UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-QSB
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004.
or
| 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.
Nevada
52-2088326
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5125 Lankershim Boulevard
North Hollywood, California 91601
(Address, including zip code, of principal executive offices)
(818) 487-8000
(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
The number of shares of the Registrant’s Common Stock outstanding as of March 31, 2004 was 34,691,821 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (Check one): Yes o No x
SAVE THE WORLD AIR, INC.
FORM 10-QSB
INDEX
| Page | ||||||
|
|
PART I | |||||
| Financial Statements | 2 | |||||
| Management's Discussion and Analysis | 22 | |||||
| Controls and Procedures | 26 | |||||
|
|
PART II | |||||
| Legal Proceedings | 27 | |||||
| Changes in Securities | 28 | |||||
| Exhibits and Reports on Form 8-K | 29 | |||||
| 30 | ||||||
| 31 | ||||||
|
EXHIBIT 31.1
|
||||||
|
EXHIBIT 31.2
|
||||||
|
EXHIBIT 32.1
|
||||||
1
PART I
Item 1.
Financial Statements
SAVE THE WORLD AIR, INC.
THREE MONTHS ENDED MARCH 31, 2004
CONTENTS
2
SAVE THE WORLD AIR, INC.
BALANCE SHEETS
See notes to financial statements.
3
SAVE THE WORLD AIR, INC.
BALANCE SHEETS - Continued
See notes to financial statements.
4
SAVE THE WORLD AIR, INC.
STATEMENTS OF OPERATIONS (unaudited)
See notes to financial statements.
5
SAVE THE WORLD AIR, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
[Continued from above table, first column(s) repeated]
See notes to financial statements.
6
SAVE THE WORLD AIR, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY - Continued
[Continued from above table, first column(s) repeated]
See notes to financial statements.
7
SAVE THE WORLD AIR, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY - Continued
[Continued from above table, first column(s) repeated]
See notes to financial statements.
8
SAVE THE WORLD AIR, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY - Continued
[Continued from above table, first column(s) repeated]
See notes to financial statements.
9
SAVE THE WORLD AIR, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
See notes to financial statements.
10
SAVE THE WORLD AIR, INC.
STATEMENTS OF CASH FLOWS -
Continued (unaudited)
See notes to financial statements.
11
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS
12
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
13
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
14
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
15
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
16
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
17
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
18
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
19
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
20
SAVE THE WORLD AIR, INC.
NOTES TO FINANCIAL STATEMENTS - Continued
21
Item 2. Management’s Discussion and Analysis
This Quarterly Report on Form 10-QSB contains forward-looking statements.
These forward-looking statements include predictions regarding our future:
You can identify these and other forward-looking statements by the use of
words such as “may,” “will,” “expects,” “anticipates,” “believes,”
“estimates,”, “continues,” or the negative of such terms, or other comparable
terminology. Forward-looking statements also include the assumptions underlying
or relating to any of the foregoing statements.
Such statements, which include statements concerning future revenue
sources and concentrations, selling, general and administrative expenses,
research and development expenses, capital resources, additional financings and
additional losses, are subject to risks and uncertainties, including, but not
limited to, those discussed elsewhere in this Form 10-QSB, that could actual
results to differ materially from those projected.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth below under the heading “Risk Factors” in our Annual Report on Form
10-KSB for the year ended December 31, 2003. All forward-looking statements
included in this document are based on information available to us on the date
hereof. We assume no obligation to update any forward-looking statements.
The forward-looking statements set forth in this Form 10-QSB are as of
March 31, 2004, and we undertake no duty to update this information.
22
Overview
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Financial
Statements and notes thereto included in Part I, Item 1 of this Form 10-QSB and
the Financial Statements and notes thereto contained in our Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2003.
The company is a development stage company that has not yet commenced
operations and does not generate revenue. The company’s current focus is on
research and development of proprietary devices that can be installed on motor
vehicles and which are designed to reduce harmful emissions, improve fuel
efficiency and improve performance. Our prototype device is called “ZEFS”. We
have devoted the bulk of our efforts to complete the design and development of
our production models and raise the financing required to do so and fund our
expenses.
We anticipate that these research and development efforts will continue
for at least the remainder of 2004. We do not envision generating any
significant revenue in 2004, although limited marketing activities later in
2004 could produce nominal revenue. We will need to raise additional capital to
fund continuing research and development activities and meet our operating
expenses, including marketing activities, for the remainder of 2004.
Results of Operation
To date, we have not generated any revenues and our business is in the
development stage.
Our operating costs and expenses consist primarily of research and
development expenses and general and administrative expenses. We expect our
operating costs to increase once we begin to manufacture and market the ZEFS
device, which we do not expect to occur earlier than the fourth quarter of
2004. Our research and development expenses include contractual payments to
RAND Corporation, consultants’ fees, capital expenditures, cost of services and
supplies We expect our research and development costs to increase as we
continue to develop the ZEFS device and develop new applications of our
technology.
Our general and administrative expenses include compensation expenses
related to executive and other administrative personnel, facility lease, the
costs of our insurance and legal and accounting support. We expect our general
and administrative expenses to increase as we expand our infrastructure in
support of our anticipated increased operations, which we do not expect to
occur earlier than the fourth quarter of 2004.
We had a net loss of $751,570 for the three months ended March 31, 2004,
compared to a net loss of $ 606,001 for the three months ended March 31, 2003.
The increase in loss is primarily attributable to an increase in research and
development expenses as a result of the agreement we entered into with RAND
Corporation in December 2002. We expect an increase in net loss
23
through 2004 attributable to increased research and development, and general and
administrative expenses, as well as the commencement of marketing activities.
Liquidity and Capital Resources
We have incurred negative cash flow from operations in the developmental
stage since our inception in 1998. As of March 31, 2004 we had cash of $462,533
and an accumulated deficit of $11,104,178. Our 2004 negative operating cash
flows were funded primarily through the net proceeds of a private financing
that we commenced in November 2002 and completed in October 2003. We anticipate
additional operating losses, which may increase, through at least the remainder
of 2004 as we expand our research and development program, provide for general
and administrative expenses and commence marketing activities, without the
benefit of revenue.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As reflected in the accompanying financial statements, the
Company has a net loss of $776,570, a negative cash flow from operations
of $437,224, a working capital deficiency of $187,664 and a stockholders’ deficiency of $1,166,050. These factors
raise substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent
on the Company’s ability to raise additional funds and implement its
business plan. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
We believe that we have sufficient cash to fund our operations through
approximately July 2004. We will need to raise additional capital or incur new
debt to fund our operations as described above and management is actively pursuing financing possibilities.
However, there can be no assurance that additional equity or debt financing
will be available or, if it is available, that is will be available on terms
that are favorable to the Company. If we are unable to obtain additional
capital, we may be required to delay, reduce the scope of, or eliminate our
research and development programs, or relinquish rights to technologies that we
might otherwise seek to develop or commercialize.
Capitalization
In the action by the Securities and Exchange Commission (the “SEC”)
against Jeffrey Muller, the founder and former sole director of the Company,
and others, we seek, among other relief, the cancellation of all shares of our
common stock controlled, directly or indirectly, by Mr. Muller and his
affiliates, options to purchase an additional 10,000,000 shares of our common
stock, and Mr. Muller’s original royalty agreement. See “Part II, Item 1, Legal
Proceeding”. The cancellation of these shares and options would have a
significant positive effect on our capitalization.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of
operations is based upon our Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these Financial Statements and related
disclosures requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, expenses, and related disclosure of
contingent assets and liabilities. We evaluate, on an on-going basis, our
estimates and judgments, including those related to the useful life of the
assets. We base our estimates on historical experience and assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates.
24
The methods, estimates and judgments we use in applying our most critical
accounting policies have a significant impact on the results that we report in
our Financial Statements. The SEC considers an entity’s most critical
accounting policies to be those policies that are both most important to the
portrayal of a company’s financial condition and results of operations and
those that require management’s most difficult, subjective or complex
judgments, often as a result of the need to make estimates about matters that
are inherently uncertain at the time of estimation. We believe the following
critical accounting policies, among others, require significant judgments and
estimates used in the preparation of our Financial Statements:
Stock-Based Compensation
We account for stock-based compensation to employees as defined by using
the intrinsic-value method prescribed in Accounting Principles Board Opinion
(APB) No. 25, “Accounting for Stock Issued to Employees.”
We account for stock option and warrant grants issued to non-employees
using the guidance of SFAS No. 123, “Accounting for Stock-Based Compensation”
and EITF No. 96-18: “Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services,” whereby the fair value of such option and warrant grants is
determined using the Black-Scholes option pricing model at the earlier of the
date at which the non-employee’s performance is completed or a performance
commitment is reached.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Certain significant estimates were made in connection with
preparing our financial statements as described in Note 1 of our Financial Statements. See Item 1, Part
I, Financial Statements. Actual results could differ from those estimates.
New Accounting Pronouncements
25
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.”
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities., which are subject to
the provisions of this statement for the first fiscal period beginning after
December 15, 2004. The Company believes that the adoption of SFAS No. 150 will
not have an impact on its financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation
of Variable Interest Entities” (“FIN 46”), which clarifies the application of
Accounting Research Bulletin No. 51, “Consolidated Financial Statements”,
relating to consolidation of certain entities. In December 2003, the FASB issued
a revised version of FIN 46 (“FIN 46R”) that replaced the original FIN 46. FIN
46R requires identification of a company’s participation in variable interest
entities (“VIEs”), which are defined as entities with a level of invested equity
that is not sufficient to fund future activities to permit it to operate on a
standalone basis. For entities identified as a VIE, FIN 46R sets forth a model
to evaluate potential consolidation based on an assessment of which party to the
VIE, if any, bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46R also sets forth certain
disclosures regarding interests in VIEs that are deemed significant even if
consolidation is not required. The Company is not currently participating in, or
invested in, any VIEs, as defined in FIN 46R. The implementation of the
provisions of FIN 46R in 2003 did not have a significant effect on the Company’s
consolidated financial statement presentation or disclosures.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures: Our management
evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Quarterly Report on Form 10-QSB.
Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. It should be noted that
the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
(b) Changes in internal control over financial reporting: There was no
change in our internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-QSB that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
26
(A DEVELOPMENT STAGE ENTERPRISE)
Page
3-4
5
6-9
10-11
12-21
EX-10.5
EX-10.6
EX-10.7
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
MARCH 31, 2004 AND DECEMBER 31, 2003
March 31, 2004
December 31,
(unaudited)
2003
$
462,533
$
926,052
462,533
926,052
38,822
35,244
$
501,355
$
961,296
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
MARCH 31, 2004 AND DECEMBER 31, 2003
March 31, 2004
December 31,
(unaudited)
2003
$
6,991
$
5,991
36,478
57,903
606,728
713,580
650,197
777,474
1,017,208
1,017,208
34,692
34,128
—
6,250
10,714,046
10,162,177
(810,610
)
(708,333
)
(11,104,178
)
(10,327,608
)
(1,166,050
)
(833,386
)
$
501,355
$
961,296
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 28, 1998)
TO MARCH 31, 2004
The three months ended
Cumulative
March 31,
March 31,
since
2004
2003
inception
$
$
—
$
—
775,970
604,981
11,073,071
(775,970
)
(604,981
)
(11,073,071
)
400
—
840
(775,570
)
(604,981
)
(11,072,231
)
1,000
1,020
6,947
$
(776,570
)
$
(606,001
)
$
(11,079,178
)
$
(0.02
)
$
(0.03
)
34,556,765
22,565,847
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
FROM INCEPTION (FEBRUARY 28, 1998) TO MARCH 31, 2004
Common Stock
Additional
Price per
Common stock
paid-in
share
Shares
Amount
to be issued
capital
—
$
—
$
—
$
—
.0015 — .01
10,030,000
10,030
—
14,270
—
—
—
—
10,030,000
10,030
14,270
1.00 — 6.40
198,003
198
—
516,738
.001
5,000,000
5,000
—
—
0.88
69,122
69
—
49,444
—
—
—
—
15,297,125
15,297
—
580,452
1.03
20,000
20
—
20,580
1.03
100,000
100
—
102,900
3.38
27,000
27
—
91,233
3.38
50,000
50
—
168,950
4.06
5,000
5
—
20,295
4.44
6,000
6
—
26,634
4.44
1,633
2
—
7,249
5.31
1,257
1
—
6,674
5.31
22,000
22
—
116,798
5.31
9,833
10
—
52,203
4.88
9,675
9
—
47,205
4.88
9,833
10
—
47,975
2.13
35,033
35
—
74,585
2.25
25,000
25
—
56,225
2.25
12,833
13
—
28,861
1.50
9,833
10
—
14,740
0.88
9,833
10
—
8,643
0.88
9,833
10
—
8,643
0.50
19,082
19
—
9,522
Deficit accumulated
Total stockholders’
Deferred
during the
development
compensation
development stage
stage deficiency
$
—
$
—
$
—
—
—
24,300
—
(21,307
)
(21,307
)
—
(21,307
)
2,993
—
—
516,936
—
—
5,000
—
—
49,513
—
(1,075,264
)
(1,075,264
)
—
(1,096,571
)
(500,822
)
—
—
20,600
—
—
103,000
—
—
91,260
—
—
169,000
—
—
20,300
—
—
26,640
—
—
7,251
—
—
6,675
—
—
116,820
—
—
52,213
—
—
47,214
—
—
47,985
—
—
74,620
—
—
56,250
—
—
28,874
—
—
14,750
—
—
8,653
—
—
8,653
—
—
9,541
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
FROM INCEPTION (FEBRUARY 28, 1998) TO MARCH 31, 2004
Common Stock
Additional
Price per
Common stock
paid-in
share
Shares
Amount
to be issued
capital
0.50
5,172
5
—
2,581
0.38
12,960
13
—
4,912
2.13
2,000
2
—
4,258
(55,000
)
(55
)
—
(64,245
)
—
—
—
—
15,645,935
15,646
—
1,437,873
0.31
9,833
10
—
3,038
0.33
9,833
10
—
3,235
0.28
9,833
10
—
2,743
0.32
150,000
150
—
47,850
0.25
9,833
10
—
2,448
0.25
30,918
31
—
7,699
0.25
7,040
7
—
1,753
0.25
132,600
132
—
33,018
1.65
1,233
1
—
2,033
0.85
2,678
2
—
2,274
0.62
150,000
150
—
92,850
0.60
100,000
100
—
59,900
0.60
11,111
11
—
6,655
0.95
400,000
400
—
379,600
1.25
150,000
150
—
187,350
1.35
5,000
6
—
6,745
0.95
1,000,000
1,000
—
949,000
0.85
20,000
20
—
16,980
0.98
43,000
43
—
42,097
0.98
10,000
10
—
9,790
0.98
187,000
187
—
183,073
—
—
—
2,600,000
Deficit accumulated
Total stockholders’
Deferred
during the
development
compensation
development stage
stage deficiency
—
—
2,586
—
—
4,925
—
—
4,260
—
—
(64,300
)
—
(1,270,762
)
(1,270,762
)
—
(2,367,333
)
(913,814
)
—
—
3,048
—
—
3,245
—
—
2,753
—
—
48,000
—
—
2,458
—
—
7,730
—
—
1,760
—
—
33,150
—
—
2,034
—
—
2,276
—
—
93,000
—
—
60,000
—
—
6,666
—
—
380,000
—
—
187,500
—
—
6,751
—
—
950,000
—
—
17,000
—
—
42,140
—
—
9,800
—
—
183,260
(2,600,000
)
—
—
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
FROM INCEPTION (FEBRUARY 28, 1998) TO MARCH 31, 2004
Common Stock
Additional
Price per
Common stock
paid-in
share
Shares
Amount
to be issued
capital
—
—
—
142,318
—
—
—
—
—
—
—
—
18,085,847
18,086
—
6,220,322
0.40
2,150,000
2,150
—
857,850
0.15-0.25
—
—
389,875
—
—
—
—
54,909
—
—
—
—
—
—
—
—
20,235,847
20,236
389,875
7,133,081
0.15
1,425,000
1,425
(213,750
)
212,325
0.25
880,000
880
(220,000
)
219,120
0.25
670,000
670
—
166,830
0.25
900,000
900
—
224,062
0.25
100,000
100
—
24,900
0.25
1,150,000
1,150
—
286,330
0.25
475,000
475
—
118,275
0.55
83,414
83
—
45,794
0.25
2,000,000
2,000
—
498,000
0.25
519,000
519
—
129,231
0.25
1,775,000
1,775
—
441,976
0.25
1,845,000
1,845
—
459,405
0.25
1,570,000
1,570
—
390,930
0.25
500,000
500
—
124,500
—
—
43,875
(312,582
)
0.25
—
—
6,250
—
—
—
—
—
—
—
—
—
34,128,261
34,128
6,250
10,162,177
Deficit accumulated
Total stockholders’
Deferred
during the
development
compensation
development stage
stage deficiency
—
—
142,318
191,667
—
191,667
—
(2,735,013
)
(2,735,013
)
(2,408,333
)
(5,102,346
)
(1,272,271
)
—
—
860,000
—
—
389,875
(54,909
)
—
—
891,182
—
891,182
—
(2,749,199
)
(2,749,199
)
(1,572,060
)
(7,851,545
)
(1,880,413
)
—
—
—
—
—
—
—
—
167,500
—
—
224,962
—
—
25,000
—
—
287,480
—
—
118,750
—
—
45,877
—
—
500,000
—
—
129,750
—
—
443,751
—
—
461,250
—
—
392,500
—
—
125,000
—
—
(268,707
)
—
—
6,250
863,727
—
863,727
—
(2,476,063
)
(2,476,063
)
(708,333
)
(10,327,608
)
(833,386
)
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
FROM INCEPTION (FEBRUARY 28, 1998) TO MARCH 31, 2004
Common Stock
Additional
Price per
Common stock
paid-in
share
Shares
Amount
to be issued
capital
0.25
25,000
25
(6,250
)
6,225
0.25
50,000
50
—
12,450
0.15
82,500
82
—
12,293
0.25
406,060
407
—
101,199
—
—
—
359,582
—
—
—
60,120
—
—
—
—
—
—
—
—
34,691,821
$
34,692
$
—
$
10,714,046
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998)
TO MARCH 31, 2004
Cumulative
March 31,
March 31,
since
2004
2003
inception
$
(776,570
)
$
(606,001
)
$
(11,104,178
)
—
—
505,000
—
—
642,318
12,500
—
3,322,354
317,425
226,226
2,264,001
1,292
1,223
7,024
1,000
1,064
6,991
7,129
12,276
720,709
(437,224
)
(365,212
)
(3,635,781
)
(4,870
)
—
(42,296
)
(4,870
)
—
(42,296
)
(21,425
)
59,618
32,928
—
—
517,208
—
211,375
3,590,474
—
349,942
—
(21,425
)
620,935
4,140,610
(463,019
)
255,723
462,533
926,052
107,489
—
$
462,533
$
363,212
$
462,533
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998)
TO MARCH 31, 2004
Cumulative
March 31,
March 31,
since
2004
2003
inception
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
505,000
419,702
—
3,074,611
—
—
3,550
—
—
500,000
113,981
—
113,981
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
1.
Organization and basis of presentation
Basis of presentation
The accompanying interim condensed financial statements are unaudited,
but in the opinion of management of Save the World Air, Inc. (the
Company), contain all adjustments, which include normal recurring
adjustments, necessary to present fairly the financial position at March
31, 2004, the results of operations for the three months ended March 31,
2004 and 2003, and cash flows for the three months ended March 31, 2004
and 2003. The balance sheet as of December 31, 2003 is derived from the
Company’s audited financial statements.
Certain information and footnote disclosures normally included in
financial statements that have been prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, although management of the Company believes that the
disclosures contained in these financial statements are adequate to make
the information presented therein not misleading. For further
information, refer to the financial statements and the notes thereto
included in the Company’s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2003, as filed with the Securities and Exchange
Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expense
during the reporting period. Actual results could differ from those
estimates.
The results of operations for the three months ended March 31, 2004 are
not necessarily indicative of the results of operations to be expected
for the full fiscal year ending December 31, 2004.
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
1.
Organization and basis of presentation
- Continued
Description of business
Save the World Air, Inc. (the “Company”) was incorporated in Nevada 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 an agreement by and between the Company and
Jeffrey Alan Muller, the Company’s founding executive officer and
director, with respect to the Company’s purchase of the Zero Emission
Fuel-Saving 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 for the marketing and
distribution rights of the device, and a $10 royalty for every unit of
the device sold. The Company acquired the worldwide exclusive
manufacturing, marketing and distribution rights for the Zero Emission
Fuel-Saving Device (“ZEFS”) by entering into the Agreement. The ZEFS is
a product, which is fitted to an internal combustion engine and is
expected to reduce carbon monoxide hydrocarbons and toxic exhaust
emissions. The ZEFS is currently undergoing testing to determine the
achievable levels of reduced emissions and commercial viability.
Significant matters
On December 19, 2001, the Securities and Exchange Commission (“SEC”)
filed civil charges in federal district court in New York, New York,
against the Company, Mr. Muller, and others associated with the
promotion of Company stock sales, alleging that they engaged in a
fraudulent scheme to manipulate the market for the Company’s stock.
The SEC’s complaint alleges that from at least February 1999 through at
least April 2001, the Company and Mr. Muller carried out a fraudulent
promotional campaign using press releases, Internet postings, an
elaborate Internet website, and televised media events to disseminate
false and materially misleading information about the Company’s product
and commercial prospects. The complaint also alleges that the Company’s
and Mr. Muller’s actions led to the artificial inflation of the price
and trading volume of the Company stock, causing its market
capitalization to be as much as $218,728,062. The promotional
information distributed by the Company and Mr. Muller included: (1)
announcements of significant licensing agreements and other important
business developments, and (2) announcements concerning public
automotive demonstrations that purportedly proved or would prove that
the ZEFS materially reduces emissions and improves fuel economy in motor
vehicles. The complaint further alleges that the purported licensing
agreements and other purported
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
1.
Organization and basis of presentation
- Continued
Significant matters - Continued
business events simply did not exist, and the then current ZEFS
demonstrations did not prove that the ZEFS actually worked as
represented. At the same time that he publicly promoted the Company,
Mr. Muller privately sold millions of shares of the Company’s restricted
stock that, if sold at then-prevailing market prices, would have
provided him with over $9 million in personal profits. He concealed
these sales by failing to disclose in SEC filings, as required, any
changes in his beneficial ownership in the Company. The SEC complaint
also states that the Company and Mr. Muller made at least nine SEC
filings that contain false financial statements and disclosures.
In October 2001, Edward Masry became the Company’s new President and
Chief Executive Officer. Because of the nature and scope of the SEC’s
allegations regarding the Company’s financial statements and SEC
filings, Masry has assembled a new management team and newly constituted
board of directors for the Company, in addition to selecting new
independent auditors and corporate counsel.
The Company entered into discussions with the SEC concerning the SEC’s
complaint and negotiated a consent order in which it agreed, among other
terms, to observe all securities laws. Based upon this consent order
and related judgment, the proceedings against the Company were
terminated. The Company has since caused an investigation into the
facts and circumstances surrounding the allegations in the SEC’s
complaint. Based upon review of the history leading to the filing of
the complaint, the Company’s board of directors authorized the filing of
cross-claims against Mr. Muller and others (including ten offshore
companies) seeking disgorgement of stock obtained from the Company, to
invalidate the transfer of several million shares to Mr. Muller and
family members for inadequate or no consideration, rescission of stock
options transferred to Mr. Muller and/or his family members, for the
transfer of rights to patent claims from Mr. Muller to the Company and
rescission of royalty rights held by Mr. Muller and/or his family
members. Upon filing of the cross complaint, in July 2002, the Company
obtained a temporary restraining order against Mr. Muller which, among
other things, prohibits Mr. Muller from serving as an officer or
director of the Company and enjoins Mr. Muller and others from selling,
conveying, transferring or encumbering any shares which Mr. Muller
controls or in which he has an interest. The Company believes the
temporary restraining order may affect as many as seventeen million
shares or more of the Company’s stock, in the form of issued shares and
option rights.
In the course of the legal proceedings, the Company has obtained
complete control over all ownership claims to the ZEFS patent rights and
all royalty interests previously held and claimed by Mr. Muller and
certain others.
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
1.
Organization and basis of presentation
- Continued
Significant matters - Continued
The Company has continued to prosecute its claims and has substantially
completed all pretrial procedures in preparation for the disposition of
the case through dispositive pretrial motions and/or eventual trial on
the merits of the claims. Based upon the substantial discovery
completed and other evidence obtained to date, the Company believes
there is very little risk of an adverse decision on the merits of its
cross complaint.
Based on the status of current legal proceedings, the Company believes
it will not have to pay $1,017,208 of advances due to Mr. Muller. The
Company also believes that the option Mr. Muller holds to purchase
10,000,000 shares of the Company’s stock will be cancelled.
Development stage enterprise
The Company is a development stage enterprise as defined by Statement of
Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting
by Development Stage Enterprises.” All losses accumulated since the
inception of the Company have been considered as part of the Company’s
development stage activities.
A team has been assembled for the research and development of the
technology and potential markets for the ZEFS and to establish
relationships with potential customers. Significant design work has been
completed, and patent applications have been filed in 64 countries.
There is no assurance that any of the filed patents will be granted.
The Company is continuing in its product development efforts and several
studies are underway to evaluate the effectiveness of the ZEFS in
eliminating pollutants and emissions from internal combustion engines.
The Company has had no sales to date. As such, the Company continues to
remain a development stage enterprise. The ability of the Company to
commercialize its products will depend on, among other things, the
Company’s ability to demonstrate the merits of the ZEFS and develop
markets and distribution channels.
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
2.
Net loss per share
Basic earnings (loss) per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution, using the treasury stock method, that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. In computing diluted
earnings per share, the treasury stock method assumes that outstanding
options and warrants are exercised and the proceeds are used to purchase
common stock at the average market price during the period. Options and
warrants will have a dilutive effect under the treasury stock method
only when the average market price of the common stock during the period
exceeds the exercise price of the options and warrants. For the three
months ended March 31, 2004 and the year ended December 31, 2003, the
dilutive impact of outstanding stock options of 15,172,652 and
14,000,000, respectively, and 13,367,414 warrants in 2003 has been
excluded because their impact on the loss per share is antidilutive.
3.
New accounting pronouncements
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity.” SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). The provisions of SFAS
No. 150 are effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities,
which are subject to the provisions of this statement for the first
fiscal period beginning after December 15, 2004. The Company believes
that the adoption of SFAS No. 150 will not have an impact on its
financial position or results of operations.
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
3.
New accounting pronouncements
- Continued
In January 2003, the FASB issued Interpretation No. 46, “Consolidation
of Variable Interest Entities” (“FIN 46”), which clarifies the application of
Accounting Research Bulletin No. 51, “Consolidated Financial Statements”,
relating to consolidation of certain entities. In December 2003, the FASB issued
a revised version of FIN 46 (“FIN 46R”) that replaced the original FIN 46. FIN
46R requires identification of a company’s participation in variable interest
entities (“VIEs”), which are defined as entities with a level of invested equity
that is not sufficient to fund future activities to permit it to operate on a
standalone basis. For entities identified as a VIE, FIN 46R sets forth a model
to evaluate potential consolidation based on an assessment of which party to the
VIE, if any, bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46R also sets forth certain
disclosures regarding interests in VIEs that are deemed significant even if
consolidation is not required. The Company is not currently participating in, or
invested in, any VIEs, as defined in FIN 46R. The implementation of the
provisions of FIN 46R in 2003 did not have a significant effect on the Company’s
consolidated financial statement presentation or disclosures.
4.
Certain relationships and related transactions
Due to founding executive officer
All of the marketing and manufacturing rights for the ZEFS were acquired
from Mr. Muller, for 5,000,000 shares of common stock, $500,000 and a
$10 royalty for each unit sold (see discussion below), pursuant to the
Agreement entered into in December 1998, by and between the Company and
Mr. Muller. Working capital advances in the amount of $517,208 and
payment in the amount of $500,000 for marketing and distribution rights
of the ZEFS are due to Mr. Muller. Such amounts are interest free and
do not have any due dates for payment.
In January 2000, the Company entered into an agreement offering Mr.
Muller and Lynne Muller, Mr. Muller’s wife, the option to purchase
5,000,000 shares each at $0.10 per share as consideration for work
performed for the Company. Mrs. Muller subsequently transferred her
option to Mr. Muller.
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
4.
Certain relationships and related transactions
- Continued
Due to founding executive officer - Continued
In connection with the Company’s legal proceedings against Mr. Muller,
the Company is attempting to obtain a judgment that will relieve the
Company of $1,017,208, which represents all amounts due Mr. Muller.
These amounts include the $500,000 due for the marketing and
distribution rights of the ZEFS and the working capital advances of
$517,208. As described in the Significant Matters section of Note 1,
the Company has already been relieved of the $10 royalty interest that
Mr. Muller held for each unit sold. In addition, the Company is also
attempting to obtain a judgment that will cancel the options to purchase
10,000,000 shares granted to Mr. and Mrs. Muller, collectively. Based
on the status of current legal proceedings, the Company does not believe
that it will have to pay Mr. Muller the $500,000 for the rights to the
ZEFS device and the $517,208 of advances. The Company also believes
that the option Mr. Muller holds to purchase 10,000,000 shares of the
Company’s stock will be cancelled and no longer valid.
Due to related parties
Masry & Vititoe, a law firm in which Edward Masry is a partner, has
advanced $36,478 and $57,903 as of March 31, 2004 and December 31, 2003
to the Company for working capital purposes. The advances payable to
Masry & Vititoe were allocations to the Company for shared expenses,
primarily payroll. These advances are unsecured, non-interest bearing,
and are due on demand.
5.
Stockholders’ deficiency
As of March 31, 2004, the Company has authorized 200,000,000 shares of
its common stock and 34,153,261 shares were issued and outstanding. As
described in Note 1, estimates and judgments were used by management to
determine the fair value for certain issuances of the outstanding shares.
The Company’s significant stockholders are as follows:
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
6.
Stock options
The Company issues stock options to employees, directors and consultants
under no formal plan. Employee options vest according to the terms of
the specific grant and expire from 5 to 10 years from date of grant.
Non-employee option grants to date are vested upon issuance or up to one
year. The weighted average remaining contractual life of employee
options outstanding at March 31, 2004 was 7.32 years. Stock option
activity for the years ended December 31, 2002 and 2003, was as follows:
Options outstanding at March 31, 2004 and the related weighted average
exercise price and remaining life information is as follows:
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
6.
Stock options
– Continued
The 10,000,000 options exercisable at $0.10 per share in the table above
are held by Mr. Muller. The options have been accounted for as employee
stock options under the provisions of APB No. 25. Accordingly, no
compensation expense has been recorded in the statements of operations.
However, the $1,000,000 fair value of the options has been reflected in
the pro forma net loss below. The 10,000,000 options do not have an
expiration date and vested in 1999. For purposes of computing fair value
method stock-based employee compensation expense for the 10,000,000
employee options above, a ten-year life was used in the Black-Scholes
option-pricing model, as ten years is the longest term for other option
grants.
Intrinsic value of employee options
Certain employee options were granted with exercise prices less the than
fair market value of the Company’s stock at the date of grant. As the
grants were to employees, the intrinsic value method, as allowed under
APB No. 25, was used to calculate the related compensation expense. For
the three months ended March 31, 2004, $302,395 of employee deferred
compensation was amortized and recognized as expense. The remaining
deferred compensation expense will be recognized over the remaining
vesting periods of the employee options through 2004.
The Company has elected to account for stock-based compensation using
the intrinsic value method prescribed in APB No. 25 and related
interpretations, and follow the pro forma disclosure requirements of
SFAS No. 123. Accordingly, no compensation expense has been recognized
related to the granting of stock options, except as noted above. The
following table illustrates the effect on net income as if the Company
had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation.
Table of Contents
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
7.
Going concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As reflected in the accompanying financial statements, the
Company has a net loss of $776,570, a negative cash flow from operations
of $437,224, a working capital deficiency of $187,664 and a stockholders’ deficiency of $1,166,050. These factors
raise substantial doubt about its ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent
on the Company’s ability to raise additional funds and implement its
business plan. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
Table of Contents
•
research and development expenses;
•
scientific test results;
•
general and administrative expenses;
•
liquidity and sufficiency of existing cash;
•
technology;
•
the outcome of pending or threatened litigation.
Table of Contents
Table of Contents
Table of Contents
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PART II
Item 1. Legal Proceedings
On December 19, 2001, the SEC filed civil charges in the United States
Federal District Court, Southern District of New York, against us, our former
President and then sole director Jeffrey Muller, and others, alleging that we
and the other defendants were engaged in a fraudulent scheme to promote our
stock. The SEC complaint alleged the existence of a promotional campaign using
press releases, Internet postings, an elaborate website, and televised media
events to disseminate false and materially misleading information as part of a
fraudulent scheme to manipulate the market for stock in our corporation, which
was then controlled by Mr. Muller. On March 22, 2002, we signed a Consent to
Final Judgment of Permanent Injunction and Other Relief in settlement of this
action as against the corporation only, which the court approved on July 2,
2002. Under this settlement, we were not required to pay any fines or
restitution. The SEC’s action continues against Mr. Muller and others.
On July 2, 2002, after an investigation by our newly constituted board of
directors, we filed a cross-complaint in the SEC action against Mr. Muller and
others seeking injunctive relief, disgorgement and financial restitution for a
variety of acts and omissions in connection with sales of our stock and other
transactions occurring between 1998 and 2002. Among other things, we allege
that Mr. Muller and certain others sold stock without consideration and without
registration under federal securities laws; engaged in self-dealing and entered
into various undisclosed related-party transactions; misappropriated for their
own use proceeds from sales of our stock; and entered into various undisclosed
arrangements regarding the control, voting and disposition of their stock. We
contend that we are entitled to a judgment canceling all of the approximately
8,716,710 shares of our common stock which we believe are controlled, directly
or indirectly, by Mr. Muller, divesting Mr. Muller of any right to exercise
options for 10,000,000 shares of our stock, the entry of an existing
preliminary injunction to prevent Mr. Muller from any involvement with the
company and a monetary judgment against Muller and others in the amount of
several million dollars. We are also seeking cancellation of the previous
royalty arrangement with Mr. Muller.
On July 30, 2002, the U.S. Federal District Court, Southern District of
New York, granted our application for a preliminary injunction against Mr.
Muller and others, which prevents Mr. Muller and other cross-defendants from
selling, transferring, or encumbering any of our assets and property, from
selling or transferring any of our stock that they may own or control, or from
taking any action to injure us or our business and shareholders. The order also
prevents Mr. Muller from exercising any control over our corporation and
serving as an officer or director of our company. While we believe that we have
valid claims, there can be no assurance that an adverse result or settlement
would not have a material adverse effect on our financial position or cash
flow.
27
In the course of the litigation, we have obtained control over Mr.
Muller’s patent rights to the ZEFS device. Under a Buy-Sell Agreement between
Jeffrey Muller and us dated December 29, 1998, Mr. Muller, who was listed on
the ZEFS devise patent application as the inventor of the ZEFS device, granted
us the marketing, manufacturing and distribution rights to the ZEFS device. In
conjunction with these proceedings, a settlement agreement was reached whereby
the $10 per unit royalty previously due to Mr. Muller was terminated and
replaced with a $.20 per unit royalty payable to the bankruptcy trustee. On
November 7, 2002, under our settlement with the Muller bankruptcy trustee, the
trustee transferred all ownership and legal rights to this international patent
application for the ZEFS device to us.
The SEC filed a motion for summary judgement on May 28, 2004.
Further proceedings for pretrial motions have been assigned to
U.S. Magistrate Frank Mass. Judge Mass postponed and rescheduled
the filing date for the Company to file its motion for summary
judgment until July 16, 2004. After a period of time during
which Mr. Muller will have an opportunity to reply and the
Company and the SEC will have an opportunity to respond, it is
expected that a hearing to resolve the issues raised in these motions
will be calendared during September 2004.
Although the outcome of this litigation cannot be predicted with any
degree of certainty, we are optimistic that the Court’s ruling will either
significantly narrow the issues for any later trial or will result in a
disposition of the case in a manner favorable to the company. While we believe
that we have valid claims, there can be no assurance that an adverse result or
settlement would not have a material adverse effect on our financial position
or cash flow.
Item 2. Changes in
Securities
On October 14, 2003, the Company sold 25,000 shares of common stock to one
individual. These shares were not issued until February 3, 2004.
In January 2004, the Company issued 50,000 shares of common stock to Jack
Bradham, for his services on the Company’s advisory board.
In February 2004, the Company issued an aggregate 488,560 shares of common
stock to various individuals who provided services to the Company in connection
with its private offering of common stock between November 2002 and October
2003.
The
issuance of the shares described above was made in reliance
on the exemptions from registration set forth in Section 4(2) of the Securities
Act of 1933 (the “Act”), as amended. We made no public solicitation in
connection with the issuance of the above-mentioned securities. We relied on
representation from the purchasers of the securities that they purchased the
securities for investment only and not with a view to any distribution thereof
and that they were aware of our business affairs and financial condition and
had sufficient information to reach an informed and knowledgeable decision
regarding their acquisition of the securities.
In March 2004, the Board of Directors
approved the issuance stock options for an aggregate 1,172,652 shares of the
Company’s common stock to 11 individuals, who are employees, directors or
consultants of the Company. These options were issued pursuant to the
Company’s 2004 Stock Option Plan approved by the Board of Directors on the same
date, subject to stockholder approval of the plan at the 2004 annual meeting of
stockholders. The stockholders approved the plan at the 2004 annual meeting,
which was held on May 24, 2004.
The Company intends to register the shares of common stock which may be
issued upon exercise of the options in a registration statement on Form S-8 to
be filed with the Securities and Exchange Commission.
28
Item 6. Exhibits and Reports on Form 8-K
The exhibits listed below are required by Item 601 of Regulation S-B.
29
Table of Contents
Table of Contents
Exhibit No.
Description
Commercial Sublease between the Registrant and KZ Golf, Inc.,
dated October 16, 2003.
General Tenancy Agreement between the Registrant and Autumlee Pty
Ltd., dated November 15, 2003.
Agreement between the Registrant and RAND, dated December 13, 2002.
Agreement between the Registrant and RAND, dated May 7, 2003.
Modification No. 1 dated as of
August 21, 2003 to Exhibit 10.4
Modification No. 2 dated as of
October 17, 2003 to Exhibit 10.4
Modification No. 3 dated as of
January 20, 2004 to Exhibit 10.4
Deed and Document Conveyance between the Trustee of the Property
of Jeffrey Ann Muller and Lynette Anne Muller (Bankrupts).
Assignment and Bill of Sale between Pro Hart and the Registrant
dated May 28, 2002.
Certification of Chief Executive Officer of Quarterly Report
Pursuant to Rule 13(a)—15(e) or Rule 15(d)—15(e).
Certification of Chief Financial Officer of Quarterly Report
Pursuant to 18 U.S.C. Section 1350.
Certification of Chief Executive Officer and Chief Financial
Officer of Quarterly Report pursuant to Rule 13(a)—15(e) or Rule
15(d)—15(e).
*
Confidential Treatment Requested.
(1)
Incorporated by reference from Registrant’s Form 10-KSB for fiscal year ended December 31, 2002.
(2)
Incorporated by reference from Registrant’s Form 8-K filed on December 30, 2002.
(3)
Incorporated by reference from Registrant’s Form 8-K filed on November 12, 2002
Table of Contents
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
30
SAVE THE WORLD AIR, INC.
Date: July 14, 2004
By:
/s/ Edward L. Masry
Edward L. Masry
Chief Executive Officer
Table of Contents
EXHIBIT INDEX
Exhibit No.
Description
Commercial Sublease between the Registrant and KZ Golf, Inc.,
dated October 16, 2003.
General Tenancy Agreement between the Registrant and Autumlee Pty
Ltd., dated November 15, 2003.
Agreement between the Registrant and RAND, dated December 13, 2002.
Agreement between the Registrant and RAND, dated May 7, 2003.
Modification No. 1 dated as of
August 21, 2003 to Exhibit 10.4
Modification No. 2 dated as of
October 17, 2003 to Exhibit 10.4
Modification No. 3 dated as of
January 20, 2004 to Exhibit 10.4
Deed and Document Conveyance between the Trustee of the Property
of Jeffrey Ann Muller and Lynette Anne Muller (Bankrupts).
Assignment and Bill of Sale between Pro Hart and the Registrant
dated May 28, 2002.
Certification of Chief Executive Officer of Quarterly Report
Pursuant to Rule 13(a)—15(e) or Rule 15(d)—15(e).
Certification of Chief Financial Officer of Quarterly Report
Pursuant to 18 U.S.C. Section 1350.
Certification of Chief Executive Officer and Chief Financial
Officer of Quarterly Report pursuant to Rule 13(a)—15(e) or Rule
15(d)—15(e).
| * | Confidential Treatment Requested. | |
| (1) | Incorporated by reference from Registrant’s Form 10-KSB for fiscal year ended December 31, 2002. | |
| (2) | Incorporated by reference from Registrant’s Form 8-K filed on December 30, 2002. | |
| (3) | Incorporated by reference from Registrant’s Form 8-K filed on November 12, 2002. |
31
EXHIBIT 10.5
AGREEMENT NO. STWA-TEST-CONTRACT, MODIFICATION NO. 1
BETWEEN
RAND CORPORATION
AND
SAVE THE WORLD AIR, INC.
FOR
DEVICE FOR SAVING FUEL AND REDUCING EMISSIONS
This Contract Modification is entered into as of the 21st day of August 2003.
The following Articles are revised as shown below:
9. SUBCONTRACTS To perform the work called for under this Agreement, RAND reserves the right, in its sole discretion, to subcontract such work to third parties selected by RAND based on quality and price. Funding for subcontracted work is not included in the price of this contract as stated in section 11. RAND will provide summary information to Save the World Air, Inc regarding any potential subcontractor. The contract will then be amended to add the necessary funding and payment terms. RAND will not enter into any subcontract relationship prior to receiving payment(s) from Save the World Air, Inc. sufficient to cover the subcontract obligation.
Awarded Subcontracts:
Task 4: Additional Engine Testing (Testing Phase 111) - $75,000 to ATDS
11. PAYMENT SCHEDULE:
Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If
the timeline specified below changes due to, among other things, availability
of information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline The parties anticipate that the Funding as
stated will cover all of RAND'S expenses and fees incurred in the performance of
the work, provided, however, that if RAND notifies Save the World Air, Inc.
that its expenses and fees may be in excess of the stated Funding, RAND shall
not be obligated to incur any expenses or fees in excess of the Funding, and
the parties shall endeavor in good faith to renegotiate the amount of available
Funding. Any
modifications to costs and fees outlined below shall require A written instrument, signed by both parties to this Agreement. All references to "Tasks" or "Task" below refer to, and are qualified in their entirety by, the descriptions on Attachment A hereto. Total cost for RAND'S work on the contract, inclusive of subcontract costs, is $300,000 to be allocated as follows:
1. $25,000 upon signing of agreement by both parties
2. Beginning May 1, 2003, $25,000 per month for eight (8) months upon presentation of monthly invoices.
3. 30 days past execution of Modification 1, pay $75,000.
ACCEPTED FOR:
RAND Corporation Save the World Air, Inc.
Name Signed: /s/ Joanne B. Shelby Name Signed: /s/ Eugene E. Eichler
-------------------- ---------------------
Name Typed: Joanne B. Shelby Name Typed:
---------------- ---------------------
Title: Director, Contracts & Grants Title:
---------------------------- ----------------------
Date: 8/21/03 Date: 9/18/03
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EXHIBIT 10.6
AGREEMENT NO. STWA-TEST-CONTRACT, MODIFICATION NO. 2
BETWEEN
RAND CORPORATION
AND
SAVE THE WORLD AIR, INC.
FOR
DEVICE FOR SAVING FUEL AND REDUCING EMISSIONS
This Contract Modification is entered into as of the 17th day of October 2003.
The following Articles are revised as shown below:
9. SUBCONTRACTS To perform the work called for under this Agreement, RAND reserves the right, in its sole discretion, to subcontract such work to third parties selected by RAND based on quality and price. Funding for subcontracted work is not included in the price of this contract as stated in section 11. RAND will provide summary information to Save the World Air, Inc regarding any potential subcontractor. The contract will then be amended to add the necessary funding and payment terms. RAND will not enter into any subcontract relationship prior to receiving payment(s) from Save the World Air, Inc. sufficient to cover the subcontract obligation.
Awarded Subcontracts:
Task 4: Additional Engine Testing (Testing Phase 111) - $75,000 to ATDS
Task 2: Pre-Combustion Fuel Testing (Testing Phase I) - $65,000 to Temple
University
11. PAYMENT SCHEDULE:
Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If
the timeline specified below changes due to, among other things, availability
of information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline. The parties anticipate that the Funding
as stated will cover all of RAND'S expenses and fees incurred in the
performance of the work; provided, however, that if RAND notifies Save the
World Air, Inc. that its expenses and fees may be in excess of the stated
Funding, RAND shall not be obligated to incur any expenses or fees in excess of
the Funding, and the
parties shall endeavor in good faith to renegotiate the amount of available Funding. Any modifications to costs and fees outlined below shall require a written instrument, signed by both parties to this Agreement. All references to "Tasks" or "Task" below refer to, and are qualified in their entirety by, the descriptions on Attachment A hereto. Total cost for RAND'S work on the contract, inclusive of subcontract costs, is $365,000 to be allocated as follows:
1. $25,000 upon signing of agreement by both parties
2. Beginning May 1,2003, $25,000 per month for eight (8) months upon presentation of monthly invoices.
3. 30 days past execution of Modification 1, pay $75,000. (received payment Oct. 7, 2003)
4. 30 days past execution of Modification 2, pay $65,000. (received payment Oct. 7, 2003)
ACCEPTED FOR:
RAND Corporation Save the World AIR, Inc.
Name Signed: /s/ Joanne B. Shelby Name Signed: /s/ Eugene E. Eichler
-------------------- ---------------------
Name Typed: Joanne B. Shelby Name Typed: Eugene E. Eichler
---------------- -----------------
Title: Director, Contracts & Grants Title: Chief Operating Officer
---------------------------- -----------------------
Date: 10/13/03 Date: 10-17-2003
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EXHIBIT 10.7
AGREEMENT NO. STWA-TEST-CONTRACT, MODIFICATION NO. 3
BETWEEN
RAND CORPORATION
AND
SAVE THE WORLD AIR, INC.
FOR
DEVICE FOR SAVING FUEL AND REDUCING EMISSIONS
This Contract Modification is entered into as of the 20th day of January 2004.
The following Articles are revised as shown below:
1. WORK SCOPE RAND will use its best efforts in performance of the attached scope of work Revision 1 Exhibit A).
2. TERM The term of this Agreement will run from May 07,2003 to July 7,2004
11. PAYMENT SCHEDULE:
Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If the
timeline specified below changes due to, among other things, availability of
information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline. The parties anticipate that the Funding as
stated will cover all of RAND'S expenses and fees incurred in the performance of
the work; provided, however, that if RAND notifies Save the World Air, Inc. that
its expenses and fees may be in excess of the stated Funding, RAND shall not be
obligated to incur any expenses or fees in excess of the Funding, and the
parties shall endeavor in good faith to renegotiate the amount o f available
Funding. Any modifications to costs and fees outlined below shall require a
written instrument, signed by both parties to this Agreement. All references to
"Tasks" or "Task" below refer to, and are qualified in their entirety by, the
descriptions on Attachment A hereto. Total cost for RAND'S work on the contract,
inclusive of subcontract costs, is $665,000 to be allocated as follows:
1. $25,000 upon signing of agreement by both parties
Exhibit A Addendum to STWA Contract SOW
Task 6 Run a series of tests on 2 different vehicles at ATDS
RAND proposes as a next step that STWA supply another carbureted vehicle and RAND will oversee testing with new protocols at ATDS. In addition, STWA might consider also supplying a fuel-injected to be tested as well. In addition, RAND will systematically evaluate the individual smog tests that were done, to map them graphically and see if there are any patterns that can help.
Additional RAND Costs: $50,000 to be paid $25,000 on Feb 1 and $25,000 on March 1.
Additional Lab Costs: Some of the costs will be covered under existing funds, and RAND will supply an accounting of the costs and inform STWA of additional funds that may be needed for ATDS
Task 7 Oversee testing of a small engine at the University of California Riverside. RAND will execute A contract with the University of California Riverside to test the new small engine device. RAND will oversee and evaluate the testing in the same manner that RAND is working with ATDS.
Additional RAND Costs: $25,000 to be paid March 1
Lab Costs: To be determined. RAND will send a letter to STWA with the testing amount which STWA will pay before RAND executes a contract.
Task 8 Oversee R&D efforts by Australian team.
RAND will work with and help guide the efforts of the Australian team by helping to design tests and interpret results. RAND would be responsible for helping focus the R&D efforts, set reporting guidelines, and oversee the efforts of the group in Australia. The R&D team needs to focus on getting the existing device into marketable form, and hone their testing abilities. RAND will evaluate the materials provided to us, and work with them on a testing regime that we can compare to others, and develop consistent framework and guidelines for further development.
Additional RAND costs including travel up to $200,000. STWA will pay $25,000 on February 1. On the 25th each month RAND will estimate the time and material cost needs of the following month and STWA will be billed for that amount. Any funds left over from the month will be rolled into the next months requirements. If RAND exceeded the months costs, additional costs will be billed the following month.
AGREEMENT No. STWA-TEST-CONTRACT, Modification No. 3 (cont.)
2. Beginning May 1, 2003, $25,000 per month for eight (8) months upon presentation of monthly invoices.
3. 30 days past execution of Modification 1, pay $75,000. (received payment Oct. 7, 2003)
4. 30 days past execution of Modification 2, pay $65,000. (received payment Oct. 7, 2003)
5. 30 days past execution of Modification 3, pay $50,000 ($25,000 each for Tasks 6 and 7)
6. On March 1,2004 pay $50,000 ($25,000 each for Tasks 6 and 7)
7. 30 days past execution of Modification 3, pay $25,000 for Task 8. On the 25th each month RAND will estimate the time and material cost needs of the following month and STWA will be billed for that amount. Any funds left over from the month will be rolled into the next month's requirements. If RAND exceeded the months costs, additional costs will be billed the following month. Total cap for Task 8: $200,000.
ACCEPTED FOR
RAND Corporation Save the World Air, Inc.
Name Signed: /s/ Joanne B. Shelby Name Signed: /s/ Eugene E. Eichler
-------------------- ---------------------
Name Typed: Joanne B. Shelby Name Typed: Eugene E. Eichler
---------------- -----------------
Title: Director, Contracts & Grants Title: Chief Operating Officer
---------------------------- -----------------------
Date: 1/20/04 Date: 2/6/04
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND RULES 13A-14 AND 15D-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Edward L. Masry, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Save the World Air, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 14, 2004
/s/ EDWARD L. MASRY
-------------------------------
Edward L. Masry
Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND RULES 13A-14 AND 15D-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Eugene Eichler, certify that:
1. I have reviewed this Quarterly Report on Form 10-QSB of Save the World Air, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: July 14, 2004
/s/ EUGENE EICHLER
---------------------------
Eugene Eichler
Chief Financial Officer
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EXHIBIT 32
CERTIFICATION OF PERIODIC FINANCIAL REPORT BY THE CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Save the World Air, Inc. (the "Company"), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-QSB of the Company for the quarter ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ EDWARD L. MASRY
Date: July 14, 2004 ----------------------------
Edward L. Masry
Chief Executive Officer
/s/ EUGENE EICHLER
Date: July 14, 2004 ----------------------------
Eugene Eichler
Chief Financial Officer
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