**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**0-31805**

**POWER      EFFICIENCY CORPORATION **

| **Delaware**(State                or Other Jurisdiction ofIncorporation                or Organization)                                          |   | **22-3337365**(I.R.S.                Employer Identification No.)                                              |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|
|                                                                                                                                             |   |                                                                                                           |
| **3960                Howard Hughes Pkwy, Ste 460****Las                Vegas, NV 89169**(Address                of Principal Executive Offices) |   | **(702)                697-0377**(Issuer's                Telephone Number,Including                Area Code) |

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**POWER      EFFICIENCY CORPORATION**

**FORM      10-Q INDEX**

| PART                I – FINANCIAL INFORMATION                                                                                                                                 | 3        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                                                     |     |
| ITEM                1. Financial Statements                                                                                                                                              | 3        |
|                                                                                                                                                                                     |     |
| Condensed                Balance Sheet as of September 30, 2008 and December 31,                2007                                                                                     |  3  |
|                                                                                                                                                                                     |     |
| Condensed                Statements of Operations for the three months ended September 30,                2008 and                2007 and nine months ended September 30, 2008 and 2007 | 4        |
|                                                                                                                                                                                     |     |
| Condensed                Statements of Cash Flows for the nine months ended September 30,                2008 and                2007                                                    | 5        |
|                                                                                                                                                                                     |     |
| Notes                to Condensed Financial Statements                                                                                                                                   | 6        |
|                                                                                                                                                                                     |     |
| ITEM                2. Management’s Discussion and Analysis or Plan of                Operation                                                                                    | 8        |
|                                                                                                                                                                                     |     |
| ITEM                3. Quantitative and Qualitative Disclosures about Market                Risk                                                                                         | 12       |
|                                                                                                                                                                                     |     |
| ITEM                4T. CONTROLS AND PROCEDURES                                                                                                                                          | 12       |
|                                                                                                                                                                                     |     |
| PART                II — OTHER INFORMATION                                                                                                                                         | 13       |
|                                                                                                                                                                                     |     |
| ITEM                1. Legal Proceedings                                                                                                                                                 |  13 |
|                                                                                                                                                                                     |     |
| ITEM                2. Unregistered Sales of Equity Securities and Use of                Proceeds                                                                                        | 13       |
|                                                                                                                                                                                     |     |
| ITEM                3. Defaults Upon Senior Securities                                                                                                                                   | 13       |
|                                                                                                                                                                                     |     |
| ITEM                4. Submission of Matters to a Vote of Security Holders                                                                                                               | 13       |
|                                                                                                                                                                                     |     |
| ITEM                5. Other Information                                                                                                                                                 | 14       |
|                                                                                                                                                                                     |     |
| ITEM                6. Exhibits and Reports                                                                                                                                              | 14       |
|                                                                                                                                                                                     |     |
| Signatures                                                                                                                                                                               | 15       |
|                                                                                                                                                                                     |     |
| Certification                of Chief Executive Officer as Adopted                                                                                                                       |     |
|                                                                                                                                                                                     |     |
| Certification                of Chief Financial Officer as Adopted                                                                                                                       |     |

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**PART      I. FINANCIAL INFORMATION**

**Item      1. Financial Statements**

**POWER      EFFICIENCY CORPORATION**

CONDENSED      BALANCE SHEETS

|                                                                                                                                                                                                                           |   | **September 30, ****2008 ** |        | **December 31, ****2007** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-------------|-------------------------------------|--------|
|                                                                                                                                                                                                                           |   | **(Unaudited)**                            |        |                 |   |
| ASSETS                                                                                                                                                                                                                         |   |                                       |        |                                |   |   |   |
| CURRENT                ASSETS:                                                                                                                                                                                                 |   |                                       |        |                                |   |   |   |
| Cash                                                                                                                                                                                                                           |   | $                                          | 2,788,521   |                                | $      | 5,086,378 |   |
| Accounts                receivable, net                                                                                                                                                                                        |   |                                       | 131,037     |                                |   | 109,252 |   |
| Inventory,                net                                                                                                                                                                                                  |   |                                       | 267,878     |                                |   | 131,762 |   |
| Prepaid                expenses and other current assets                                                                                                                                                                       |   |                                       | 72,593      |                                |   | 41,296 |   |
| Total                Current Assets                                                                                                                                                                                            |   |                                       | 3,260,029   |                                |   | 5,368,688 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| PROPERTY                AND EQUIPMENT, Net                                                                                                                                                                                     |   |                                       | 160,448     |                                |   | 112,106 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| OTHER                ASSETS:                                                                                                                                                                                                   |   |                                       |        |                                |   |   |   |
| Patents,                net                                                                                                                                                                                                    |   |                                       | 63,657      |                                |   | 39,746 |   |
| Deposits                                                                                                                                                                                                                       |   |                                       | 38,206      |                                |   | 122,263 |   |
| Goodwill                                                                                                                                                                                                                       |   |                                       | 1,929,963   |                                |   | 1,929,963 |   |
| Total                Other Assets                                                                                                                                                                                              |   |                                       | 2,031,826   |                                |   | 2,091,972 |   |
|                                                                                                                                                                                                                           |   |                                       |             |                                |   |   |   |
| Total                Assets                                                                                                                                                                                                    |   | $                                          | 5,452,303   |                                | $      | 7,572,766 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                                                                                            |   |                                       |        |                                |   |   |   |
| CURRENT                LIABILITIES:                                                                                                                                                                                            |   |                                       |        |                                |   |  |   |
| Accounts                payable and accrued expenses                                                                                                                                                                           |   | $                                          | 580,749     |                                | $      | 586,458 |   |
| Customer                Deposits                                                                                                                                                                                               |   |                                       | -           |                                |   | 1,605 |   |
| Total                Current Liabilities                                                                                                                                                                                       |   |                                       | 580,749     |                                |   | 588,063 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| LONG                TERM LIABILITES                                                                                                                                                                                            |   |                                       |        |                                |   |   |   |
| Deferred                Rent                                                                                                                                                                                                   |   |                                       | 12,531      |                                |   | 12,063 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| Total                Liabilities                                                                                                                                                                                               |   |                                       | 593,280     |                                |   | 600,126 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| STOCKHOLDERS'                EQUITY:                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| Series                B Convertible Preferred Stock, $.001 par value, 10,000,000 shares                authorized, 140,000 issued or outstanding in 2008, 134,400 issued                and                outstanding in 2007 |   |                                       | 140         |                                |   | 134 |   |
| Common                stock, $.001 par value, 140,000,000 shares authorized, 40,486,411                issued                and outstanding in 2008 40,367,523 issued and outstanding in                2007                  |   |                                       | 40,486      |                                |   | 40,368 |   |
| Additional                paid-in capital                                                                                                                                                                                      |   |                                       | 34,555,976  |                                |   | 33,741,902 |   |
| Accumulated                deficit                                                                                                                                                                                             |   |                                       | (29,737,579 | )                                   |   | (26,809,764 | ) |
| Total                Stockholders' Equity                                                                                                                                                                                      |   |                                       | 4,859,023   |                                |   | 6,972,640 |   |
|                                                                                                                                                                                                                           |   |                                       |        |                                |   |   |   |
| Total                Liabilities and Stockholders' Equity                                                                                                                                                                      |   | $                                          | 5,452,303   |                                | $      | 7,572,766 |   |

**Accompanying      notes are an integral part of the financial statements**

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**POWER      EFFICIENCY CORPORATION**

CONDENSED      STATEMENTS OF OPERATIONS

|                                                             |   | **For the three months ended ****September 30,** |       | **For the nine months ended ****September 30,** |   |
|------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|--------|
|                                                             |   | **2008**                                                                       |       |  **2007**                                                                |   | **2008** |   |  **2007** |   |
|                                                             |   |                                                                           |       |                                                                     |   |   |   |    |   |
| REVENUES                                                         |   | $                                                                              | 108,607    |                                                                          | $      | 120,742 |   | $ | 406,946 |   | $ | 387,552 |   |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| COST                OF SALES                                     |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| Materials,                labor and overhead                     |   |                                                                           | 69,471     |                                                                          |   | 64,123 |   |   | 299,922 |   |   | 252,467 |   |
| Inventory                obsolescence                            |   |                                                                           | -          |                                                                          |   | - |   |   | 24,577 |   |   | - |   |
| Total                Cost of Sales                               |   |                                                                           | 69,471     |                                                                          |   | 64,123 |   |   | 324,499 |   |   | 252,467 |   |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| GROSS                MARGIN                                      |   |                                                                           | 39,136     |                                                                          |   | 56,619 |   |   | 82,447 |   |   | 135,085 |   |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| COSTS                AND EXPENSES:                               |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| Research                and development                          |   |                                                                           | 305,436    |                                                                          |   | 322,117 |   |   | 731,575 |   |   | 554,920 |   |
| Selling,                general and administrative               |   |                                                                           | 727,277    |                                                                          |   | 562,149 |   |   | 2,315,813 |   |   | 1,858,130 |   |
| Depreciation                and amortization                     |   |                                                                           | 19,512     |                                                                          |   | 12,548 |   |   | 52,572 |   |   | 33,134 |   |
| Total                Costs and Expenses                          |   |                                                                           | 1,052,225  |                                                                          |   | 896,814 |   |   | 3,099,960 |   |   | 2,446,184 |   |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| LOSS                FROM OPERATIONS                              |   |                                                                           | (1,013,089 | )                                                                             |   | (840,195 | ) |   | (3,017,513 | ) |   | (2,311,099 | ) |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):                           |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| Interest                income                                   |   |                                                                           | 20,604     |                                                                          |   | 14,002 |   |   | 89,698 |   |   | 39,122 |   |
| Interest                expense                                  |   |                                                                           | -          |                                                                          |   | (157,517 | ) |   | - |   |   | (471,108 | ) |
| Total                Other Expenses, net                         |   |                                                                           | 20,604     |                                                                          |   | (143,515 | ) |   | 89,698 |   |   | (431,986 | ) |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| NET                LOSS                                          |   | $                                                                              | (992,485   | )                                                                             | $      | (983,710 | ) | $ | (2,927,815 | ) | $ | (2,743,085 | ) |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| BASIC                AND FULLY DILUTED LOSS PER COMMON SHARE     |   | $                                                                              | (0.02      | )                                                                             | $      | (0.03 | ) | $ | (0.07 | ) | $ | (0.07 | ) |
|                                                             |   |                                                                           |       |                                                                          |   |   |   |   |   |   |   |   |   |
| WEIGHTED                AVERAGE COMMON SHARES OUTSTANDING, BASIC |   |                                                                           | 40,486,411 |                                                                          |   | 38,559,934 |   |   | 40,430,640 |   |   | 37,953,824 |   |

**Accompanying      notes are an integral part of the financial statements**

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**POWER      EFFICIENCY CORPORATION**

CONDENSED      STATEMENTS OF CASH FLOWS

|                                                                                                                                                                |   | **For the nine months ended September 30,** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|------------|
|                                                                                                                                                                |   | **2008**                                                                  |       | **2007** |   |
|                                                                                                                                                                |   |                                                                      |       |   |   |
| CASH                  FLOWS FROM OPERATING ACTIVITIES:                                                                                                              |   |                                                                      |       |   |   |   |   |
|                                                                                                                                                                |   |                                                                      |       |   |   |   |   |
| Net                  loss                                                                                                                                           |   | $                                                                         | (2,927,815 | ) | $ | (2,743,085 | ) |
| Adjustments                  to reconcile net loss to net cash used for operating                  activities:                                                      |   |                                                                      |       |   |   |   |   |
| Depreciation                  and amortization                                                                                                                      |   |                                                                      | 52,572     |   |   | 33,134 |   |
| Amortization                  of capitalized manufacturing costs                                                                                                    |   |                                                                      | 5,197      |   |   | - |   |
| Amortization                  of deferred financing costs                                                                                                           |   |                                                                      | -          |   |   | 10,105 |   |
| Debt                  discount related to issuance of debt securities                                                                                               |   |                                                                      | -          |   |   | 236,618 |   |
| Warrants                  and options issued in connection with the issuance of debt securities,                  and                  to employees and consultants |   |                                                                      | 562,335    |   |   | 544,195 |   |
| Changes                  in assets and liabilities:                                                                                                                 |   |                                                                      |       |   |   |   |   |
| Accounts                  receivable, net                                                                                                                           |   |                                                                      | (21,785    | ) |   | (76,592 | ) |
| Inventory                                                                                                                                                           |   |                                                                      | (136,116   | ) |   | 59,945 |   |
| Prepaid                  expenses and other current assets                                                                                                          |   |                                                                      | (36,494    | ) |   | 45,417 |   |
| Deposits                                                                                                                                                            |   |                                                                      | 84,057     |   |   | (86,425 | ) |
| Accounts                  payable and accrued expenses                                                                                                              |   |                                                                      | (5,709     | ) |   | (35,580 | ) |
| Customer                  Deposits                                                                                                                                  |   |                                                                      | (1,605     | ) |   | - |   |
| Deferred                  Rent                                                                                                                                      |   |                                                                      | 468        |   |   | - |   |
| Net                  Cash Used for Operating Activities                                                                                                             |   |                                                                      | (2,424,895 | ) |   | (2,012,268 | ) |
|                                                                                                                                                                |   |                                                                      |       |   |   |   |   |
| CASH                  FLOWS FROM INVESTING ACTIVITIES:                                                                                                              |   |                                                                      |       |   |   |   |   |
| Costs                  related to patents                                                                                                                           |   |                                                                      | (24,655    | ) |   | (6,926 | ) |
| Purchase                  of property and equipment                                                                                                                 |   |                                                                      | (100,170   | ) |   | (61,465 | ) |
| Net                  Cash Used for Investing Activities                                                                                                             |   |                                                                      | (124,825   | ) |   | (68,391 | ) |
|                                                                                                                                                                |   |                                                                      |       |   |   |   |   |
| CASH                  FLOWS FROM FINANCING ACTIVITIES:                                                                                                              |   |                                                                      |       |   |   |   |   |
| Proceeds                  from issuance of equity securities, net                                                                                                   |   |                                                                      | 251,863    |   |   | 1,024,796 |   |
| Proceeds                  from exercise of warrants                                                                                                                 |   |                                                                      | -          |   |   | 167,200 |   |
| Payments                  on notes payable                                                                                                                          |   |                                                                      | -          |   |   | (11,111 | ) |
| Net                  Cash Provided by Financing Activities                                                                                                          |   |                                                                      | 251,863    |   |   | 1,180,885 |   |
|                                                                                                                                                                |   |                                                                      |       |   |   |   |   |
| Decrease                  in cash                                                                                                                                   |   |                                                                      | (2,297,857 | ) |   | (899,774 | ) |
|                                                                                                                                                                |   |                                                                      |       |   |   |   |   |
| Cash                  at beginning of period                                                                                                                        |   |                                                                      | 5,086,378  |   |   | 1,693,584 |   |
|                                                                                                                                                                |   |                                                                      |       |   |   |   |   |
| Cash                  at end of period                                                                                                                              |   | $                                                                         | 2,788,521  |   | $ | 793,810 |   |

**Accompanying      notes are an integral part of the financial statements**

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**NOTE      1 - BASIS OF PRESENTATION**

**NOTE      2 - GOING CONCERN**

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**NOTE      3 – SUBSEQUENT EVENTS**

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**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF      OPERATION**

**OVERVIEW**

**RESULTS      OF OPERATIONS: FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND      2007**

**REVENUES**

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**COST      OF SALES AND GROSS MARGIN**

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**OPERATING      EXPENSES**

**Research      and Development Expenses**

**Selling,      General and Administrative Expenses**

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**Financial      Condition, Liquidity, and Capital Resources: For the Nine Months Ended September      30, 2008**

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**Cash      Requirements and Need for Additional Funds**

**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK.**

**ITEM      4T. CONTROLS AND PROCEDURES**

**(a)      Evaluation of Disclosure Controls and Procedures.**

**(b)      Changes in Internal Controls.**

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**PART      II — OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

**ITEM      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS**

**ITEM      3. DEFAULTS UPON SENIOR SECURITIES**

**ITEM      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

| **Name**                            |   | **Votes For** |   | **Votes Withheld** |
|-------------------------------------|--------|--------------------|--------|-------------------------|
| Steven Strasser                |   | 38,075,661         |   | 103,309                 |
| John                (BJ) Lackland   |   | 38,110,661         |   | 68,309                  |
| Raymond                J. Skiptunis |   | 38,110,661         |   | 68,309                  |
| George                Boyadjieff    |   | 38,085,661         |   | 93,309                  |
| Douglas                M. Dunn      |   | 37,995,497         |   | 183,473                 |
| Richard                Morgan       |   | 37,908,061         |   | 270,909                 |
| Gary                Rado            |   | 38,110,661         |   | 68,309                  |

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**ITEM      5. OTHER INFORMATION**

**ITEM      6. EXHIBITS**

| Number |   | Description                of Document                                                                                                                                                                                                                                                                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                       |
| 31.1   |   | Certification                by the Chief Executive Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                                      |
| 31.2   |   | Certification                by the Chief Financial Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                                      |
| 32.1   |   | Certification                by the Chief Executive Officer pursuant to Section 1350 of Chapter                63 of                Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant                to                Section 906 of the Sarbanes-Oxley Act of 2002, filed                herewith. |
| 32.2   |   | Certification                by the Chief Financial Officer pursuant to Section 1350 of Chapter                63 of                Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant                to                Section 906 of the Sarbanes-Oxley Act of 2002, filed                herewith. |

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**SIGNATURES**

|                                              | POWER                EFFICIENCY CORPORATION |
|---------------------------------------------------|---------------------------------------------|
|                                              |                                        |
| Date:  November                13, 2008 | By:                                    | /s/                 Steven Strasser |
|                                              |                                        | Chief                Executive Officer |
|                                              |                                        |
| Date:  November                13, 2008 | By:                                    | /s/                 John Lackland |
|                                              |                                        | Chief                Financial Officer (Principal Financial and                Accounting Officer) |

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