stwa_10q-09302008.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

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  No 

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o

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

The number of shares of the Registrant’s Common Stock outstanding as of November 10, 2008 was 58,948,138 shares.

SAVE THE WORLD AIR, INC.

FORM 10-Q

INDEX


		Page
PART I

ITEM 1. Financial Statements
Condensed consolidated balance sheets		1
Condensed consolidated statements of operations (unaudited)		2
Condensed consolidated statement of changes in stockholders’ deficiency (unaudited)		3
Condensed consolidated statements of cash flows (unaudited)		18
Notes to condensed consolidated financial statements (unaudited)		20
ITEM 2. Management’s Discussion and Analysis or Plan of Operations		35
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk		46
ITEM 4. Controls and Procedures		46

PART II

ITEM 1. Legal Proceedings		47
ITEM 1A. Risk Factors		48
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		49
ITEM 3. Defaults Upon Senior Securities		49
ITEM 4. Submission of Matters to a Vote of Security Holders		49
ITEM 5. Other Information		50
ITEM 6. Exhibits		50

SIGNATURES		51

EXHIBIT INDEX		52

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

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

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

Current assets
Cash	$	78,125		$	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		34,844			20,552

Total current assets		143,225			99,848

Equipment, net		145,691			201,058

Other assets		11,250			4,500

Total assets	$	300,166		$	305,406

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current liabilities

Accounts payable-related parties	$	256,880		$	323,413
Accounts payable-Temple University		537,750			161,250
Accounts payable-other		589,171			555,736
Accrued expenses		184,618			172,719
Accrued salaries-officers and former officer		618,333			570,000
Accrued research and development fees		13,347			53,347
Accrued professional fees		340,978			274,499
Loan payable-related party		77,209			83,596
Loans and other payable due to Morale/Matthews		-			1,748,452
Convertible debentures, net-related parties		-			227,136
Convertible debentures, net-others		266,639			495,044

Total current liabilities		2,884,925			4,665,192

Commitments and contingencies

Stockholders’ deficiency

Common stock, $.001 par value: 200,000,000 shares authorized, 58,948,138 and 46,470,413 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		58,948			46,471
Common stock to be issued		-			4,000
Additional paid-in capital		38,501,646			32,280,083
Deficit accumulated during the development stage		(41,145,353	)		(36,690,340	)

Total stockholders’ deficiency		(2,584,759	)		(4,359,786	)

Total liabilities and stockholders’ deficiency	$	300,166		$	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 September 30,						Nine months ended September 30,						For the Period From February 18, 1998 (Date of Inception) through
	2008			2007			2008			2007			September 30, 2008

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

Operating expenses		(1,148,887	)		(873,971	)		(2,428,889	)		(3,177,533	)		(29,288,210	)

Research and development expenses		(109,822	)		(98,427	)		(432,184	)		(539,610	)		(5,238,414	)

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

Loss before other income (expense)		(1,258,709	)		(972,398	)		(2,861,073	)		(3,700,503	)		(36,091,810	)

Other income (expense)
Other income		(30	)		2,271			533			2,448			4,042
Interest income		-			12			2			62			16,344
Interest expense		(220,400	)		(647,737	)		(1,636,862	)		(1,361,403	)		(6,129,242	)
Loss on sale of equipment		-			-			(9,683	)		-			(9,683	)
Settlement of litigation and debt		-			-			52,070			-			1,069,278

Loss before provision for income taxes		(1,479,139	)		(1,617,852	)		(4,455,013	)		(5,059,396	)		(41,141,071	)

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

Net loss	$	(1,479,139	)	$	(1,617,852	)	$	(4,455,013	)	$	(5,060,196	)	$	(41,145,353	)

Net loss per share, basic and diluted	$	(0.03	)	$	(0.04	)	$	(0.10	)	$	(0.13	)

Weighted average shares outstanding,
basic and diluted		47,312,880			40,988,308			45,374,117			38,265,250

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 SEPTEMBER 30, 2008 (Unaudited)

			Common Stock										Deficit Accumulated During the			Total
	Price per Share		Shares		Amount		Common Stock to be Issued		Additional Paid-in Capital		Deferred Compensation		Development Stage			Stockholders’ 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		0.00		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
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

(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 SEPTEMBER 30, 2008

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

(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 SEPTEMBER 30, 2008

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

(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 SEPTEMBER 30, 2008

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

(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 SEPTEMBER 30, 2008

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

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	)
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		-			12,293		-			-			12,375
Stock issued for finders fees on March 31, 2004		0.25		406,060		407		-			101,199		-			-			101,606
Stock issued for services on April 2, 2004		1.53		65,000		65		-			99,385		-			-			99,450
Debt converted to stock on April 2, 2004		1.53		60,000		60		-			91,740		-			-			91,800
Stock issued upon exercise of warrants on May 21, 2004		0.20		950,000		950		-			189,050		-			-			190,000
Stock issued for directors services on June 8, 2004		1.70		600,000		600		-			1,019,400		-			-			1,020,000
Stock issued for cash on August 25, 2004		1.00		550,000		550		-			549,450		-			-			550,000
Stock issued upon exercise of options on August 30, 2004		0.40		4,000		4		-			1,596		-			-			1,600
Stock issued for cash on September 8, 2004		1.00		25,000		25		-			24,975		-			-			25,000
Stock issued for consulting services on September 15, 2004		1.31		50,000		49		-			65,451		-			-			65,500
Stock issued for patent settlement on September 22, 2004		1.24		20,000		20		-			24,780		-			-			24,800
Stock issued for research and development on October 6, 2004		1.40		65,000		65		-			90,935		-			-