save_10q-063008.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2008


o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-29185

SAVE THE WORLD AIR, INC.

(Exact name of registrant as specified in its charter)


Nevada		52-2088326
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

235 Tennant Avenue

Morgan Hill, California 95037

(Address, including zip code, of principal executive offices

(408) 778-0101

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.001 par value.

Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

The number of shares of the Registrant’s Common Stock outstanding as of August 8, 2008 was 55,751,669 shares.

SAVE THE WORLD AIR, INC.

FORM 10-Q

INDEX


	Page
PART I

ITEM 1. Financial Statements
Condensed consolidated balance sheets		3
Condensed consolidated statements of operations (unaudited)		5
Condensed consolidated statement of changes in stockholders’ deficiency (unaudited)		6
Condensed consolidated statements of cash flows (unaudited)		34
Notes to condensed consolidated financial statements (unaudited)		36
ITEM 2. Management’s Discussion and Analysis or Plan of Operations		48
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk		60
ITEM 4. Controls and Procedures		60

PART II

ITEM 1. Legal Proceedings		62
ITEM 1A. Risk Factors		62
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		64
ITEM 3. Defaults Upon Senior Securities		64
ITEM 4. Submission of Matters to a Vote of Security Holders		64
ITEM 5. Other Information		64
ITEM 6. Exhibits		64

SIGNATURES		65

EXHIBIT INDEX

EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

PART I

Item 1. Financial Statements

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007

	June 30, 2008 (unaudited)			December 31, 2007
ASSETS

Current assets
Cash	$	78,187		$	47,660
Accounts receivable, net of allowance for doubtful accounts of $1,380 and $0, respectively		-			1,380
Inventory		30,256			30,256
Other current assets		36,422			20,552

Total current assets		144,865			99,848

Equipment, net		154,796			201,058

Other assets		11,250			4,500

Total assets	$	310,911		$	305,406

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current liabilities

Accounts payable-related parties	$	289,718		$	323,413
Accounts payable-other		966,186			244,224
Accrued expenses		724,151			742,719
Accrued research and development fees		33,347			53,347
Accrued professional fees		265,431			747,261
Loan payable-related party		86,038			83,596
Loans and other payable due to Morale/Matthews		—			1,748,452
Convertible debentures, net-related parties		185,134			227,136
Convertible debentures, net-others		274,570			495,044

Total current liabilities		2,824,575			4,665,192

Commitments and contingencies

Stockholders’ deficiency

Common stock, $.001 par value: 200,000,000 shares authorized, 57,751,669 and 46,470,413 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively		57,753			46,471
Common stock to be issued		—			4,000
Additional paid-in capital		37,094,797			32,280,083
Deficit accumulated during the development stage		(39,666,214	)		(36,690,340	)

Total stockholders’ deficiency		(2,513,664	)		(4,359,786	)

Total liabilities and stockholders’ deficiency	$	310,911		$	305,406

See notes to condensed consolidated financial statements.

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended June 30,						Six months ended June 30,						For the Period From February 18, 1998 (Date of Inception) through
	2008			2007			2008			2007			June 30, 2008

Net sales	$	-		$	-		$	-		$	22,000		$	69,000
Cost of goods sold		-			-			-			5,360			24,120
Gross profit		-			-			-			16,640			44,880

Operating expenses		(519,860	)		(1,023,787	)		(1,280,002	)		(2,303,562	)		(28,139,323	)

Research and development expenses		(62,692	)		(100,731	)		(322,362	)		(441,183	)		(5,128,592	)

Non-cash patent settlement costs		-			-			-			-			(1,610,066	)

Loss before other income (expense)		(582,552	)		(1,124,518	)		(1,602,364	)		(2,728,105	)		(34,833,101	)

Other income (expense)
Other income		11			90			563			177			4,072
Interest income		-			33			2			50			16,344
Interest expense		(161,556	)		(403,788	)		(1,416,462	)		(713,666	)		(5,908,842	)
Loss on sale of equipment		-			-			(9,683	)		-			(9,683	)
Settlement of litigation and debt		52,070			-			52,070			-			1,069,278

Loss before provision for income taxes		(692,027	)		(1,528,183	)		(2,975,874	)		(3,441,544	)		(39,661,932	)

Provision for income taxes		-			-			0			(800	)		(4,282	)

Net loss	$	(692,027	)	$	(1,528,183	)	$	(2,975,874	)	$	(3,442,344	)	$	(39,666,214	)

Net loss per share, basic and diluted	$	(0.02	)	$	(0.04	)	$	(0.06	)	$	(0.09	)

Weighted average shares outstanding,
basic and diluted		44,938,165			39,746,015			46,979,175			37,297,407

See notes to condensed consolidated financial statements.

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

													Deficit Accumulated
	Price per			Common Stock			Common Stock		Additional Paid-in		Deferred		During the Development			Total Stockholders’
	Share		Shares		Amount		to be Issued		Capital		Compensation		Stage			Deficiency

Balance, February 18, 1998 (date of inception)				—	$	—	$	—	$	—	$	—	$	—		$	—
Issuance of common stock on April 18, 1998		.0015 — .01		10,030,000		10,030		—		14,270		—		—			24,300
Net loss				—		—		—		—		—		(21,307	)		(21,307	)
Balance, December 31, 1998				10,030,000	$	10,030	$	—		14,270	$	—	$	(21,307	)	$	2,993
Issuance of common stock on May 18, 1999		1.00 — 6.40		198,003		198		—		516,738		—		—			516,936
Issuance of common stock for ZEFS on September 14, 1999		.001		5,000,000		5,000		—		—		—		—			5,000
Stock issued for professional services on May 18, 1999		0.88		69,122		69		—		49,444		—		—			49,513
Net loss				—		—		—		—		—		(1,075,264	)		(1,075,264	)
Balance, December 31, 1999				15,297,125	$	15,297	$	—	$	580,452	$	—	$	(1,096,571	)	$	(500,822	)
Stock issued for employee compensation on February 8, 2000		1.03		20,000		20		—		20,580		—		—			20,600
Stock issued for consulting services on February 8, 2000		1.03		100,000		100		—		102,900		—		—			103,000
Stock issued for professional services on April 18, 2000		3.38		27,000		27		—		91,233		—		—			91,260
Stock issued for directors fees on April 18, 2000		3.38		50,000		50		—		168,950		—		—			169,000
Stock issued for professional services on May 19, 2000		4.06		5,000		5		—		20,295		—		—			20,300
Stock issued for directors fees on June 20, 2000		4.44		6,000		6		—		26,634		—		—			26,640
Stock issued for professional services on June 20, 2000		4.44		1,633		2		—		7,249		—		—			7,251

(continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

	Price per		Common Stock				Common Stock		Additional Paid-in		Deferred		Deficit Accumulated During the Development		Total Stockholders’
	Share		Shares		Amount		to be Issued		Capital		Compensation		Stage		Deficiency

Stock issued for professional services on June 26, 2000		5.31		1,257		1		—		6,674		—		—		6,675
Stock issued for employee compensation on June 26, 2000		5.31		22,000		22		—		116,798		—		—		116,820
Stock issued for consulting services on June 26, 2000		5.31		9,833		10		—		52,203		—		—		52,213
Stock issued for promotional services on July 28, 2000		4.88		9,675		9		—		47,205		—		—		47,214
Stock issued for consulting services on July 28, 2000		4.88		9,833		10		—		47,975		—		—		47,985
Stock issued for consulting services on August 4, 2000		2.13		35,033		35		—		74,585		—		—		74,620
Stock issued for promotional services on August 16, 2000		2.25		25,000		25		—		56,225		—		—		56,250
Stock issued for consulting services on September 5, 2000		2.25		12,833		13		—		28,861		—		—		28,874

Stock issued for consulting services on September 10, 2000	1.50	9,833	10	—	14,740	—	—	14,750
Stock issued for consulting services on November 2, 2000	0.88	9,833	10	—	8,643	—	—	8,653
Stock issued for consulting services on November 4, 2000	0.88	9,833	10	—	8,643	—	—	8,653

(Continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

																Deficit Accumulated
	Price per		Common Stock						Common Stock		Additional Paid-in			Deferred		During the Development			Total Stockholders’
	Share		Shares			Amount			to be Issued		Capital			Compensation		Stage			Deficiency

Stock issued for consulting services on December 20, 2000		0.50		19,082			19			—		9,522			—		—			9,541
Stock issued for filing services on December 20, 2000		0.50		5,172			5			—		2,581			—		—			2,586
Stock issued for professional services on December 26, 2000		0.38		12,960			13			—		4,912			—		—			4,925
Other stock issuance on August 24, 2000		2.13		2,000			2			—		4,258			—		—			4,260
Common shares cancelled				(55,000	)		(55	)		—		(64,245	)		—		—			(64,300	)
Net loss				—			—			—		—			—		(1,270,762	)		(1,270,762	)
Balance, December 31, 2000				15,645,935		$	15,646		$	—	$	1,437,873		$	—	$	(2,367,333	)	$	(913,814	)
Stock issued for consulting services on January 8, 2001		0.31		9,833			10			—		3,038			—		—			3,048
Stock issued for consulting services on February 1, 2001		0.33		9,833			10			—		3,235			—		—			3,245
Stock issued for consulting services on March 1, 2001		0.28		9,833			10			—		2,743			—		—			2,753

(Continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

													Deficit Accumulated
	Price per		Common Stock				Common Stock		Additional Paid-in		Deferred		During the Development		Total Stockholders’
	Share		Shares		Amount		to be Issued		Capital		Compensation		Stage		Deficiency

Stock issued for legal services on March 13, 2001		0.32		150,000		150		—		47,850		—		—		48,000
Stock issued for consulting services on April 3, 2001		0.25		9,833		10		—		2,448		—		—		2,458
Stock issued for legal services on April 4, 2001		0.25		30,918		31		—		7,699		—		—		7,730
Stock issued for professional services on April 4, 2001		0.25		7,040		7		—		1,753		—		—		1,760
Stock issued for consulting services on April 5, 2001		0.25		132,600		132		—		33,018		—		—		33,150
Stock issued for filing fees on April 30, 2001		1.65		1,233		1		—		2,033		—		—		2,034
Stock issued for filing fees on September 19, 2001		0.85		2,678		2		—		2,274		—		—		2,276
Stock issued for professional services on September 28, 2001		0.62		150,000		150		—		92,850		—		—		93,000
Stock issued for directors services on October 5, 2001		0.60		100,000		100		—		59,900		—		—		60,000
Stock issued for legal services on October 17, 2001		0.60		11,111		11		—		6,655		—		—		6,666

(Continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

														Deficit Accumulated
	Price per		Common Stock				Common Stock		Additional Paid-in		Deferred			During the Development		Total Stockholders’
	Share		Shares		Amount		to be Issued		Capital		Compensation			Stage		Deficiency

Stock issued for consulting services on October 18, 2001		0.95		400,000		400		—		379,600		—			—		380,000
Stock issued for consulting services on October 19, 2001		1.25		150,000		150		—		187,350		—			—		187,500
Stock issued for exhibit fees on October 22, 2001		1.35		5,000		6		—		6,745		—			—		6,751
Stock issued for directors		0.95		1,000,000		1,000		—		949,000		—			—		950,000
Stock issued for consulting services on November 7, 2001		0.85		20,000		20		—		16,980		—			—		17,000
Stock issued for consulting services on November 20, 2001		0.98		43,000		43		—		42,097		—			—		42,140
Stock issued for consulting services on November 27, 2001		0.98		10,000		10		—		9,790		—			—		9,800
Stock issued for consulting services on November 28, 2001		0.98		187,000		187		—		183,073		—			—		183,260
Intrinsic value of options issued to employees				—		—		—		2,600,000		(2,600,000	)		—		—
Fair value of options issued to non-employees for services				—		—		—		142,318		—			—		142,318

(Continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

															Deficit Accumulated
	Price per		Common Stock				Common Stock			Additional Paid-in		Deferred			During the Development			Total Stockholders’
	Share		Shares		Amount		to be Issued			Capital		Compensation			Stage			Deficiency

Amortization of deferred compensation				—		—		—			—		191,667			—			191,667
Net loss				—		—		—			—		—			(2,735,013	)		(2,735,013	)
Balance, December 31, 2001				18,085,847	$	18,086	$	—		$	6,220,322	$	(2,408,333	)	$	(5,102,346	)	$	(1,272,271	)
Stock issued for directors services on December 10, 2002		0.40		2,150,000		2,150		—			857,850		—			—			860,000
Common stock paid for, but not issued (2,305,000 shares)		0.15-0.25		—		—		389,875			—		—			—			389,875
Fair value of options issued to non-employees for services				—		—		—			54,909		(54,909	)		—			—
Amortization of deferred compensation				—		—		—			—		891,182			—			891,182
Net loss for the year ended December 31, 2002				—		—		—			—		—			(2,749,199	)		(2,749,199	)
Balance, December 31, 2002				20,235,847	$	20,236	$	389,875		$	7,133,081	$	(1,572,060	)	$	(7,851,545	)	$	(1,880,413	)
Common stock issued, previously paid for		0.15		1,425,000		1,425		(213,750	)		212,325		—			—			—
Common stock issued, previously paid for		0.25		880,000		880		(220,000	)		219,120		—			—			—
Stock issued for cash on March 20, 2003		0.25		670,000		670		—			166,830		—			—			167,500
Stock issued for cash on April 4, 2003		0.25		900,000		900		—			224,062		—			—			224,962
Stock issued for cash on April 8, 2003		0.25		100,000		100		—			24,900		—			—			25,000
Stock issued for cash on May 8, 2003		0.25		1,150,000		1,150		—			286,330		—			—			287,480
Stock issued for cash on June 16, 2003		0.25		475,000		475		—			118,275		—			—			118,750

(Continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

															Deficit Accumulated
	Price per		Common Stock				Common Stock		Additional Paid-in			Deferred			During the Development			Total Stockholders’
	Share		Shares		Amount		to be Issued		Capital			Compensation			Stage			Deficiency

Stock issued for cash on June 16, 2003		0.25		475,000		475		—		118,275			—			—			118,750
Stock issued for legal services on June 27, 2003		0.55		83,414		83		—		45,794			—			—			45,877
Debt converted to stock on June 27, 2003		0.25		2,000,000		2,000		—		498,000			—			—			500,000
Stock and warrants issued for cash on July 11, 2003		0.25		519,000		519		—		129,231			—			—			129,750
Stock and warrants issued for cash on September 29, 2003		0.25		1,775,000		1,775		—		441,976			—			—			443,751
Stock and warrants issued for cash on October 21, 2003		0.25		1,845,000		1,845		—		459,405			—			—			461,250
Stock and warrants issued for cash on October 28, 2003		0.25		1,570,000		1,570		—		390,930			—			—			392,500
Stock and warrants issued for cash on November 19, 2003		0.25		500,000		500		—		124,500			—			—			125,000
Finders' fee related to stock issuances				—		—		43,875		(312,582	)		—			—			(268,707	)
Common stock paid for, but not issued (25,000 shares)		0.25		—		—		6,250		—			—			—			6,250
Amortization of deferred comp				—		—		—		—			863,727			—			863,727
Net loss for year ended December 31, 2003				—		—		—		—			—			(2,476,063	)		(2,476,063	)
Balance, December 31, 2003				34,128,261	$	34,128	$	6,250	$	10,162,177		$	(708,333	)	$	(10,327,608	)	$	(833,386	)

(Continued)

SAVE THE WORLD AIR, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Continued)

FROM INCEPTION (FEBRUARY 18, 1998) TO JUNE 30, 2008

														Deficit Accumulated
	Price per		Common Stock				Common Stock			Additional Paid-in		Deferred		During the Development		Total Stockholders’
	Share		Shares		Amount		to be Issued			Capital		Compensation		Stage		Deficiency

Common stock issued, previously paid for		0.25		25,000		25		(6,250	)		6,225		—		—		—
Stock issued for director services on March 31, 2004		1.50		50,000		50		—			74,950		—		—		75,000
Stock issued for finders fees on March 31, 2004		0.15		82,500		82		—