core ZAFC stack commercialization to ensure the ongoing development of intellectual property, reduce the reliance on third party suppliers for key components, and extend the potential applications for ZAFC technology.  One such project that has been identified is the "Zinc Air Cathode" project.  The output of such projects may be 2 to 3 years  in the future but will open up additional market sectors through extended lifetime and lower costs.  In all cases, the Company will make best efforts to ensure direct spending by the Company on such projects will be minimized through the use of government grants, tax incentives and co-development with other parties.

Zinc Air Cathodes

Historically, Air Cathodes for all of PAC's development have been sourced from various third party vendors .  The Air Cathode is a critical component in terms of performance, reliability and cost of any Zinc Air system.  To date, PAC has found at least two vendors whose initial performance and projected costs meet target specifications. Concerns arise when looking at end-of-life and lifetime requirements, and being dependent on third parties for supply of a critical component of our end-user products. It is therefore seen as strategic to invest in the design of an Air Cathode specifically suited to PAC's Zinc Air environment.  In addition, this Air Cathode would be a product unto itself, giving PAC Intellectual Property protection and an additional revenue stream - through licensing or product sales.

As such, PAC has established an Air Cathode development project in collaboration with the National Research Council's Institute for Fuel Cell Innovation in Vancouver. This project was announced in December, 2007, and project work began in January, 2008. The two year project will be partially subsidized by the NRC, the Industrial Research Assistance Program (IRAP) and Scientific Research & Experimental Development tax credits. It will deliver a specialized electrode design (catalyst and support structure) that meets all of target product specs for Portable Emergency and UPS & Telecoms backup and also represents "patentable" Intellectual Property ("IP"). Ideally both a lower cost, better performing, and longer lifetime primary Air Cathode would result.

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The NRC Air Cathode project will not deliver a final result for at least 24 months and these outputs will still require 9 to 12 months of production design, test, and implementation before being ready for commercialization. As a result, production of prototypes (and the less demanding  ZPAC's) will continue using Air Cathodes from existing suppliers.

In addition to the primary Air Cathode, Power Air intends to develop rechargeable Air Cathodes suitable for use in Mobile Electronic Devices initially, as well as rechargeable Air Cathodes suitable for use in Hybrid Electric Vehicles in the longer term.

Subsequent Product Development

Assuming successful implementation of the 1.25 and 2.5 kW Portable Emergency Generator units, work will begin on a parallel path to develop UPS & Telecoms as well and Small Fleet products, as per OEM specifications/requirements.

In addition, work on the rechargeable versions of the ZPAC's will be undertaken in parallel with the Portable Emergency generator assuming we are able to deliver the necessary performance in a reversible configuration.

Our ability to undertake our current development work and this future development work will be subject to our ability to obtain the necessary financing to fund this development work.  Further, our success in developing our initial product will be critical in enabling us to proceed to future development work.  We may be forced to abandon plans for future development work if our initial product is not successful or we do not achieve the required financing.

In undertaking our development work, it will be our intention to continuously enhance our product range and to develop new generations of products.  However, we do not plan to divert resources from the initial OEM module development unless significant investment in an alternative application is provided by an OEM. We plan to retain a strategic role in the assembly and distribution of products, which will ensure continuity of product service and quality for customers.

In undertaking our development work, we plan to outsource materials handling and manufacturing of components to existing component manufacturers.  The aim of this strategy is to minimize capital costs in the setting up of manufacturing plants, and this will provide flexibility in sourcing of components and compliance of design specification rules in each country.

Prototyping and Testing

As we update the ZAFC design and complete our development work, we anticipate that many of the core components and materials will change.  Each variation will require extensive single-cell and unit testing as well as forensic work.  While it is reasonable to acquire some test and lab apparatus (load banks, etc.), we believe that many of the environmental tests may be more cost effectively undertaken in conjunction with a third party.  This is another of the reasons we have established a presence at the NRC's Institute for Fuel Cell Innovation facility in Vancouver, Canada, which has environmental testing chambers and expertise at the facility.

Manufacturing

We anticipate that manufacturing of any commercial products incorporating our core ZAFC cell or stack technology will be undertaken by an OEM or a Contract Manufacturer under agreement with us.  At the same time, design of the products, especially design of the core ZAFC stack for the manufacturing prototype, will require extensive input from not only experienced designers and engineers, but also from experienced production staff.  On September 27, 2006 the Company entered into a four phase Development and Pre-Manufacturing Agreement (the "Mid States Agreement") with Mid States Tool and Machine Inc. of Decatur, Indiana ("Mid States").  Mid States is an established plastics tooling and machining company that has advanced computer aided design and manufacturing capability to allow for the easy iteration of designs during the prototyping phase.  Pursuant to the Mid States Agreement, Mid States will re-design, cost-reduce, tool and manufacture the ZAFC.    It is still intended that Mid States  be one of the Company's contract manufacturers for the initial  ZAFC cells for use in the Company's  ZAFC commercial products in North America.  The Company is also exploring manufacturing options with at least two Contract Manufacturers in Asia for its ZSeries powerpack products.

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Development, Engineering and Testing Facilities

Our primary facility is located in Livermore, California within close proximity of the LLNL laboratories.  This facility accommodates personnel required to implement the application designs, development, and commercialization phases of the ZAFC system.  We plan to carry out the majority of our development and engineering work at our Livermore facility.

National Research Council of Canada's Institute for Fuel Cell Innovation

PAC has also established a Canadian subsidiary, Power Air (Canada) Corporation.  On March 31, 2007 our Canadian subsidiary extended a premises lease for office and laboratory space at the National Research Council of Canada's Institute for Fuel Cell Innovation (NRC-IFCI) in Vancouver, British Columbia, Canada. The NRC-IFCI is widely considered to have the world's most advanced cluster of companies and organizations focused on fuel cell technologies.  The lease was renewed on April 1, 2008 and expires on March 31, 2009. We believe that our presence at the NRC will provide us with the opportunity to interact with other leading companies and leverage both NRC resources (for testing and project development) and the vast pool of local talent to reduce cost and time to market.

The NRC-IFCI is home to the NRC Fuel Cell Program which, in collaboration with industry, universities, and other government agencies, provides research and innovation support in areas critical to the growth of the sector, such as fuels research, system integration and manufacturing, and component development.

The NRC has funded major capital projects to expand the number of labs and to provide testing facilities specialized for different fuel-cell sizes and different fuel-cell types.  Infrastructure includes demonstration facilities to showcase new technology, incubation space for start-ups, and access to specialized information resources.  As such, the NRC IFCI provides us with access to critical product development systems and provides an ideal setting for presenting to prospective OEM and fuel cell partners.

Marketing & Sales

We plan to focus on delivering ZPAC and ZAFC based products and systems to the market in collaboration with OEMs and/or Contract Manufacturers.  Our plan is to identify and enter into strategic relationships with OEMs and/or Contract Manufacturers that are interested in pursuing the commercialization of products incorporating our ZAFC technology.  Partnering  is expected to reduce the time required to commercialize our technology as it offers the ability to:

- leverage the market intelligence, specifications requirements, systems integration, and product development expertise;
- leverage the  customer base for field trial activities and feedback;
- leverage the  product design, certification, and regulatory approval expertise; and
- leverage the  marketing, sales, distribution, installation, and service capabilities.

By partnering , our objective will be to avoid duplicating costly, already existing tooling, manufacturing, distribution, service and support infrastructures, thus enabling us to focus on cost reduction and improvement of our core technology offering.

For the ZPAC products, we will look to OEMs and/or Contract Manufacturers for packaging, end-user testing and certification expertise. For the more complex ZAFC products, we plan to support the OEM systems integration, product development, codes and standards, testing, and siting activities and participate with OEMs in end-user field trials.

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We also plan to continue developing strategic relationships with a fuel solution business partner, and to collaborate with this partner to implement a fuel supply, distribution, siting, re-fueling logistics, and re-cycling business model.

Commercialization of our zinc based product may be an important development for the zinc industry.  Our product may represent a substantial new fuel market for zinc that zinc companies could supply to.  The process of recycling the zinc, through electrolysis, could also offer a major sustainable revenue producing opportunity to companies in the zinc industry.

We also plan to develop market awareness for the ZAFC through identifiable brand imaging by introducing our logo (with or without text) on all systems, similar to "INTEL inside".  The logo itself was derived by stylizing the company's initials "PAC" in to a linked "P" for Power and "A" for Air inside a circulating "C" for Corporation, which also represents an electron or energy being released in the chemical process.



|
|

We plan to focus our marketing efforts on establishing relationships with major organizations and we will target trade shows and trade press in order to promote these relationships.  We also plan to promote our technology via press releases and editorial write-ups in trade publications.  We plan to undertake limited media advertising.  We plan to retain the services of an advertising agency to assist in public relations and marketing communications.  This will be subject to review during the product launch phase.  We anticipate that the primary promotional and marketing effort will be performed in conjunction with our OEM, Contract Manufacturer, and zinc strategic partners.

Patents and Licences

As described above, we hold the exclusive world-wide license from LLNL for the development and commercialization of the ZAFC technology.  We also have exclusive worldwide 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.

We have registered two provisional patents and have identified several additional patentable designs in the course of developing our core ZPAC and ZAFC technology, and are in the process of filing additional patent applications, but there can be no assurance that any of these patents will be issued or that patents will not be challenged.

Government Approvals

One of our objectives will be to establish relationships with relevant regulators, government and industry agencies in regard to the endorsement of our technology and products.  In particular, we plan to seek to align our technology and products in order to qualify for grants and assistance programs directed at end-users wishing to adopt clean power alternatives.

Government Regulation

If we are to introduce products incorporating our ZPAC and ZAFC designs into the marketplace, we will have to obtain Underwriters Laboratory and/or CSA International certifications for North America, and CE certifications for Europe and Asia prior to being able ship or install any product.  Accordingly, we plan to design all products that we develop so that they will be able to pass all major certifications (North America, Europe, Asia) with the same design.  The expense associated with this government regulatory compliance will be incorporated into the costs for the design and development of our products.

At this time, we do not know what additional requirements, if any, each jurisdiction will impose on our product or its installation.  We also do not know the extent to which any new regulations may impact our ability to distribute, install and service our product.  Once our product reaches the commercialization stage and we begin distributing our systems to our early target markets, the federal, state or local government entities may seek to impose regulations.

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Competition

The Company faces competition from a number of companies some of which are larger and have greater resources than PAC.  The Company's competitors in the fuel cell industry include, among others, Medis, Plug Power, Revolt, Fuel Cell Energy, Inc., Electric Fuel Corporation, and PowerZinc Corporation.  In addition, the Company will be attempting to displace established technology such as alkaline, lithium and lead-acid batteries and internal combustion engines in many of the markets it enters, which have many companies that are established in these markets with greater resources than the Company.  See "Risk Factors".

ZPAC Portable Power Pack Competition

Unlike generator (which are dominated by fossil fuels including gasoline and diesel) within the battery sector, there are a number of alternative chemistries - including Zinc Air. Zinc-Air has some significant advantages over the nearest competitors in terms of Energy/Volume and Energy/Weight - this extends to cost since Lithium is scarce and therefore more expensive. It should be noted that Zinc Air does not currently work well in a Secondary (rechargeable) configuration.

|Cell Type            | Capacity at 1A (Ah) | Grav.Cap.
(Ah/kg) | Vol. Cap (Ah/L) | $ / cell
(Best Buy) | No. Cells 
for 40 Ah | Volume (cm3) | Mass
(g)  | Retail Price
($)
|-------------------- | ------------------- | ----------------- | --------------- | ------------------- | -------------------- | ------------ | --------- | ----------------
|ZPAC (80% U)         | (40)                | (221)             | (837)           | -                   | (1)                  | 96           | 190       | $20 est.        
|Max Alkaline         | 1                   | 43                | 123             | 0.69                | 40                   | 325          | 920       | 27.20           
|e2 Titanium Alkaline | 1.5                 | 65                | 185             | 1.12                | 27                   | 216          | 613       | 30.00           
|e2 Lithium (Primary) | 3                   | 207               | 375             | 2.50                | 13.3
(14)            | 107
(113)    | 194
(209) | 33.33
(35.00)   
|2.3 Ah NiMH          | 2.2                 | 73                | 265             | 3.25                | 14.6
(15)            | 120
(123)    | 435
(444) | 47.25
(48.75)   

ZAFC Emergency Generator Competition

Incumbent portable generators from McCullough, Briggs & Stratton, Coleman and Honda are well priced at between $120 and $600 per kW for the end-user product.  However, the higher end, quieter models such as the Honda EU3000 are premium priced and in greatest demand for home use.  In addition to virtually silent operation, Power Air's ZAFC-based products will have the advantages of indoor siting, no emissions, no fire hazard, no explosion hazard, no burn hazard (i.e.: to touch it when in operation), and recyclable fuel.  To compete against incumbent portable generators, the OEM will have to offer the end-user a product at a reasonable premium, considering the advantages above, compared to the higher end portable generator price.

To compete against higher end fossil fuel portable generators, at an average of about $600 per kW, we believe a "Green" OEM alternative needs to deliver 1500+ hours of lifetime, 4 to 6 hours run-time at full load, and an end user price of:

| | Introduction:       | $1000 - $1200 per kW
| | ------------------- | --------------------
| | Market Penetration: | $800 - $1000 per kW 
| | Mass Market:        | $600 - $800 per kW  

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Employees

We currently have 14 full-time employees and 5 part-time employees.

Subsidiaries

We own 100% 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.  We also own 50% of the issued and outstanding shares of Power Air (Canada) Corp., which was formed under the laws of the Province of British Columbia, Canada, on December 12, 2005. Power Air (Canada) Corp. is considered a variable interest entity due to the Company's control over the operations and 100% funding of costs to date, thus, is considered a 100% consolidated subsidiary.

Results of Operations

Nine months ended June 30, 2008 Compared to the Nine months ended June 30, 2007

The following table sets out our consolidated loss during the nine months ended June 30, 2008 and 2007, respectively:



|                                       | Nine Months
Ended
June 30, 2008 |  | Nine Months
Ended
June 30, 2007
|-------------------------------------- | ------------------------------- |  | -------------------------------
|                                       | (Unaudited)                     |  | (Unaudited)                    
|                                       | $                               |  | $                              
|Expenses                               |                                 |  |                                
|Amortization of property and equipment | 70,535                          |  |                                
|Development and engineering            | 812,117                         |  |                                
|General and administration             | 1,406,144                       |  |                                
|License fees                           | 79,622                          |  |                                
|Marketing                              | 253,035                         |  |                                
|Interest and finance fees              | (38,235)                        |  |                                
|Total Expenses                         | 2,583,218                       |  |                                
|                                       |                                 |  |                                
|Net Loss                               | (2,583,218)                     |  |                                

The Company recorded a net loss of $2,583,218 for the nine months ended June 30, 2008 as compared to a net loss of $6,060,270 for the period ended June 30, 2007, a net decrease of $3,477,052.  The decrease in net loss was due to the following significant components: a reduction in interest and finance fees by $3,389,000, receipt of an Investment Tax Credit from the Canadian Federal Government and the British Columbia totaling $147,000 net of expenses, the reduction in investor relations spending by $215,000, a reduction of $263,000 in Sales and Marketing costs and an increase in interest income of $27,000.  Offsetting these reductions was an increase in Development and engineering costs of $186,000 and an increase in facilities costs of $71,000, increased Administrative staff of $124,000, higher consulting fees of $68,000, increased Stock-based compensation of $52,000 resulting  from  stock option grants, increased director fees of $47,000 and higher insurance cost of $27,000.  Depreciation expenses increased $39,000 due to increased purchase of laboratory equipment.

Liquidity and Capital Resources

The following table sets forth our cash and working capital as of June 30, 2008.





|                | As of
June 30, 2008
(Unaudited) | As of
September 30, 2007
(Audited)
|--------------- | ------------------------------- | ----------------------------------
|Cash reserves   | $1,255,236                      | $2,260,326                        
|Working capital | $1,294,230                      | $2,238,964                        

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We plan to spend approximately $4.7 million over the next twelve months in carrying out our plan of operations.

During the next 12 months we anticipate that we will become a revenue generating company, although there is no guarantee that we will achieve this objective.  We had working capital of $1,294,230 at June 30, 2008.

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"). A placement commission of $219,000 and expenses of $20,000 were included in deferred financing costs.

(b)        As additional consideration for the loan the Company issued Equity Consideration Certificates having an estimated fair value of $3,017,099, 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, 5,475,000 common shares valued at $0.40 per share for $2,190,000 and the estimated value of the warrants to be issued, 5,475,000 warrants of $867,849 based on a fair value price of $0.1585 per warrant using the Black Scholes Option pricing Model using the following input variables: fair value of stock price on grant date - $0.39; exercise price - $0.50; expected life - 1 year; volatility - 121%; annual expected dividends - nil; risk-free interest rate - 4.63%. The total value of $3,017,099 was added to deferred financing costs. The Company also issued equity certificates valued at $14,418, which was added to deferred financing costs for reimbursement of expenses incurred by the placement agent.

The Company completed an equity financing of $5,080,000 on June 5, 2007 thus triggering immediate repayment of the promissory notes totalling $2,190,000 plus interest of $75,794. As the debt was extinguished the Company charged deferred finance costs of $3,270,517 to operations.

On June 5, 2007 the Company received $80,000 and will issue 200,000 common shares pursuant to a private placement of common shares at $0.40 per share to an offshore purchaser.

Also on June 5, 2007, we issued an aggregate of 14,285,716 units (each a "Unit") at a price of $0.35 per Unit for total gross proceeds of $5,000,000 in a private placement (the "June 2007 Private Placement Offering"), with each Unit being comprised of one share of common stock and one non-transferable share purchase warrant (each a "Warrant") of the Company, and with each Warrant entitling the holder to purchase one additional share of common stock of the Company at an exercise price of $0.50 per share from the date of issuance to the date of expiry on June 5, 2009.  The 14,285,716 Units were sold to purchasers who were offshore pursuant to Regulation S under the Securities Act. As the June 2007 Private Placement Offering constituted a Qualified Offering, on June 5, 2007, we also issued an aggregate of 6,257,118 Units to the lenders under the Financing on the same terms and conditions as the Private Placement Offering for no additional consideration.

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On May 14, 2008, we issued an aggregate of 15,000,000 units (each a "Unit") at a price of $0.10 per Unit for total gross proceeds of $1,500,000 in a private placement, with each Unit being comprised of one share of common stock and one non-transferable share purchase warrant (each a "Warrant") of the Company, and with each Warrant entitling the holder to purchase one additional share of common stock of the Company at an exercise price of $0.25 per share from the date of issuance to the date of expiry on May 14, 2010.  The 15,000,000 Units were sold to purchasers who were offshore pursuant to Regulation S under the Securities Act.

We anticipate that the above financings that are included in our cash on hand at June 30, 2008 of $1,255,236 will be sufficient to enable us to complete the product and program concept phase and begin the design, manufacture and testing of engineering prototypes. Our cash needs for the next twelve months are $4.7 million.

The Company 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 OEM joint venture agreements, to raise additional equity financing and generate revenue, cash flow and attain profitable operations.  There can be no assurance 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.  The 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 June 30, 2008, the Company had accumulated losses of $20,706,828 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 the Company be unable to continue as a going concern.

Operating Activities

Operating activities in the nine months ended June 30, 2008 used cash of $2,374,639, which reflect our recurring operating losses.

Investing Activities

In the nine months ended June 30, 2008 investing activities used cash of $130,451 to purchase property and equipment.

Financing Activities

In the nine months ended June 30, 2008, we raised $1,500,000 in financing activities.

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.

We believe that our critical accounting policies and estimates include the accounting for stock-based transactions, accounts receivable, and long-lived assets.

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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 and revenues and expenses during the reporting period.  Actual results could differ from those estimates.

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.

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 (CRADA) contracts, including the costs of prototype material and the cost of obtaining intangible assets such as patents, have been charged to operations.

Revenue Recognition

The Company will recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 ("SAB 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 collectibility is reasonably assured.

The Company has not generated any revenue since inception on October 15, 1997.  The Company plans to receive funding from OEMs 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.

Stock-Based Compensation

Prior to January 1, 2006 the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company's employee stock options was less than the market price of the underlying common stock on the date of grant.  The Company also had adopted the disclosure-only alternative of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123") and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.  In March 2005 the SEC issued SAB No. 107, Share-Based Payment ("SAB 107") which provides guidance regarding the interaction of SFAS 123R and certain SEC rules and regulations.  The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.

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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 model considers, among other factors, the expected life of the award and the expected volatility of the Company's stock price.  Although the Black-Scholes model meets the requirements of SFAS 123R and SAB 107, the fair values generated by the model may not be indicative of the actual fair values of the Company's awards, as it does not consider other factors important to those share-based payment awards, such as continued employment, periodic vesting requirements, and limited transferability.

The Company had no outstanding stock options or unvested share based payments as of this date and prior to December 31, 2006.  Accordingly, there was no effect on the Company's previously reported loss from operations, cash flows or loss per share as a result of adopting SFAS No 123R.

On April 1, 2006 the Board of Directors adopted a comprehensive "2006 Stock Incentive Plan" to issue stock-based compensation, including stock options, to officers, directors, employees and consultants of the Company.  Also on April 1, 2006 the Board of Directors passed a resolution to grant 2,550,000 stock options to certain officers, directors, employees and consultants.  On June 15, 2006 an additional 200,000 stock options were granted to the Company's new Chief Executive Officer, which are also exercisable at $0.65 for a period of two years.  On July 31, 2006 and August 16, 2006, the Board of Directors passed a resolution to grant 135,000 stock options to employees.  In addition, on April 1, 2006 and August 15, 2006, 1,000,000 stock options were issued to certain consultants.

On June 19, 2008, the Board of Directors passed a resolution to grant each of Don Ceci, President and CEO, and Dean Haley, Chairman of the Board of Directors, stock options to purchase 200,000 shares, which stock options are exercisable at $0.14 per share for a period of five years.    On June 19, 2008, the Board of Directors also passed a resolution granting stock options to purchase a total of 570,000 shares to nine key employees of the company, which stock options are exercisable at $0.14 per share for a period of two years.  On June 19, 2008, the Board of Directors also approved granting of options to purchase a total of 190,000 shares to six potential new hires for a period of two years from the date of hire at the closing price of the stock on the date of hire.

Foreign Currency Transactions/Balances

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.

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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.



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In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS No.162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning ofPresent Fairly in Conformity with Generally Accepted Accounting Principles.



In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - An interpretation of FASB Statement No. 60".  SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise's risk-management activities. SFAS 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted.  The adoption of this statement is not expected to have a material effect on the Company's financial statements.

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.

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

Risk Factors

Risks Related to Our Operating Results

Because we are currently a development stage company, we have no products available for sale or use and may lack the financial resources needed to bring products to market.

We are in the development stage and we have not completed the development of any products incorporating our ZAFC technology that can be commercially sold.  We will not achieve commercialization of our products until such time, if ever, that we complete further development of our technology and design of products that may be commercially marketed and sold.  Our long-term viability growth and profitability will depend upon successful testing, approval and commercialization of products incorporating our technology resulting from our research and development activities.  Adverse or inconclusive results in the development and testing of these products could significantly delay or ultimately preclude commercialization of our technology.

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If we are unable to develop any commercially viable ZAFC fuel cell based products that can be marketed and sold, then we may not be able to achieve revenues and our business may fail.

We cannot guarantee that we will be able to develop commercially viable fuel cell based products on the timetable we anticipate, or at all.  The commercialization of our fuel cell products requires substantial technological advances to improve the efficiency, functionality, reliability, cost and performance of these systems and products and to develop commercial volume manufacturing processes for these systems and products.  We cannot guarantee that we will be able to internally develop the technology necessary for commercialization of our fuel cell products, or that we will be able to acquire or license the required technology from third parties.  Developing the technology for high-volume commercialization requires substantial capital, and we cannot assure you that we will be able to generate or secure sufficient funding on terms acceptable to us to pursue our high-volume commercialization plans.  In addition, before we release any product to market, we subject it to numerous field tests.  These field tests may encounter problems and delays for a number of reasons, many of which are beyond our control.  If these field tests reveal technical defects or reveal that our products do not meet performance goals, including useful life, safety, and reliability, our commercialization schedule could be delayed, and potential purchasers may decline to purchase our systems and products.  Our inability to develop commercially viable fuel cell based products that can be marketed and sold will result in our inability to earn revenues and achieve profitability, with the result that our business may fail.

Because we have not earned any revenues from operations, all our capital requirements have been met through financing and it is not certain we will be able to continue to find financing to meet our operating requirements.

Our business plan calls for significant expenses in connection with the development of our ZAFC business.  Our capital requirements have been and will continue to be significant.  We will be dependant on future financing to fund our research and development as well as other working capital requirements.  We estimate that our current working capital will support our activities for no more than 5 months.  After that time we will need additional financing.  There can be no assurance that such additional financing will be forthcoming or that it will result in sufficient capital for us to meet our expected working capital needs.  It is not anticipated that any of our officers, directors or current shareholders will provide any significant portion of our future financing requirements.  Furthermore, in the event that our plans change, our assumptions change or prove inaccurate, or our capital resources prove to be insufficient to fund operations, we could be required to seek additional financing sooner than currently anticipated, or in greater amounts than is currently anticipated.  Any inability to obtain additional financing when needed would have a material adverse effect on us, including possibly requiring us to significantly curtail or possibly cease our operations.  In addition, any future equity financing may involve substantial dilution to our existing shareholders.

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

Our audited financial statements for the period from inception to September 30, 2007 have been prepared assuming that we will continue as a going concern.  Our auditors have expressed substantial doubt about our ability to continue as a going concern.  Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.  We have incurred operating losses totalling $20,706,828 since inception to June 30, 2008.

Because we have not earned any revenues from operations, all our capital requirements have been met through financing and it is not certain we will be able to continue to find financing to meet our operating requirements.

Notwithstanding the recent completion by us of our private placement financings, we will need to obtain additional financing in order to pursue our business plan.  As of June 30, 2008, we had cash on hand of $1,255,236 and working capital of $1,294,230.  Our business plan calls for significant expenses in connection with the development of our ZAFC technology and new ZPAC product.  Our capital requirements have been and will continue to be significant.  We will be dependant on future financing to fund our research and development as well as other working capital requirements.  We estimate that our current working capital will support our activities for no more than five months.  After that time we will need additional financing.  However, there can be no assurance that such financing will be forthcoming or that it will result in sufficient capital for us to meet our current and expected working capital needs.    Furthermore, in the event that our plans change, our assumptions change or prove inaccurate, or our capital resources prove to be insufficient to fund operations, we could be required to seek additional financing sooner than currently anticipated, or in greater amounts than is currently anticipated.  Any inability to obtain additional financing when needed would have a material adverse effect on us, including possibly requiring us to significantly curtail or possibly cease our operations.  In addition, any future equity financing may involve substantial dilution to our existing shareholders.

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Because we have only recently commenced business operations, we face a high risk of business failure and this could result in a total loss of your investment.

We have not earned any revenues and we have not achieved profitability as of the date of this annual report.  Potential investors should be aware of the difficulties normally encountered by development stage companies and the high rate of failure of such enterprises.  The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the further commercialization of our ZAFC technology.  These potential problems include, but are not limited to, unanticipated problems relating to costs and expenses that may exceed current estimates.  We have no history upon which to base any assumption as to the likelihood that our business will prove successful, and we can provide no assurance to investors that we will generate any operating revenues or ever achieve profitable operations.  If we are unsuccessful in addressing these risks, our business will likely fail and you will lose your entire investment.

Because we have only recently commenced business operations, we expect to incur operating losses for the foreseeable future.

We have never earned revenues and we have never been profitable.  Prior to completing the commercialization of our ZAFC technology and ZPAC products, we anticipate that we will incur increased operating expenses without realizing any revenues.  We therefore expect to incur significant losses into the foreseeable future.  If we are unable to generate significant revenues from the commercialization of our technology, our business will likely fail and you will lose your entire investment.

We have no commercialization or strategic funding agreements in place.

A key component of our business plan is to enter into strategic relationships with OEMs with whom we would work to design and develop products incorporating our ZAFC technology that would be manufactured, marketed and sold by the OEMs.  Although we have collaboration and tooling agreements in place we currently have no commercialization or strategic partnership agreements in place to assist in the development and funding of additional prototypes.  These agreements need to be completed as soon as reasonably possible.  Our growth will depend, in large part, on such partnerships.  If we are unable to develop and maintain these relationships, our ability to penetrate and compete successfully in the fuel cell market would be materially adversely affected, which would have a material adverse effect on our business, results of operations, financial condition and cash flows.

We could lose or fail to attract the personnel necessary to run our business.

Our success depends in large part on our ability to attract and retain key management, engineering, scientific, manufacturing and operating personnel.  As we develop additional manufacturing capabilities and expand the scope of our operations, we will require more skilled personnel.  Recruiting personnel for the fuel cell product industry is highly competitive.  We cannot guarantee that we will be able to continue to attract and retain qualified executive, managerial and technical personnel needed for our business.  Our failure to attract or retain qualified personnel could delay or result in our inability to complete our business plan for the commercialization of our ZAFC fuel cell technology and our ZPAC products.

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Our directors may experience conflicts of interest which may detrimentally affect our profitability.

Certain directors and officers may be engaged in, or may in the future be engaged in, other business activities on their own behalf and on behalf of other companies and, as a result of these and other activities, such directors and officers may become subject to conflicts of interest, which could have a material adverse effect on our business.

Because our business operations are only two years old, we may not be able to effectively manage the demands required of a new business in our industry.

We have never earned revenues and we have never been profitable.  There can be no assurance that we will effectively execute our business plan or manage any growth of our business, or that our future operating and financial forecast will be met.  Future development and operating results will depend on many factors, including access to adequate capital, the completion and regulatory approval of marketable products, the demand for our products, the level of product and price competition, our success in setting up and expanding distribution channels and whether we can control costs.  Many of these factors are beyond our control.  In addition, our future prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in its industry, which is characterized by intense competition, rapid technological change, highly litigious competitors, potential product liability and significant regulation.  If we are unable to address these matters, or any of them, then we may not be able to successfully implement our business plan for the commercialization of our ZAFC fuel cell technology and development of ZPAC products or achieve revenues or profitability.

Because we have a history of losses and anticipate continued losses through our development stage, we may lack the financial stability required to continue operations.

Since inception we have suffered recurring losses.  We have funded our operations through the issuance of common stock in order to meet our strategic objectives.  We anticipate that our losses will continue until such time, if ever, as we are able to generate sufficient revenues to support our operations.  Our ability to generate revenue primarily depends on our success in completing development and obtaining regulatory approvals for the commercial sale of the products under development.  There can be no assurance that any such events will occur, that we will attain revenues from commercialization of our products or that we will ever achieve profitable operations.

Even if we are able to successfully develop products incorporating our ZAFC fuel cell technology or ZPAC design, our inability to successfully manufacture these products, either ourselves or through OEM's with whom we may enter into strategic relationships, would result in our inability to commercialize our technology and achieve revenues .

To successfully commercialize our ZAFC fuel cell technology and ZPAC products, we must develop, either ourselves or through OEM's and/or Contract Manufacturers with whom we may enter into strategic relationships, the ability to manufacture our products in quantities in compliance with regulatory requirements and at an acceptable cost.  We have no long-term experience in manufacturing products and could experience difficulties in development or manufacturing that could impair our ability to successfully commercialize products incorporating our ZAFC fuel cell technology or based on our ZPAC design.  Moreover, there can be no assurance that we or OEM's and/or Contract Manufacturers with whom we enter into strategic relationships will be successful in scaling up manufacturing operations sufficient to produce our products in sufficient volume and at acceptable manufacturing costs to generate market acceptance.

A mass market for our products may never develop or may take longer to develop than we anticipate.

Our zinc air products target emerging markets, and we do not know whether end-users will want to use them.  The development of a mass market for our zinc air products may be affected by many factors, some of which are beyond our control, including the emergence of newer, more competitive technologies and products, the future cost of fuels used by our systems, regulatory requirements, consumer perceptions of the safety of our products and related fuels, and consumer reluctance to buy a new product, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.  In the event that consumers do not demand our products or if the market for our products develops slower than we anticipate, then our ability to achieve significant revenues and profitability will be impaired or delayed.

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We currently face and will continue to face significant competition.

As zinc air products have the potential to replace existing power products, competition for our products will come from current power technologies, from improvements to current power technologies and from new alternative power technologies, including other types of fuel cells.  Each of our target markets is currently serviced by existing manufacturers with existing customers and suppliers.  Additionally, there are competitors working on developing technologies such as other types of fuel cells, advanced batteries and hybrid battery/internal combustion engines in each of our targeted markets.  The fuel cell product market is becoming more competitive with products from many companies, many of which are larger with greater financial resources.  Many large competitors may also eventually dominate the marketplace with access to significantly more financing than our Company.  Across the United States, Canada, Europe and Japan, corporations, national laboratories and universities are actively engaged in the development and manufacture of fuel cell products and components.  Each of these competitors has the potential to capture market share in each of our target markets.  If competitors are able to introduce competing products that are more readily accepted by consumers or cost less than the products incorporating our technology, then a significant consumer demand for our products may not develop and we may not be able to achieve significant revenues or profitability.

Because we are significantly smaller than the majority of our national competitors we may lack the financial resources needed to capture market share.

The markets in which we intend to operate is dominated by several large firms with established products, and our success will be dependant upon acceptance of our products by the market as reliable, safe and cost-effective power solutions.  It may be difficult or impossible for us to achieve such acceptance of our products in view of competitive market conditions.  Many of our competitors have substantial financial resources, customer bases, manufacturing, marketing and sales capabilities, and businesses or other resources, which give them significant competitive advantages over us.  Thus it is likely that they will be quicker to market than we will, with products that will compete with our products, should our products be successfully approved and commercialized.  Moreover, even if we successfully bring our products to market ahead of our projected competitors, established competitors may be able to quickly bring products to market that would compete.  In addition, the market is subject to constant introduction of new products and designs.  Market acceptance of our products may be influenced by new products or technologies that come to market, which could render our products obsolete or prohibitively expensive.  If we are unable to address these matters, or any of them, then our products may not be able to compete in the marketplace with products offered by competitors and we may not be able to achieve significant revenues or profitability.

Because we may not be able to obtain all of the patents for the products and processes we are currently developing and testing, we may not be able to protect our intellectual property rights.

Our success will depend in part on whether we can obtain additional patent protection for our products and processes, preserve trade secrets and proprietary technology and operate without infringing upon patent or other proprietary rights of third parties.  We cannot provide any assurance that any of our existing licensed patents will not be challenged or that we will be able to achieve any future patent protection for our technology.  Established companies in our industry generally are aggressive in attempts to block new entrants to their markets, and may allege that our products, if successfully developed, interfere with the intellectual property rights of these companies.  Our success will depend on our products not infringing patents that belong to others.  Furthermore, the validity and breadth of claims in our licensed technology patents involve complex legal and factual questions and, therefore, are highly uncertain.  Even if we are successful in obtaining additional patents for our technology there can be no assurance that we will be able to successfully assert our patents against competing products.

Moreover, our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent.  Particularly, we cannot assure you that any of our pending or future patent applications will be issued with the breadth of claim coverage sought by us, if issued at all.

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In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.

We may be involved in intellectual property litigation that causes us to incur significant expenses or prevents us from selling our products.

We may become subject to lawsuits in which it is alleged that we have infringed the intellectual property rights of others or commence lawsuits against others who we believe are infringing upon our rights.  Our involvement in intellectual property litigation could result in significant expense to us, adversely affecting the development of sales of the challenged product or intellectual property and diverting the efforts of our technical and management personnel, whether or not such litigation is resolved in our favour.  In the event of an adverse outcome as a defendant in any such litigation, we may, among other things, be required to: pay substantial damages; cease the development, manufacture, use, sale or importation of products that infringe upon other patented intellectual property; expend significant resources to develop or acquire non-infringing intellectual property; discontinue processes incorporating infringing technology; or obtain licenses to the infringing intellectual property, any of which could have a material adverse effect on our business and financial results.

We are dependent on third party suppliers for the supply of key materials and components for our products.

We have established relationships with third party suppliers, upon whom we rely to provide materials and components for our products. A supplier's failure to supply materials or components in a timely manner, or to supply materials and components that meet our quality, quantity or cost requirements, or our inability to obtain substitute sources for these materials and components in a timely manner or on terms acceptable to us, could harm our ability to manufacture our products.  To the extent that the processes which our suppliers use to manufacture the materials and components are proprietary, we may be unable to obtain comparable materials or components from alternative suppliers, and that could adversely affect our ability to produce viable fuel cell products at a reasonable price or significantly raise our cost of producing such products.  In addition, zinc is a key component of our fuel cells.  While we do not anticipate significant near or long term shortages in the supply of zinc, increases in the price of zinc could adversely affect our ability to produce commercially viable zinc air products, or significantly raise our cost of producing such products.

We anticipate that we will be dependent upon OEMs to purchase certain of our products.

To be commercially useful, most of our zinc air products must be integrated into products manufactured by OEMs.  We can offer no guarantee that OEMs will manufacture appropriate products or, if they do manufacture such products, that they will choose to use our zinc air products.  Any integration, design, manufacturing or marketing problems encountered by OEMs could materially adversely affect our ability to achieve commercialization of products incorporating our ZAFC fuel cell technology or ZPAC design.

Because product liability is inherent in the Company's industry and insurance is expensive and difficult to obtain, the Company may be exposed to large lawsuits.

Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of its proposed products.  While we will take precautions that we deem to be appropriate to avoid product liability suits against us, there can be no assurance that we will be able to avoid significant product liability exposure.  Product liability insurance for our industry is generally expensive, to the extent it is available at all.  We have not yet sought to obtain product liability coverage.  We intend to obtain such coverage when it is apparent that our products will be marketable.  There can be no assurance that we will be able to obtain such coverage on acceptable terms, or that any insurance policy will provide adequate protection against potential claims. A successful product liability claim brought against us may exceed any insurance coverage secured by us and could require us to pay a judgement or settlement amount that is substantial in terms of our available financial and capital resources.

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Regulatory changes could hurt the market for products incorporating our zinc air technology.

Changes in existing government regulations and the emergence of new regulations with respect to zinc air or fuel cell products may hurt the market for our products.  Environmental laws and regulations in the U.S. (particularly in California) and other countries have driven interest in fuel cell systems; and the deregulation of the electric utility industry in the U.S. and elsewhere has created market opportunities for fuel cell products in the portable, stationary, light mobility and transportation markets.  We cannot guarantee that these laws and policies will not change.  Changes in these laws and other laws and policies or the failure of these laws and policies to become more widespread could result in manufacturers abandoning their interest in fuel cell products or favouring alternative technologies.  In addition, as products are introduced into our target markets, the U.S. and other governments may impose burdensome requirements and restrictions on the use of fuel cells or zinc air technology that could reduce or eliminate demand for some or all of our products.  Accordingly, changes in government regulation could reduce demand for products incorporating our zinc air technology.

Risks Related to Our Common Stock

The trading price of our common stock can be volatile.

The price of our common shares may increase or decrease in response to a number of events and factors, including: trends in the fuel cell markets in which we operate; changes in the market price of the commodities we use in our products; current events affecting the economic situation in North America; changes in financial estimates; our acquisitions and financings; quarterly variations in our operating results; the operating and share price performance of other companies that investors may deem comparable; and purchase or sale of blocks of our common shares.  These factors, or any of them, may materially adversely affect the prices of our common shares regardless of our operating performance.

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations.  Because our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations.  If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

Because our stock is traded on the OTCBB and not a larger or more recognized exchange, investors may find it difficult to sell their shares or obtain accurate quotations for share prices.

Our common stock is traded on FINRA's Over-the-Counter Bulletin Board (the "OTCBB").  Investors may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our common stock than would otherwise be the case if our common stock was listed on a more recognized stock exchange or quotation service.  In addition, trading in our common stock is currently subject to certain rules under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a "penny stock." Penny stocks are generally non-FINRA equity securities with a market price less than $5.00 per share.  The penny stock rules require broker-dealers selling penny stocks to make certain disclosures about such stocks to purchasers thereof, and impose sales practice restrictions on broker-dealers in certain penny stock transactions.  The additional burdens imposed upon broker-dealers by these rules may discourage them from effecting transactions in our common stock, which could limit the liquidity of the common stock and the ability of our stockholders to sell their stock in the secondary market.

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Five of our seven directors and one of our three senior officers are outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.

Five of our seven directors and one of our three senior officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States.  As a result, it may be difficult for investors to effect service of process on our directors or officers, or enforce within the United States or Canada any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.  Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them.  In addition, investors may not be able to commence an action in a Canadian court predicated upon the civil liability provisions of the securities laws of the United States.  The foregoing risks also apply to those experts identified in this annual report that are not residents of the United States.

Our stock is a penny stock.  Trading of our stock may be restricted by the SEC's penny stock regulations and FINRA's sales practice requirements, which may limit a stockholder's ability to buy and sell our stock.

Our stock is a penny stock.  The Securities and Exchange Commission (the "SEC") has adopted Rule 15g-9 which generally defines "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors".  The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with their spouse.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account.  The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.  In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser's written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules.  Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.  We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.  In addition to the "penny stock" rules promulgated by the SEC, FINRAhas adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

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.

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

In March and April of 2007 we completed a private placement (the "Private Placement") by the Company of promissory notes for $2,190,000 (the "Notes") and securities ("Equity Consideration Certificates").  The Notes have a interest rate of 10% per annum payable quarterly commencing May 31, 2007 and due on the earlier of: (i) September 30, 2007 or (ii) the third business day following the completion of an underwritten public offering or a private placement by the Company resulting in gross proceeds of $5 million or more (the "Qualified Offering").  Repayment of the Notes will be secured by a lien on all tangible and intangible assets of the Company and each of its subsidiaries to be evidenced by a security agreement and a security and pledge agreement from the Company for 100% of the stock in each of its subsidiaries.  Each Purchaser also received an Equity Consideration Certificate in an amount equal to such purchaser's Note.  The Equity Consideration Certificate will entitle the purchaser to receive either "Primary Equity Consideration" or "Alternate Equity Consideration".  The "Primary Equity Consideration" consists of the identical securities that the Company will sell in its next Qualified Offering.  The number of such securities to be received by each purchaser shall be the result obtained by dividing 100% of the original principal amount of the Note purchased by such purchaser in this offering by the price of the security, or package of securities, sold by the Company in the Qualified Offering.  The Equity Consideration shall be delivered to the purchaser (or its transferee or assignee) within three business days following the closing of the Qualified Offering.  The "Alternate Equity Consideration" consist of that number of shares of common stock of the Company that equal the principal amount of the Notes divided by $0.40 plus an equal number of non-callable warrants exercisable at $0.50 per share for a period of seven years from such issuance, which will have a cashless exercise feature if, at any time after one year from the first closing of the Private Placement, the underlying shares of common stock are not covered by an effective registration statement with a current prospectus available.  The Alternate Equity Consideration will be issued to the Purchasers on the first business day following the later of September 30, 2007 or an extended maturity date, if a Qualified Offering shall not have occurred by such date.  The Notes were sold to the purchasers who purchased as "accredited investors" as that term is defined in Rule 501(a) of Regulation D under the Securities Act.  Pursuant to an agreement (the "Financing Agreement") dated for reference March 5, 2007 among the Company and Paulson Investment Company, Inc. and High Capital Funding, LLC (together, the "Placement Agents"), as amended, the Placement Agents acted as agents of the Company for the Private Placement.

On June 5, 2007 the Company received $80,000 and will issue 200,000 common shares pursuant to a private placement of common shares at $0.40 per share to an offshore purchaser.

Also on June 5, 2007, we issued an aggregate of 14,285,716 units (as previously defined, each a "Unit") at a price of $0.35 per Unit for total gross proceeds of $5,000,000 in a private placement (as previously defined, the "Private Placement Offering"), with each Unit being comprised of one share of common stock and one non-transferable share purchase warrant (as previously defined, each a "Warrant") of the Company, and with each Warrant entitling the holder to purchase one additional share of common stock of the Company at an exercise price of $0.50 per share from the date of issuance to the date of expiry on June 5, 2009.  The 14,285,716 Units were sold to purchasers who were offshore pursuant to Regulation S under the Securities Act of 1933.

As the Private Placement Offering constituted a Qualified Offering, on June 5, 2007, we also issued an aggregate of 6,257,118 Units to the lenders under the Financing on the same terms and conditions as the Private Placement Offering for no additional consideration.

On July 16, 2007, we entered into an agreement with Elite Financial Communications Group, LLC ("Elite") to manage all aspects of our investor and media relations program (the "Elite Agreement").  Pursuant to the Elite Agreement, an aggregate of 300,000 non-transferable common stock purchase warrants (each a "Warrant") to purchase up to an equivalent number of common shares of Power Air (each a "Warrant Share") has been issued to Elite in the following manner and with the following exercise and vesting terms as set forth in the Agreement: (a) an initial 150,000 of the Warrants (the "Initial Warrants") on July 16, 2007, with each such Initial Warrant being exercisable for one Warrant Share of Power Air for the period commencing on July 16, 2007 and expiring at 5:00 p.m. (Livermore, California, time) on the date which is two years from the effective date of Power Air's proposed registration statement, if any, pursuant to which the Warrant Shares underlying the Initial Warrants are to be proposed for registration under the Securities Act (such time period, the "Warrant Exercise Period"), at an exercise price of $0.45 per Warrant Share during the Warrant Exercise Period; and (b) the final 150,000 of the Warrants (the "Final Warrants") will be issued to Elite and vest on the 181st day following July 16, 2007 with each such Final Warrant then being exercisable for one Warrant Share of Power Air during the same Warrant Exercise Period at an exercise price of $0.60 per Warrant Share. Power Air also agreed to issue to Elite piggyback registration rights for the common shares underlying the warrants, whereby these shares will be registered for resale by Elite on the first applicable registration statement filed by Power Air with the Securities and Exchange Commission.  The term of the Warrants expire 24 months from the date the registration statement registering the shares underlying the Warrants is deemed effective. This issuance of the Warrants was completed on a private placement basis pursuant to the terms of the Agreement by Power Air to Elite as an "accredited investor" as that term is defined in Rule 501(a) of Regulation D under the Securities Act.

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On May 14, 2008, we issued an aggregate of 15,000,000 units (each a "Unit") at a price of $0.10 per Unit for total gross proceeds of $1,500,000 in a private placement (the "Private Placement Offering"), with each Unit being comprised of one share of common stock and one non-transferable share purchase warrant (each a "Warrant") of the Company, and with each Warrant entitling the holder to purchase one additional share of common stock of the Company at an exercise price of $0.25 per share from the date of issuance to the date of expiry on May 14, 2010.  The 15,000,000 Units were sold to purchasers who were offshore pursuant to Regulation S under the Securities Act.

Item 3.  Defaults Upon Senior Securities

None.

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

No matters were submitted to our security holders for a vote during the three months ended June30, 2008.

Item 5.  Other Information

None.

Item 6.  Exhibits

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



|Exhibit
Number | 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)                                                                                                                                                                         
|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)

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|Exhibit
Number | Description of Exhibit                                                                                                                                                        
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8           | Form of the Subscription Agreement between the Company and each of the purchasers for the April 2007 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 June 2007 Private Placement Offering.(7)
|10.10          | Form of the Non-U.S. Share Purchase Warrant Certificate utilized with the June 2007 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)      
|10.12          | Form of the $0.10 Unit Private Placement Subscription Agreement between the Company and the purchaser of the Units under the May 2008 Private Placement Offering.(9)          
|10.13          | Form of the Share Purchase Warrant Certificate utilized with the May 2008 Private Placement Offering.(9)                                                                      
|21.1           | Subsidiaries of the Company:
Power Air Tech, Inc. (Delaware) (100%) Power Air (Canada) Corp. (British Columbia) (50%)                                                         
|31.1           | Certification of Chief Executive Officer.                                                                                                                                     
|31.2           | Certification of Chief Financial Officer.                                                                                                                                     
|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 11, 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.(9)   Previously filed with the SEC as an exhibit to our Form 8-K as originally filed with the SEC on May 20, 2008.

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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

"Donald Ceci"Donald CeciPresident & Chief Executive Officer

Date:  August 14, 2008.



"Alan Campbell"Alan Campbell
Secretary, Treasurer, Chief Financial Officer and
Principal Accounting Officer

Date:  August 14, 2008.

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