Form: 10KSB

Optional form for annual and transition reports of small business issuers [Section 13 or 15(d), not S-B Item 405]

April 17, 2001

10KSB: Optional form for annual and transition reports of small business issuers [Section 13 or 15(d), not S-B Item 405]

Published on April 17, 2001




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

FORM 10-KSB



(X) Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the annual period ended December 31, 2000

( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period _____ 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 (IRS Employer Identification No.)
incorporation or organization)


1285 Avenue of the Americas, 35th Floor, New York, NY 10019-6028 (212) 554-4197
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, including Registrant's
zip code and telephone number)

Mandalay Capital Corp.
- --------------------------------------------------------------
Former name, former address and former fiscal year, if changed


Indicate by check mark whether the registrant (1) has 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 [ ]

The number of shares of the registrant's common stock as of December 31, 2000:
15,645,935 shares.

Documents Incorporated by Reference
None

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

1


SAVE THE WORLD AIR INC.

FORM 10-KSB
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS

PART I
PAGE
----

Item 1. DESCRIPTION OF BUSINESS 3

Item 2. DESCRIPTION OF PROPERTIES 4

Item 3. LEGAL PROCEEDINGS 4

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS 5

Item 6. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 5

Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 6

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 15

PART III

Item 9. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT 15

Item 10. EXECUTIVE COMPENSATION 15

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 15

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 16

PART IV

Item 13. EXHIBITS AND REPORTS ON FORM 8-K 17

SIGNATURES 18


2

FORWARD-LOOKING STATEMENTS

ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 THE 1995 ACT SHAREHOLDERS AND
PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER
ANY FORWARD - LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY
ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED HEREIN. THESE FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES
RELATING TO THE PRODUCTS AND THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY.
ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG
OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE
BUSINESS DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE
DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT
ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE
COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING
STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE
INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS
CONTEMPLATED IN ANY OF THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN WILL BE
REALIZED. BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY
ALTER ITS MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN
TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT
UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE
INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY
THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL
BE ACHIEVED.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Save the World Air, Inc. (the "Company") was incorporated on February 18, 1998
under the name "Mandalay Capital Corp.". The Company changed its name to "Save
the World Air, Inc." on February 11, 1999 following the signing of the agreement
by and between the Company and Jeffrey Muller, the Company's officer and
director, with respect to the Company's purchase of "Zero Pollution Emission
Device" (the "Agreement"). Under the terms of the agreement, the Company issued
5,000,000 shares of its common stock to Mr. Muller and agreed to pay him a total
of $500,000 and $10 royalty for every unit of the device sold.

The Company's primary business involves a Zero Pollution-Fuel Saving Device for
motor vehicles or petrol driven engines.

In December, 1998 the Company acquired the worldwide exclusive manufacturing,
marketing and distribution rights for the Zero Pollution Fuel Saving Device (the
"Zero Pollution Device") by entering into the Agreement. The Zero Pollution
Device is an attachment that when fitted to an internal combustion engine
reduces the toxicity of exhaust gas emissions. The Zero Pollution Device is a
product which is fitted to an internal combustion engine and results in a
reduction of carbon monoxide, hydrocarbons and toxic exhaust emissions. The Zero
Pollution Device works on the inlet manifold before the harmful gases are
created and an improvement in fuel economy for the engine may also be achieved.

The Company's main focus has been on the implementation of a business plan with
the Zero Pollution Device as its flagship product.

While the Company is confident that the claims made with respect to the
performance of the Zero Pollution Device are valid, there can be no assurances
that this product will be successful in the marketplace.

The Company's executive offices are located in both the United States and
Australia. The Australian address is 19-21 Garden Grove, Carrara, Queensland,
Australia 4211 and its telephone number is 011-61-7-55945556. Additionally, the
Company's principal office in the United States is located at 1285 Avenue of the
Americas, 35th Floor, New York, NY 10019-6028, telephone number 212-554 4197.

The Company's goal is to sell licenses to manufacture and market its
environmentally safe product throughout the world. As such, importation and
exportation regulations may impact its activities, to some degree. A breach of
such laws or regulations may result in the imposition of penalties, fines,
suspension or revocation of licenses. The Company is not currently involved in
any judicial or administrative proceedings and believes that it is in compliance
with all applicable regulations.

Although it is impossible to predict, with certainty, the effect that additional
importation and exportation requirements may have on future earnings and
operations, the Company is presently unaware of any future regulations that may
have a material effect on the Company's financial position, but cannot rule out
the possibility.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company did not enter into any lease agreements with respect to the offices
used by the Company in Australia and the United States (New York). The Company
entered into oral arrangements with the occupants of such respective offices
pursuant to which agreements, the Company may use and share such offices at no
cost to the Company. The office in Australia is made available to the Company by
one of its shareholders.


ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party or to
which the property interests of the Company are subject, as defined in Item 103
of Regulation S-B.


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

None

4

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS

Save The World Air Inc., common stock trades on so called "pink sheets" under
the symbol "ZERO". The Company's common stock previously traded on the NASD Over
The Counter Bulletin Board (OTCBB)until July 20, 2000, when its trading was
suspended by the Securities and Exchange Commission pending its inquiry of the
accuracy of the Company's public announcement at that time. The Company fully
cooperated with the Commission and it believes that it provided all the
necessary information to the Commission to satisfy its inquiry. The Company has
not received notice of any proposed adverse action and is seeking to resolve any
issues that may arise without prolonged additional investigations. The Company
is currently in a process of reapplying to be quoted on the Bulletin Board.

There were 835 shareholders of record as of December 31,2000. The price of the
Company's common stock as of December 31, 2000 was $0.25 (ask) and $0.23 (bid).

The Company's monthly high and low closing bid and close information for the
fiscal year ended December 31, 2000, is listed below as provided by Commodity
Systems, Inc. historical quotes . Quotations reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not represent actual
transactions.

Date Open High Low Close
---- ---- ---- --- -----
Dec-00 0.25 0.625 0.0625 0.125
Nov-00 0.875 1.25 0.1875 0.625
Oct-00 1.5 2 0.625 0.75
Sep-00 2.625 2.625 1.125 1.5
Aug-00 0.25 3.5 0.25 2.25
Jul-00 6.0312 14 4.2812 4.875
Jun-00 3 6.5625 3 6
May-00 3.9375 4.625 2.8125 2.8906
Apr-00 4.3125 4.3125 2.25 3.875
Mar-00 4.25 4.375 1.375 3.6875

The Company has not paid any cash dividends since its inception and does not
contemplate paying any in the fore-seeable future. It is anticipated that
earnings, if any, will be retained for the operation of the Company's business.


ITEM 6. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the period from the Company's inception in February of 1998 to December
31,2000, the Company had revenue of $125,000 from sale of licenses and $9,980
from consulting. The Company has incurred substantial expenses in business
development and marketing of its product.

Over the next year, the Company intends to continue to focus on the business
development and marketing of its Zero Pollution Fuel Saving Device. In addition,
the Company will endeavor to seek opportunities to acquire and develop other
ecologically sound technologies that meet its requirements.

5

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company required to be included in
Item 7 are listed in this index, and follow this page:

Report of Independent Certified Public Accountant
Financial Statements

Balance Sheet
Statement of Operations
Statement of Cash Flows
Statement of Shareholders' Equity
Notes to Financial Statements

6





HBG Logo
HOIBERG BUSINESS GROUP
ACCOUNTANTS & ADVISERS
Tel. +61 07 5443 7600
Fax. +61 07 5443 2435
Email.admin@HBG.com.au
Web. www.HBG.com.au


INDEPENDENT AUDITORS REPORT

The Board of Directors
Save the World Air, Inc.
Suite 3660 120 Broadway
New York, NEW YORK 10271


We have audited the accompanying balance sheets of Save The World Air, Inc. as
at December 31, 2000 and 1999 and the related statements of operations, cash
flows and stockholder's equity for the years then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Save The World Air, Inc. as of
December 31, 2000 and 1999 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note Basis of
Presentation the Company is in the development stage. The Company's ability to
achieve the foregoing financing, which may be necessary to permit their
realization of assets and satisfaction of liabilities in the ordinary course of
business, is uncertain. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


/s/ Kevin Hoiberg
.................
AUDITOR

April , 2001

7



SAVE THE WORLD AIR INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 2000 AND DECEMBER 31, 1999

December 31, December 31,
2000 1999
---------- ----------
ASSETS

Current assets
Cash $ - $ 595
---------- ----------

Total current assets - 595

Intangible assets
Marketing and manufacturing rights to Zero
Pollution Fuel Saving Device 505,000 505,000
---------- ----------

Total assets $ 505,000 $ 505,595
========== ==========


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable $ 4,354 $ -
Payable to shareholder 857,555 500,000
---------- ----------

Total current liabilities 861,909 500,000


Stockholders' equity

Common stock (par value $0.001) 200,000,000 shares
authorized; December 31, 2000- 15,645,935 and
December 31, 1999-15,297,125 shares issued and
outstanding
Par value 15,645 15,297
Paid in capital 14,270 14,270


Deficit accumulated during development stage (386,824) (23,972)
---------- ----------

Total shareholders' equity (356,909) 5,595
---------- ----------

Total liabilities and shareholders' equity $ 505,000 $ 505,595
========== ==========

The accompanying notes are an integral part of these financial statements

8




SAVE THE WORLD AIR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AND FOR THE PERIOD FROM INCEPTION
FEBRUARY 18 TO DECEMBER 31, 2000


Year ended Year ended Total (deficit)
December 31, December 31, accumulated in
2000 1999 development stage
------------- ------------- -----------------

INCOME
Sale of licenses for distributorships $ - $ 125,000 $ 125,000
Consultancy fees 9,980 - 9,980
------------- ------------- -------------
Total income 9,980 125,000 134,980
------------- ------------- -------------

GENERAL AND ADMINISTRATIVE EXPENSES
Accommodation 69,818 - 69,818
Accounting and auditing 18,375 - 19,775
Bank charges 4,232 144 4,449
Car hire 7,119 - 7,119
Computer service 10,568 - 10,568
Consulting 126,539 3,867 131,406
Filing fees 1,581 - 4,690
Internet service 3,125 - 3,125
Legal fees 68 - 708
Mineral fees - 1,955 3,151
Miscellaneous 2,152 - 2,279
Printing and postage 458 1,053 2,896
Professional fees 2,265 62,500 64,765
Radio and PR fees 23,594 - 23,594
Rent 1,868 - 1,868
Secretarial fees 866 11,164 23,471
Telephone 12,589 - 12,636
Transfer agent fees 18,157 - 18,357
Travel costs 69,458 46,982 117,129
------------- ------------- -------------
Total expenses 372,832 127,665 521,804

Loss from operations before income taxes (362,852) (2,665) (386,824)
Income taxes - - -
------------- ------------- -------------
Net (loss) $ (362,852) $ (2,665) $ (386,824)
============= ============= =============

Net (loss) per share $ (0.023) $ (0.000)
============= =============
Weighted average number of shares outstanding
15,471,530 12,663,562
============= =============


The accompanying notes are an integral part of these financial statements

9



SAVE THE WORLD AIR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

For the year For the year
ended ended
December 31, December 31,
2000 1999
----------- -----------

CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) during development stage $(362,852) $ (2,665)
Adjustment to reconcile net income to net cash
Common shares issued for services 348 267
(Increase) decrease in operating assets
Prepaid expenses - 1,000
Increase (Decrease) in operation liabilities
Accounts payable 4,354 -
---------- ----------
Net cash from operating activities (358,150) (1,398)

CASH FLOW FROM INVESTING ACTIVITIES
Rights to Zero Pollution Fuel Saving Device - (500,000)
Mineral property - 1,955
---------- ----------
Net cash from investing activities - (498,045)

CASH FLOW FROM FINANCING ACTIVITIES
Loans from shareholders 357,555 500,000
---------- ----------

Net cash from all activities (595) 557

Cash balance at beginning of year 595 38
---------- ----------

Cash balance at end of year $ - $ 595
========== ==========

The accompanying notes are an integral part of these financial statements

10




SAVE THE WORLD AIR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

Common Stock
----------------------------------------------------- Deficit accumulated
Issued at Paid in during development
Number of shares par capital stage
----------------- ------------- -------------- -------------------

Balance at December 31, 1998 10,030,000 $ 10,030 $ 14,270 $ (21,307)

Common stock issued for acquisition of
rights to Zero Pollution Fuel Saving
Device 5,000,000 5,000

Common stock issued for services
rendered at par value $0.001 267,125 267

Net (loss) during development stage (2,665)
----------------- ------------- -------------- -------------------
Balance at December 31, 1999 15,297,125 15,297 14,270 (23,972)

Issuance of Common Stock for services
rendered at par value $0.001 348,810 348

Net (loss) during development stage (362,852)
----------------- ------------- -------------- -------------------
15,645,935 $ 15,645 $ 14,270 $ (386,824)
================= ============= ============== ===================

The accompanying notes are an integral part of these financial statements

11



SAVE THE WORLD AIR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND 1999


1.DESCRIPTION OF THE BUSINESS

Save The World Inc. (the "Company")was incorporated in Nevada February 18, 1998
under the name "Mandalay Capital Corporation Inc." and changed to its current
name in February 1999. On December 29, 1998 the company acquired the worldwide
exclusive manufacturing, marketing and distribution rights for the Zero
Pollution-Fuel Saving Device for motor vehicles or petrol driven engines.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally
accepted accounting principles and include the following policies.

(a) BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
company has been engaged in the development of its zero pollution fuel
saving device. The Company's ability to meet its obligations and
successfully develop its project and, ultimately, to attain profitable
operations is dependent upon further developing and marketing the
device known as Zero Pollution and obtaining additional financing from
either third parties or its present stockholders.

(b) ACCOUNTING METHODS
The Company recognizes income and expenses based on the accrual method
of accounting.

(c) DIVIDEND POLICY
The Company has not yet adopted any policy regarding the payment of
dividends.

(d) LOSS PER SHARE
Primary loss per share amount is computed based on the weighted average
number of shares actually outstanding during the period reported on.

(e) INCOME TAXES
The Company has an operating loss carry-forward incurred from inception
to December 31 in the amount of $386,824. No tax benefit from the
operating loss carried forward has been recorded because the future tax
benefit is uncertain.

The net operating loss carryover will expire beginning in the year 2015
through 2017.

12



(f) FOREIGN CURRENCY TRANSLATION
The transactions of the Company completed in foreign currencies have
been translated to US dollars. Assets and liabilities are translated at
the year-end exchange rates and the income and expenses at the average
rates of exchange prevailing during the period reported on. Any gains
or loss resulting from the translations would be shown in the Statement
of Operations.

(g) START UP EXPENSES
The Company has expensed all start up expenses in accordance with AICPA
Statements of Position 98-5.


3. RELATED PARTY TRANSACTIONS

All of the marketing and manufacturing rights for the Zero Pollution Fuel Saving
Device were acquired from Mr. Jeffrey Muller for 5,000,000 shares, $500,000 and
a $10 royalty for each unit sold, per an agreement signed December 31, 1998 and
executed in 1999.

The majority stockholder is active in running the business of the Company. No
compensation is paid and the Company has reflected no expense in the Statement
of Operations.

However, on March 20, 2000 the Company entered into an agreement offering Mr.
Jeff Muller and Mrs. Lyn Muller the rights to purchase five million shares each
at $0.001 per share (par value) as consideration for work done for the Company.
No purchases have been made.

Loans from $357,555 and payment for marketing and manufacturing rights (as
explained in paragraph one of this note) are due to the majority shareholder.
Such amounts are interest free and do not have any due dates of payment.


4. LEASES

The Company has no leases of any property. The Company presently uses the
offices of its attorney at 1285 Avenue of the Americas, 35th Floor, New York,
N.Y. 10019-6029 and the offices of one of its shareholders in Australia at no
cost.


5. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. In June 2000 they
issued SAFS No. 138 expanding the scope of SFAS No. 133 and to become effective
after June 15, 2000. The Company has no derivative instruments and is not
engaged in hedging activities. The Company will adopt the statements as
required.

13





In December 1999 the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin No. 101--Revenue Recognition. The bulletin expresses the
SEC's views in applying generally accepted accounting principles to selected
revenue recognition issues. The implementation date is December 15, 1999. The
adoption of this pronouncement did not have any effect on the Company's
statements.

14



ITEM 8. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants on accounting
and financial disclosure.


ITEM 9. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names and ages of and the positions and offices held by
each of the Directors and Executive Officers of the Company.

Positions and Offices
Name Age Held With The Company
---- --- ---------------------

Jeffrey A. Muller 48 Director; President

Jeffrey A. Muller, the Company's founder, has been a President and Director of
the Company since February, 1999. In addition to Mr. Muller's involvement with
the Company, Mr. Muller also serves as Chairman of several companies in the
Muller Group in Australia. Mr. Muller has been the co-owner and managing
director of several private real estate investment companies, since 1984.

The Company has no employees (only expert consultants).


ITEM 10. EXECUTIVE COMPENSATION


Jeffrey A. Muller, the President and Director of the Company does not receive
any compensation for his services and none has been reflected in the Statement
of Operations. Mr. Muller and his wife have been granted certain options to
purchase the Company's common stock - See Item 7 Certain Relationships and
Related Transactions.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables contain information, as of December 31, 2000, of all
holders who, to the knowledge of the Company, were the beneficial owners of five
percent (5%) or more of the outstanding shares of the Common Stock of the
Company and of all Directors and Officers.

- ------------------------------ ----------------- ----------- ---------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT NOTES
- ------------------------------ ----------------- ----------- ---------
JEFFREY A. MULLER 4,157,256 26.7% (1)
PRESIDENT AND DIRECTOR
- ------------------------------ ----------------- ----------- ---------
TOTAL OWNERSHIP OF 5%
SHAREHOLDERS, OFFICERS AND
DIRECTORS (2) 4,157,256 26.7% (1)
- ------------------------------ ----------------- ----------- ---------

Notes:

(1) Mr. Muller's address is 19-21 Garden Grove, Carrara, Queensland, Australia
4211. Mr. Muller is a director and officer of the Company. The number of shares
disclosed in the Beneficial Ownership Table does not include the option to
purchase 5,000,000 shares of common stock at $0.10 exercise price per share
which was granted to Mr. Muller, nor the option to purchase 5,000,0000 shares of
common stock at $0.10 exercise price per share which was granted to Lynn Muller,
Mr. Muller's wife and subsequently transferred to Mr. Muller, who now holds an
option to purchase a total of 10 million shares of common stock. Also, does not
include 79,472 shares of common stock of Lynn Muller, Jeff Muller's wife, as to
which he disclaims his beneficial ownership.

15





ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

All of the marketing and manufacturing rights for the Zero Pollution Fuel Saving
Device were acquired from Jeffrey Muller, the Company's officer and sole
director for 5,000,000 shares, $500,000 and a $10 royalty for each unit sold,
pursuant to the agreement entered into in December, 1998, by and between the
Company and Mr. Muller. Loans in the amount of $357,555 and payment for
marketing and manufacturing rights are due to Jeffrey Muller, the majority
shareholder officer and director of the Company. Such amounts are interest free
and do not have any due dates of payment.

In January, 2000 the Company entered into an agreement offering Jeffrey Muller
and Lynne Muller, Mr. Muller's wife, the rights to purchase five million shares
each at $0.10 per share (current market price as of the date of grant) as
consideration for work done for the Company. Ms. Muller subsequently transferred
her option to Mr. Muller. See "Beneficial Ownership Table".

The forgoing transaction between the Company and the members of management was,
and any future transactions will be, on terms no less favorable to the Company
than which could be obtained from unaffiliated third parties. In addition, any
future transactions entered into between the Company and members of management
or principal shareholders regarding such transactions are to be approved by the
Board of Directors.

16





PART IV


ITEM 13. EXHIBITS AND REPORTS ON 8-K

A. Financial Statements

Balance sheet of the Company as of December 31, 2000, and related
statements of operations, stockholders' equity, and cash flows for the
fiscal years ended December 31, 1999 and 2000.

B. Reports on Form 8-K

None.

C. Other exhibits


3.1 Articles of Incorporation*

3.2 Certificate of Amendment of Articles of Incorporation*

3.3 Bylaws of the Registrant*

10.1 Agreement for the acquisition of the Zero Pollution Emission
Device*

23. Consent of Kevin Hoiberg, CPA
- ------------
Previously filed with the Securities and Exchange Commission on Form 10-SB, as
amended.


DOCUMENTS INCORPORATED BY REFERENCE

The Company is currently subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington D. C. 20549; at its New York
Regional Office, Suite 1300, 7 World Trade Center, New York, New York, 10048;
and its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of such materials can be obtained from the Public
Reference Section of the Commission at its principal office in Washington, D.C.,
at prescribed rates. In addition, such materials may be accessed electronically
at the Commission's site on the World Wide Web, located at
http://www.sec.gov.com. The Company intends to furnish its stockholders with
annual reports containing audited financial statements and such other periodic
reports as the company may determine to be appropriate or as may be required by
law.

17






SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


SAVE THE WORLD AIR, INC.
(REGISTRANT)

Signature Title Date


/s/ Jeffrey A. Muller Chairman and President , 2000
- ---------------------------
(Jeffrey A. Muller)

18