UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|
|
|
o
|
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2006
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.
(Exact name of registrant as specified in its charter)
|
|
|
Nevada
|
|
52-2088326
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification No.)
|
5125 Lankershim Boulevard
North Hollywood, California 91601
(Address, including zip code, of principal executive offices)
(818) 487-8000
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
The
number of shares of the Registrants Common Stock outstanding as of May 15, 2006 was
33,658,531 shares.
Transitional Small Business Disclosure Format (Check one): Yes
o
No
þ
SAVE THE WORLD AIR, INC.
FORM 10-QSB
INDEX
i
PART I
Item 1. Financial Statements
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
MARCH 31, 2006 (UNAUDITED) AND DECEMBER 31, 2005
|
|
|
|
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|
|
|
|
|
|
March 31, 2006
|
|
|
December 31,
|
|
|
|
(unaudited)
|
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
320,344
|
|
|
$
|
279,821
|
|
Other current assets
|
|
|
8,740
|
|
|
|
9,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
329,084
|
|
|
|
288,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
, net of accumulated depreciation
|
|
|
314,203
|
|
|
|
295,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
4,500
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
647,787
|
|
|
$
|
588,704
|
|
|
|
|
|
|
|
|
See notes to condensed financial statements.
1
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS Continued
MARCH 31, 2006 (UNAUDITED) AND DECEMBER 31, 2005
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
December 31,
|
|
|
|
(unaudited)
|
|
|
2005
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
128,423
|
|
|
$
|
155,456
|
|
Accrued expenses
|
|
|
246,337
|
|
|
|
179,461
|
|
Accrued research and development fees
|
|
|
595,000
|
|
|
|
680,000
|
|
Accrued professional fees
|
|
|
523,970
|
|
|
|
450,555
|
|
Payable to shareholder
|
|
|
|
|
|
|
45,000
|
|
Payable to related parties
|
|
|
158,732
|
|
|
|
158,732
|
|
Finders fees payable
|
|
|
5,666
|
|
|
|
8,916
|
|
Convertible debentures, net
|
|
|
1,245,974
|
|
|
|
318,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,904,102
|
|
|
|
1,996,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficiency
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value: 200,000,000 shares
authorized, 32,343,967 and 31,387,418 shares issued
and outstanding at March 31, 2006 and December 31,
2005, respectively
|
|
|
32,344
|
|
|
|
31,387
|
|
Common stock to be issued
|
|
|
224,845
|
|
|
|
612,521
|
|
Additional paid-in capital
|
|
|
20,730,675
|
|
|
|
18,336,178
|
|
Deferred compensation
|
|
|
|
|
|
|
(142,187
|
)
|
Deficit accumulated during the development stage
|
|
|
(23,244,179
|
)
|
|
|
(20,246,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficiency
|
|
|
(2,256,315
|
)
|
|
|
(1,408,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
647,787
|
|
|
$
|
588,704
|
|
|
|
|
|
|
|
|
See notes to condensed financial statements.
2
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
since
|
|
|
|
2006
|
|
|
2005
|
|
|
inception
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,940,011
|
|
|
|
661,595
|
|
|
|
18,785,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
57,294
|
|
|
|
401,485
|
|
|
|
3,860,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash patent settlement cost
|
|
|
|
|
|
|
|
|
|
|
1,610,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other income
|
|
|
(2,997,305
|
)
|
|
|
(1,063,080
|
)
|
|
|
(24,256,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
954
|
|
Settlement of litigation and debt
|
|
|
|
|
|
|
|
|
|
|
1,017,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(2,997,305
|
)
|
|
|
(1,063,080
|
)
|
|
|
(23,238,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
800
|
|
|
|
1,976
|
|
|
|
5,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,998,105
|
)
|
|
$
|
(1,065,056
|
)
|
|
$
|
(23,244,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
31,468,333
|
|
|
|
38,036,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed financial statements.
3
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Deficit accumulated
|
|
|
Total stockholders'
|
|
|
|
Price per
|
|
|
Common Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
during the
|
|
|
development
|
|
|
|
share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be issued
|
|
|
capital
|
|
|
compensation
|
|
|
development stage
|
|
|
stage deficiency
|
|
Balance, February 18, 1998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(date of inception)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of common stock on April 18, 1998
|
|
|
.0015 .01
|
|
|
|
10,030,000
|
|
|
|
10,030
|
|
|
|
|
|
|
|
14,270
|
|
|
|
|
|
|
|
|
|
|
|
24,300
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,307
|
)
|
|
|
(21,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1998
|
|
|
|
|
|
|
10,030,000
|
|
|
|
10,030
|
|
|
|
|
|
|
|
14,270
|
|
|
|
|
|
|
|
(21,307
|
)
|
|
|
2,993
|
|
Issuance of
common stock on May 18, 1999
|
|
|
1.00 6.40
|
|
|
|
198,003
|
|
|
|
198
|
|
|
|
|
|
|
|
516,738
|
|
|
|
|
|
|
|
|
|
|
|
516,936
|
|
Issuance of common stock for ZEFS on September 14, 1999
|
|
|
.001
|
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Stock issued for professional services on May 18, 1999
|
|
|
0.88
|
|
|
|
69,122
|
|
|
|
69
|
|
|
|
|
|
|
|
49,444
|
|
|
|
|
|
|
|
|
|
|
|
49,513
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,075,264
|
)
|
|
|
(1,075,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1999
|
|
|
|
|
|
|
15,297,125
|
|
|
|
15,297
|
|
|
|
|
|
|
|
580,452
|
|
|
|
|
|
|
|
(1,096,571
|
)
|
|
|
(500,822
|
)
|
Stock issued for employee compensation on February 8, 2000
|
|
|
1.03
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
|
|
|
|
20,580
|
|
|
|
|
|
|
|
|
|
|
|
20,600
|
|
Stock issued for consulting services on February 8, 2000
|
|
|
1.03
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
|
|
|
|
102,900
|
|
|
|
|
|
|
|
|
|
|
|
103,000
|
|
Stock issued for professional services on April 18, 2000
|
|
|
3.38
|
|
|
|
27,000
|
|
|
|
27
|
|
|
|
|
|
|
|
91,233
|
|
|
|
|
|
|
|
|
|
|
|
91,260
|
|
Stock issued for directors fees on April 18, 2000
|
|
|
3.38
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
|
|
|
|
168,950
|
|
|
|
|
|
|
|
|
|
|
|
169,000
|
|
Stock issued for professional services on May 19, 2000
|
|
|
4.06
|
|
|
|
5,000
|
|
|
|
5
|
|
|
|
|
|
|
|
20,295
|
|
|
|
|
|
|
|
|
|
|
|
20,300
|
|
Stock issued for directors fees on June 20, 2000
|
|
|
4.44
|
|
|
|
6,000
|
|
|
|
6
|
|
|
|
|
|
|
|
26,634
|
|
|
|
|
|
|
|
|
|
|
|
26,640
|
|
Stock issued for professional services on June 20, 2000
|
|
|
4.44
|
|
|
|
1,633
|
|
|
|
2
|
|
|
|
|
|
|
|
7,249
|
|
|
|
|
|
|
|
|
|
|
|
7,251
|
|
Stock issued for professional services on June 26, 2000
|
|
|
5.31
|
|
|
|
1,257
|
|
|
|
1
|
|
|
|
|
|
|
|
6,674
|
|
|
|
|
|
|
|
|
|
|
|
6,675
|
|
Stock issued for employee compensation on June 26, 2000
|
|
|
5.31
|
|
|
|
22,000
|
|
|
|
22
|
|
|
|
|
|
|
|
116,798
|
|
|
|
|
|
|
|
|
|
|
|
116,820
|
|
Stock issued for consulting services on June 26, 2000
|
|
|
5.31
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
52,203
|
|
|
|
|
|
|
|
|
|
|
|
52,213
|
|
Stock issued for promotional services on July 28, 2000
|
|
|
4.88
|
|
|
|
9,675
|
|
|
|
9
|
|
|
|
|
|
|
|
47,205
|
|
|
|
|
|
|
|
|
|
|
|
47,214
|
|
Stock issued for consulting services on July 28, 2000
|
|
|
4.88
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
47,975
|
|
|
|
|
|
|
|
|
|
|
|
47,985
|
|
Stock issued for consulting services on August 4, 2000
|
|
|
2.13
|
|
|
|
35,033
|
|
|
|
35
|
|
|
|
|
|
|
|
74,585
|
|
|
|
|
|
|
|
|
|
|
|
74,620
|
|
Stock issued for promotional services on August 16, 2000
|
|
|
2.25
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
56,225
|
|
|
|
|
|
|
|
|
|
|
|
56,250
|
|
Stock issued for consulting services on September 5, 2000
|
|
|
2.25
|
|
|
|
12,833
|
|
|
|
13
|
|
|
|
|
|
|
|
28,861
|
|
|
|
|
|
|
|
|
|
|
|
28,874
|
|
Stock issued for consulting services on September 10, 2000
|
|
|
1.50
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
14,740
|
|
|
|
|
|
|
|
|
|
|
|
14,750
|
|
Stock issued for consulting services on November 2, 2000
|
|
|
0.88
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
8,643
|
|
|
|
|
|
|
|
|
|
|
|
8,653
|
|
4
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Deficit accumulated
|
|
|
Total stockholders'
|
|
|
|
Price per
|
|
|
Common Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
during the
|
|
|
development
|
|
|
|
share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be issued
|
|
|
capital
|
|
|
compensation
|
|
|
development stage
|
|
|
stage deficiency
|
|
Stock issued for consulting services on November 4, 2000
|
|
|
0.88
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
8,643
|
|
|
|
|
|
|
|
|
|
|
|
8,653
|
|
Stock issued for consulting services on December 20, 2000
|
|
|
0.50
|
|
|
|
19,082
|
|
|
|
19
|
|
|
|
|
|
|
|
9,522
|
|
|
|
|
|
|
|
|
|
|
|
9,541
|
|
Stock issued for filing services on December 20, 2000
|
|
|
0.50
|
|
|
|
5,172
|
|
|
|
5
|
|
|
|
|
|
|
|
2,581
|
|
|
|
|
|
|
|
|
|
|
|
2,586
|
|
Stock issued for professional services on December 26, 2000
|
|
|
0.38
|
|
|
|
12,960
|
|
|
|
13
|
|
|
|
|
|
|
|
4,912
|
|
|
|
|
|
|
|
|
|
|
|
4,925
|
|
Other stock issuance on August 24, 2000
|
|
|
2.13
|
|
|
|
2,000
|
|
|
|
2
|
|
|
|
|
|
|
|
4,258
|
|
|
|
|
|
|
|
|
|
|
|
4,260
|
|
Common shares cancelled
|
|
|
|
|
|
|
(55,000
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
(64,245
|
)
|
|
|
|
|
|
|
|
|
|
|
(64,300
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,270,762
|
)
|
|
|
(1,270,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2000
|
|
|
|
|
|
|
15,645,935
|
|
|
|
15,646
|
|
|
|
|
|
|
|
1,437,873
|
|
|
|
|
|
|
|
(2,367,333
|
)
|
|
|
(913,814
|
)
|
Stock issued for consulting services on January 8, 2001
|
|
|
0.31
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
3,038
|
|
|
|
|
|
|
|
|
|
|
|
3,048
|
|
Stock issued for consulting services on February 1, 2001
|
|
|
0.33
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
3,235
|
|
|
|
|
|
|
|
|
|
|
|
3,245
|
|
Stock issued for consulting services on March 1, 2001
|
|
|
0.28
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
2,743
|
|
|
|
|
|
|
|
|
|
|
|
2,753
|
|
Stock issued for legal services on March 13, 2001
|
|
|
0.32
|
|
|
|
150,000
|
|
|
|
150
|
|
|
|
|
|
|
|
47,850
|
|
|
|
|
|
|
|
|
|
|
|
48,000
|
|
Stock issued for consulting services on April 3, 2001
|
|
|
0.25
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
|
|
2,458
|
|
Stock issued for legal services on April 4, 2001
|
|
|
0.25
|
|
|
|
30,918
|
|
|
|
31
|
|
|
|
|
|
|
|
7,699
|
|
|
|
|
|
|
|
|
|
|
|
7,730
|
|
Stock issued for professional services on April 4, 2001
|
|
|
0.25
|
|
|
|
7,040
|
|
|
|
7
|
|
|
|
|
|
|
|
1,753
|
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
Stock issued for consulting services on April 5, 2001
|
|
|
0.25
|
|
|
|
132,600
|
|
|
|
132
|
|
|
|
|
|
|
|
33,018
|
|
|
|
|
|
|
|
|
|
|
|
33,150
|
|
Stock issued for filing fees on April 30, 2001 1.65
|
|
|
|
|
|
|
1,233
|
|
|
|
1
|
|
|
|
|
|
|
|
2,033
|
|
|
|
|
|
|
|
|
|
|
|
2,034
|
|
Stock issued for filing fees on September 19, 2001
|
|
|
0.85
|
|
|
|
2,678
|
|
|
|
2
|
|
|
|
|
|
|
|
2,274
|
|
|
|
|
|
|
|
|
|
|
|
2,276
|
|
Stock issued for professional services on September 28, 2001
|
|
|
0.62
|
|
|
|
150,000
|
|
|
|
150
|
|
|
|
|
|
|
|
92,850
|
|
|
|
|
|
|
|
|
|
|
|
93,000
|
|
Stock issued for directors services on October 5, 2001
|
|
|
0.60
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
|
|
|
|
59,900
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
Stock issued for legal services on October 17, 2001
|
|
|
0.60
|
|
|
|
11,111
|
|
|
|
11
|
|
|
|
|
|
|
|
6,655
|
|
|
|
|
|
|
|
|
|
|
|
6,666
|
|
Stock issued for consulting services on October 18, 2001
|
|
|
0.95
|
|
|
|
400,000
|
|
|
|
400
|
|
|
|
|
|
|
|
379,600
|
|
|
|
|
|
|
|
|
|
|
|
380,000
|
|
Stock issued for consulting services on October 19, 2001
|
|
|
1.25
|
|
|
|
150,000
|
|
|
|
150
|
|
|
|
|
|
|
|
187,350
|
|
|
|
|
|
|
|
|
|
|
|
187,500
|
|
Stock issued for exhibit fees on October 22, 2001
|
|
|
1.35
|
|
|
|
5,000
|
|
|
|
6
|
|
|
|
|
|
|
|
6,745
|
|
|
|
|
|
|
|
|
|
|
|
6,751
|
|
Stock issued for directors services on November 2, 2001
|
|
|
0.95
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
949,000
|
|
|
|
|
|
|
|
|
|
|
|
950,000
|
|
Stock issued for consulting services on November 7, 2001
|
|
|
0.85
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
|
|
|
|
16,980
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
5
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Deficit accumulated
|
|
|
Total stockholders'
|
|
|
|
Price per
|
|
|
Common Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
during the
|
|
|
development
|
|
|
|
share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be issued
|
|
|
capital
|
|
|
compensation
|
|
|
development stage
|
|
|
stage deficiency
|
|
Stock issued for consulting services on November 20, 2001
|
|
|
0.98
|
|
|
|
43,000
|
|
|
|
43
|
|
|
|
|
|
|
|
42,097
|
|
|
|
|
|
|
|
|
|
|
|
42,140
|
|
Stock issued for consulting services on November 27, 2001
|
|
|
0.98
|
|
|
|
10,000
|
|
|
|
10
|
|
|
|
|
|
|
|
9,790
|
|
|
|
|
|
|
|
|
|
|
|
9,800
|
|
Stock issued for consulting services on November 28, 2001
|
|
|
0.98
|
|
|
|
187,000
|
|
|
|
187
|
|
|
|
|
|
|
|
183,073
|
|
|
|
|
|
|
|
|
|
|
|
183,260
|
|
Intrinsic value of options issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,600,000
|
|
|
|
(2,600,000
|
)
|
|
|
|
|
|
|
|
|
Fair value of options issued to non-employees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,318
|
|
|
|
|
|
|
|
|
|
|
|
142,318
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,667
|
|
|
|
|
|
|
|
191,667
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,735,013
|
)
|
|
|
(2,735,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001
|
|
|
|
|
|
|
18,085,847
|
|
|
|
18,086
|
|
|
|
|
|
|
|
6,220,322
|
|
|
|
(2,408,333
|
)
|
|
|
(5,102,346
|
)
|
|
|
(1,272,271
|
)
|
Stock issued for directors services on December 10, 2002
|
|
|
0.40
|
|
|
|
2,150,000
|
|
|
|
2,150
|
|
|
|
|
|
|
|
857,850
|
|
|
|
|
|
|
|
|
|
|
|
860,000
|
|
Common stock paid for, but not issued (2,305,000 shares)
|
|
|
0.15-0.25
|
|
|
|
|
|
|
|
|
|
|
|
389,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,875
|
|
Fair value of options issued to non-employees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,909
|
|
|
|
(54,909
|
)
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
891,182
|
|
|
|
|
|
|
|
891,182
|
|
Net loss for the year ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,749,199
|
)
|
|
|
(2,749,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
|
|
|
|
20,235,847
|
|
|
|
20,236
|
|
|
|
389,875
|
|
|
|
7,133,081
|
|
|
|
(1,572,060
|
)
|
|
|
(7,851,545
|
)
|
|
|
(1,880,413
|
)
|
Common stock issued, previously paid for
|
|
|
0.15
|
|
|
|
1,425,000
|
|
|
|
1,425
|
|
|
|
(213,750
|
)
|
|
|
212,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued, previously paid for
|
|
|
0.25
|
|
|
|
880,000
|
|
|
|
880
|
|
|
|
(220,000
|
)
|
|
|
219,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash on March 20, 2003
|
|
|
0.25
|
|
|
|
670,000
|
|
|
|
670
|
|
|
|
|
|
|
|
166,830
|
|
|
|
|
|
|
|
|
|
|
|
167,500
|
|
Stock issued for cash on April 4, 2003
|
|
|
0.25
|
|
|
|
900,000
|
|
|
|
900
|
|
|
|
|
|
|
|
224,062
|
|
|
|
|
|
|
|
|
|
|
|
224,962
|
|
Stock issued for cash on April 8, 2003
|
|
|
0.25
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
|
|
|
|
24,900
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Stock issued for cash on May 8, 2003
|
|
|
0.25
|
|
|
|
1,150,000
|
|
|
|
1,150
|
|
|
|
|
|
|
|
286,330
|
|
|
|
|
|
|
|
|
|
|
|
287,480
|
|
Stock issued for cash on June 16, 2003
|
|
|
0.25
|
|
|
|
475,000
|
|
|
|
475
|
|
|
|
|
|
|
|
118,275
|
|
|
|
|
|
|
|
|
|
|
|
118,750
|
|
Stock issued for legal services on June 27, 2003
|
|
|
0.55
|
|
|
|
83,414
|
|
|
|
83
|
|
|
|
|
|
|
|
45,794
|
|
|
|
|
|
|
|
|
|
|
|
45,877
|
|
Debt converted to stock on June 27, 2003
|
|
|
0.25
|
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
498,000
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
Stock and warrants issued for cash on July 11, 2003
|
|
|
0.25
|
|
|
|
519,000
|
|
|
|
519
|
|
|
|
|
|
|
|
129,231
|
|
|
|
|
|
|
|
|
|
|
|
129,750
|
|
Stock and warrants issued for cash on September 29, 2003
|
|
|
0.25
|
|
|
|
1,775,000
|
|
|
|
1,775
|
|
|
|
|
|
|
|
441,976
|
|
|
|
|
|
|
|
|
|
|
|
443,751
|
|
Stock and warrants issued for cash on October 21, 2003
|
|
|
0.25
|
|
|
|
1,845,000
|
|
|
|
1,845
|
|
|
|
|
|
|
|
459,405
|
|
|
|
|
|
|
|
|
|
|
|
461,250
|
|
Stock and warrants issued for cash on October 28, 2003
|
|
|
0.25
|
|
|
|
1,570,000
|
|
|
|
1,570
|
|
|
|
|
|
|
|
390,930
|
|
|
|
|
|
|
|
|
|
|
|
392,500
|
|
Stock and warrants issued for cash on November 19, 2003
|
|
|
0.25
|
|
|
|
500,000
|
|
|
|
500
|
|
|
|
|
|
|
|
124,500
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
6
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Deficit accumulated
|
|
|
Total stockholders
|
|
|
|
Price per
|
|
|
Common Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
during the
|
|
|
development
|
|
|
|
share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be issued
|
|
|
capital
|
|
|
compensation
|
|
|
development stage
|
|
|
stage deficiency
|
|
Finders fees related to
stock issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,875
|
|
|
|
(312,582
|
)
|
|
|
|
|
|
|
|
|
|
|
(268,707
|
)
|
Common stock paid for, but
not issued (25,000
shares)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
Amortization of deferred
comp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
863,727
|
|
|
|
|
|
|
|
863,727
|
|
Net loss for year ended
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,476,063
|
)
|
|
|
(2,476,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
|
|
|
34,128,261
|
|
|
|
34,128
|
|
|
|
6,250
|
|
|
|
10,162,177
|
|
|
|
(708,333
|
)
|
|
|
(10,327,608
|
)
|
|
|
(833,386
|
)
|
Common stock issued,
previously paid for
|
|
|
0.25
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
(6,250
|
)
|
|
|
6,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for director
services on March 31,
2004
|
|
|
1.50
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
|
|
|
|
74,950
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
Stock issued for finders
fees on March 31, 2004
|
|
|
0.15
|
|
|
|
82,500
|
|
|
|
82
|
|
|
|
|
|
|
|
12,293
|
|
|
|
|
|
|
|
|
|
|
|
12,375
|
|
Stock issued for finders
fees on March 31, 2004
|
|
|
0.25
|
|
|
|
406,060
|
|
|
|
407
|
|
|
|
|
|
|
|
101,199
|
|
|
|
|
|
|
|
|
|
|
|
101,606
|
|
Stock issued for services on
April 2, 2004
|
|
|
1.53
|
|
|
|
65,000
|
|
|
|
65
|
|
|
|
|
|
|
|
99,385
|
|
|
|
|
|
|
|
|
|
|
|
99,450
|
|
Debt converted to stock on
April 2, 2004
|
|
|
1.53
|
|
|
|
60,000
|
|
|
|
60
|
|
|
|
|
|
|
|
91,740
|
|
|
|
|
|
|
|
|
|
|
|
91,800
|
|
Stock issued upon exercise
of warrants on May 21,
2004
|
|
|
0.20
|
|
|
|
950,000
|
|
|
|
950
|
|
|
|
|
|
|
|
189,050
|
|
|
|
|
|
|
|
|
|
|
|
190,000
|
|
Stock issued for directors
services on June 8,
2004
|
|
|
1.70
|
|
|
|
600,000
|
|
|
|
600
|
|
|
|
|
|
|
|
1,019,400
|
|
|
|
|
|
|
|
|
|
|
|
1,020,000
|
|
Stock issued for cash on
August 25, 2004
|
|
|
1.00
|
|
|
|
550,000
|
|
|
|
550
|
|
|
|
|
|
|
|
549,450
|
|
|
|
|
|
|
|
|
|
|
|
550,000
|
|
Stock issued upon exercise
of options on August 30,
2004
|
|
|
0.40
|
|
|
|
4,000
|
|
|
|
4
|
|
|
|
|
|
|
|
1,596
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
|
Stock issued for cash on
September 8, 2004
|
|
|
1.00
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
24,975
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Stock issued for consulting
services on September
15, 2004
|
|
|
1.31
|
|
|
|
50,000
|
|
|
|
49
|
|
|
|
|
|
|
|
65,451
|
|
|
|
|
|
|
|
|
|
|
|
65,500
|
|
Stock issued for patent
settlement on
September 22, 2004
|
|
|
1.24
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
|
|
|
|
24,780
|
|
|
|
|
|
|
|
|
|
|
|
24,800
|
|
Stock issued for research
and development on
October 6, 2004
|
|
|
1.40
|
|
|
|
65,000
|
|
|
|
65
|
|
|
|
|
|
|
|
90,935
|
|
|
|
|
|
|
|
|
|
|
|
91,000
|
|
Stock issued for cash on
October 6, 2004
|
|
|
1.00
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
24,975
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Stock issued for cash on
October 15, 2004
|
|
|
1.00
|
|
|
|
150,000
|
|
|
|
150
|
|
|
|
|
|
|
|
149,850
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
Stock issued upon exercise
of stock options on
October 21, 2004
|
|
|
0.40
|
|
|
|
6,500
|
|
|
|
6
|
|
|
|
|
|
|
|
2,594
|
|
|
|
|
|
|
|
|
|
|
|
2,600
|
|
Stock issued for cash on
November 3, 2004
|
|
|
1.00
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
24,975
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Stock issued for cash on
November 18, 2004
|
|
|
1.00
|
|
|
|
172,500
|
|
|
|
173
|
|
|
|
|
|
|
|
172,327
|
|
|
|
|
|
|
|
|
|
|
|
172,500
|
|
Stock issued for cash on
December 9, 2004
|
|
|
1.00
|
|
|
|
75,000
|
|
|
|
75
|
|
|
|
|
|
|
|
74,925
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
Stock issued for cash on
December 23, 2004
|
|
|
1.00
|
|
|
|
250,000
|
|
|
|
250
|
|
|
|
|
|
|
|
249,750
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Finders fees related to
stock issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,384
|
)
|
|
|
|
|
|
|
|
|
|
|
(88,384
|
)
|
Common stock paid for, but
not issued (119,000
shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,000
|
|
7
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY
FROM INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Deficit accumulated
|
|
|
Total stockholders
|
|
|
|
Price per
|
|
|
Common Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
during the
|
|
|
development
|
|
|
|
share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be issued
|
|
|
capital
|
|
|
compensation
|
|
|
development stage
|
|
|
stage deficiency
|
|
Intrinsic value of options
issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,891
|
|
|
|
(248,891
|
)
|
|
|
|
|
|
|
|
|
Fair value of options issued
to non-employees for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,381
|
|
|
|
(55,381
|
)
|
|
|
|
|
|
|
|
|
Fair value of warrants
issued for settlement
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,585,266
|
|
|
|
|
|
|
|
|
|
|
|
1,585,266
|
|
Fair value of warrants
issued to non-
employees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,872
|
|
|
|
|
|
|
|
|
|
|
|
28,872
|
|
Amortization of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936,537
|
|
|
|
|
|
|
|
936,537
|
|
Net loss for year ended
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,803,280
|
)
|
|
|
(6,803,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
|
|
|
|
37,784,821
|
|
|
|
37,784
|
|
|
|
119,000
|
|
|
|
15,043,028
|
|
|
|
(76,068
|
)
|
|
|
(17,130,888
|
)
|
|
|
(2,007,144
|
)
|
Common stock issued,
previously paid for
|
|
|
1.00
|
|
|
|
69,000
|
|
|
|
69
|
|
|
|
(69,000
|
)
|
|
|
68,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued upon exercise
of warrants, previously
paid for
|
|
|
1.00
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
(50,000
|
)
|
|
|
49,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash on
January 20, 2005
|
|
|
1.00
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
24,975
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
Stock issued upon exercise
of warrants on January
31, 2005
|
|
|
0.40
|
|
|
|
500
|
|
|
|
1
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Stock issued for cash on
February 17, 2005
|
|
|
1.00
|
|
|
|
325,000
|
|
|
|
325
|
|
|
|
|
|
|
|
324,675
|
|
|
|
|
|
|
|
|
|
|
|
325,000
|
|
Stock issued for cash on
March 31, 2005
|
|
|
1.00
|
|
|
|
215,000
|
|
|
|
215
|
|
|
|
|
|
|
|
214,785
|
|
|
|
|
|
|
|
|
|
|
|
215,000
|
|
Stock issued for cash on
May 17, 2005
|
|
|
1.00
|
|
|
|
5,000
|
|
|
|
5
|
|
|
|
|
|
|
|
4,995
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Stock issued for cash on
June 7, 2005
|
|
|
1.00
|
|
|
|
300,000
|
|
|
|
300
|
|
|
|
|
|
|
|
299,700
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Stock issued for cash on
August 5, 2005
|
|
|
1.00
|
|
|
|
480,500
|
|
|
|
480
|
|
|
|
|
|
|
|
480,020
|
|
|
|
|
|
|
|
|
|
|
|
480,500
|
|
Stock issued for cash on
August 9, 2005
|
|
|
1.00
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
|
|
|
|
99,900
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Stock issued for cash on
October 27, 2005
|
|
|
1.00
|
|
|
|
80,000
|
|
|
|
80
|
|
|
|
|
|
|
|
79,920
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
Common stock cancelled
on December 7, 2005
|
|
Various
|
|
|
(8,047,403
|
)
|
|
|
(8,047
|
)
|
|
|
|
|
|
|
8,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for settlement
of payables on
December 21, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,092
|
|
Stock issued for settlement
of payables on
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,429
|
|
Finders fees related to
stock issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,840
|
)
|
|
|
|
|
|
|
|
|
|
|
(109,840
|
)
|
Intrinsic value of options
issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,750
|
|
|
|
(243,750
|
)
|
|
|
|
|
|
|
|
|
Fair value of options issued
for settlement costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
Fair value of warrants
issued for settlement
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,957
|
|
|
|
|
|
|
|
|
|
|
|
4,957
|
|
Fair value of warrants
issued to non-
employees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,505
|
|
|
|
|
|
|
|
|
|
|
|
13,505
|
|
Amortization of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,631
|
|
|
|
|
|
|
|
177,631
|
|
Warrants issued with
convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756,768
|
|
|
|
|
|
|
|
|
|
|
|
756,768
|
|
8
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF STOCKHOLDERS DEFICIENCY FROM
INCEPTION (FEBRUARY 18, 1998) TO MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Deficit accumulated
|
|
|
Total stockholders
|
|
|
|
Price per
|
|
|
Common Stock
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Deferred
|
|
|
during the
|
|
|
development
|
|
|
|
share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be issued
|
|
|
capital
|
|
|
compensation
|
|
|
development stage
|
|
|
stage deficiency
|
|
Intrinsic value of beneficial
conversion associated
with convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
696,413
|
|
|
|
|
|
|
|
|
|
|
|
696,413
|
|
Net loss for year ended
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,115,186
|
)
|
|
|
(3,115,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
|
|
|
|
31,387,418
|
|
|
$
|
31,387
|
|
|
$
|
612,521
|
|
|
$
|
18,336,178
|
|
|
$
|
(142,187
|
)
|
|
$
|
(20,246,074
|
)
|
|
$
|
(1,408,175
|
)
|
Stock issued, for previously
settled payables
|
|
|
|
|
|
|
846,549
|
|
|
|
847
|
|
|
|
(612,521
|
)
|
|
|
611,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued upon exercise
of warrants on March
23, 2006
|
|
|
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
37,475
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
Stock issued upon exercise
of warrants on March
27, 2006
|
|
|
|
|
|
|
75,000
|
|
|
|
75
|
|
|
|
|
|
|
|
87,425
|
|
|
|
|
|
|
|
|
|
|
|
87,500
|
|
Stock issued upon exercise
of warrants on March
30, 2006
|
|
|
|
|
|
|
10,000
|
|
|
|
10
|
|
|
|
|
|
|
|
9,990
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Common stock paid for, but
not issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,125
|
|
Common stock for
convertible notes
converted to stock, but
not issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,720
|
|
Fair value of options issued
to employees and
officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,490
|
|
|
|
|
|
|
|
|
|
|
|
478,490
|
|
Fair value of warrants
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401,130
|
|
|
|
|
|
|
|
|
|
|
|
401,130
|
|
Write off of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142,187
|
)
|
|
|
142,187
|
|
|
|
|
|
|
|
|
|
Warrants issued with
convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620,252
|
|
|
|
|
|
|
|
|
|
|
|
620,252
|
|
Intrinsic value of beneficial
conversion associated
with convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290,248
|
|
|
|
|
|
|
|
|
|
|
|
290,248
|
|
Net loss for three months
ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,998,105
|
)
|
|
|
(2,998,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2006
(unaudited)
|
|
|
|
|
|
|
32,343,967
|
|
|
$
|
32,344
|
|
|
$
|
224,845
|
|
|
$
|
20,730,675
|
|
|
$
|
|
|
|
$
|
(23,244,179
|
)
|
|
$
|
(2,256,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to condensed financial statements.
9
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO
MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
since
|
|
|
|
2006
|
|
|
2005
|
|
|
inception
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,998,105
|
)
|
|
$
|
(1,065,056
|
)
|
|
$
|
(23,244,179
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of intangible assets
|
|
|
|
|
|
|
|
|
|
|
505,000
|
|
Settlement of litigation and debt
|
|
|
|
|
|
|
|
|
|
|
(1,017,208
|
)
|
Fair value of options and warrants issued for services
|
|
|
879,619
|
|
|
|
|
|
|
|
1,050,809
|
|
Issuance of common stock for services
|
|
|
|
|
|
|
|
|
|
|
4,668,102
|
|
Issuance of options for legal settlement
|
|
|
|
|
|
|
|
|
|
|
31,500
|
|
Issuance of warrants for legal settlement
|
|
|
|
|
|
|
|
|
|
|
4,957
|
|
Issuance of warrants for services
|
|
|
|
|
|
|
|
|
|
|
13,505
|
|
Patent acquisition cost
|
|
|
|
|
|
|
|
|
|
|
1,610,066
|
|
Amortization of issuance costs
|
|
|
1,133,935
|
|
|
|
|
|
|
|
1,452,694
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
76,068
|
|
|
|
3,060,744
|
|
Depreciation
|
|
|
23,312
|
|
|
|
2,268
|
|
|
|
57,074
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
269
|
|
|
|
(2,800
|
)
|
|
|
(13,240
|
)
|
Income taxes payable
|
|
|
|
|
|
|
1,176
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
25,007
|
|
|
|
338,633
|
|
|
|
1,824,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(935,963
|
)
|
|
|
(649,711
|
)
|
|
|
(9,995,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(42,141
|
)
|
|
|
|
|
|
|
(367,727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(42,141
|
)
|
|
|
|
|
|
|
(367,727
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in payables to related parties and shareholder
|
|
|
|
|
|
|
100,000
|
|
|
|
715,183
|
|
Advances from founding executive officer
|
|
|
|
|
|
|
|
|
|
|
517,208
|
|
Net proceeds from convertible debentures
|
|
|
865,500
|
|
|
|
|
|
|
|
2,318,683
|
|
Issuance of common stock for cash
|
|
|
135,002
|
|
|
|
530,800
|
|
|
|
7,114,118
|
|
Common stock issuable
|
|
|
18,125
|
|
|
|
25,000
|
|
|
|
18,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,018,627
|
|
|
|
655,800
|
|
|
|
10,683,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
40,523
|
|
|
|
6,089
|
|
|
|
320,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
, beginning of period
|
|
|
279,821
|
|
|
|
84,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
, end of period
|
|
$
|
320,344
|
|
|
$
|
90,915
|
|
|
$
|
320,344
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to condensed financial statements.
10
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS Continued (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO
MARCH 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
since
|
|
|
|
2006
|
|
|
2005
|
|
|
inception
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
800
|
|
|
$
|
800
|
|
|
$
|
5,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of intangible asset through advance from related party and issuance of common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
505,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation for stock options issued for services
|
|
|
|
|
|
|
|
|
|
|
3,202,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment financed by advance from related party
|
|
|
|
|
|
|
|
|
|
|
3,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of related party debt to equity
|
|
|
|
|
|
|
|
|
|
|
515,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in settlement of payable
|
|
|
|
|
|
|
|
|
|
|
113,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, previously paid for
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finders fees accrued for issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
510,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of warrants and beneficial conversion feature of convertible notes
|
|
|
865,500
|
|
|
|
|
|
|
|
2,318,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of stock
|
|
|
|
|
|
|
|
|
|
|
8,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of accounts payable and accrued expenses to common stock issued
|
|
|
612,521
|
|
|
|
|
|
|
|
612,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of related party debt to convertible debentures
|
|
|
45,000
|
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debentures to common stock
|
|
|
206,720
|
|
|
|
|
|
|
|
206,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of deferred compensation
|
|
|
142,187
|
|
|
|
|
|
|
|
142,187
|
|
See Notes to condensed financial statements.
11
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
1.
|
|
Organization and 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, 2006, the results of operations for the three months ended March 31, 2006 and
2005, and cash flows for the three months ended March 31, 2006 and 2005. The balance
sheet as of December 31, 2005 is derived from the Companys 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 Companys Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2005, 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, 2006 are not necessarily indicative of the
results of operations to be expected for the full fiscal year ending December 31, 2006.
12
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
1.
|
|
Organization and basis of presentation Continued
|
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 purchase of the worldwide exclusive manufacturing,
marketing and distribution rights for the ZEFS device. The ZEFS is a device, which is
fitted to an internal combustion engine and is expected to reduce carbon monoxide
hydrocarbons and nitrous oxide emissions. During the past three years, the Company has
been acquiring new technologies, developing prototype products using the Companys
technologies and conducting scientific tests regarding the technologies and prototype
products. In 2003, the Company acquired worldwide intellectual property and patent rights
to technologies which reduce carbon monoxide, hydrocarbons and nitrous oxide emissions in
two- and four-stroke motorcycles, fuel-injection engines, generators and small engines.
The Company has also developed prototype products and named them CAT-MATE.
|
|
|
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 Companys development stage activities.
The Companys focus is on research and development of proprietary devices that are
designed to reduce harmful emissions, and improve fuel efficiency and engine performance
on equipment and vehicles driven by internal combustion engines and has not yet generated
any revenues. The prototype devices are called ZEFS and CAT-MATE. The Company has put
forth efforts to complete the design, the development of production models and the
promotion of products in the market place worldwide. Expenses have been funded through
the sale of company stock, debt and the exercise of warrants. The Company has taken
actions to secure the intellectual property rights to the ZEFS and CAT-MATE devices. In
addition, the Company has initiated marketing efforts to international governmental
entities in cooperation with the United Nations Environmental Programme (UNEP) and various
original equipment manufacturers (OEMs), to eventually sell or license the ZEFS and
CAT-MATE products and technology.
13
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
Basic earnings (loss) per share is computed by dividing net income (loss) 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, 2006 and 2005, the
dilutive impact of outstanding stock options of 7,181,257 and 14,422,652 respectively, and
outstanding warrants of 22,971,954 and 16,093,914 have been excluded because their impact
on the loss per share is antidilutive.
3.
|
|
Recent accounting pronouncements
|
On January 1, 2006, the Company adopted Statements of Financial Accounting Standards No.
123 (revised 2004), Share-Based Payment, (SFAS 123(R)) which requires the measurement
and recognition of compensation expense for all share-based payment awards made to
employees and directors based on estimated fair values. SFAS 123(R) supersedes the
Companys previous accounting under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) for periods beginning in fiscal
2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 (SAB 107) relating to SFAS 123(R). The Company has applied the
provisions of SAB 107 in its adoption of SFAS 123(R).
The Company adopted SFAS 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006, the first day
of the Companys fiscal year 2006. The Companys financial statements as of and for the
three months ended March 31, 2006 reflect the impact of SFAS 123(R). In accordance with
the modified prospective transition method, the Companys financial statements for prior
periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).
There was no stock-based compensation expense related to employee or director stock
options recognized during the three months ended March 31, 2005. Stock-based
compensation expense recognized under SFAS 123(R) for employee and directors for the three
months ended March 31, 2006 was $478,490. Basic and diluted loss per share for the
quarter ended March 31, 2006 would have been $(0.08) per share, if the Company had not
adopted SFAS 123(R), compared to reported basic and diluted loss per share of $(0.10) per
share.
14
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
3.
|
|
Recent accounting pronouncements Continued
|
The following table illustrates the effect on net loss and loss per share if the Company
had applied the fair value recognition provisions of SFAS 123 to stock-based awards
granted under the Companys stock option plans for the three months ended March 31, 2005.
For purposes of this pro-forma disclosure, the fair value of the options is estimated
using the Black-Scholes-Merton option-pricing formula (Black-Scholes model) and
amortized to expense over the options requisite service periods (vesting periods).
|
|
|
|
|
Net loss as reported
|
|
$
|
(1,065,056
|
)
|
Plus: Stock-based expense recognized in the Statement of Operations intrinsic value
|
|
|
60,938
|
|
Less: Stock-based expense determined under fair-value based method (SFAS 123)
|
|
|
(290,102
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(1,294,220
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
As reported basic and diluted
|
|
$
|
(0.03
|
)
|
Pro forma basic and diluted
|
|
$
|
(0.04
|
)
|
SFAS 123(R) requires companies to estimate the fair value of share-based payment awards to
employees and directors on the date of grant using an option-pricing model. The value of
the portion of the award that is ultimately expected to vest is recognized as expense over
the requisite service periods in the Companys Statements of Operations. Stock-based
compensation expense recognized in the Statements of Operations for the first quarter of
fiscal 2006 included compensation expense for share-based payment awards granted prior to,
but not yet vested as of January 1, 2006 based on the grant date fair value estimated in
accordance with the pro-forma provisions of SFAS 123 and compensation expense for the
share-based payment awards granted subsequent to January 1, 2006 based on the grant date
fair value estimated in accordance with the provisions of SFAS 123(R). For stock-based
awards issued to employees and directors, stock-based compensation is attributed to
expense using the straight-line single option method, which is consistent with how the
prior-period pro formas were provided. As stock-based compensation expense recognized in
the Statements of Operations for the first quarter of fiscal 2006 is based on awards
ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. In our pro-forma
information required under SFAS 123 for the periods prior to fiscal 2006, the Company
accounted for forfeitures as they occurred.
15
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
3.
|
|
Recent accounting pronouncements Continued
|
Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to
employees and directors using the intrinsic value method in accordance with APB 25. Under
the intrinsic value method, the Company recognized share-based compensation equal to the
awards intrinsic value at the time of grant over the requisite service periods using the
straight-line method. Forfeitures were recognized as incurred.
The Companys determination of fair value of share-based payment awards to employees and
directors on the date of grant using the Black-Scholes model, which is affected by the
Companys stock price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to our expected stock
price volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors.
The Company has elected to adopt the detailed method provided in SFAS 123(R) for
calculating the beginning balance of the additional paid-in capital pool (APIC pool)
related to the tax effects of employee stock-based compensation, and to determine the
subsequent impact on the APIC pool and Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption of SFAS
123(R).
In May 2005, the FASB issued Statement No. 154 (SFAS 154) Accounting Changes and Error
Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154
changes the requirements for the accounting for and reporting of a change in accounting
principle. APB Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change the
cumulative effect of changing to the new accounting principle. SFAS 154 requires
retrospective application to prior periods financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific effects of
the cumulative effect of the change. In the event of such impracticality, SFAS 154
provides for other means of application. In the event the Company changes accounting
principles, it will evaluate the impact of SFAS 154.
16
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
4.
|
|
Certain relationships and related transactions
|
|
|
|
Advances from 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. Mullers 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.
In connection with the Companys legal proceedings against Mr. Muller (see Note 9). The
Company has canceled (i) the 8,047,403 shares of its common stock held by Mr. Muller
and/or his affiliates, (ii) the options to acquire an additional 10,000,000 shares of the
Companys common stock held by Mr. Muller personally and (iii) the $1,017,208 of debt
which Mr. Muller claimed was owed to him by the Company.
|
|
|
Loans from related parties
|
Masry & Vititoe, a law firm in which Edward Masry, the Companys former Chief Executive
Officer, was a partner, has advanced $158,732 and $136,478 as of March 31, 2006 and 2005,
respectively, to the Company for working capital purposes. Advances by Masry and Vititoe
are unsecured, non-interest bearing, and are due on demand.
In 2005, Eugene Eichler, the Companys Chief Executive Officer, advanced $45,000 to the
Company for working capital purposes. These advances are unsecured, bear interest at 6%
per annum and are due on demand. In February 2006, these advances were converted into a
convertible note (Note 5).
In January 2006, the Company entered into a new sublease of a portion of a building in
North Hollywood, California from an entity that is owned by a director of the Company. The
lease term is from January 1, 2006 through July 31, 2007 and carries an option to renew
for two additional years with a 10 percent increase in the rental rate. Monthly rent is
$6,208 per month under this lease.
17
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
5.
|
|
Convertible debentures and warrants
|
During the year ended December 31, 2005, the Company completed the first part of a private
offering of its 9% Convertible Notes due at dates ranging between May 31, 2006 and July 31,
2006 (the Notes) and Warrants to purchase shares of the Companys common stock which
expire between August 31, 2007 and December 28, 2007 (the Warrants). The Notes are
convertible at $0.70 per share of common stock and the Warrants entitle the holder to
purchase a number of shares of the Companys common stock equal to 150% of the number of
shares of common stock into which the Note is convertible. The Warrants are exercisable at a price of $1.00 per share.
During the year ended December 31, 2005, the Company issued Notes totaling $1,576,378 and
paid related transaction fees of $123,196, resulting in net proceeds to the Company of
$1,453,182. In addition to the cash paid for transaction fees, 166,126 additional Warrants
were issued to certain placement agents. These Warrants expire between August 31, 2007 and
December 28, 2007 and are exercisable at a price of $1.00 per share.
The aggregate value of the Warrants issued in connection with the offering and to the finder
were valued at $696,413 using the Black-Scholes option valuation model with the following
assumptions; risk-free interest rate of 4.02% to 4.45%; dividend yield of 0%; volatility
factors of the expected market price of common stock of 83.59%; and an expected life of two
years. The company also determined that the notes contained a beneficial conversion feature
of $756,768.
The value of the Warrants of $696,413, the conversion option of $756,768, and the
transaction fees of $123,196 are considered as debt discount and are being amortized over
the life of the Notes.
During the three months ended March 31, 2006, the Company issued additional Notes totaling
$1,000,000 which included the conversion of $45,000 of debt owed to the Companys Chief
Financial Officer. The Company paid related transaction fees of $89,500 resulting in net
proceeds to the Company of $865,500. In addition to the cash paid for transaction fees,
117,857 additional Warrants were issued to certain placement agents. These Warrants expire
between August 31, 2007 and February 9, 2008 and are exercisable at a price of $1.00 per
share.
The aggregate value of the Warrants issued in connection with the offering and to the finder
were valued at $620,252 using the Black-Scholes option valuation model with the following
assumptions; risk-free interest rate of 4.35% to 4.66%; dividend yield of 0%; volatility
factors of the expected market price of common stock of 130.61%; and an expected life of two
years. The company also determined that the notes contained a beneficial conversion feature
of $290,248.
18
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
5.
|
|
Convertible debentures and warrants Continued
|
The value of the Warrants of $620,252, the conversion option of $290,248, and the
transaction fees of $89,500 are considered as debt discount and are being amortized over the
life of the Notes.
For the three months ended March 31, 2006, $1,053,266 of the total discount has been
amortized and included in the accompanying statement of operations. The remaining
unamortized debt discount of $1,123,684 has been netted against the $2,369,658 Convertible
Notes in the accompanying March 31, 2006 Balance Sheet.
During the three months ended March 31, 2006, $206,720 of the Notes were converted to
295,314 shares of stock at $0.70 per share.
|
|
|
Sale of equity securities
|
As of March 31, 2006, the Company has authorized 200,000,000 shares of its common stock,
of which 32,343,967 shares were issued and outstanding.
During the year ended December 31, 2005, the Company issued 1,599,500 units of common
stock, which consisted of one share of common stock and one warrant to acquire a share of
common stock at an exercise price of $1.50 per share, for net proceeds of $1,490,660. The
1,599,500 warrants were issued to investors as part of an equity agreement and were not
ascribed any value in the accompanying financial statements. Of the 1,599,500 shares
issued, the Company issued 69,000 shares of common stock for which payment was previously
received. The Company also issued 50,500 shares for the exercise of warrants, 50,000 of
which payment was previously received.
The warrants issued above were part of a private offering of 2,892,000 units that began
July 29, 2004 and concluded on July 22, 2005. The expiration date of each of the warrants
was previously extended by one hundred eighty (180) days from its original expiration
date. On February 6, 2006, the Company extended the expiration date for each of the
warrants by an additional one hundred eighty-five (185) days, for a total extension of one
year from its original expiration date.
During the year ended December 31, 2005, the Company agreed to issue 846,548 shares in
settlement of accrued expenses of $612,521. These shares are reflected as common stock to
be issued in the accompanying December 31, 2005 financial statements.
19
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
6.
|
|
Capital stock Continued
|
|
|
|
Sale of equity securities Continued
|
During the three months ended March 31, 2006, individuals exercised outstanding warrants
to purchase 146,250 shares of common stock for net proceeds of $153,125. Subsequent to
the end of the three-month period ended March 31, 2006 and
through May 12, 2006, individuals exercised outstanding
warrants, at various exercise prices, to purchase an additional 1,550,000 shares of common
stock for gross and net proceeds of $900,000.
During the year ended December 31, 2005, the Company issued 10,000 warrants to an
individual for settlement of a claim. The Company also issued 25,000 warrants to an
individual in exchange for consulting services rendered. The warrants were valued at an
aggregate amount of $18,462 using the Black Scholes pricing model using 3-year and 5-year
respective terms (statutory terms), 58.69% volatility, no annual dividends, and a discount
rate of 3.55% and 4.13%, respectively.
During February 2006, the Company issued 250,000 performance based warrants to an outside
consultant. These warrants are to be exercisable at $.40 per share, are fully vested and
exercisable immediately. These warrants were valued at $401,130 using the Black-Scholes
option valuation model with the following assumptions; risk-free interest rate of 4.59%;
dividends yield of 0%; volatility factors of the expected market price common of 130.61%;
and an expected life of five years.
|
|
|
Intrinsic value of employee options
|
During the years ended December 31, 2004 and prior, certain employee options were granted
with exercise prices less the than fair market value of the Companys 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. $76,068 of deferred
compensation costs were amortized and recognized as expense in the three months ended
March 31, 2005. In January 2006, the Company adopted SFAS 123R. Under SFAS 123R,
deferred compensation of $142,187 was written off against additional paid in capital. The
unvested options outstanding were previously valued for pro forma disclosure purposes
using the Black-Scholes pricing model, using a 3.0 to 5.5 year expected term, 83.59%
volatility, no annual dividends, and a discount rate of 4.06% to 4.12%. Total
compensation expense recognized for the three months ended March 31, 2006 was $290,102.
20
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
6.
|
|
Capital stock Continued
|
|
|
Black-Scholes value of employee options
|
During the three months ended March 31, 2006, the Company granted 1,163,605 options to
certain employees, exercisable at amounts ranging from $0.85 to $1.69, vested over one
year with a ten year life. The options were valued at an aggregate amount of $1,809,518
using the Black Scholes pricing model, as required under SFAS 123R, using a 5.5 year
expected term, 130.61% volatility, no annual dividends, and a discount rate of 4.59%. The
total compensation expense recognized for the three months ended March 31, 2006 was
$188,388.
The Company issues stock options to employees, directors and consultants under the 2004
Stock Option Plan (the 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.
In February, 2006, the board approved an amendment to the 2004 Plan, increasing by
2,000,000 shares, from 5,000,000 to 7,000,000 shares, the total number of shares subject
to options that can be granted under the 2004 Plan.
The weighted average exercise prices, remaining contractual lives and aggregate intrinsic
values for options and warrants granted, exercisable, and expected to vest under the Plan
as of December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
|
|
|
Number
|
|
Average
|
|
Contractual
|
|
|
|
|
of
|
|
Exercise
|
|
Life
|
|
Intrinsic
|
|
|
shares
|
|
Price
|
|
(Years)
|
|
Value
|
As of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
6,508,561
|
|
|
$
|
0.27
|
|
|
|
5.26
|
|
|
$
|
2,600,000
|
|
Expected to Vest
|
|
|
6,017,652
|
|
|
$
|
0.43
|
|
|
|
5.31
|
|
|
$
|
2,600,000
|
|
Exercisable
|
|
|
4,422,652
|
|
|
$
|
0.52
|
|
|
|
3.62
|
|
|
$
|
2,600,000
|
|
Aggregate intrinsic value excludes those options and warrants that are not-in-the-money
as of December 31, 2005. Awards that are expected to vest take into consideration
estimate forfeitures for awards not yet vested.
21
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
6.
|
|
Capital stock Continued
|
|
|
Black-Scholes value of employee options Continued
|
For the year ended December 31, 2005, no options were exercised.
As of December 31, 2005, there was $142,187 of total unrecognized compensation costs
related to non-vested share-based compensation arrangements granted under the Plan. That
cost is expected to be recognized over the weighted-average period of one year.
7.
|
|
Research and development
|
|
|
|
The Company has research and development facilities in Morgan Hill, California and
Queensland, Australia. The Company has expanded research and development to include
application of the technologies utilized by the ZEFS and CAT-MATE device for diesel engines,
motorbikes, boats, generators, lawnmowers and other small engines. The Company has
purchased test vehicles, test engines and testing equipment. The Company has completed
testing on ZEFS and CAT-MATE devices for multiple automobiles, trucks, motorcycles, off-road
vehicles and stationary engines, the results of which have been provided to RAND Corporation
(RAND) for evaluation. RAND oversees the research and development facilities. The Company
also uses third party research and development facilities in Los Angeles, California for the
development of the ZEFS and CAT-MATE devices. The Company spent $57,294 and $401,485 for
the three months ended March 31, 2006 and 2005, respectively.
|
8.
|
|
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 had a net loss of $2,998,105 and a negative cash flow from operations of $953,963
for the three months ended March 31, 2006, and had a working capital deficiency of
$2,575,017 and a stockholders deficiency of $2,256,314 at March 31, 2006. 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 upon the Companys 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.
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22
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
9.
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Commitments and contingencies
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On December 19, 2001, the SEC filed civil charges in the United States Federal District
Court, Southern District of New York, against us, the Companys former President and then
sole director Jeffrey A. Muller, and others, alleging that the Company 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 the corporation, which was then controlled by Mr. Muller. On March 22, 2002, the
Company 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, the Company was not required to admit fault and did
not pay any fines or restitution. The SECs charges of fraud and stock manipulation
continue against Mr. Muller and others.
On July 2, 2002, after an investigation by the Companys newly constituted board of
directors, the Company filed a cross-complaint in the SEC action against Mr. Muller and
others seeking injunctive relief, disgorgement of monies and stock and financial
restitution for a variety of acts and omissions in connection with sales of the Companys
stock and other transactions occurring between 1998 and 2002. Among other things, the
Company alleged that Mr. Muller and certain others sold company stock without providing
adequate consideration to the Company; sold insider shares without making proper
disclosures and failed to make necessary filings required 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 the Companys stock; and entered
into various undisclosed arrangements regarding the control, voting and disposition of
their stock. The Company contends that it is entitled to a judgment canceling all of the
approximately 8,716,710 shares of the Companys common stock that were previously obtained
and controlled, directly or indirectly, by Mr. Muller; divesting and preventing any
subsequent holders of the right to exercise options previously held by Mr. Muller for
10,000,000 shares of the Companys common stock, conversion of an existing preliminary
injunction to a permanent injunction to prevent Mr. Muller from any involvement with the
Company and a monetary judgment against Mr. Muller and others in the amount of several
million dollars.
23
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
9.
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Commitments and contingencies Continued
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Legal matters Continued
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In the course of the litigation, the Company has obtained ownership control over Mr.
Mullers claimed patent rights to the ZEFS device. Under a Buy-Sell Agreement between Mr.
Muller and the Company dated December 29, 1998, Mr. Muller, who was listed on the ZEFS
devise patent application as the inventor of the ZEFS device, purported to grant us all
international marketing, manufacturing and distribution rights to the ZEFS device. Those
rights were disputed because an original inventor of the ZEFS device contested Mr.
Mullers legal ability to have conveyed those rights.
In Australia, Mr. Muller entered into a bankruptcy action seeking to overcome the
Companys claims for ownership of the ZEFS device. In conjunction with these litigation
proceedings, a settlement agreement was reached whereby the $10 per unit royalty
previously due to Mr. Muller under his contested Buy-Sell Agreement was terminated and
replaced with a $.20 per unit royalty payable to the bankruptcy trustee. On November 7,
2002, under a settlement agreement executed with the Mr. Mullers bankruptcy trustee, the
trustee transferred to the Company all ownership and legal rights to this international
patent application for the ZEFS device.
Both the SEC and the Company have filed Motions for Summary Judgment contending that there
are no material issues of fact in contention and as a matter of law, the Court should
grant a judgment against Mr. Muller and the cross-defendants. Mr. Muller has filed a
response contending the motions are without merit or substance.
Mr. Muller and several of the defendants filed a Motion to Dismiss the complaint filed by
the Company and moved for summary judgment in their favor. On December 21, 2004, Judge
George B. Daniels denied the cross-defendants motion to dismiss the Companys
cross-complaint, denied the request to vacate the July 2, 2002 preliminary injunction and
denied the request for damages against the Company. The court also refused to grant a
summary judgment in favor of the cross-defendants and dismissed Mr. Mullers claims
against the Company for indemnification for his legal costs and for damages resulting from
the litigation. Neither Mr. Muller nor any of the cross-defendants have filed any
cross-claims against the Company and the Company is not exposed to any liability as a
result of the litigation, except for possibly incurring legal fees and expenses should the
Company lose the litigation.
24
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
9.
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Commitments and contingencies Continued
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Legal matters Continued
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On November 16, 2005, the Court granted the SECs motion for summary judgment. In granting
the motion, the Court has barred Mr. Muller from serving as an officer or director of a
public company for a period of 20 years, ordered Mr. Muller to disgorge any shares of our
stock that he still owns and directed the Company to cancel any issued and outstanding
shares of our stock still owned by Mr. Muller. Mr. Muller was also ordered to disgorge to
the SEC unlawful profits in the amount of $7.5 million and a pay a civil penalty in the
amount of $100,000. Acting in accordance with the Courts order, the Company has canceled
(i) 8,047,403 shares of its common stock held by Mr. Muller and/or his affiliates, (ii)
options to acquire an additional 10,000,000 shares of the Companys common stock held by
Mr. Muller personally and (iii) $1,017,208 of debt which Mr. Muller claimed was owed to
him by the Company.
In response to the November 16, 2005 decision by the Court, Muller filed a motion seeking
to set aside the decision and order of the Court. On March 31, 2006, the Court issued a
decision and order denying Mullers motion to set aside the decision on summary judgment
issued against Muller on November 16, 2005.
A final decision on the motion for summary judgment filed by the Company, which
potentially would terminate the ongoing litigation, is still pending. Should the Court not
grant summary judgment in favor of the Company, the case will be scheduled for final
disposition in a trial. Although the outcome of this litigation cannot be predicted with
any degree of certainty, the Company is optimistic that, based upon previous developments
in the litigation and the Courts granting of the SECs motion for summary judgment, the
Courts ruling on the motion for summary judgment will either significantly narrow the
issues for any later trial or will result in a final disposition of the case in a manner
favorable to the Company.
In April 2005, Jeffrey A. Muller, the Companys former sole director and executive
officer, filed a lawsuit in the Federal District Court for the Central District of
California, seeking declaratory and injunctive relief and alleging unfair competition in
connection with a claimed prior patent interest in the ZEFS device and stock option
rights. In seeking declaratory relief, Mr. Muller is seeking to have the patent rights in
the ZEFS device that were previously transferred to the Company by Mr. Mullers bankruptcy
trustee declared null and void.
25
SAVE THE WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS Continued
THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
9.
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Commitments and contingencies Continued
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Legal matters Continued
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This recent lawsuit brought by Mr. Muller arises out of the same claims that are the
subject of ongoing litigation in the Federal District Court for the Southern District of
New York, in which the Company has previously obtained a preliminary injunction against
Mr. Muller barring him from any involvement with the Company and preventing Mr. Muller,
his agents or assigns, from exercising any claimed rights to the Companys assets or
stock. Mr. Muller previously filed the same complaint in the Federal District Court for
the Southern District of New York, which claim is pending dismissal. On December 28,
2004, Federal District Court Judge George B. Daniels issued a decision dismissing motions
filed by Mr. Muller against the Companys cross-claims. The dismissal of those motions
involved similar causes of action as those contained in Mr. Mullers recent lawsuit
commenced in the Federal District Court for the Central District of California. Since the
case in New York is still pending, the filing of the new lawsuit in California is subject
to various defenses which should result in the dismissal of the new lawsuit.
On January 25, 2006, Mr. Mullers complaint, filed in the California District Court and
transferred to the Federal Court in the Southern District of New York, was assigned to
Judge George B. Daniels. It is expected that the Court will consolidate that complaint
with the already pending claims encompassed within the Companys Motion for Summary
Judgment. While the Company believes that it will have valid claims and defenses, there
can be no assurance that an adverse result or outcome on the pending motions or a trial of
this case would not have a material adverse effect on the Companys financial position or
cash flow.
26
Item 2. Managements Discussion and Analysis or Plan of Operations
This Quarterly Report on Form 10-QSB contains forward-looking statements. These
forward-looking statements include predictions regarding our future:
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revenues and profits;
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customers;
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research and development expenses and efforts;
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scientific test results;
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sales and marketing expenses and efforts;
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liquidity and sufficiency of existing cash;
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pending and future financings;
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technology and products;
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the outcome of pending or threatened litigation; and
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the effect of recent accounting pronouncements on our
financial condition and results of operations.
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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.
Our actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under the heading Risk
Factors in our Annual Report on Form 10-KSB for the year ended December 31, 2005. 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.
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, 2005.
We are a development stage company that is transitioning to operations. We have not yet
generated revenues. Much of our focus remains on research and development of our proprietary and
patented devices that are designed to reduce harmful emissions, and improve fuel efficiency and
overall performance on equipment and vehicles driven by internal combustion engines.
Our devices are called ZEFS and CAT-MATE. Historically, we have devoted the bulk of our
efforts to the completion of the design, the development of our production models and the promotion
of our products in the marketplace worldwide. We have taken actions to secure our intellectual
property rights to the ZEFS and CAT-MATE devices.
27
During 2005 and continuing in the three-month period ended March 31, 2006, we also began to
focus on the initial marketing of our devices. We entered into the first agreements for the
distribution of our products in late 2005 and early 2006. Our first two US distributorship
agreements with Team Phantom of Alaska and Motorcycle Products Consulting of California, provides
for the sale of our ZEFS devices in the North American OEM and after-market for motorcycles through
the distributors to certain named prospective purchasers.
In January 2006, we entered into our first international distributorship agreement, with
Golden Allied Enterprises (Group) Co., Ltd. (GAE). The agreement provides that GAE will serve as
our exclusive distributor for our ZEFS and CAT-MATE devices in the Peoples Republic of China. The
agreement with GAE is conditioned upon our ZEFS device achieving EURO2 standards in tests to be
conducted in Shanghai. These tests were conducted and passed in April 2006.
We anticipate that we will begin delivering devices under these agreements commencing in the
third quarter of 2006 and we currently believe that we will begin to generate revenue during the
third quarter of 2006.
In addition, we are continuing our marketing efforts to international governmental entities in
cooperation with the United Nations Environmental Programme (UNEP) and various original equipment
manufacturers (OEMs), and the aftermarket to sell or license our ZEFS and CAT-MATE devices and
technology. We anticipate that these efforts will continue during the remainder of 2006.
Since February 2, 2006, our common stock has been quoted on the Over-the-Counter Bulletin
Board under the symbol ZERO.OB.
Expenses have been funded primarily through the sale of stock and convertible debt. We have
raised capital in 2006 and will need to raise additional capital in 2006, and possibly beyond, to
fund our sales and marketing efforts, continuing research and development, and certain other
expenses, until our revenue base grows sufficiently.
Results of Operations
To date, we have not generated any revenues and our business continues in the development
stage. We have focused our efforts on verifying and developing our technologies and devices and
commencing marketing efforts for their license or sale. We expect to begin generating revenue in
the third quarter of 2006.
General and administrative expenses were $2,940,011 for the three-month period ended March 31,
2006, compared to $661,595 for the three-month period ended March 31, 2005, an increase of
$2,278,416. This increase is primarily attributable to an increase in non-cash expenses in the
amount of $2,007,888. These non-cash items are made up of accounting valuation and amortization of
warrant values associated with convertible debt financing totaling $1,183,293, revaluation of
options and warrants using the Black- Scholes option pricing model amounting to $803,551, and
depreciation of $21,044. Increases in cash expenses were $270,528 and were made up of Salaries,
Benefits and Consulting Fees of $164,994; Corporate Expenses of $30,541; Professional Fees of
$50,250; and Rent and Utilities and Office Expenses of $24,743.
28
Research and development expenses were $57,294 for the three-month period ended March 31,
2006, compared to $401,485 for the three-month period ended
March 31, 2005, a decrease of
$$344,191. This decrease is primarily attributable to a decrease in research by RAND Corporation of
$380,032, offset in part by an increase in product research, testing and prototype expenses of
$35,841.
We expect our operating costs to increase during the balance of fiscal year 2006, primarily as
a result of anticipated increases in product development expenses, general and administrative
expenses and marketing expenses, as we continue production and sales activities during 2006.
We had a net loss of $2,998,105 or $.10 per share for the three-month period ended March 31,
2006, compared to a net loss of $1,065,056 or $.03 per share for the three-month period ended March
31, 2005. We expect to incur additional net loss in the fiscal year ending December 31, 2006,
primarily attributable to continued general and administrative expenses and marketing-related
expenditures without the benefit of any significant revenue for the remainder of the year.
Liquidity and Capital Resources
We have incurred negative cash flow from operations in the development stage since our
inception in 1998. As of March 31, 2006, we had cash of $320,344 and an accumulated deficit of
$23,244,179. Our negative operating cash flow since inception has been funded primarily through the
sale of common stock, issuance of convertible notes, and, to a lesser degree, by proceeds we
received from the exercise of options and warrants.
The financial statements accompanying this Report have been prepared on a going concern basis,
which contemplates the realization of assets and settlement of liabilities and commitments in the
normal course of our business. As reflected in the accompanying financial statements, we had a net
loss of $2,998,105 and negative cash flow from operations of $953,963 for the three-month period
ended March 31, 2006 and a stockholders deficiency of $2,256,314 as of March 31, 2006. These
factors raise substantial doubt about our ability to continue as a going concern. Our ability to
continue as a going concern is dependent on our ability to raise additional funds and implement our
business plan. The financial statements do not include any adjustments that might be necessary if
we are unable to continue as a going concern.
As of March 31, 2006, our expenses ran, and are expected to continue to run, at a burn rate
of approximately
$
350,000 per month. Our current capital resources will be sufficient to fund
operations only through July 2006, and we will require additional capital in order to operate
beyond this date.
We issued an aggregate $1,075,000 principal amount of our 9% convertible subordinated notes to
investors in late 2005 and early 2006 (the Bridge Notes). Net proceeds to us from the sale of the
Bridge Notes were $935,250. Of this amount, $550,000 principal amount was issued in the three-month
period ended March 31, 2006, resulting in net proceeds to the Company of $487,500. The Bridge
Notes mature on the
29
earlier of May 31, 2006 or the successful completion of an offering of our securities of at
least $5,000,000 gross proceeds.
In addition, during 2005 and early 2006, we also issued an aggregate of $1,501,378 principal
amount of our 9% convertible subordinated notes (the Investor Notes) due July 31
,
2006 to certain
investors. Of this amount, $450,000 principal amount was issued in the three-month period ended
March 31, 2006, resulting in net proceeds to the Company of $432,000. The Company may, at its
option, require that the Investor Notes be converted into shares of our Common Stock if we raise at
least $5,000,000 gross proceeds in one or more offerings of our securities prior to such date.
In 2006, we have raised capital through the sale of our common stock and are continuing to
raise capital through the sale of our common stock, to provide the funds necessary to continue to
execute on our business plan and repay the Bridge Notes and Investor Notes as they mature.
Subsequent to the end of the three-month period ended March 31, 2006, we conducted an offering of
shares of our common stock to two overseas investors, in which we raised $737,881 gross proceeds
($667,783 net proceeds).
Also subsequent to the end of the three-month period ended March 31, 2006, we commenced an
offering (the PIPE Offering) of shares of up to $2,000,000 (subject to a 20% over-allotment
option) of our common stock and warrants through our exclusive placement agent, Spencer Clarke LLC
of New York. Prior to the filing of this Report, we raised $1,334,000 gross proceeds ($1,160,579
net proceeds) in the PIPE Offering. The PIPE Offering is ongoing at the time of the filing of
this Report.
During the three-month period ended March 31, 2006, we have also raised $153,125 through the
exercises of outstanding warrants. Subsequent to the end of the three-month period ended March 31,
2006 and through May 12, 2006, we raised an additional $900,000 through the
exercise of outstanding warrants.
We believe that exercises of in-the-money options and warrants, together with sales of our
securities in the PIPE Offering and other financings we have undertaken and may undertake, will
provide most of the proceeds needed to meet our capital requirements on a going forward basis.
However, there can be no assurance that additional equity or debt financing will be available or
available on terms favorable to us. If we are unable to obtain additional financing, we may be
required to delay, reduce the scope of, or eliminate, our ongoing research and development
programs, reduce our marketing and sales activities, or relinquish rights to technologies that we
might otherwise seek to develop or commercialize.
Critical Accounting Policies and Estimates
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
30
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.
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 entitys most critical accounting policies to be those policies that are both most
important to the portrayal of a companys financial condition and results of operations and those
that require managements 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:
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 to Notes to Financial Statements. See Part I, Item 1, Financial Statements.
Actual results could differ from those estimates.
Stock-Based Compensation
On January 1, 2006, we adopted Statements of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment, (SFAS 123R), which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees and directors based on
estimated fair values. SFAS 123R supersedes our previous accounting under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) for periods beginning
in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 107 (SAB 107) relating to SFAS 123R. We have applied the provisions of SAB 107 in
our adoption of SFAS 123R.
We adopted SFAS 123R using the modified prospective transition method, which requires the
application of the accounting standard as of January 1, 2006, the first day of our 2006 fiscal
year.
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 151, Inventory Costs. This Statement amends the guidance in
ARB No. 43 Chapter 4 Inventory Pricing, to require items such as idle facility costs, excessive
spoilage, double freight and rehandling costs to be expensed in the current period, regardless if
they are abnormal amounts or not. This Statement will become effective for us in the first quarter
of 2006. The adoption of SFAS No. 151 is not expected to have a material impact on our financial
condition, results of operations, or cash flows.
31
In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS No. 154). SFAS No. 154 changes
the requirements for the accounting for and reporting of a change in accounting principle. APB
Opinion 20 previously required that most voluntary changes in accounting principle be recognized by
including in net income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS No. 154 requires retrospective application to prior periods financial
statements of changes in accounting principle, unless it is impracticable to determine either the
period-specific effects of the cumulative effect of the change. In the event of such
impracticality, SFAS No. 154 provides for other means of application. In the event the Company
changes accounting principles, it will evaluate the impact of SFAS No. 154.
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 not adequate 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 SEC rules and
forms. We have developed, and have partially implemented, a plan to ensure that all information
will be recorded, processed, summarized and reported on a timely basis. This plan is dependent, in
part, upon reallocation of responsibilities among various personnel, hiring additional personnel
and additional funding. We began to implement this plan during 2005, including the hiring in August
2005 of a Controller who is a Certified Public Accountant. It should also 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.
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 A.
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
32
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 admit fault and did not pay any fines or restitution. The SECs charges of fraud and
stock manipulation continue 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 of monies and stock 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 alleged that Mr. Muller and certain others sold Company stock without providing
adequate consideration to us; sold insider shares without making proper disclosures and failed to
make necessary filing required 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 arrangement regarding the control,
voting and disposition of their stock. 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 prevented Mr. Muller and other cross-defendants from selling,
transferring, or encumbering any assets and property previously acquired from us, 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 from having any direct contact with our shareholders. The injunctive order also
prevents Mr. Muller from engaging in any effort to exercise control over our corporation and from
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.
In the course of the litigation, we have obtained ownership control over Mr. Mullers claimed
patent rights to the ZEFS device. Under a Buy-Sell Agreement between Mr. Muller and dated December
29, 1998, Mr. Muller, who was listed on the ZEFS devise patent application as the inventor of the
ZEFS device, purported to grant us all international marketing, manufacturing and distribution
rights to the ZEFS device. Those rights were disputed because an original inventor of the ZEFS
device contested Mr. Mullers legal ability to have conveyed those rights.
In Australia, Mr. Muller entered into a bankruptcy action seeking to overcome our claims for
ownership of the ZEFS device. In conjunction with these litigation proceedings, a settlement
agreement was reached with the bankruptcy trustee whereby the $10 per unit royalty previously due
to Mr. Muller under his contested Buy-Sell Agreement was terminated and replaced with a $.20 per
unit royalty payable to the bankruptcy trustee. On November 7, 2002, under a settlement agreement
executed with Mr. Mullers bankruptcy trustee, the trustee transferred to us all ownership and
legal rights to this international patent application for the ZEFS device.
33
Both the SEC and we filed Motions for Summary Judgment contending that there are no material
issues of fact in contention and as a matter of law, the Court should grant a judgment against Mr.
Muller and the cross-defendants.
Mr. Muller and several of the defendants filed a Motion to Dismiss the complaint filed by us
and moved for summary judgment in their favor. On December 28, 2004, Judge George B. Daniels,
denied the cross-defendants motion to dismiss our cross-complaint, denied the defendants request
to vacate the July 2, 2002 preliminary injunction and denied their request for damages against us.
The court also refused to grant a summary judgment in favor of the cross-defendants and dismissed
Mr. Mullers claims against us for indemnification for his legal costs and for damages resulting
from the litigation. Neither Mr. Muller nor any of the cross-defendants have filed any cross-claims
against us and we are not exposed to any liability as a result of the litigation, except for
possibly incurring legal fees and expenses should we lose the litigation.
On November 16, 2005, the Court granted the SECs motion for summary judgment. In granting the
motion, the Court has barred Mr. Muller from serving as an officer or director of a public company
for a period of 20 years, ordered Mr. Muller to disgorge any shares of our stock that he still owns
and directed the Company to cancel any issued and outstanding shares of our stock still owned by
Mr. Muller. Mr. Muller was also ordered to disgorge to the SEC unlawful profits in the amount of
$7.5 million and a pay a civil penalty in the amount of $100,000. Acting in accordance with the
ruling and decision of the Court, we have canceled (i) 8,047,403 shares of its common stock held by
Mr. Muller and/or his affiliates, (ii) options to acquire an additional 10,000,000 shares of our
common stock held by Mr. Muller personally and (iii) $1,017,208 of debt which Mr. Muller claimed
was owed to him by the Company.
In response to the November 16, 2005 decision by the Court, Muller filed a motion seeking to
set aside the Decision and Order of the Court. On March 31, 2006, the Court issued a Decision and
Order denying Mullers Motion to set aside the Decision on Summary Judgment issued against Muller
on November 16, 2005.
A final decision on the motion for summary judgment filed by us, which potentially would
terminate the ongoing litigation, is still pending. Should the Court not grant summary judgment in
our favor, the case will be scheduled for final disposition in a trial. Although the outcome of
this litigation cannot be predicted with any degree of certainty, we are optimistic that, based
upon previous developments in the litigation and the Courts granting of the SECs motion for
summary judgment, the Courts ruling on our motion for summary judgment will either significantly
narrow the issues for any later trial or will result in a final disposition of the case in a manner
favorable to us.
In April 2005, Jeffrey A. Muller, the Companys former sole director and executive officer,
filed a complaint against us in the Federal District Court for the Central District of California,
seeking declaratory and injunctive relief and alleging unfair competition in connection with a
claimed prior patent interest in the ZEFS device and stock option rights. In seeking declaratory
relief, Mr. Muller is seeking to have the patent rights in the ZEFS device that were previously
transferred to us by Mr. Mullers bankruptcy trustee declared null and void.
34
This recent lawsuit brought by Mr. Muller arose out of the same claims that are the subject of
ongoing litigation in the Federal District Court for the Southern District of New York, in which we
have previously obtained a preliminary injunction against Mr. Muller barring him from any
involvement with the Company and preventing Mr. Muller, his agents or assigns, from exercising any
claimed rights to our assets or stock. Mr. Muller previously filed the same complaint in the
Federal District Court for the Southern District of New York, which claim is still pending. On
December 28, 2004, Federal District Court Judge George B. Daniels issued a decision dismissing
motions filed by Mr. Muller against our cross-claims. The dismissal of those motions involved
similar causes of action as those contained in Mr. Mullers recent lawsuit commenced in the Federal
District Court for the Central District of California. Since the case in New York is still
pending, we believe that the filing of the new lawsuit in California is subject to various defenses
which should result in the dismissal of the new lawsuit.
On January 25, 2006, Mr. Mullers complaint, filed in the California District Court and
transferred to the Federal Court in the Southern District of New York, was assigned to Judge George
B. Daniels. It is expected that the Court will consolidate that complaint with the already
pending claims encompassed within our Motion for Summary Judgment. While we believe that we have
valid claims and defenses, there can be no assurance that an adverse result or outcome on the
pending motions or a trial of this case would not have a material adverse effect on our financial
position or cash flow.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three-month period ended March 31, 2006, the Company sold an aggregate $450,000
principal amount of Investor Notes and warrants to purchase 964,286 additional shares of common
stock at $1.00 share, to one investor. Net proceeds to the Company were $432,000. The issuance of
the convertible notes and warrants described above were made in reliance on the exemptions from
registration set forth in Section 4(2) of the Securities Act of 1933, as amended, or Regulations D
promulgated thereunder.
During the three-month period ended March 31, 2006, the Company also sold an aggregate
$550,000 principal amount of Bridge Notes and warrants to purchase 1,178,571 additional shares of
common stock at $1.00 per share, to 15 investors, as part of the Companys Bridge Financing. In
addition, warrants exercisable for 117,857 shares of the Companys common stock were issued to the
Companys placement agent. Net proceeds to the Company in connection with these issuances were
$487,500. The issuances of the convertible notes and warrants described above were made in
reliance on the exemptions from registration set forth in Section 4(2) of the Securities Act of
1933, as amended, or Regulations D or S promulgated thereunder.
Additionally, during the three-month period ended March 31, 2006, individuals exercised
outstanding warrants to purchase 146,250 shares of our common stock for an aggregate $153,125 gross
and net proceeds. Subsequent to the end of the three-month period
ended March 31, 2006 and through May 12, 2006, individuals exercised outstanding warrants, at various exercise
prices, to purchase an additional 1,550,000 shares for an
aggregate $900,000 gross and net proceeds.
The issuances of the shares of common stock upon exercise of the warrants described above were made
in reliance on the
35
exemptions from registration set forth in Section 4(2) of the Securities Act of 1933, as
amended, or Regulations D promulgated thereunder.
In April 2006, subsequent to the end of the three-month period ended March 31, 2006, the
Company sold an aggregate 473,000 shares of common stock and warrants to purchase 118,250
additional shares of common stock at $2.60 per share, to two investors. In addition, warrants
exercisable for 11,825 shares of the Companys common stock were issued to the Companys placement
agent. Gross proceeds to the Company in connection with these issuances were $737,881 and net
proceeds were $667,783. This offering was made to individuals who are not U.S. persons as that
term is defined in Rule 902 of Regulation S promulgated under the Securities Act of 1933, as
amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Our principal executive offices consist of leased space in North Hollywood, California. We
lease this space from KZ Golf, Inc. (KZG), pursuant to a lease we originally entered into on
October 16, 2003 and which expired on October 16, 2005. We exercised an option to renew the lease,
which renewal term was due to expire on October 15, 2007. Through October 16, 2005, the rent was
$3,400 per month for approximately 1,225 square feet, and for comprehensive office support
services, including reception, parking and conference facilities. During the extended lease term,
the rent was $3,740 per month.
In connection with our need to acquire additional office space and expanded services as our
business activities grow, we entered into a new lease dated as of January 1, 2006 with KZG,
replacing the prior lease and the terms applicable under the extended term thereof. The new lease
is for a term of 19 months, expiring July 31, 2007. The new rent is $6,208 per month for
approximately 1,700 square feet of office space, and for additional common area use, expanded
office support services, including a computer network, and additional parking spaces. We have the
right to renew the lease for an additional term of two years at a 10% increase over the
then-current rent.
Bruce H. McKinnon, our President and a director, is an owner of KZG. Management believes that
the terms of the lease with KZG are no less favorable than what we would have had to pay for
equivalent space and comparable services with an unaffiliated party.
36
Item 6. Exhibits
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Exhibit No.
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Description
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10.1
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Commercial Sublease dated as of January 1, 2006 between KZG
and the Company
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31.1
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Certification of Chief Executive Officer of Quarterly Report
Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e)
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31.2
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Certification of Chief Financial Officer of Quarterly Report
Pursuant to 18 U.S.C. Section 1350
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32
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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)
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37
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.
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Date: May 17, 2006
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SAVE THE WORLD AIR, INC.
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By:
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/s/ EUGENE E. EICHLER
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Eugene E. Eichler
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Chief Executive Officer
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38
EXHIBIT INDEX
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Exhibit No.
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Description
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10.1
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Commercial Sublease dated as of January 1, 2006 between KZG
and the Company
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31.1
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Certification of Chief Executive Officer of Quarterly Report
Pursuant to Rule 13(a)-15(e) or Rule 15(d)-15(e)
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31.2
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Certification of Chief Financial Officer of Quarterly Report
Pursuant to 18 U.S.C. Section 1350
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|
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32
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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)
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39