As filed with the Securities and Exchange Commission on
June 28, 2006
Reg.
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form SB-2
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Save the World Air,
Inc.
(Name of Small Business Issuer
in its Charter)
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Nevada
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5013
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52-2088326
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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5125 Lankershim
Boulevard
North Hollywood, California
91601
(818) 487-8000
(Address and Telephone Number of
Principal Executive Offices and Principal Place of
Business)
Eugene E. Eichler
Chief Executive
Officer
5125 Lankershim
Boulevard
North Hollywood, California
91601
(818) 487-8000
(Name, Address and Telephone
Number of Agent For Service)
Copy to:
Lance Jon
Kimmel, Esq.
SEC Law Firm
11693 San Vicente
Boulevard, Suite 357
Los Angeles, California
90049
(310) 557-3059
Approximate date of proposed sale to the
public:
From time to time after the date this
registration statement becomes effective.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
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If this form is a post-effective amendment filed pursuant to
Rule 462
©
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
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If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following
box.
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Proposed Maximum Offering
Price
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Aggregate
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Registration
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Securities to be
Registered
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Registered(1)
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per Share(2)
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Offering Price(2)
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Fee(2)
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Common Stock, par value $0.001
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2,408,733
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(3)
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$
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2.20
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$
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5,299,213
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$
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567.02
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Common Stock, par value $0.001,
underlying warrants
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2,510,767
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(4)
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$
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1.00
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$
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2,510,767
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$
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268.65
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Common Stock, par value $0.001,
underlying warrants
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523,813
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(5)
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$
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2.70
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$
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1,414,295
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$
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151.33
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Total
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5,443,313
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$
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9,224,275
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$
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987.00
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(1)
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In addition to the shares set forth
in the table, the amount to be registered pursuant to this
registration statement includes an indeterminate number of
additional shares issuable upon exercise of warrants as a result
of anti-dilution adjustments, such as for stock splits, stock
dividends and similar transactions in accordance with
Rule 416.
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(2)
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The price is estimated in
accordance with Rule 457(c) under the Securities Act of
1933, as amended, solely for the purpose of calculating the
registration fee and represents the average of the high and the
low prices of the common stock on June 23, 2006, as
reported on the OTC Bulletin Board.
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(3)
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Represents
(i) 1,535,715 shares of common stock issued in
connection with the conversion of 9% convertible promissory
notes due May 31, 2006, at a conversion price of
$0.70 per share; and (ii) 873,018 shares of
common stock issued in connection with a private equity offering
in May 2006 at $1.89 per share.
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(4)
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Represents shares of common stock
issuable upon exercise of warrants at $1.00 per share.
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(5)
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Represents shares of common stock
issuable upon exercise of warrants at $2.70 per share.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. The selling security holders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
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SUBJECT TO COMPLETION. DATED
JUNE 28, 2006
PROSPECTUS
SAVE THE WORLD AIR,
INC.
5,443,313 Shares of Common
Stock
This prospectus relates to the reoffer and resale, from time to
time, of up to 2,408,733 shares of our common stock and up
to 3,034,580 shares of our common stock issuable upon the
exercise of warrants held by the same selling security holders.
The prices at which the selling shareholder may sell these
shares will be determined by the prevailing market price for
shares of our common stock or in negotiated transactions. For a
list of selling security holders, please see Selling
Security Holders on page 40 of this prospectus.
We are not selling any shares of common stock in this offering
and therefore will not receive any proceeds from this offering.
We will, however, receive the exercise price of the warrants if
and when those warrants are exercised. None of the warrants have
yet been exercised as of the date of this prospectus.
We will pay the expenses of registering the shares registered in
this prospectus.
Our common stock is traded in the
over-the-counter
market and is quoted on the OTC Bulletin Board under the
symbol ZERO.OB. On June 23, 2006, the last bid price of our
common stock was $2.20 per share.
The shares included in this prospectus may be reoffered and
resold directly by the selling security holders in accordance
with one or more of the methods described in the plan of
distribution, which begins on page 45 of this prospectus.
We will not control or determine the price at which a selling
security holder decides to sell its shares. Brokers or dealers
effecting transactions in these shares should confirm that the
shares are registered under applicable state law or that an
exemption from registration is available.
Investing in our common stock
involves a high degree of risk. You should understand the risks
associated with investing in our common stock. Before making an
investment, read the Risk Factors, which begin on
page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2006.
TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that which is contained in this
prospectus. This prospectus may be used only where it is legal
to sell these securities. The information in this prospectus may
only be accurate on the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of
securities.
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FORWARD-LOOKING
STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. This
document contains forward-looking statements, which reflect the
views of our management with respect to future events and
financial performance. These forward-looking statements are
subject to a number of uncertainties and other factors that
could cause actual results to differ materially from such
statements. Forward-looking statements are identified by words
such as anticipates, believes,
estimates, expects, intends,
plans, projects, targets and
similar expressions. Readers are cautioned not to place undue
reliance on these forward-looking statements, which are based on
the information available to management at this time and which
speak only as of this date. We undertake no obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. For a discussion of
some of the factors that may cause actual results to differ
materially from those suggested by the forward-looking
statements, please read carefully the information under
Risk Factors beginning on page 3.
The identification in this document of factors that may affect
future performance and the accuracy of forward-looking
statements is meant to be illustrative and by no means
exhaustive. All forward-looking statements should be evaluated
with the understanding of their inherent uncertainty. You may
rely only on the information contained in this prospectus.
We have not authorized anyone to provide information different
from that contained in this prospectus. Neither the delivery of
this prospectus nor the sale of common stock means that
information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell
or solicitation of an offer to buy these securities in any
circumstances under which the offer or solicitation is unlawful.
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PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus; it does not contain all of the information you
should consider before investing in our common stock. You should
read the entire prospectus before making an investment
decision.
Throughout this prospectus, the terms we,
us, our, and our company
refer to Save the World Air, Inc., a Nevada corporation, and,
unless the context indicates otherwise, also includes our
wholly-owned subsidiary, STWA Asia Pte. Ltd., a Singapore
corporation.
The
Company
We are a development stage company that is transitioning to
operations. We have not yet generated revenues. Historically, we
devoted the bulk of our efforts 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
tm
and
CAT-MATE
®
.
During 2005, we commenced initial marketing efforts for our
emission control and performance-enhancing
ZEFS
tm
and
CAT-MATE
®
technologies, and these efforts are continuing. We are focused
on selling our technologies and devices domestically and
internationally to motorcycle, automobile, carburetor,
fuel-injection and diesel engine manufacturers as well as,
exhaust and muffler original equipment manufacturers (OEMs) and
the after-market. We have made presentations of our ZEFS and
CAT-MATE technologies to OEMs in the United States, Asia and
Europe.
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., or 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. 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 in late
2006.
In addition, we have initiated marketing efforts to
international governmental entities in cooperation with the
United Nations Environmental Programme (UNEP) and various OEMs,
and the aftermarket to sell or license our ZEFS and CAT-MATE
devices and technology.
In April 2006, we entered into a product development agreement
with Kwong Kee (Qing Xin) Environmental Exhaust Systems Company,
Ltd. in China. Kwong Kee, a manufacturer of mufflers and
catalytic converters, will collaborate with us on product
development of our CAT-MATE technology. As part of our strategic
alliance, Kwong Kee will make available its research and
development facilities, testing equipment and product design and
development support team.
Recent
Financing Transactions
We recently completed a private placement of $1,075,000 of our
9% convertible notes, or bridge notes, with several accredited
investors, pursuant to which they had the right, at any time
prior to the maturity date of the bridge notes on May 31,
2006, to convert their bridge notes into shares of our common
stock at a conversion price of $.70 per share. All of these
noteholders converted the bridge notes into a total of
1,535,715 shares. In addition, in connection with that
private placement, we issued warrants, or bridge warrants, to
purchase a total of 2,303,568 shares of our common stock at
an exercise price of $1.00 per share, to these same
investors. We also issued warrants to purchase a total of
153,572 shares of our common stock at an exercise price of
$1.00 to our placement agent in that offering, Spencer Clarke
LLC. We had previously also issued warrants to Spencer Clarke to
purchase a total of 53,627 shares of our common stock at an
exercise price of $1.00 per share, for general investment
banking services.
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We also recently completed a private placement of
873,018 shares of our common stock with several additional
accredited investors. In addition, in connection with this
offering, we issued warrants, or PIPE warrants, to purchase a
total of 436,511 shares of our common stock at an exercise
price of $2.70 per share, to these same investors. We also
issued warrants to purchase a total of 87,302 shares of our
common stock at an exercise price of $2.70 to our placement
agent in that offering, Spencer Clarke LLC.
As a result of the foregoing transactions, this offering
involves a total of 5,443,313 shares of our common stock
held by these investors and issuable upon exercise of the
warrants, by these investors. In this prospectus, we refer to
the investors and Spencer Clarke LLC collectively as the selling
security holders.
The
Offering
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Common stock offered by the selling security holders
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2,408,733 shares held by the selling security holders and
3,034,580 shares issuable upon exercise of the warrants
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Common stock currently outstanding as of June 21, 2006
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37,141,264 shares(1)
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Common stock to be outstanding after the offering, assuming
exercise of all the warrants for the shares covered by this
prospectus
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40,175,844 shares(1)(2)
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OTC Bulletin Board Trading Symbol
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ZERO.OB
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Risk Factors
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An investment in our common stock involves significant risks.
See Risk Factors beginning on page .
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(1)
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Does not include 7,181,257 shares of common stock issuable
upon the exercise of outstanding options (with exercise prices
ranging from $0.10 per share to $1.69 per share) and
22,075,058 shares of common stock issuable upon the
exercise of warrants (with exercise prices ranging from $0.40 to
$2.70 per share).
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(2)
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Includes 3,034,580 shares of common stock issuable upon the
exercise of currently outstanding warrants (with exercise prices
ranging from $1.00 to $2.70) covered by this prospectus.
Excludes (i) an additional 19,040,478 shares of common
stock issuable upon the exercise of currently outstanding
warrants (with exercise prices ranging from $0.40 to $2.60) and
(ii) an additional 1,839,512 shares of common stock
issuable upon the conversion of outstanding convertible notes,
or investor notes, at $.70 per share, none of which are covered
by this prospectus.
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RISK
FACTORS
Investing in our common stock involves a high degree of risk,
and you should be able to bear the complete loss of your
investment. You should carefully consider the risks described
below, the other information in this Prospectus, the documents
incorporated by reference herein and the risk factors discussed
in our other filings with the Securities and Exchange
Commission, including our Annual Reported on
Form 10-KSB
for the year ended December 31, 2005, when evaluating our
company and our business. The risks and uncertainties described
below are not the only ones we face. Additional risks and
uncertainties not presently known by us or that we currently
deem immaterial also may impair our business operations. If any
of the following risks actually occur, our business could be
harmed. In such case, the trading price of our common stock
could decline and investors could lose all or a part of the
money paid to buy our common stock.
RISKS
RELATED TO OUR BUSINESS
We
have never generated any revenues, have a history of losses, and
cannot assure you that we will ever become or remain profitable.
As a result, you may lose your entire investment.
We have not yet generated any revenue from operations and,
accordingly, we have incurred net losses every year since our
inception in 1998. For the three-month periods ended
March 31, 2006 and March 31, 2005, we had net losses
of $2,998,105 and $1,065,056, respectively. For the fiscal years
ended December 31, 2005 and 2004, we had net losses of
$3,115,186 and $6,803,280, respectively. To date, we have
dedicated most of our financial resources to research and
development, general and administrative expenses and initial
sales and marketing activities. We have funded all of our
activities through sales of our securities. Although we expect
to generate revenue beginning in 2006 from sales of our ZEFS and
CAT-MATE devices, we anticipate net losses and negative cash
flow to continue for the foreseeable future until such time as
our products are brought to market in sufficient amounts to
offset operating losses. As planned, we have significantly
expanded both our research and development efforts, and our
sales and marketing efforts, during the past year. Consequently,
we will need to generate significant additional revenue to fund
our operations. This has put a proportionate corresponding
demand on capital. Our ability to achieve profitability is
entirely dependent upon our research and development efforts to
deliver a viable product and the companys ability to
successfully bring it to market. Although our management is
optimistic that we will succeed with marketing the ZEFS and
CAT-MATE devices, there can be no assurance that we will ever
generate any revenues or that any revenues that may be generated
will be sufficient for us to become profitable or thereafter
maintain profitability. If we cannot generate any revenues or
become or remain profitable, we may have to cease our operations
and liquidate our business and you may lose your entire
investment.
Our
independent auditors have expressed doubt about our ability to
continue as a going concern, which may hinder our ability to
obtain future financing.
In their report dated March 22, 2006, our independent
auditors stated that our financial statements for the year ended
December 31, 2005 were prepared assuming that we would
continue as a going concern. Our ability to continue as a going
concern is an issue raised as a result of our recurring negative
cash flows from operations and accumulated deficit. We had an
accumulated deficit of approximately $20,246,074 and $23,244,179
as of December 31, 2005 and March 31, 2006,
respectively. Our ability to continue as a going concern is
subject to our ability to obtain significant additional capital
to fund our operations and to generate revenue from sales, of
which there is no assurance. The going concern qualification in
the auditors report could materially limit our ability to
raise additional capital. If we fail to raise sufficient
capital, we may have to liquidate our business and you may lose
your investment.
We may
need additional capital to repay certain short-term debt as it
matures during 2006.
In August and September 2005, we sold an aggregate of $1,501,378
of our 9% convertible subordinated notes due July 31, 2006,
which we refer to as investor notes, to certain investors. The
noteholders may voluntarily convert their investor notes into
shares of our common stock at a conversion price of
$.70 per share at any time prior to the maturity date of
the investors notes. In addition, we may, at our option, require
that the investor notes be converted into shares of our common
stock if we raise or obtain firm commitments to raise at least
$5,000,000 in new
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financing in one or more debt or equity offerings subsequent to
the issuance of the investor notes. We have not satisfied this
condition and therefore at present we cannot require the
conversion of the investor notes on or prior to their maturity
date. As of June 21, 2006, noteholders holding $213,720
aggregate principal amount of the investor notes voluntarily
converted their investor notes into 305,314 shares of our
common stock.
Management cannot predict with certainty that the remaining
noteholders will voluntarily convert their investor notes into
shares of our common stock, eliminating the need for us to repay
the investor notes when they mature on July 31, 2006. If
the noteholders do not voluntarily convert the investor notes,
or if we have not raised or obtained firm commitments to raise
sufficient additional capital to require the conversion of the
investor notes, we would either have to use a significant
portion of our cash on hand to repay the investor notes or may
be unable to repay the investor notes in full when they mature
on July 31, 2006, and, in addition, we would have to
curtail many of our business activities.
We
will need additional capital to meet our operating needs, and we
cannot be sure that additional financing will be
available.
As of March 31, 2006 our expenses ran at a burn
rate of approximately
$
350,000 per month, and
since that time, due to expanded activities, our expenses have
run and are expected to continue to run, at a burn
rate of approximately $400,000 per month. Even
assuming that we will not be required to repay the investor
notes at maturity because they have been converted into shares
of our common stock, our current capital resources will be
sufficient to fund operations only through October 2006, and we
will require additional capital in order to operate beyond this
date. Management anticipates that at least portion of our cash
flow needs will be satisfied by the exercise of outstanding
warrants to purchase our common stock, at variable prices, which
are coming due at various times this year. In addition,
management is actively pursuing other financing alternatives.
However, no assurance can be given at this time that any such
sources of capital will be available to us, or available to us
on favorable terms. If we cannot obtain needed capital, when and
as we need it, our continuing research and development efforts,
sales and marketing plans, business and financial condition and
our ability to reduce losses and generate profits are likely to
be materially and adversely affected.
If we
obtain additional financing, you may suffer significant
dilution.
Any additional issuance of our common stock, or securities
convertible into or exercisable for our common stock, would
dilute the percentage ownership of our existing stockholders.
This dilution could also have an adverse impact on our earnings
per share, if and when we become profitable, and reduce the
price of our common stock. In addition, the new securities may
have rights, preferences or privileges senior to those of our
common stock.
As a
company with an unproven business strategy, our limited history
of operations makes evaluation of our business and prospects
difficult.
Our business prospects are difficult to predict because of our
limited operating history, early stage of development and
unproven business strategy. Since our incorporation in 1998, we
have been and continue to be involved in development of products
using our technology, establishing manufacturing and marketing
of these products to consumers and industry partners. Although
we believe our technology and products in development have
significant profit potential, we may not attain profitable
operations and our management may not succeed in realizing our
business objectives.
If we
are not able to devote adequate resources to product development
and commercialization, we may not be able to develop our
products.
Our business strategy is to develop, manufacture and market ZEFS
and CAT-MATE products using our technology. We believe that our
revenue growth and profitability, if any, will substantially
depend upon our ability to:
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raise additional needed capital for research and development;
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complete development of our products in development; and
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successfully introduce and commercialize our new products.
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Certain of our products are still under various stages of
development. Because we have limited resources to devote to
product development and commercialization, any delay in the
development of one product or reallocation of resources to
product development efforts that prove unsuccessful may delay or
jeopardize the development of other product candidates. Although
our management believes that it can finance our product
development through private placements and other capital
sources, if we do not develop new products and bring them to
market, our ability to generate revenues will be adversely
affected.
As we
have not generated positive cash flow from operations, our
ability to continue operations is dependent on our ability to
either begin to generate positive cash flow from operations or
our ability to raise capital from outside sources.
We have not generated positive cash flow from operations and
have relied on external sources of capital to fund operations.
We had $320,344 in cash at March 31, 2006 and negative cash
flow from operations of $953,963 for the three-month period
ended March 31, 2006.
We currently do not have credit facilities available with
financial institutions or other third parties, and historically
have relied upon best efforts third-party funding. Though we
have been successful at raising capital on a best efforts basis
in the past, we can provide no assurance that we will be
successful in any future best-efforts financing endeavors. We
may need to continue to rely upon financing from external
sources to fund our operations for the foreseeable future. If we
are unable to raise sufficient capital from external sources to
fund our operations, we may need to curtail operations.
The
commercial viability of the ZEFS and CAT-MATE devices remains
largely unproven and we may not be able to attract
customers.
Despite the fact that have entered into our first distribution
agreements, to the best of our knowledge, no consumer, engine,
carburetor or automobile manufacturer has used the ZEFS or
CAT-MATE devices to reduce engine emissions, enhanced
performance or fuel efficiency to date. Accordingly, the
commercial viability of our devices are not known at this time.
If commercial opportunities are not realized from the use of the
ZEFS and
CAT-MATE
devices, our ability to generate revenue would be adversely
affected. There can be no assurances that we will be successful
in marketing our devices, or that customers will ultimately
purchase our devices. Failure to have commercial success from
the sale of these devices will significantly and negatively
impact our financial condition.
If our
products and services do not gain market acceptance, it is
unlikely that we will become profitable.
The market for products that reduce harmful motor vehicle
emissions is evolving and we have many successful competitors.
Automobile manufacturers have historically used various
technologies, including catalytic converters, to reduce exhaust
emissions caused by their products. At this time, our technology
is unproven, and the use of our technology by others is limited.
The commercial success of our products will depend upon the
adoption of our technology by auto manufacturers and consumers
as an approach to reduce motor vehicle emissions. Market
acceptance will depend on many factors, including:
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the willingness and ability of consumers and industry partners
to adopt new technologies;
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the willingness of governments to mandate reduction of motor
vehicle emissions;
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our ability to convince potential industry partners and
consumers that our technology is an attractive alternative to
other technologies for reduction of motor vehicle emissions;
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our ability to manufacture products and provide services in
sufficient quantities with acceptable quality and at an
acceptable cost; and
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our ability to place and service sufficient quantities of our
products.
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5
If our products do not achieve a significant level of market
acceptance, demand for our products will not develop as expected
and it is unlikely that we will become profitable.
We
need to outsource and rely on third parties for the manufacture,
sales and marketing of our devices, and our future success will
be dependent on the timeliness and effectiveness of the efforts
of these third parties.
We do not have the required financial and human resources or
capability to manufacture, market and sell our devices. Our
business model calls for the outsourcing of the manufacture, and
sales and marketing of our devices in order to reduce our
capital and infrastructure costs as a means of potentially
improving our financial position and the profitability of our
business. Accordingly, we must enter into agreements with other
companies that can assist us and provide certain capabilities
that we do not possess. We have entered into certain
distribution agreements, but we may not be successful in
entering into additional such alliances on favorable terms or at
all. Even if we do succeed in securing additional distribution
agreements, we may not be able to maintain them. Furthermore,
any delay in entering into agreements could delay the
development and commercialization of our products and reduce
their competitiveness even if they reach the market. Any such
delay related to our existing or future agreements could
adversely affect our business.
We do not currently have an agreement in place for the
manufacture of our ZEFS devices. Although we presently intend to
have our CAT-MATE devices manufactured by Kwong Kee (Qing Xin)
Environmental Exhaust Systems Company, Ltd. in China , we do not
yet have an agreement in place for the manufacture of our
CAT-MATE devices.
If any
party to which we have outsourced certain functions fails to
perform its obligations under agreements with us, the
development and commercialization of our devices could be
delayed or curtailed.
To the extent that we rely on other companies to manufacture,
sell or market our devices, we will be dependent on the
timeliness and effectiveness of their efforts. If any of these
parties do not perform its obligations in a timely and effective
manner, the commercialization of our devices could be delayed or
curtailed because we may not have sufficient financial resources
or capabilities to continue such development and
commercialization on our own.
Any
revenues that we may earn in the future are unpredictable, and
our operating results are likely to fluctuate from quarter to
quarter.
We believe that our future operating results will fluctuate due
to a variety of factors, including:
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delays in product development;
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market acceptance of our new products;
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changes in the demand for, and pricing, of our products;
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competition and pricing pressure from competitive products;
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manufacturing delays; and
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expenses related to, and the results of, proceedings relating to
our intellectual property.
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A large portion of our expenses, including expenses for our
facilities, equipment and personnel, is relatively fixed and not
subject to significant reduction. In addition, we expect our
operating expenses will continue to increase significantly in
2006, as a result of our continuing research and development
efforts, and increased production, and sales and marketing
activities. Although we expect to generate revenues from sales
of our products in the future, revenues may decline or not grow
as anticipated and our operating results could be substantially
harmed for a particular fiscal period. Moreover, our operating
results in some quarters may not meet the expectations of stock
market analysts and investors. In that case, our stock price
most likely would decline.
6
Nondisclosure
agreements with employees and others may not adequately prevent
disclosure of trade secrets and other proprietary
information.
In order to protect our proprietary technology and processes, we
rely in part on nondisclosure agreements with our employees,
licensing partners, consultants, agents and other organizations
to which we disclose our proprietary information. These
agreements may not effectively prevent disclosure of
confidential information and may not provide an adequate remedy
in the event of unauthorized disclosure of confidential
information. In addition, others may independently discover
trade secrets and proprietary information, and in such cases we
could not assert any trade secret rights against such parties.
Costly and time-consuming litigation could be necessary to
enforce and determine the scope of our proprietary rights, and
failure to obtain or maintain trade secret protection could
adversely affect our competitive business position. Since we
rely on trade secrets and nondisclosure agreements, in addition
to patents, to protect some of our intellectual property, there
is a risk that third parties may obtain and improperly utilize
our proprietary information to our competitive disadvantage. We
may not be able to detect unauthorized use or take appropriate
and timely steps to enforce our intellectual property rights.
The
manufacture, use or sale of our current and proposed product
candidates may infringe on the patent rights of others, and we
may be forced to litigate if an intellectual property dispute
arises.
If we infringe or are alleged to have infringed another
partys patent rights, we may be required to seek a
license, defend an infringement action or challenge the validity
of the patents in court. Patent litigation is costly and time
consuming. We may not have sufficient resources to bring these
actions to a successful conclusion. In addition, if we do not
obtain a license, do not successfully defend an infringement
action or are unable to have infringed patents declared invalid,
we may:
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incur substantial monetary damages;
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encounter significant delays in marketing our current and
proposed product candidates;
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be unable to conduct or participate in the manufacture, use or
sale of product candidates or methods of treatment requiring
licenses;
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lose patent protection for our inventions and products; or
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find our patents are unenforceable, invalid, or have a reduced
scope of protection.
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Parties making such claims may be able to obtain injunctive
relief that could effectively block the companys ability
to further develop or commercialize our current and proposed
product candidates in the United States and abroad and could
result in the award of substantial damages. Defense of any
lawsuit or failure to obtain any such license could
substantially harm the company. Litigation, regardless of
outcome, could result in substantial cost to and a diversion of
efforts by the company.
We may
face costly intellectual property disputes.
Our ability to compete effectively will depend in part on our
ability to develop and maintain proprietary aspects of our
technology and either to operate without infringing the
proprietary rights of others or to obtain rights to technology
owned by third parties. Our pending patent applications,
specifically patent rights of the ZEFS and
CAT-MATE
devices, may not result in the issuance of any patents or any
issued patents that will offer protection against competitors
with similar technology. Patents we receive may be challenged,
invalidated or circumvented in the future or the rights created
by those patents may not provide a competitive advantage. We
also rely on trade secrets, technical know-how and continuing
invention to develop and maintain our competitive position.
Others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access
to our trade secrets.
We are
involved in a patent infringement suit brought by our former
sole director and executive officer.
In April 2005, Jeffrey A. Muller, the Companys former sole
director and executive officer, filed a complaint against us
seeking declaratory and injunctive relief and alleging unfair
competition in connection with a claimed prior patent interest
in the ZEFS device. Mr. Muller is seeking to have the
patent rights in the ZEFS device that were
7
previously transferred to us by Mr. Mullers bankruptcy
trustee declared null and void. This is but one of several
claims that have been litigated over a number of years between
Mr. Muller and us. While we believe that we have valid
claims and defenses, there can be no assurance that an adverse
result or outcome in the pending litigation would not have a
material adverse effect on our business prospects, financial
position and cash flow.
We may
not be able to attract or retain qualified senior
personnel.
We believe we are currently able to manage our current business
with our existing management team. However, as we expand the
scope of our operations, we will need to obtain the full-time
services of additional senior management and other personnel.
Competition for highly-skilled personnel is intense, and there
can be no assurance that we will be able to attract or retain
qualified senior personnel. Our failure to do so could have an
adverse effect on our ability to implement our business plan. As
we add full-time senior personnel, our overhead expenses for
salaries and related items will increase from current levels
and, depending upon the number of personnel we hire and their
compensation packages, these increases could be substantial.
If we
lose our key personnel or are unable to attract and retain
additional personnel, we may be unable to achieve
profitability.
Our future success is substantially dependent on the efforts of
our senior management, particularly Eugene Eichler, Bruce
McKinnon and John Bautista. The loss of the services of members
of our senior management may significantly delay or prevent the
achievement of product development and other business
objectives. Because of the scientific nature of our business, we
depend substantially on our ability to attract and retain
qualified marketing, scientific and technical personnel. There
is intense competition among specialized automotive companies
for qualified personnel in the areas of our activities. If we
lose the services of, or do not successfully recruit key
marketing, scientific and technical personnel, the growth of our
business could be substantially impaired. At present, we
maintain key man insurance only for Mr. McKinnon.
We may
incur increased costs under the Sarbanes-Oxley Act of
2002.
As a public company, we incur significant legal, accounting and
other expenses. In addition, the Sarbanes-Oxley Act of 2002, as
well as related rules adopted by the Securities and Exchange
Commission, have imposed substantial requirements on public
companies, including certain corporate governance practices and
requirements relating to internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act. We
expect these rules and regulations to increase our legal and
financial compliance costs and to make some activities more
time-consuming and costly. Although we will not be required to
evaluate how to document and test our internal control
procedures under Section 404 of the Sarbanes-Oxley Act and
the related rules of the Securities and Exchange Commission
until our Annual Report on
Form 10-KSB
for the year ended December 31, 2007, effective disclosure
controls and procedures and internal controls are necessary for
us to produce reliable financial reports and are important in
helping prevent financial fraud generally. We must begin to
implement proper procedures significantly in advance of this
date and will incur significant up-front expenses to do so. If
we are unable to achieve and maintain adequate disclosure
controls and procedures and internal controls, our business and
operating results could be harmed.
Changes
in stock option accounting rules may adversely affect our
reported operating results, our stock price, and our ability to
attract and retain employees.
In December 2004, the Financial Accounting Standards Board
published new rules that will require companies such as us to
record all stock-based employee compensation as an expense. The
new rules apply to stock options grants, as well as a wide range
of other share-based compensation arrangements including
restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. Large
public companies have had to apply the new financial accounting
rules to the first fiscal year that began after
June 15, 2005, while small business issuers such as
this company have had to apply the new rules in their first
fiscal year beginning after December 15, 2005. As a small
company with limited financial resources, we have depended upon
compensating our officers, directors, employees and consultants
with such stock based compensation awards in the past in order
to limit our cash expenditures and to attract and retain
officers, directors, employees and consultants. Accordingly, if
8
we continue to grant stock options or other stock based
compensation awards to our officers, directors, employees, and
consultants after the new rules apply to us, our future
earnings, if any, will be reduced (or our future losses will be
increased) by the expenses recorded for those grants. These
compensation expenses may be larger than the compensation
expense that we would be required to record were we able to
compensate these persons with cash in lieu of securities. Since
we are a small company, the expenses we may have to record as a
result of future options grants may be significant and may
materially negatively affect our reported financial results. The
adverse effects that the new accounting rules may have on our
future financial statements should we continue to rely heavily
on stock-based compensation may reduce our stock price and make
it more difficult for us to attract new investors. In addition,
reducing our use of stock plans as an incentive for and a reward
to our officers, directors and employees, could result in a
competitive disadvantage to us in the employee marketplace.
RISKS
RELATED TO OUR COMMON STOCK
Currently,
there is only very limited trading in our stock, so you may be
unable to sell your shares at or near the quoted bid prices if
you need to sell your shares.
The shares of our common stock are thinly-traded on the OTC
Bulletin Board, meaning that the number of persons
interested in purchasing our common shares at or near bid prices
at any given time may be relatively small or non-existent. This
situation is attributable to a number of factors, including the
fact that we are a small company engaged in a high risk business
which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community
that can generate or influence daily trading volume and
valuation. Should we even come to the attention of such persons,
they tend to be risk-averse and would be reluctant to follow an
unproven, early stage company such as ours or purchase or
recommend the purchase of our shares until such time as we
became more seasoned and viable. As a consequence, there may be
periods of several days or more when trading activity in our
shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity
that will generally support continuous trading without
negatively impacting our share price. We cannot give you any
assurance that a broader or more active public trading market
for our common shares will develop or be sustained. Due to these
conditions, we can give you no assurance that you will be able
to sell your shares at or near bid prices or at all. As a
result, you could lose all or part of your investment.
The
market price of our stock is volatile.
The market price for our common stock has been volatile in
recent months, ranging from a closing price of $0.65 on
January 10, 2006 to a closing price of $4.74 on
March 13, 2006, and $2.20 on June 23, 2006.
Additionally, the price of our stock has been both higher and
lower than those amounts on an intra-day basis in recent months.
Because our stock is thinly traded, its price can change
dramatically over short periods, even in a single day. An
investment in our stock is subject to such volatility and,
consequently, is subject to significant risk. The market price
of our common stock could fluctuate widely in response to many
factors, including:
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developments with respect to patents or proprietary rights;
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announcements of technological innovations by us or our
competitors;
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announcements of new products or new contracts by us or our
competitors;
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actual or anticipated variations in our operating results due to
the level of development expenses and other factors;
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changes in financial estimates by securities analysts and
whether any future earnings of ours meet or exceed such
estimates;
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conditions and trends in our industry;
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new accounting standards;
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general economic, political and market conditions and other
factors; and
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the occurrence of any of the risks described in this prospectus.
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9
Substantial
sales of common stock could cause our stock price to
fall.
As of June 23, 2006, we had 37,141,264 shares of
common stock outstanding. In the past year, there have been
times when average daily trading volume of our common stock has
been extremely low, and there have been many days in which no
shares were traded at all. At other times, the average daily
trading volume of our common stock has been high. As a result of
the registration of the shares included in this prospectus, an
additional 5,443,313 shares of our common stock (assuming
exercise of the warrants) will be able to be freely sold on the
market. Because of the limited trading volume, the sudden
release of up to 5,443,313 additional freely trading shares
included in this prospectus onto the market, or the perception
that such shares will or could come onto the market, could have
an adverse affect on the trading price of our stock. No
prediction can be made as to the effect, if any, that sales of
the shares included in this prospectus, or the availability of
such shares for sale, will have on the market prices prevailing
from time to time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for our
common stock and could impair our ability to raise capital
through the sale of our equity securities.
You
may have difficulty selling our shares because they are deemed
penny stocks.
Because our common stock is not quoted on the Nasdaq National
Market or Nasdaq Capital Market or listed on a national
securities exchange, if the trading price of our common stock
remains below $5.00 per share, trading in our common stock
will be subject to the requirements of certain rules promulgated
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), which require additional disclosure
by broker-dealers in connection with any trades involving a
stock defined as a penny stock (generally, any non-Nasdaq equity
security that has a market price of less than $5.00 per
share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks
associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors
(generally defined as an investor with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with a spouse). For these types of
transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the
purchasers written consent to the transaction prior to the
sale. The broker-dealer also must disclose the commissions
payable to the broker-dealer, current bid and offer quotations
for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the
broker-dealers presumed control over the market. Such
information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to
the customer. Monthly statements must be sent disclosing recent
price information for the penny stock held in the account and
information on the limited market in penny stocks. The
additional burdens imposed upon broker-dealers by such
requirements could discourage broker-dealers from effecting
transactions in our common stock, which could severely limit the
market liquidity of the common stock and the ability of holders
of the common stock to sell their shares.
Potential
issuance of additional shares of our common stock could dilute
existing stockholders.
We are authorized to issue up to 200,000,000 shares of
common stock. To the extent of such authorization, our Board of
Directors has the ability, without seeking stockholder approval,
to issue additional shares of common stock in the future for
such consideration as the Board of Directors may consider
sufficient. The issuance of additional common stock in the
future will reduce the proportionate ownership and voting power
of the common stock offered hereby.
USE OF
PROCEEDS
We will not receive any proceeds from the sale of any of the
common stock by the selling security holders pursuant to this
prospectus. All proceeds from the sale of the shares will be for
the account of the selling security holders. However, we will
receive the proceeds from the exercise of warrants for
3,034,580 shares underlying such warrants, which are
covered by this prospectus. If all of such warrants to purchase
3,034,580 shares of common stock are exercised for cash,
the total amount of proceeds we would receive is approximately
$3,925,062. We expect to use the proceeds, if any, that we
receive from the exercise of warrants for general working
capital purposes. We will pay the expenses of registration of
these shares, including legal and accounting fees.
10
BUSINESS
Overview
We are a development stage company that is transitioning to
operations. We have not yet generated revenues. Historically, we
devoted the bulk of our efforts on research and development of
our proprietary and patented devices. Our devices are called
ZEFS and CAT-MATE. Both the ZEFS and
CAT-MATE technologies reduce carbon monoxide, hydrocarbon and
oxides of nitrogen emissions in 2- and 4-stroke motorcycles,
fuel-injection engines, generators and small engines. In
addition, the ZEFS technology improves fuel efficiency and
overall performance on equipment and vehicles driven by internal
combustion engines.
During the past four years, we have acquired these technologies,
developed products, conducted scientific tests and produced
prototype products, and initiated sales and marketing efforts.
In 2002, we acquired worldwide intellectual property, patent,
manufacturing and marketing rights to the ZEFS technology. In
late 2003, we acquired worldwide intellectual property and
patent rights to the CAT-MATE technology. We have taken actions
within the U.S. and internationally to secure our intellectual
property rights.
During 2005, 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. 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 in late
2006. In April 2006, we entered into a product development
agreement with a strategic partner relating our CAT-MATE devices.
In addition, we have initiated 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.
Expenses to date have been funded through the sale of company
stock and the issuance of debt. We will need to raise additional
capital during 2006 to fund our sales and marketing efforts,
continuing research and development, and certain other expenses.
Our company was incorporated on February 18, 1998, as a
Nevada corporation under the name Mandalay Capital Corporation.
We changed our name to Save the World Air, Inc. on
February 11, 1999 following the acquisition of marketing
and manufacturing rights of the ZEFS device. Our mailing address
and executive offices are located at 5125 Lankershim Boulevard,
North Hollywood, California, 91601. Our telephone number is
(818) 487-8000.
Our corporate website is www.stwa.com. Information contained on
the website is not deemed part of this prospectus.
Governmental
Mandates to Reduce Air Pollution
The incomplete and inefficient burning of fossil fuel in
internal combustion engines results in unburned gases, such as
hydrocarbons, carbon monoxide and oxides of nitrogen being
expelled as harmful emission as a by-product of the
engines exhaust. These emissions have contributed to
significant air pollution and depletion of the ozone layer that
protects the worlds atmosphere from harmful ultraviolet
radiation. As a result, the world has experienced significant
deterioration to its air quality since the beginning of the
20th century and the problem has gotten progressively worse
with each passing year. Forecasts published by the World
Resources Institute indicate that this trend will continue to
accelerate.
Governments internationally recognize the serious effects caused
by air pollution and have enacted legislation to mandate that
engine manufacturers be required to reduce exhaust emissions
caused by their products. As evidenced by the overwhelming
participation in the establishment of the Kyoto Accord, most
nations are moving towards tighter emissions control. The EU
currently requires all member nations to adopt EURO3 emissions
standards, and many Asian and Eastern European countries have
also announced gradual phase-in of this standard. The cost of
adding emissions control devices has always been a mitigating
factor, shifting the cost burden to the consumer. In developing
nations, where incomes are extremely low, economics and the lack
of government resources have hampered progress. Nonetheless, we
anticipate that the social and political realities of protecting
our
11
environment may result in further government mandates that
manufacturers adopt better cost effective solutions, such as our
ZEFS and CAT-MATE devices, for reducing motor emissions.
Absent governmental mandates for emission controls, the primary
appeal of our products is likely to be related to fuel
efficiency and performance enhancement.
Our
Business Strategy
Our
Devices
Our principal business focus currently rests with development
and distribution of devices designed to solve the complex
problems caused by pollution from motorcycles, automobiles and
other equipment driven by internal combustion engines and to
improve the performance of those engines. We have designed and
tested multiple versions of the ZEFS and CAT-MATE devices for
use on 2- and 4-stroke carbureted and fuel injection gasoline
engines and are currently in the process of adapting this
technology to work on engines that use diesel fuels.
Historically, manufacturers of vehicles, motorcycles, power
sports equipment, boats and small utility motors have had very
few technological options to reduce emissions to the strictest
levels of current and future government standards. The approach
used by engine manufacturers to address this mandate has thus
far generally taken the form of installing catalytic converters,
which work on the principle of super heating gases within the
exhaust manifold after the damaging gases have been created
through internal combustion.
These traditional devices are expensive, and sensitive to the
poor quality and adulterated fuel that is commonly found in
developing nations. Bad fuel can permanently damage a catalytic
converter with the first tank full, whereas the ZEFS device is
unaffected by the problem of bad fuel. Catalytic converters also
do not share the benefits of ZEFS technology of increased fuel
efficiency and performance. In fact, in many cases catalytic
converters are detrimental to mileage and power.
Our ZEFS devices contain permanent rare-earth magnets, which
produce a very strong magnetic field. This field, when arranged
in specific manner of shape and strength, causes a molecular
change in the fuel as it passes through the field. As
gasoline/diesel passes through the magnetic field, a molecular
change in the fuel occurs facilitating a decline in both
viscosity and surface tension. This allows for finer
atomization, resulting in a more optimized mixture and therefore
more efficient combustion, lower emissions, more horsepower and
torque and improved fuel economy. Reductions have been recorded
in the scale from 760 microns down to 140 microns in carburetion
fuel systems and as low as 3 microns in fuel injection systems.
The scientific theory behind the technology is explained in
detail in the draft final report from the RAND Corporation,
which oversaw our testing.
ZEFS devices have been developed for one-, two- and four- barrel
carbureted and fuel injection engines. ZEFS devices are easily
fitted to the base plates of carburetors and fuel injection
systems; the devices are compact, there are no moving parts.
They are also inexpensive to produce, extremely durable and
unaffected by poor quality fuel.
Our CAT-MATE devices are specifically designed to work in
conjunction with, and enhance the function of, common catalytic
converters, when incorporated into their design. The device
consists of a series of specifically shaped steel rings that,
when placed in line with the exhaust flow before
and/or
after
the catalytic substrate, facilitates acceleration in heat rise
in the converter. This allows the converter to ignite quicker
and easier on small displacement motors, which build heat much
slower than do large displacement models. CAT-MATE also helps
retain heat in the converter, allowing it to stay lit under
idling and low RPM operation. Small motors, especially
2-stroke
versions, are subject to low exhaust velocity and heat during
idling, which causes most converters to extinguish and then
become fouled with oil and contaminants eventually rendering
them difficult to relight or useless.
CAT-MATE devices are not only designed to perform the functions
stated above on both 2- and 4-stroke gasoline engines, along
with diesel motors, but also perform as well as or better than
an OEM catalytic converter, at a fraction of their cost.
Specifically, CAT-MATE is designed for use on two- and
four-stroke motorcycles, off-road and marine vehicles,
generators, lawn mowers, on stationary implements and on
carbureted and fuel injection motor vehicles.
12
Testing by the Companys own research and development
efforts, as well as by independent sources, has demonstrated
that the use of ZEFS and CAT-MATE devices generate significant
reductions in hydrocarbon, oxides of nitrogen and carbon
monoxide emissions and, in the case of ZEFS devices, also
improves fuel efficiency by lowering gas consumption and
increases engine performance.
Research
and Development
We are actively continuing our development of the ZEFS and
CAT-MATE devices for use on gasoline and diesel powered engines
and have taken steps to finalize devices to fit on carbureted,
throttle body and multi-port fuel injection systems. We have
used these prototype devices as demonstration units, during
presentations, before manufacturers. It is our objective to
facilitate the adoption of this technology by engine,
carburetor, muffler and exhaust manufacturers.
Previously, we successfully developed multiple ZEFS devices for
use on one-, two- and four-barrel carbureted engines and created
production CAD drawings for these devices and produced multiple
samples using aluminum housings and pre-production prototypes
made of high temperature polymers. We have also created several
prototype devices for use on fuel injection engines.
Because of the complexity and enormity of the task of designing
variants of ZEFS and CAT-MATE devices to fit every make and
model, we rely on the cooperation of manufacturers to support
this function, including engineering, marketing, and
installation of the devices. Additionally, we are cognizant that
in order to preserve the integrity of the warranties provided by
manufacturers, they must be involved in the process of designing
and installing the ZEFS and CAT-MATE devices on legacy vehicles.
We are also engaged in limited research and development of ZEFS
and CAT-MATE devices for use on diesel engines, such as those
used on trucks, buses, heavy equipment and generators. Because
these types of vehicles use engines provided from Cummins,
Caterpillar, or Detroit Diesel almost exclusively, the number of
ZEFS and
CAT-MATE
variants needed to service these fleets is considerably less
than the number required to satisfy other markets. This fact
alone makes entry into the diesel engine market potentially
attractive for our business, offering potential customers with a
minimum of expense for research and development of product
variants.
In late 2005, we established a
state-of-the-art
research and product development facility in Morgan Hill,
California, to complement our research and development center in
Queensland, Australia. We have completed testing of ZEFS and
CAT-MATE devices for multiple automobiles, trucks, motorcycles,
off-road vehicles and stationary engines, the results of which
were provided to RAND for evaluation. RAND was responsible for
overseeing our research and development when that effort was
based in Queensland. In connection with the establishment of our
Morgan Hill facility, we transitioned the major focus of our
R&D from Queensland to Morgan Hill. RAND assisted us in
setting up our testing protocols at Morgan Hill. In addition, we
are engaged in research and development of additional products,
including other magnetic devices, at our Morgan Hill facility.
Our Queensland facility now focuses on novel technology research
under the direction of our senior engineer and consultant,
Adrian Menzell. RAND has now completed the majority of its work
for us and is focusing on finalizing its report to us on the
theoretical and technical issues relating to magnetism and
fuels. In early 2005, we phased out the use of our third party
R&D and testing facility in Los Angeles, California.
In April 2006, we entered into a product development agreement
with Kwong Kee (Qing Xin) Environmental Exhaust Systems Company,
Ltd. in China. Kwong Kee, a manufacturer of mufflers and
catalytic converters, will collaborate with us on product
development of our CAT-MATE technology. As part of our strategic
alliance, Kwong Kee will make available its research and
development facilities, testing equipment and product design and
development support team.
We spent $1,873,464 in fiscal year 2004 and $1,150,361 in fiscal
2005 on research and development. Please see
Managements Discussion and Analysis of Financial
Condition and Results of Operation Results of
Operations and Note 9 to Notes to Financial
Statements for a more complete understanding of our research and
development expense in 2005.
13
Independent
Laboratory and Scientific Testing
The four internationally recognized emissions standards testing
agencies for the certification of motor vehicles, parts, systems
and aftermarket devices are the United States Environmental
Protection Agency (EPA), California Air Resources Board (CARB),
United Kingdom Vehicle Certification Agency (VCA) and TUF
(Germany/EU).
We have performed independent laboratory testing of our ZEFS and
CAT-MATE devices in order to gain better market acceptance by
manufacturers and governmental regulatory officials. Research
and testing using government standard test equipment in the
United States, Thailand, China and Hong Kong has demonstrated
that the ZEFS device reduces engine emissions, such as carbon
monoxide, oxides of nitrogen and hydrocarbons, while also
improving fuel consumption and performance. Research and testing
using government standard test equipment in the United States
and Hong Kong has demonstrated that the CAT-MATE device reduces
engine emissions, such as carbon monoxide, oxides of nitrogen
and hydrocarbons.
In December 2002, we retained RAND to study the validity and
market potential of our technology. In early 2003, RAND
determined that sufficient theoretical basis exists to warrant
entry into a comprehensive product-testing program. As a result,
in May 2003, we entered into an arrangement in which RAND would
coordinate and supervise both a theoretical scientific study of
the concepts underlying the ZEFS device as well as an empirical
study. In response to an request for proposal (RFP) that RAND
sent to 14 universities in the US, Temple University in
Philadelphia, Pennsylvania was chosen to research our
technology. Draft reports have been provided by RAND and their
final report is in the process clearing peer review. RANDs
other activities on our behalf concluded in December 2005.
Tests of our CAT-MATE device on a Honda 2-stroke NSR 150
motorcycle and a Warrior 2-stroke 63cc generator conducted by
Hong Kong Exhaust Emissions Laboratory (HKEEL) in July and
August 2004 showed that CAT-MATE devices significantly reduce
emissions of carbon monoxide (CO), hydrocarbons (THC) and oxides
of nitrogen (NOX). These results were certified by United
Kingdoms VCA in January 2005.
Emissions and fuel economy tests conducted in 2004 and 2005 at
Automotive Testing and Development Services, Inc. in Ontario
California and in 2005 at Northern California Diagnostics
Laboratory in Napa, California, both EPA and CARB approved
testing laboratories, on a CAT-MATE device within the OEM
exhaust system of a 1995 Mexican fuel injected Volkswagen Beetle
taxi, showed significant reductions of CO, NOX and THC
emissions, compared to the in-place original OEM exhaust system.
In 2006, testing on our ZEFS devices for Harley-Davidson style
motors were conducted at the EPA and CARB certified testing
facility Olson Ecologic Laboratories in Fullerton, California.
These tests yielded results that would allow these motors to
meet current and future EPA and CARB emissions standards without
expensive fuel injection and catalytic converters.
Further testing of our ZEFS device was conducted in December
2005 on a used 4-stroke motorcycle in Bangkok, Thailand at
Automotive Emission Laboratory, Pollution Control Department,
Ministry of Natural Resources and Environment of Thailand, and
was performed jointly with S.P. Suzuki of Thailand, the
authorized distributor of Suzuki products in Thailand. These
certified test results surpassed hot start
EURO 2 standards in all three of the harmful exhaust
emissions, CO, NOX and THC, by the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THC
|
|
|
NOx
|
|
|
CO
|
|
|
EURO2 Standard
|
|
|
1.20 g/km
|
|
|
|
0.30 g/km
|
|
|
|
5.50 g/km
|
|
With ZEFS Device
|
|
|
0.52 g/km
|
|
|
|
0.10 g/km
|
|
|
|
1.42 g/km
|
|
% Below EURO2
|
|
|
56%
|
|
|
|
65%
|
|
|
|
74%
|
|
In addition, during the testing horsepower increased at all
ranges, peaking at 18.8% at 50km/h and fuel economy increased
33% over the baseline tests.
14
Additional testing was conducted in early March 2006 at HKEEL, a
certified laboratory of the United Kingdoms VCA. In
multiple certified tests of our ZEFS device on a new
Chinese-manufactured carbureted
4-stroke
Suyijia SZK125 motorcycle. These certified test results
surpassed cold start EURO3 standards for motorcycles
of 150cc or less in all three of the harmful exhaust emissions,
CO, NOX and THC, by the following amounts:
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|
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|
|
|
|
|
|
|
|
|
|
THC
|
|
|
NOx
|
|
|
CO
|
|
|
EURO3 Standard
|
|
|
0.80 g/km
|
|
|
|
0.15 g/km
|
|
|
|
2.0 g/km
|
|
With ZEFS Device
|
|
|
0.33 g/km
|
|
|
|
0.108 g/km
|
|
|
|
1.86 g/km
|
|
% Below EURO3
|
|
|
59
|
%
|
|
|
28
|
%
|
|
|
7
|
%
|
In addition, during the testing fuel economy increased 7% over
the baseline tests.
Of further note of the recent HKEEL testing, is the fact that it
is generally difficult for anyone to meet EURO3 guidelines
because the testing includes a cold start phase. The
cold start phase includes exhaust emissions created
when a motor is started after an
8-hour
cold
soak. It is during this
warm-up
time
that engines produce their highest level of emissions. This is
also where many catalytic converters fail because they must be
heated to about 300 degrees (Fahrenheit) to begin working
effectively.
Marketing
In October 2004, we commenced initial marketing efforts for our
emission control and performance-enhancing ZEFS and CAT-MATE
technologies, and these efforts are continuing. We are focused
on selling or licensing our technologies and devices
domestically and internationally to motorcycle, automobile,
carburetor, fuel-injection and diesel engine manufacturers as
well as, exhaust and muffler original equipment manufacturers
(OEMs) and the after-market. We have made presentations of our
ZEFS and CAT-MATE technologies to OEMs in the United States,
Asia and Europe.
We entered into our first distribution agreements for 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 successfully completed in April 2006, during which
tests of our ZEFS device achieved EURO2 standards and the
combination of our ZEFS and CAT-MATE devices achieved EURO3
standards.
Based on the success of recent testing of our ZEFS device
meeting EURO3 standards, we now also intend to seek distribution
opportunities for our devices in Europe, in addition to our
marketing efforts in the United States and Asia. See
Independent Laboratory and Scientific Testing above.
We also intend to pursue marketing of our products in developing
nations of the world. Harmful exhaust emissions from motorcycles
and automobiles in developing countries is at the highest levels
because of the continued widespread use of older models with
either no or malfunctioning catalytic converters. We intend to
continue to work with governments worldwide at all levels,
together with industry, to capitalize on our technology to
achieve what we know to be common global environmental
objectives.
In November 2004, management met with UNEP in New York to enlist
its aid with this objective. By UNEP invitation, we participated
in a UNEP-sponsored meeting in Bali, Indonesia in December 2004,
which resulted in the initiation of informal negotiations with
United Nations and government officials to explore the
possibility of pilot programs using our technology in Indonesia,
Kenya, Mexico, Thailand, Brazil and Sri Lanka.
We also participated in a United Nations sponsored Summit in
Lake Toba, North Sumatra, Indonesia in March 2005. This resulted
in an announcement by the Lake Toba Summit Chair, Nico Barito,
endorsed by HRH Sri Sultan Hamengkubowono X of Yogyakarta and
the late Governor of North Sumatra, Razil Nurdin, of two pilot
programs
15
intended to minimize carbon monoxide emissions, hydrocarbons and
oxides of nitrogen, by installing our ZEFS devices on 10,000
student motorcycles at universities in Yogyakarta and Medan in
Indonesia. Recently, in consultation with the program sponsors,
we modified the pilot programs, which are now being conducted in
cooperation with the Honda distributor in Medan, C.V. Indako
Trading Co. Under the revised program, we fitted 50 Honda
motorcycles in Medan to study the impact of our ZEFS devices on
fuel economy and performance enhancement. The results of this
program are expected in July 2006. We do not currently believe
that the recent seismic and other geologic events in Indonesia
will adversely affect our ability to conduct and complete this
program. While this project is not expected to generate any
revenue for us, we believe that it will provide evidence of the
utility of our low-cost,
easy-to-install
technologies in developing countries for fuel efficiency and
performance enhancement.
Manufacturing
We have outsourced the manufacture of our ZEFS devices to
Quadrant Technologies Limited in connection with our pilot
program in Indonesia. In addition, at present, we intend to
outsource the manufacture of all our ZEFS devices to Quadrant
Technologies. The magnets used in our ZEFS devices will be
manufactured by Quadrant in China. The ZEFS device itself and
other magnetic devices that we may produce, market and sell will
be manufactured by Quadrant in the United States. We do not
currently have an agreement in place with Quadrant for the
manufacture of our ZEFS devices.
The manufacture of the magnets used in our ZEFS devices requires
a rare-earth metal, neodymium. Neodymium is readily available in
China, at relatively stable prices.
We intend to outsource the manufacture of our CAT-MATE devices
to Kwong Kee in China, or other contract manufacturers. We do
not currently have an agreement in place with Kwong Kee for the
manufacture of our
CAT-MATE
devices. If we are unable to enter into an agreement with Kwong
Kee for the manufacture of our
CAT-MATE
devices, we believe that alternative third party manufacturers
are readily available at competitive prices.
Key components in the manufacture of our CAT-MATE devices, as is
the case with all catalytic converters manufactured by others,
include the precious metals palladium, platinum and rhodium. The
prices for these precious metals are highly volatile. However,
supplies of such precious metals are not restricted.
Competition
The automotive and motor engine industry is highly competitive.
We have many competitors in the United States and
throughout the world developing technologies to make engines
more environmentally friendly and fuel efficient. For instance,
automobile manufacturers have already developed catalytic
converters on automobiles, in order to reduce emissions.
We are not aware of any products that compete directly with our
ZEFS devices, or other magnetic devices that are currently under
research and development by us. ZEFS provides the benefits of
all of emission reductions, fuel efficiency and engine
performance enhancement. There are competing products which
provide one or more of the beneficial attributes of our ZEFS
devices, but not all three benefits. Additionally, we believe
that those competing products that show benefit in more than one
area demonstrate greater benefit in only one area and provide
only minimal improvements in other areas. This contrasts with
the testing of our ZEFS devices. Please see Independent
Laboratory and Scientific Testing above.
Competing emissions reduction products are largely comprised of
catalytic converters and alternative fuels. Catalytic converters
are much more expensive than our products, and are sensitive and
subject to damage caused by the poor quality or adulteration of
fuel commonly used in developing nations. In addition, while
catalytic converters reduce emissions, they do not improve fuel
efficiency or engine performance. Domestically, there are a
large number of manufacturers and distributors of catalytic
converters, such as Engelhart Inc., Dow Corning Inc., Delphi
Corporation and Car Sound Exhaust System, Inc., among others.
Internationally, most catalytic converters are manufactured and
distributed by Engelhart Inc., Delphi Corporation and a large
number of smaller businesses in a fragmented industry.
16
Alternative fuels, such as hydrogen, electricity, liquid natural
gas and ethanol, generally require more costly conversions and
the fuels are not readily available, if at all, in most of the
world.
We are not aware of any other magnetic fuel treatments or
products based on such technology which have been proven to
significantly improve fuel mileage. There are many products
currently on the market that claim to increase fuel efficiency.
We believe that the majority of these products have not
undergone or provided independent validation from a recognized
third party, such as RAND, or testing at a certified laboratory.
Fuel injection does improve fuel efficiency and performance, but
is extremely expensive from the perspective of the developing
nations of the world. Major domestic and international
manufacturers and distributors of fuel injection systems include
Delphi Corporation, Robert Bosch Corporation, Siemens
Corporation, and a large number of smaller businesses in a
fragmented industry.
We are not aware of any other magnetic fuel treatments or
products based on such technology which have been proven to
significantly improve performance. There are many products which
a consumer can purchase to increase overall performance. All of
the most effective such products, including forced induction,
nitrous oxide injection and exotic exhaust, are very expensive,
increase emissions, reduce fuel efficiency and shorter the life
of the engine. Major domestic and international manufacturers
and distributors of performance-enhancing systems include Holley
Performance Products, Inc., Nitrous Express Inc., Paxton
Automotive Corporation, Eaton Corporation, Vortec Engineering
LLC, Flowermaster, Inc., Hedman Manufacturing, Inc., Gibson
Performance, Inc. and a large number of smaller businesses in a
fragmented industry.
Our CAT-MATE device is an enhancement of the traditional
catalytic converter. Therefore, while there are no products that
compete directly with CAT-MATE, CAT-MATE may be regarding as
competing with the rest of the catalytic converter market.
Domestically, there are a large number of suppliers of catalytic
converters, such as Engelhart, Inc., Dow Corning Inc., Delphi
Corporation and Car Sound Exhaust System, Inc., among others.
Internationally, most catalytic converters are supplied from
China by Engelhart, Inc., Delphi Corporation and a large number
of smaller manufacturers in a fragmented industry.
Nonetheless, many of our competitors have greater financial,
research, marketing and staff resources than we do. While we
believe that our technology has greater benefits, it may be
unable to gain market acceptance. Furthermore, research and
development throughout the world is constantly uncovering new
technologies. Although we are unaware of any technologies that
compete directly with ours, there can be no assurance that any
existing or future technology is or will be superior to our ZEFS
and CAT-MATE devices.
Government
Regulation and Environmental Matters
Our activities and products to date are not subject to any
governmental regulations that would have a significant impact on
our business. We believe that we are in compliance with all
applicable regulations that apply to our business as it is
presently conducted. Our products, as such, are not subject to
certification or approval by the U.S. Environmental
Protection Agency or other governmental agencies domestically or
internationally. Instead, such agencies test and certify a
sample engine fitted with our devices
Depending upon whether we manufacture or license our devices in
the future and in which countries such devices are manufactured
or sold, we may be subject to regulations, including
environmental regulations at such time.
Because we do not presently intend to manufacture our own
products, we do not believe that we will have any special
requirements to comply with environmental rules and regulations
in the United States or other countries for the foreseeable
future.
Intellectual
Property
In December 1998, the Company acquired all of the marketing and
manufacturing rights to the ZEFS technology from the purported
inventor of the technology in exchange for 5,000,000 shares
of our common stock, $500,000 and $10 royalty for each unit
sold. In November 2002, under our settlement with the bankruptcy
trustee for the estate of the purported inventor and his wife,
the trustee transferred all ownership and legal rights to an
existing international patent application for the ZEFS Mark I
device to us. In exchange for these rights, we gave the
bankruptcy trustee an option to purchase 500,000 shares of
our common stock at $1.00 share and $0.20 royalty on each
device we sell. See Legal Proceedings and
Note 1 to Notes to Financial Statements.
17
In May 2002, we settled a dispute with Kevin Pro
Hart, who claimed proprietary rights to the ZEFS technology. He
assigned to us any and all of his rights to the ZEFS technology
in exchange for an option to purchase 500,000 shares of our
common stock at $1.00 share and a $0.20 royalty on each
device we sell. Mr. Hart served as a member of our Advisory
Board until his death in March 2006.
The CAT-MATE technology was created by Adrian Menzell, a member
of our research team in Australia. On August 20, 2003,
Mr. Menzell filed preliminary Australian patent
application #2004900192 for the CAT-FLAP. This technology
was enhanced and on June 4, 2004, Mr. Menzell filed
preliminary Australian patent application No. 2004903000
for the CAT-MATE. During subsequent development of the
invention, further patent applications were filed in which John
Kostic
and/or
Patrick Baker, who are consultants to our company, may have had
inventive input. On September 1, 2003, we entered into an
Assignment Agreement with Mr. Menzell, pursuant to which
this technology was assigned to us in exchange for
20,000 shares of our common stock and a royalty of $.25 for
each CAT-MATE device sold. On June 26, 2004, we received a
deed of assignment from Mr. Menzell and each pending patent
application was transferred to our name. Mr. Menzell
currently also serves as our senior engineer.
ZEFS
Patent Applications
We obtained the patent application for the ZEFS MK1 device
[PCT/AU1/00585] originally filed in Australia on May 19,
2000. The International Filing Application for our ZEFS MK1
technology was filed on May 21, 2001 (Official No.
10/275946) [PCT/AU1/00585] and modified as ZEFS MK2 on
July 9, 2003. On November 4, 2003 we filed for our
ZEFS MK3 (#2003906094). The United States Patent and Trademark
Office issued a Notice of Allowance of Patent dated
January 24, 2005. The duration of the patent is
20 years from the date the original application was filed.
Prior to the issuance of such patent, we relied solely on trade
secrets, proprietary know-how and technological innovation to
develop our technology and the designs and specifications for
the ZEFS technology. Overall, we have applied for a patent on an
international basis in approximately 64 countries worldwide.
ZEFS MK1 Device For Saving Fuel and Reducing
Emissions.
This fuel saving device has a
disk-like nonmagnetic body provided with a central opening and a
number of permanent magnets having opposed polarities positioned
about the central opening to provide multidirectional magnetic
fields. The device is positioned in a fuel air mixture to reduce
emissions.
The following table summarizes the status of the ZEFS MK1 patent
application in the following countries:
|
|
|
|
|
|
|
Country
|
|
Number
|
|
Filing Date
|
|
Status
|
|
Australia
|
|
2001258057
|
|
21 May 2001
|
|
GRANTED
|
Bosnia & Herzegovina
|
|
BAP 021290A
|
|
21 May 2001
|
|
Short Term Patent GRANTED. Apply
for Standard Patent by 21/05/2009
|
Brazil
|
|
0111365-8
|
|
21 May 2001
|
|
Examination requested
5 September 2003. Report expected mid 2007
|
Bulgaria
|
|
107391
|
|
21 May 2001
|
|
Awaiting examination
|
Canada (small entity status)
|
|
2409195
|
|
21 May 2001
|
|
Examination to be requested by
21 May 2006
|
China
|
|
01809802.9
|
|
21 May 2001
|
|
Under
examination response filed
|
Columbia
|
|
02115018
|
|
21 May 2001
|
|
Examination requested 23 July
2004
|
Croatia
|
|
P20020982A
|
|
21 May 2001
|
|
Examination requested
29 August 2005
|
Czech Republic
|
|
PV 2002-4092
|
|
21 May 2001
|
|
Under Examination
|
Eurasian
|
|
200201237
|
|
21 May 2001
|
|
GRANTED
|
Europe
|
|
019331222.2
|
|
21 May 2001
|
|
Awaiting examination
|
Georgia
|
|
4098/01-2002
|
|
21 May 2001
|
|
GRANTED
|
Hong Kong
|
|
04100327.0
|
|
21 May 2001
|
|
Automatic grant upon grant of the
Chinese application
|
Hungary
|
|
P 03 01796
|
|
21 May 2001
|
|
Examination to be requested by
28 April 2006.
|
18
|
|
|
|
|
|
|
Country
|
|
Number
|
|
Filing Date
|
|
Status
|
|
India
|
|
IN/PCT/2002/01523
|
|
21 May 2001
|
|
Examination requested May 2005
|
Indonesia
|
|
WO0200202844
|
|
21 May 2001
|
|
Examination requested November 2003
|
Israel
|
|
152902
|
|
21 May 2001
|
|
Allowed/accepted awaiting
grant
|
Korea [South]
|
|
2002-7015531
|
|
21 May 2001
|
|
Examination to be requested by
21 May 2006
|
Japan
|
|
586731/2001
|
|
21 May 2001
|
|
Examination to be requested by
21 May 2008
|
Mexico
|
|
PA/A/2002/011365
|
|
21 May 2001
|
|
Awaiting examination
|
Morocco
|
|
PV/26.964
|
|
21 May 2001
|
|
GRANTED
|
New Zealand
|
|
523113
|
|
21 May 2001
|
|
GRANTED
|
Norway
|
|
20025531
|
|
21 May 2001
|
|
Awaiting examination
|
Poland
|
|
P358837
|
|
21 May 2001
|
|
Awaiting examination
|
Serbia/Montenegro
|
|
P-870/02
|
|
21 May 2001
|
|
Examination requested December 2002
|
Singapore
|
|
93310 [WO 01/90562]
|
|
21 May 2001
|
|
GRANTED
|
South Africa
|
|
2002/10013
|
|
21 May 2001
|
|
GRANTED
|
Sri Lanka
|
|
12918
|
|
21 May 2001
|
|
Awaiting examination
|
Trinidad & Tobago
|
|
TT/A/2002/00213
|
|
21 May 2001
|
|
Allowed/accepted awaiting
grant
|
Ukraine
|
|
20021210144
|
|
21 May 2001
|
|
Allowed/accepted awaiting
grant
|
United States
|
|
10/275946
|
|
21 May 2001
|
|
GRANTED
|
Vietnam
|
|
1-2002-01168
|
|
21 May 2001
|
|
Response to Office Action filed
with IPO
|
|
|
|
|
|
European patent application covers Austria Belgium Switzerland
Liechtenstein Cyprus Germany Denmark Spain Finland France Great
Britain Greece Ireland Italy Luxembourg Netherlands Portugal
Sweden Turkey Lithuania Latvia Slovenia Romania Macedonia.
|
|
|
|
The Eurasian Patent Convention was signed on September 9,
1994 in Moscow by the Heads of the Governments of the Republic
of Azerbaijan, the Republic of Armenia, the Republic of Belarus,
Georgia, the Republic of Kazahkstan, the Kyrgyz Republic, the
Republic of Moldova, the Russian Federation, the Republic of
Tajikistan and Ukraine.
|
ZEFS MK2 Device for Saving Fuel and Reducing
Emissions.
This fuel saving device similar to
that of the MK1 except that a central magnet can be provided in
the opening and the peripheral magnets extend only partially
through the depth of the body and stop short of the top wall to
provide the option of moving the magnetic field further away
from the base of the carburetor to increase the area of magnetic
influence between the point of fuel atomization and the point of
cessation of magnetic influence.
The priority date is July 19, 2003 from Australian patent
application 2003903626.
The following table summarizes the status of the ZEFS MK2 patent
application in the following countries:
|
|
|
|
|
|
|
Country
|
|
Number
|
|
Filing Date
|
|
Status
|
|
Taiwan
|
|
1236519
|
|
19 July 2003
|
|
GRANTED
|
China
|
|
200480025660.X
|
|
15 July 2004
|
|
Filed, awaiting Examination
|
Europe
|
|
04737571.2
|
|
15 July 2004
|
|
Filed Awaiting Examination
|
India
|
|
300/KOL NP/06
|
|
15 July 2004
|
|
Examination Due by 15 July
2006
|
Indonesia
|
|
WO0200600441
|
|
15 July 2004
|
|
Filed
|
Japan
|
|
Awaiting
|
|
15 July 2004
|
|
Filed
|
United States
|
|
10/564747
|
|
15 July 2004
|
|
Filed, awaiting examination
|
19
Approximately 125 countries are covered by the PCT. National
Patent Applications were filed on or before January 15,
2006.
ZEFS MK3 Emission Control
Devices.
This emission control device is
particularly suited for fuel injection systems which has an
elongate body formed with one or more channels and a number of
permanent magnets is positioned in the channels. The device sits
on a fuel rail.
The priority date is November 4, 2003 from Australia patent
application 2003906094.
The following table summarizes the status of the ZEFS MK3 patent
application in the following countries:
|
|
|
|
|
|
|
Country
|
|
Number
|
|
Filing Date
|
|
Status
|
|
Thailand
|
|
095155
|
|
3 November 2004
|
|
Awaiting examination
|
International
|
|
PCT/AU2004/001518
|
|
4 November 2004
|
|
Demand for International
Preliminary Examination filed 8 June
2005 awaiting report.
|
China
|
|
Awaiting Number
|
|
4 November 2004
|
|
|
Japan
|
|
Awaiting Number
|
|
4 November 2004
|
|
|
United States
|
|
Awaiting Number
|
|
4 November 2004
|
|
|
Europe
|
|
Awaiting Number
|
|
4 November 2006
|
|
|
Approximately 125 countries are covered by the PCT. National
Patent Applications were filed by May 4, 2006.
CAT-MATE
Patent Applications
CAT-FLAP (Afterburner) Improvements in or
Relating to Emission Control Systems.
A catalytic
converter is provided in an engine exhaust flow to reduce
emissions. A valve is provided downstream from the catalytic
converter. The valve is in a closed position when the exhaust
flow volume is low to keep the hot exhaust gas around the
catalytic converter to keep the catalytic converter within its
operational temperatures. When the exhaust flow volume is high
(e.g. the engine is revving) the catalyst is kept at its
operational temperature by normal gas flow and valve is opened
to not impede exhaust flow. A simple hinge flap is one method by
which this can be achieved.
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Country
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Number
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Filing Date
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Status
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Thailand
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096762
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4 January 2005
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Application
filed awaiting examination
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Taiwan
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93140533
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24 December 2004
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Application filed. Substantive
examination to be requested by 24 December 2007.
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Malaysia
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PI20050041
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6 January 2005
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Application
filed awaiting examination.
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International
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PCT/AU2004/001821
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23 December 2004
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IPE requested 21 June
2005 awaiting report. Awaiting Written Opinion
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The priority date is January 16, 2004 from Australian
patent application 2004900192.
Approximately 125 countries are covered by the PCT. National
Patent Applications are due by July 8, 2006.
CAT-MATE Inline Exhaust Device to Improve
Efficiency of a Catalytic Converter.
A set of
rings is placed downstream from the catalytic converter to
re-radiate heat to the catalytic converter to keep the converter
working at a warmer temperature and therefore greater efficiency.
The priority date is June 4, 2004 from Australian patent
application 2004903000.
This invention was incorporated into the specifications filed
pursuant to the CAT-FLAP invention.
20
Method and Apparatus for Treatment of a Fluid (Temple
University).
This is an apparatus for the
magnetic treatment of oils to improve viscosity.
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Country
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Number
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Filing Date
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Status
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GCC*
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GCC/P/2005/5066
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22 August 2006
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Application
filed awaiting examination.
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International**
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PCT/AU2005/000688
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13 May 2005
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Clear ISR received.
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*
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The GCC application covers Kuwait, Oman, Qatar, Saudi Arabia,
the United Arab Emirates, and Bahrain.
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**
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This application is in the name of Temple University of the
Commonwealth System of Higher Education.
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The priority date is May 14, 2004 from Australian patent
application 2004902563.
Approximately 125 countries are covered by the PCT. National
patent applications are due by November 14, 2006.
Other
Patent Applications
Device for Saving Fuel and Reducing
Emissions.
This device uses stacked magnets.
The priority date is June 21, 2005 from Australian patent
application 2005903248.
Under the terms of the Paris Convention, the Australian patent
application provides cover note type protection for
12 months (i.e. until June 21, 2006) in all
countries that are party to the Paris Convention, and there are
over 160 countries, including all the major economies.
An international patent application reserving rights in this
invention was filed in June 2006, including the right to the
priority date of 12 June 2005, in all 132 members of the
PCT. The Company has also filed national applications in
Malaysia, Thailand and Taiwan, countries which are not
signatories to the PCT. Combined, these filings result in
pending patent protection of the invention in 135 countries.
The international patent application will undergo a search and
amendments to the claims are anticipated in the course of the
International Search Report stage of the PCT process. At the
International Preliminary Examination stage, the Company intends
to make detailed submissions to more clearly distinguish the
invention from those in the prior art. At the conclusion of
these two stages, it will be necessary for the Company to decide
in which specific countries it should proceed to National Phase.
Trademarks
We have also filed two applications for trademark protection for
CAT-MATE, as follows:
Class 7: Devices to reduce noxious exhaust emissions from
combustion engines; devices positioned in the exhaust flow of an
exhaust of a combustion engine and to reduce pollutants in the
exhaust; devices to radiate or transmit heat to a catalytic
converter in an exhaust system; devices to radiate or transmit
heat to a catalytic converter in an exhaust system and which
absorbs the heat from the exhaust gasses and reradiates the heat
to the catalytic converter in the exhaust system; all the
foregoing being for petrol or diesel engines.
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Country
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Number
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Filing Date
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Status
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Renewal
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Australia
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1008291
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25 June 2004
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Registered
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25 June 2014
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Madrid*
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858359
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21 December 2004
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Registered
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21 December 2014
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*
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The Madrid Protocol application
designated the following countries:
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United States;
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China;
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European Community;
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Japan;
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Korea; and
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Singapore.
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21
Non-Disclosure
Agreements
To further protect our intellectual property, we have entered
into agreements with certain employees and consultants, which
limit access to, and disclosure or use of, our technology. There
can be no assurance, however, that the steps we have taken to
deter misappropriation of our intellectual property or third
party development of our technology
and/or
processes will be adequate, that others will not independently
develop similar technologies
and/or
processes or that secrecy will not be breached. In addition,
although management believes that our technology has been
independently developed and does not infringe on the proprietary
rights of others, there can be no assurance that our technology
does not and will not so infringe or that third parties will not
assert infringement claims against us in the future. Management
believes that the steps they have taken to date will provide
some degree of protection, however, no assurance can be given
that this will be the case.
Employees
As of June 1, 2006, we had nine full-time employees and six
part-time employees. As of such date, we also utilized the
services of two full-time paid consultants in our R&D
facility in Queensland, Australia and two additional part-time
paid consultants to assist us with various matters, including
marketing. We intend to hire additional personnel to provide
services when they are needed on a full-time basis. We recognize
that our efficiency largely depends, in part, on our ability to
hire and retain additional qualified personnel as and when
needed and we have adopted procedures to assure our ability to
do so.
Properties
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. See Certain Relationships and Related
Transactions.
Our research and development facility located in Queensland,
Australia is leased. We entered into the lease for this facility
on November 15, 2003 for a term of two years, and extended
the lease on a
month-to-month
basis thereafter until March 14, 2006. The rent during this
period was AUD $1,292 (approximately US $956) per month. On
March 14, 2006, we entered into a new lease for this
facility for a term of two years commencing March 15, 2006
at a rent of AUD $1462 (approximately US $1,082). Upon the
termination of the term of the lease, we have the option to
renew the lease up to two times, each for an additional two-year
term, at an increase over the base rent of the greater of 5% or
the increase in the annual consumer price index in Australia. We
believe that our present research and development facility is
adequate for our current and planned activities and that
suitable additional or replacement facilities in the Queensland
area are readily available on commercially reasonable terms
should such facilities be needed in the future.
Our engineering, production and testing facility is located in
Morgan Hill, California. The lease for this facility was entered
into on September 1, 2005 and amended on February 1,
2006. The term is for two years, expiring on August 31,
2007. The base rent is $4,160 per month for approximately
5,600 square feet of office and industrial
22
usage space, and is renewable, at our option, for two additional
years at the then prevailing market rate. We believe that this
space is adequate for our current and planned engineering,
production and testing activities.
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 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
tm
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.
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
23
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.
This 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.
24
MARKET
PRICE OF COMMON STOCK
AND OTHER STOCKHOLDER MATTERS
Market
Information
Through February 1, 2006, our common stock was quoted on
the Pink Sheets under the symbol ZERO.PK Effective
February 2, 2006, our common stock is quoted on the Over
the Counter Bulletin Board under the symbol
ZERO.OB. The following table sets forth the high and
low closing prices of our common stock for the quarters
indicated as quoted on the Pink Sheets through February 1,
2006, and on the OTC Bulletin Board since February 2,
2006:
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2004
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High
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Low
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First Quarter
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$
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1.50
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$
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0.95
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Second Quarter
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$
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2.05
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$
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1.20
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Third Quarter
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$
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1.95
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$
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1.20
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Fourth Quarter
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$
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1.90
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$
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1.16
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2005
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High
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Low
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First Quarter
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$
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1.49
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$
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0.90
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Second Quarter
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$
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1.20
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$
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0.90
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Third Quarter
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$
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1.14
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$
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0.75
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Fourth Quarter
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$
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1.01
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$
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0.72
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2006
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High
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Low
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First Quarter
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$
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4.74
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$
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0.65
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Holders
According to the records of our transfer agent, we had 1,050
stockholders of record of our common stock and we estimate that
we had approximately 1,629 additional beneficial owners of our
common stock held in street name, at April 10, 2006.
Dividends
We do not pay a dividend on our common stock and we currently
intend to retain future cash flows to finance our operations and
fund the growth of our business. Any payment of future dividends
will be at the discretion of our Board of Directors and will
depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness,
contractual restrictions in respect to the payment of dividends
and other factors that our Board of Directors deems relevant.
25
MANAGEMENTS
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with the
Financial Statements and supplementary data referred to
elsewhere in this prospectus.
This discussion contains forward-looking statements that involve
risks and uncertainties. Such statements, which include
statements concerning future revenue sources and concentration,
selling, general and administrative expenses, research and
development expenses, capital resources, additional financings
and additional losses, are subject to risks and uncertainties,
including, but not limited to, those discussed above under
Risk Factors and elsewhere in this prospectus, that
could cause actual results to differ materially from those
projected. Unless otherwise expressly indicated, the information
set forth in this prospectus is as of the date of the
prospectus, and we undertake no duty to update this information.
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 this prospectus. 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
We are a development stage company that is transitioning to
operations. We have not yet generated revenues. Historically, we
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. Our devices, called
ZEFS and
CAT-MATE,
are designed to reduce harmful emissions, and improve fuel
efficiency and overall performance on equipment and vehicles
driven by internal combustion engines. We have taken actions to
secure our intellectual property rights to the ZEFS and CAT-MATE
devices.
During 2005 and subsequently, we 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 U.S. 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
26
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 in late
2006.
In April 2006, we entered into a product development agreement
with Kwong Kee (Qing Xin) Environmental Exhaust Systems Company,
Ltd. in China. Kwong Kee, a manufacturer of mufflers and
catalytic converters, will collaborate with us on product
development of our CAT-MATE technology. As part of our strategic
alliance, Kwong Kee will make available its research and
development facilities, testing equipment and product design and
development support team.
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.
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 Operation
Three-Month
Period Ended March 31, 2006 Compared to Three-Month Period
Ended March 31, 2005
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, which includes
approximately $49,000 of accrued interest, 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.
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.
Year
Ended December 31, 2005 Compared to Year Ended
December 31, 2004
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
27
their distribution and sale. We entered into the first
agreements for the distribution of our devices in late 2005 and
early 2006.
General and administrative expenses were $2,980,046 for the
fiscal year ended December 31, 2005, compared to $3,323,030
for the fiscal year ended December 31, 2004, a decrease of
$342,984. This decrease is attributable to decreases in non-cash
amortization of deferred compensation, consulting fees, director
fees, professional fees and settlement costs ($938,935);
corporate expenses ($36,695) and travel ($34,007), partially
offset by increases in non-cash interest relating to convertible
debt ($296,692); salaries and consulting ($201,749); interest
and finance costs ($53,591); other office expense ($39,049);
insurance ($24,549); professional fees ($23,741); rent and
utilities ($16,619); and non-cash depreciation ($10,660).
Research and development expenses were $1,150,361 for the fiscal
year ended December 31, 2005, compared to $1,873,464 for
the fiscal year ended December 31, 2004, a decrease of
$723,103. Our research and development expenses include
contractual payments to RAND, consultants fees, capital
expenditures, cost of services and supplies. The decrease in
research and development expenses is primarily attributable to a
decrease in non-cash research expense of $1,210,450, as well as
actual R&D expenses for Australia also decreasing by
$20,375. These decreases were offset by increases in actual
expenses at our United States R&D facility, which increased
by $112,722, and, contractual payments to RAND Corporation,
which increased by $395,000.
Patent settlement costs were $-0- in the fiscal year ended
December 31, 2005, compared to $1,610,066 in the fiscal
year ended December 31, 2004. The patent settlement costs
in the fiscal year ended December 31, 2004 were
attributable to the Black-Scholes valuation placed on 1,000,000
warrants issued in connection with the acquisition of certain of
our intellectual property.
Net other income increased by $1,011,940 primarily from the
cancellation of the Muller loan of $1,017,208.
We had a net loss of $3,115,186, or $.08 per share, for the
year ended December 31, 2005, as compared to a net loss of
$6,803,280, or $.19 per share in the fiscal year ended
December 31, 2004. We expect a decrease in the net loss in
the fiscal year ending December 31, 2006 primarily
attributable to sales we currently expect in the third and
fourth quarter of 2006.
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 contained herein 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 $935,963 for the
three-month period ended March 31, 2006 and a
stockholders deficiency of $2,256,315 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 at a burn
rate of approximately $350,000 per month, and since
that time, due to expanded activities, our expenses have run and
are expected to continue to run, at a burn rate of
approximately $400,000 per month. Even assuming that we
will not be required to repay our Investor Notes at maturity on
July 31, 2006 (described in more detail below), because
they have been converted into shares of our common stock, our
current capital resources will be sufficient to fund operations
only through October 2006, and we will require additional
capital in order to operate beyond this date. We anticipate that
at least a portion of our cash flow needs will be satisfied by
the exercise of outstanding warrants to purchase our common
stock, at variable prices, which are coming due at various times
this year. In addition, we are actively pursuing other financing
alternatives, none of which are in place at present.
28
In addition, during 2005 we sold an aggregate of $1,501,378
principal amount of our 9% convertible subordinated notes
(the Investor Notes) due July 31
,
2006
to certain investors. Net proceeds from this offering were
$1,428,432. The noteholders may convert the Investor Notes
voluntarily at any time prior to maturity. 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. We have not yet satisfied this
condition, but intend to seek voluntary conversion of the
Investor Notes on or prior to their maturity
.
As of
June 21, 2006, noteholders holding $213,720 aggregate
principal amount of Investor Notes voluntarily converted their
Investor Notes into 305,314 shares of our common stock.
We sold 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 $478,500. The Bridge Notes matured on
May 31, 2006. Prior to the maturity of the Bridge Notes,
all of the holders of the Bridge Notes voluntarily converted
their Bridge Notes into an aggregate 1,535,715 shares of
our common stock, at a conversion price of $.70 per share.
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 Investor Notes when
they mature on July 31, 2006, to the extent that they are
not converted into shares of common stock before such date.
In April 2006, we conducted an offering of shares of our common
stock to two overseas investors, in which we raised
$737,881 gross proceeds ($667,803 net proceeds).
In May 2006, we conducted an offering (the PIPE
Offering) of shares of our common stock and warrants
through our exclusive placement agent, Spencer Clarke LLC of New
York, in which we raised $1,650,009 gross proceeds
($1,435,508 net proceeds).
During the three-month period ended March 31, 2006, we also
raised $153,127 through the exercises of outstanding warrants.
Subsequent to the end of the three-month period ended
March 31, 2006 and through June 23
,
2006, we raised
an additional $927,000 through the exercise of outstanding
warrants.
Future minimum commitments for non-cancelable operating leases,
convertible notes (if not converted into common stock prior to
maturity) and employment agreements as of March 31, 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006(1)
|
|
|
2007
|
|
|
2008
|
|
|
Total
|
|
|
Operating Leases
|
|
$
|
106,000
|
|
|
$
|
94,000
|
|
|
$
|
3,000
|
|
|
$
|
203,000
|
|
Convertible notes
|
|
|
1,288,000
|
|
|
|
|
|
|
|
|
|
|
|
1,288,000
|
|
Employment Agreements
|
|
|
593,000
|
|
|
|
759,000
|
|
|
|
|
|
|
|
1,352,000
|
|
Total
|
|
$
|
1,987,000
|
|
|
$
|
853,000
|
|
|
$
|
3,000
|
|
|
$
|
2,843,000
|
|
|
|
|
(1)
|
|
2006 is for the nine-month period ending December 31, 2006.
2007 and 2008 reflect the 12-month periods then ending.
|
Convertible notes above exclude notes totaling $1,082,000 that
were converted into common stock subsequent to March 31,
2006.
We believe that exercises of
in-the-money
options and warrants, together with sales of our securities in
the PIPE Offering, the other recent offerings we have undertaken
and may undertake, will provide most of the proceeds needed to
meet our capital requirements on a going forward basis, assuming
that the Investor Notes are converted into common stock.
However, there can be no assurance that the Investor Notes will
be converted into common stock or that any required additional
equity or debt financing will be available or available on terms
favorable to us. If the Investor Notes are not converted into
common stock, or 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.
29
Off-Balance
Sheet Arrangements
We are not a party to any off-balance sheet arrangements, and we
do not engage in trading activities involving non-exchange
traded contracts. In addition, we have no financial guarantees,
debt or lease agreements or other arrangements that could
trigger a requirement for an early payment or that could change
the value of our assets.
We do not believe that inflation has had a material impact on
our business or operations.
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 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 2 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. Stock-based compensation expense
recognized under SFAS 123R for employees and directors for
the three months ended March 31, 2006 was $478,490. Basic
and diluted loss per share would have been $(0.08), if we had
not adopted SFAS 123R, compared to reported basic and
diluted loss per share of $(0.10) per share. As of
March 31, 2006 there is $2,007,933 of unrecognized
compensation expense related to unvested options that are
expected to vest through February 2007. The weighted average
period over which this expense is to be recognized is
approximately five months.
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
30
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.
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.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors
and Executive Officers
The following table sets forth the name, age and position held
by each of our executive officers and directors, as of
June 26, 2006. Directors are elected for a period of one
year and thereafter serve until the next annual meeting at which
their successors are duly elected by the stockholders.
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Director Since
|
|
Eugene E. Eichler, CPA
|
|
|
79
|
|
|
Chief Executive Officer, Chief
Financial Officer and Director
|
|
|
2002
|
|
Bruce H. McKinnon
|
|
|
64
|
|
|
President and Director
|
|
|
2002
|
|
John Bautista
|
|
|
47
|
|
|
Executive Vice President of
Operations
|
|
|
|
|
Joseph Helleis(1)(2)(3)
|
|
|
68
|
|
|
Chairman of the Board and Director
|
|
|
2002
|
|
Hon. J. Joseph Brown, AO(2)(3)
|
|
|
74
|
|
|
Director
|
|
|
2002
|
|
John F. Price, Ph.D(1)(2)
|
|
|
62
|
|
|
Director
|
|
|
2002
|
|
Cecil Bond Kyte(1)(3)
|
|
|
35
|
|
|
Director
|
|
|
2006
|
|
|
|
|
(1)
|
|
Member of the Audit Committee. Additionally, the Board had
determined that each of Mr. Helleis and Dr. Price is
an audit committee financial expert, as that term is defined in
Item 401(e) of Regulation S-B of the Securities Exchange
Act of 1933.
|
|
(2)
|
|
Member of the Compensation Committee
|
|
(3)
|
|
Member of the Nominating and Corporate Governance Committee
|
Biographical
Information
Eugene E. Eichler, CPA,
has served as our Chief Executive
Officer since October 2005, assuming the position previously
held by our late Chairman and Chief Executive Officer Edward L.
Masry, and has served as our Chief Financial Officer since May
2002. He has also been a director since May 2002.
Mr. Eichler served as our President from March 2004 to
October 2005 and as our Chief Operating Officer from October
2001 to March 2004. Mr. Eichler was the Chief Financial
Officer and Firm Administrator of the law firm Masry &
Vititoe from 1982 to October 2001. From 1974 to 1982,
Mr. Eichler provided financial consulting services to
Foundation for HMOs, Acne Care Medical Clinics and Earth
Foods, Inc. From 1960 to 1974, Mr. Eichler headed financial
consulting services for Milburn Industries and Brown,
Eichler & Company. From 1953 to 1960, he held the
position of Chief Budgets and Forecasts at North American
Aviation. From 1951 to 1953, Mr. Eichler held various audit
positions at the Atomic Energy Commission. Mr. Eichler
received a B.A. from University of Montana.
31
Bruce H. McKinnon
has served as our President since
October 2005 and has been a director since May 2002. He served
as our Executive Vice-President of Business Development from
December 2003 to March 2004 and our Chief Operating Officer from
March 2004 to October 2005. Mr. McKinnon served as Chief
Executive Officer and President of KZ Golf, Inc., an
international golf equipment company, from 1994 to December
2003. From 1990 to 1994, he was President and Chief Executive
Officer of TTL Corporation and Novaterra, Inc., environmental
remediation and technology corporations. Prior to 1990,
Mr. McKinnon was an owner, Chairman and Chief Executive
Officer of several international trading and manufacturing
corporations.
John Bautista
has served as our Executive Vice President
of Operations since February 2006 and served as our Vice
President of Operations from July 2005 through February 2006. He
previously served as a consultant to our company from April 2005
to June 2005. From June 2003 to June 2005, Mr, Bautista was
President and CEO of JDAK Enterprise, Inc., a company engaged in
international importing, distribution and brokerage of
motorcycle parts, as well as the production and assembly of
custom motorcycles. From January 1999 through May 2003,
Mr. Bautista was Mechanical Service and Calibration
Department Manager for Mechanical Environmental Systems Analysis
and Adjustment Agency. Mr. Bautista has technical knowledge and
experience with ISO certified programs under Department of
Defense, Department of Energy and Environmental Protection
Agency regulations.
Joseph Helleis
has served as a director since May 2002
and as our Chairman of the Board since December 2005, succeeding
the late Edward L. Masry, who passed away on December 6,
2005. Mr. Helleis also serves as chairperson of the Audit
Committee, and, until June 26, 2006, also served as
chairperson of the Compensation Committee and the Nominating and
Corporate Governance Committee. Since 2002, he has been
operating his own financial services consulting firm, Joseph
Helleis and Associates. From 2000 to 2002, he was
President/Chief Executive Officer with Bank of Whittier,
California. From 1981 to 2000, he served in senior executive
capacities as Chairman/CEO, President/CEO, and Chief Credit
Officer with number of financial institutions in the southern
California region. After his honorable discharge from the United
States Navy in 1960, Mr. Helleis served with Citibank in
New York City until 1981 where his last position was Vice
President/Senior Credit Officer for the New York State Business
Banking Region.
Hon. J. Joseph (John) Brown, AO,
has served
as a director since May 2002. Reflecting the Companys
increased activities and growing corporate governance needs,
Mr. Brown also became chairperson of the Compensation
Committee on June 26, 2006. He has served as Chairman of
the Australian Tourism Task Force since 1989 and currently is a
professional consultant to Service Corporation International
Australia. Mr. Brown has also served as director of
Macquarie Tourism and Leisure since 1990. From 1983 to 1988,
Mr. Brown was Minister for Sport and Tourism for the
Australian government and from 1987 to 1988 he was the Minister
for the Environment. He was a member of the Olympics bid teams
for Brisbane (1992), Melbourne (1996) and the successful
Sydney bid (2000). Mr. Brown was Founding Director of the
Sydney Olympic Games Organizing Committee in 1992 and the Sydney
Paralympic Organizing Committee in 1998.
John F. Price, Ph.D.,
has served as a director since
May 2002. Reflecting the Companys increased activities and
growing corporate governance needs, Mr. Price also became
chairperson of the Nominating and Corporate Governance Committee
on June 26, 2006. He co-founded and has served as Chairman
of the Board of Conscious Investing Pty Ltd., a software
company, since May 2001. In June 1998, Mr. Price founded
Price Value, Inc., a software company to market software that he
developed. He has served as Chairman of the Board of Price
Value, Inc. since 1998. Since October 1997, Mr. Price has
held various teaching positions in mathematics and physics at
University of New South Wales. From 1990 to 1998, he was
professor and head of the Mathematics Department at Maharishi
University of Management. Mr. Price received a B.Sc. and
M.Sc. from the University of Melbourne and a Ph.D. from the
Australian National University.
Cecil Bond Kyte
has served as a director on
February 21, 2006. Since December 2002, Mr. Kyte has
been an investor in a number of businesses, including those in
oil and gas exploration, and financial services, including
SwissGuard International, GmbH, based in Zurich, Switzerland, of
which he is a co-founder. SwissGuard serves the American annuity
market with an emphasis on asset protection and growth. From
February 2000 to November 2002, Mr. Kyte was employed by
Chautauqua Airways, a United States regional carrier, in various
capacities, including service as an airline pilot from February
2002 to November 2002. Mr. Kyte received a B. S. Degree in
Accounting from Long Beach State University.
32
EXECUTIVE
COMPENSATION
The following table sets forth certain information regarding the
compensation earned during the last three fiscal years by the
Named Executive Officers:
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation
Awards
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
Restricted Stock
|
|
|
Securities
|
|
|
|
|
|
|
Fiscal
|
|
|
Compensation
|
|
|
Award(s)
|
|
|
Underlying
|
|
|
All Other
|
|
Name and Principal
Position
|
|
Year
|
|
|
Salary ($)(4)
|
|
|
($)(5)
|
|
|
Options (#)
|
|
|
Compensation ($)
|
|
|
Edward L. Masry(1)
|
|
|
2005
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
490,909
|
|
|
$
|
|
|
Chairman and Chief
|
|
|
2004
|
|
|
$
|
1
|
|
|
$
|
|
|
|
|
328,740
|
|
|
$
|
|
|
Executive Officer
|
|
|
2003
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Eugene E. Eichler(2)
|
|
|
2005
|
|
|
$
|
240,000
|
|
|
$
|
|
|
|
|
425,000
|
|
|
$
|
|
|
Chief Executive Officer
|
|
|
2004
|
|
|
$
|
234,500
|
|
|
$
|
|
|
|
|
286,956
|
|
|
$
|
|
|
and Chief Financial Officer
|
|
|
2003
|
|
|
$
|
172,328
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Bruce H. McKinnon(3)
|
|
|
2005
|
|
|
$
|
192,000
|
|
|
$
|
|
|
|
|
350,000
|
|
|
$
|
|
|
President
|
|
|
2004
|
|
|
$
|
191,800
|
|
|
$
|
|
|
|
|
236,956
|
|
|
$
|
|
|
|
|
|
2003
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
(1)
|
|
Mr. Masry was appointed President and Chief Executive
Officer in October 2001 at no annual salary. In March 2004,
Mr. Masry relinquished his position as President, but
continued to serve as Chief Executive Officer at a contractual
salary of $1 per year until October 2005, when he resigned
that position. Mr. Masry passed away on December 6, 2005.
See Employment Agreements below.
|
|
(2)
|
|
Mr. Eichler was appointed Chief Operating Officer, Chief
Financial Officer and Treasurer in October 2001. In March 2004,
Mr. Eichler relinquished his position as Chief Operating
Officer, and was appointed President of the Company, a position
he held until October 2005, when he assumed the position of
Chief Executive Officer. Mr. Eichler continues to serve as
Chief Financial Officer. See Employment Agreements
below.
|
|
(3)
|
|
Mr. McKinnon was appointed Executive Vice President of
Business Development in October 2001. In March 2004,
Mr. McKinnon was appointed Chief Operating Officer of the
Company, a position he held until October 2005, when he assumed
the position of President. See Employment Agreements
below.
|
|
(4)
|
|
The law firm Masry & Vititoe, PC, of which
Mr. Masry was a principal shareholder, paid for
Mr. Eichlers salary for 2003 pursuant to an
arrangement under which we reimbursed Masry & Vititoe,
PC for a portion of his salary. The portion reimbursed by us is
shown in the table above.
|
|
(5)
|
|
The number and value of vested and unvested restricted stock
based upon the closing market price of the common stock at
December 30, 2005 ($0.72) were as follows:
Mr. Eichler, 500,000 vested shares valued at $360,000; and
Mr. McKinnon, 400,000 vested shares valued at $288,000.
Messrs. Eichlers and McKinnons shares vested in
October 2003.
|
33
Stock
Option Grants
The following table sets forth information concerning the stock
option grants made to each of the Named Executive Officers
during the 2005 fiscal year. No stock appreciation rights were
granted to any of the Named Executive Officers during the 2005
fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants
|
|
|
|
|
|
|
Number of
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Granted to
|
|
|
Exercise or
|
|
|
|
|
|
|
Options
|
|
|
Employees in
|
|
|
Base Price
|
|
|
Expiration
|
|
Name
|
|
Granted
|
|
|
Fiscal 2005
|
|
|
per Share
|
|
|
Date
|
|
|
Edward L. Masry
|
|
|
90,909
|
|
|
|
5.6%
|
|
|
$
|
1.10
|
|
|
|
03/02/09
|
|
Edward L. Masry
|
|
|
400,000
|
|
|
|
24.8%
|
|
|
$
|
.85
|
|
|
|
03/02/14
|
|
Eugene E. Eichler
|
|
|
100,000
|
|
|
|
6.2%
|
|
|
$
|
1.10
|
|
|
|
03/02/14
|
|
Eugene E. Eichler
|
|
|
325,000
|
|
|
|
20.2%
|
|
|
$
|
.85
|
|
|
|
03/02/14
|
|
Bruce H. McKinnon
|
|
|
100,000
|
|
|
|
6.2%
|
|
|
$
|
1.00
|
|
|
|
03/02/14
|
|
Bruce H. McKinnon
|
|
|
250,000
|
|
|
|
15.5%
|
|
|
$
|
.85
|
|
|
|
03/02/14
|
|
Aggregated
Option Exercises in Last Fiscal Year
And Year-End Option Values
No options were exercised by any of the Named Executive Officers
during the 2005 fiscal year. No stock appreciation rights were
exercised by any of the Named Executive Officers during the 2005
fiscal year. The following table sets forth the number of shares
of our common stock subject to exercisable and unexercisable
stock options which the Named Executive Officers held at the end
of the 2005 fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Options at
|
|
|
Value of Unexercised
|
|
|
|
Acquired on
|
|
|
Realized
|
|
|
Fiscal Year-End (#)
|
|
|
In-the-Money
Options ($)(1)
|
|
Name
|
|
Exercise (#)
|
|
|
($)
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Edward L. Masry
|
|
|
|
|
|
$
|
|
|
|
|
2,537,208
|
|
|
|
282,441
|
|
|
$
|
2,458,468
|
|
|
$
|
230,137
|
|
Eugene E. Eichler
|
|
|
|
|
|
$
|
|
|
|
|
717,435
|
|
|
|
244,521
|
|
|
$
|
674,970
|
|
|
$
|
186,986
|
|
Bruce H. McKinnon
|
|
|
|
|
|
$
|
|
|
|
|
385,586
|
|
|
|
201,370
|
|
|
$
|
343,120
|
|
|
$
|
143,836
|
|
|
|
|
(1)
|
|
Market value of our common stock at fiscal year-end minus the
exercise price. The closing price of our common stock on
December 30, 2005, the last trading day of the year, was
$0.72 per share.
|
Employment
Agreements
Agreement with Eugene E. Eichler.
On
December 1, 2003, the Company entered into an employment
agreement, which was subsequently amended, and then later
amended and restated on June 26, 2006, with Eugene E.
Eichler, pursuant to which he originally served as our Chief
Operating Officer. Since October 5, 2005, Mr. Eichler
has served as our Chief Executive Officer and Chief Financial
Officer. The initial term of the agreement expires on
December 31, 2007 and renews automatically for additional
one-year terms unless either party has given notice of
non-extension prior to the end of a term. Under the agreement,
as amended, Mr. Eichler was paid base compensation of
$192,000 per annum through March 1, 2004,
$240,000 per annum from March 2, 2004 through
October 4, 2005 and $300,000 per annum effective
October 5, 2005. The base compensation is reviewable by the
Board in subsequent years of the term. Mr. Eichler is also
eligible to participate in the Companys incentive and
benefit plans, including eligibility to receive grants of stock
options under the 2004 Plan, and an automobile allowance which
is presently $822 per month and has been as much as $960 per
month.
If Mr. Eichlers employment is terminated by us
without cause or as a result of his disability or death, he or
his estate, as the case may be, will be entitled to receive an
amount equal to the greater of (i) his highest base
compensation paid to him with respect to one of the two years
immediately preceding the year in which the termination occurs
or (ii) his base compensation in effect immediately prior
to the date of termination, for a period
34
of one year beginning on the date of termination. In addition,
he will be entitled to receive an amount equal to the greater of
the aggregate bonus(es), if any, paid to him with respect to one
of the two years immediately preceding the year in which the
termination occurs. Mr. Eichler and his dependents will be
entitled to continue to participate at the same levels in the
Companys benefit plans for a period of one year. If
Mr. Eichlers employment is terminated by him for good
reason or as a result of a change of control, he will be
entitled to receive all accrued salary, bonus and benefits for a
period of three years from the date of termination. If
Mr. Eichlers employment is terminated by us for cause
or by Mr. Eichler without good reason, he will only be
entitled to receive accrued salary and benefits through the date
of termination. The agreement also contains standard
confidentiality and non-solicitation provisions.
Agreement with Bruce H. McKinnon.
On
December 1, 2003, the Company entered into an employment
agreement, which was subsequently amended and later amended and
restated on June 26, 2006, with Bruce H. McKinnon, pursuant
to which he originally served as our Executive Vice President of
Business Development. Since October 5, 2005,
Mr. McKinnon has served as our President. The initial term
of the agreement expires on December 31, 2007 and renews
automatically for additional one-year terms unless either party
has given notice of non-extension prior to the end of a term.
Under the agreement, as amended, Mr. McKinnon was paid base
compensation of $153,600 per annum through March 1,
2004, $192,000 per annum from March 2, 2004 through
October 4, 2005 and $240,000 per annum effective
October 5, 2005. The base compensation is reviewable by the
Board in subsequent years of the term. Mr. McKinnon is also
eligible to participate in the Companys incentive and
benefit plans (except for the Companys group health
insurance plan), including eligibility to receive grants of
stock options under the 2004 Plan and an automobile allowance of
$900 per month. Mr. McKinnon participates in the group health
plan maintained by KZ Golf, Inc. and the Company reimburses him
for premium amounts he is required to contribute therefor.
If Mr. McKinnons employment is terminated by us
without cause or as a result of his disability or death, he, or
his estate as the case may be, will be entitled to receive an
amount equal to the greater of (i) his highest base
compensation paid to him with respect to one of the two years
immediately preceding the year in which the termination occurs
or (ii) his base compensation in effect immediately prior
to the date of termination, for a period of one year beginning
on the date of termination. In addition, he will be entitled to
receive an amount equal to the greater of the aggregate
bonus(es), if any, paid to him with respect to one of the two
years immediately preceding the year in which the termination
occurs. Mr. McKinnon and his dependents will be entitled to
continue to participate at the same levels in the Companys
benefit plans for a period of one year. If
Mr. McKinnons employment is terminated by him for
good reason or as a result of a change of control, he will be
entitled to receive all accrued salary, bonus and benefits for a
period of three years from the date of termination. If
Mr. McKinnons employment is terminated by us for
cause or by Mr. McKinnon without good reason, he will only
be entitled to receive accrued salary and benefits through the
date of termination. The agreement also contains standard
confidentiality and non-solicitation provisions.
Agreement with John Bautista.
On July 1,
2005, the Company entered into an employment agreement, which
has since been amended and restated on June 26, 2006, with
John Bautista, pursuant to which he served as our Vice President
of Operations from July 1, 2005 through February 21,
2006 and Executive Vice President of Operations since
February 21, 2006, at which time he also became an
executive officer of the Company. The initial term of the
agreement expired on December 31, 2005 and renews
automatically for additional one-year terms unless either party
has given notice of non-extension prior to the end of a term.
Under the agreement, as amended, Mr. Bautista was paid base
compensation of $120,000 per annum from July 1, 2005
through February 28, 2006 and $150,000 per annum
effective March 1, 2006. The base compensation is
reviewable by the Board of Directors in subsequent years of the
term. Mr. Bautista is eligible to participate in the
Companys incentive and benefit plans (except for the
Companys group health insurance plan), including
eligibility to receive grants of stock options under the 2004
Plan and an automobile allowance of $900 per month.
Mr. Bautista participates in the group health insurance
plan maintained by his spouses employer and the Company
reimburses him for the premium amounts he is required to
contribute therefor.
If Mr. Bautistas employment is terminated by us
without cause or as a result of his disability or death, he, or
his estate as the case may be, will be entitled to receive an
amount equal to the greater of (i) his highest base
compensation paid to him with respect to one of the two years
immediately preceding the year in which the termination occurs
or (ii) his base compensation in effect immediately prior
to the date of termination, for a period
35
of one year beginning on the date of termination. In addition,
he will be entitled to receive an amount equal to the greater of
the aggregate bonus(es), if any, paid to him with respect to one
of the two years immediately preceding the year in which the
termination occurs. Mr. Bautista and his dependents will be
entitled to continue to participate at the same levels in the
Companys benefit plans for a period of one year. If
Mr. Bautistas employment is terminated by him for
good reason or as a result of a change of control, he will be
entitled to receive all accrued salary, bonus and benefits for a
period of three years from the date of termination. If
Mr. Bautistas employment is terminated by us for
cause or by Mr. Bautista without good reason, he will only
be entitled to receive accrued salary and benefits through the
date of termination. The agreement also contains standard
confidentiality and non-solicitation provisions.
Agreement with Edward L. Masry.
On
December 1, 2003, the Company entered into an employment
agreement with Edward L. Masry, pursuant to which he served as
our Chief Executive Officer. The initial term of the agreement
was due to expire on December 31, 2007 and would have
renewed automatically for additional one-year terms unless
either party had given notice of non-extension prior to the end
of a term. The agreement provided for a base compensation of
$1 per year. Mr. Masry was eligible to participate in
the Companys incentive and benefit plans, including
eligibility to receive grants of stock options under the 2004
Plan.
If Mr. Masrys employment was terminated by us without
cause or as a result of his disability or death, he or his
estate, as the case may be, will be entitled to receive an
amount equal to the greater of the aggregate bonus(es), if any,
paid to him with respect to one of the two years immediately
preceding the year in which the termination occurs. In addition,
Mr. Masry and his dependents would be entitled to continue
to participate at the same levels in the Companys benefit
plans for a period of one year. If Mr. Masrys
employment had been terminated by him for good reason or as a
result of a change of control, he would have been entitled to
receive all accrued salary, bonus and benefits for a period of
three years from the date of termination. If
Mr. Masrys employment had been terminated by us for
cause or by Mr. Masry without good reason, he would only
have been entitled to receive accrued salary and benefits
through the date of termination. The agreement also contained
standard confidentiality and non-solicitation provisions.
Mr. Masry passed away on December 6, 2005.
Compensation
of Board of Directors
During 2006, our directors who are not officers or employees of
the Company will be compensated for their services in the amount
of $1,000 per meeting of the Board. In addition, the
chairperson of the Audit Committee will receive a retainer of
$3,000 per month and the chairperson of the Compensation,
and Nominating and Corporate Governance Committees each will
receive a retainer of $2,000 per month.
During 2005, our directors who were not officers or employees of
the Company also each received, in addition to the foregoing
cash compensation, annual grants of options to purchase
100,000 shares of our common stock, at $.85 per share.
In addition, Joseph Helleis received an additional grant of
options to purchase 75,000 shares of our common stock, at
$.85 per share, for serving as the chairperson of the
Audit, Compensation, and Nominating and Corporate Governance
Committees. All of the foregoing options vest fully on the first
anniversary of the date of grant. No option grants have yet been
made to such directors in 2006.
The Company is undertaking a comprehensive review of its
director compensation policy, including cash and non-cash
components, with the assistance of an outside executive
compensation consulting firm. Such review is ongoing at this
time.
Stock
Option Plan
Introduction.
On March 2, 2004, the Board
approved our 2004 Stock Option Plan (the 2004 Plan),
subject to approval from our stockholders, which approval was
received at the 2004 Annual Meeting on May 24, 2004. At the
Annual Meeting of Stockholders held on May 24, 2005 (the
2005 Annual Meeting), the Companys
stockholders approved an amendment to the 2004 Plan to increase
the maximum number of shares of common stock that could be
issued under the 2004 Plan from a total of 1,500,000 shares
of common stock to 5,000,000 shares of common stock, or an
increase of 3,500,000 shares.
36
On February 21, 2006, the Board approved and recommended to
the stockholders for approval an additional amendment to the
2004 Plan to increase the maximum number of shares of common
stock that can be issued under the 2004 Plan from a total of
5,000,000 shares of common stock to 7,000,000 shares
of common stock, or an increase of an additional
2,000,000 shares. This proposal was approved by the
Companys stockholders at the 2006 Annual Meeting of
Stockholders held on May 19, 2006.
We currently have outstanding options issued under the 2004 Plan
to purchase approximately 3,931,257 shares of our common
stock and options issued outside the 2004 Plan to purchase an
additional 3,250,000 shares of our common stock. The
weighted-average exercise price of all outstanding options is
approximately $0.59 per share.
Purpose of the 2004 Plan.
The 2004 Plan is
intended to benefit and strengthen the Company and its
stockholders by:
|
|
|
|
|
encouraging stock ownership by selected key employees,
directors, consultants and advisers
|
|
|
|
assisting the Company in attracting and retaining key
personnel; and
|
|
|
|
providing to participating personnel added incentive for high
level of performance.
|
Administration.
A committee of three or more
people selected by the Board administers the 2004 Plan. The
Board has designated the Compensation Committee as the
administrator of the 2004 Plan.
Shares Available for Grant Under the
Plan.
As originally adopted by the stockholders
at the 2004 Annual Meeting, the 2004 Plan contained a total of
1,500,000 shares of our common stock, subject to adjustment
in the event of certain changes in our capitalization. At the
2005 Annual Meeting, the stockholders approved an amendment to
the 2004 Plan, increasing the total number of shares which can
be the subject of grants under the 2004 Plan from 1,500,000 to
5,000,000, an increase of 3,500,000 shares. At the 2006
Annual Meeting, the stockholders approved a further amendment to
the 2004 Plan, increasing the total number of shares which can
be the subject of grants under the 2004 Plan from 5,000,000 to
7,000,000, an increase of an additional 2,000,000 shares.
If an option terminates or expires for any reason without having
vested and been exercised, the related shares of common stock
will again become available for grant.
Eligibility.
All employees, directors,
consultants and advisers of the Company are eligible to receive
option grants under the 2004 Plan. As of March 31, 2006,
two Named Executive Officers (as defined below on page 13),
four non-employee directors and approximately eleven other
employees were eligible to be selected by the Compensation
Committee to receive grants under the 2004 Plan.
Types and Terms of Stock Options.
The
Compensation Committee may grant either incentive stock options
qualified with respect to Internal Revenue Code Section 422
(ISOs) or options not qualified under any section of
the Internal Revenue Code (non-qualified options).
All ISOs granted under the 2004 Plan must have an exercise price
that is at least equal to the fair market value of our common
stock on the grant date and, in the case of a person who is a
10% or greater stockholder, the exercise price must be at least
100% of the fair marketing value of our common stock on the
grant date. The exercise price of a non-qualified option shall
be determined by the Board or the Compensation Committee. As of
March 31, 2006, the fair market value of a share of our
common stock, determined by the closing price per share on that
date as quoted on the OTC Bulletin Board, was $2.95. No
stock option granted under the 2004 Plan may have a term longer
than ten years and, in the case of a person who is a 10% or
greater stockholder, the stock option may not have a term longer
than five years. The exercise price of stock options may be paid
in cash, or, if the Compensation Committee permits, by tendering
shares of common stock.
Vesting.
The Compensation Committee has the
authority to determine the amounts and period of time over which
a stock option shall become exercisable (vest). However, the
fair market value with respect to which an ISO is exercisable by
an optionee during any calendar year may not exceed $100,000.
Stock Options Granted to Specific
Individuals.
The number of options that any
individual may be granted, if any, under the 2004 Plan will be
determined, from time to time, in the discretion of the
Compensation Committee or, when appropriate, the Board, and
therefore cannot be determined in advance.
Federal Income Tax Consequences.
The following
summary is intended only as a general guide to the
United States federal income tax consequences under current
law of incentive stock options and non-qualified stock
37
options, which are authorized for grant under the 2004 Plan. It
does not attempt to describe all possible federal or other tax
consequences of participation in the 2004 Plan or tax
consequences based on particular circumstances. The tax
consequences may vary if options are granted outside the United
States.
Incentive Stock Options.
An option holder
recognizes no taxable income for regular income tax purposes as
a result of the grant or exercise of an incentive stock option
qualifying under Internal Revenue Code Section 422. Option
holders who dispose of the shares acquired under an incentive
stock option after two years following the date the option was
granted and after one year following the exercise of the option
will normally recognize a capital gain or loss upon a sale of
the shares equal to the difference, if any, between the sale
price and the purchase price of the shares. If an option holder
satisfies such holding periods upon a sale of the shares, the
Company will not be entitled to any deduction for federal income
tax purposes. If an option holder disposes of shares within two
years after the date of grant or within one year after the date
of exercise (a disqualifying disposition), the
difference between the fair market value of the shares on the
exercise date and the option exercise price (not to exceed the
gain realized on the sale if the disposition is a transaction
with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss
is recognized, there will be no ordinary income, and such loss
will be a capital loss. Any ordinary income recognized by the
option holder upon the disqualifying disposition of the shares
generally will result in a deduction by the Company for federal
income tax purposes.
Non-Qualified Options.
Options not designated
or qualifying as incentive stock options will be non-qualified
options having no special tax status. An optionee generally
recognizes no taxable income as the result of the grant of such
an option. Upon exercise of a non-qualified option, the optionee
normally recognizes ordinary income in the amount of the
difference between the option exercise price and the fair market
value of the shares on the exercise date. If the optionee is an
employee, such ordinary income generally is subject to
withholding of income and employment taxes. Upon the sale of
stock acquired by the exercise of a non-qualified option, any
gain or loss, based on the difference between the sale price and
the fair market value on the exercise date, will be taxed as a
capital gain or loss. No tax deduction is available to the
Company with respect to the grant of a non-qualified option or
the sale of the stock acquired pursuant to such grant. The
Company generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result
of the exercise of a non-qualified option.
Other Considerations.
The Internal Revenue
Code allows publicly-held corporations to deduct compensation in
excess of $1 million paid to the corporations chief
executive officer and its four other most highly compensated
executive officers in office at the end of the tax year if the
compensation is payable solely based on the attainment of one or
more performance goals and certain statutory requirements are
satisfied. We intend for compensation arising from grants of
awards under the 2004 Plan which are based on performance goals,
including stock options and stock appreciation rights granted at
fair market value, to be deductible by us as performance-based
compensation not subject to the $1 million limitation on
deductibility.
Transferability.
All ISOs are non-transferable
other than by will or the laws of descent and distribution and
shall be exercisable during an optionees lifetime only by
the optionee. The Compensation Committee may provide that a
non-qualified option may be transferred under certain terms and
conditions.
Extraordinary Events.
In the event of a sale
of more than half the fair market value of the assets of the
Company, the acquisition by a group or entity of more than 30%
of the voting securities of the Company, or the dissolution or
liquidation of the Company, all stock options not exercised
shall terminate as of the date such transaction or event takes
place, unless the stock options are assumed. The vesting of
unvested stock options shall be accelerated in certain
circumstances in connection with the acquisition of the assets
or stock of the Company and the optionee shall be entitled to
receive cash equal to the difference between the exercise price
of the stock option and value of the consideration attributable
to the transaction.
Amendment and Termination.
The Board or the
Compensation Committee may suspend, amend or terminate the 2004
Plan at any time, but no such action may be taken without
stockholder approval if such approval is required by law or if
such action increases the maximum number of shares that may be
issued under the 2004 Plan, reduces the exercise price of an
ISO, increases the maximum term of an ISO or permits stock
options to be granted to anyone not eligible to be granted
options at the time of the adoption of the 2004 Plan. The Board
may, with the consent of an
38
optionee, make modifications of the terms and conditions of that
persons stock option, other than as described in the
preceding sentence, in which case stockholder approval is also
required.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of June 23,
2006 by:
|
|
|
|
|
each person, or group of affiliated persons, known by us to be
the beneficial owner of more than 5% of the outstanding shares
of our common stock;
|
|
|
|
each of our directors;
|
|
|
|
our Chief Executive Officer and each of our four other most
highly-compensated executive officers serving as such as of
December 31, 2005 whose total annual salary and bonus
exceeded $100,000, for services rendered in all capacities to
the Company (such individuals are hereafter referred to as the
Named Executive Officers); and
|
|
|
|
all of our directors and executive officers as a group.
|
As of June 23, 2006, there were 37,141,264 shares of
our common stock outstanding.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares of
|
|
|
Percentage of
|
|
|
|
Common Stock
|
|
|
Shares Beneficially
|
|
Name and Address of Beneficial
Owner(1)
|
|
Beneficially Owned(2)
|
|
|
Owned(2)
|
|
|
Edward L. Masry(3)
|
|
|
7,388,740
|
|
|
|
17.7
|
%
|
Cecil Kyte(4)
|
|
|
2,317,359
|
|
|
|
6.1
|
%
|
Eugene E. Eichler(5)
|
|
|
2,049,699
|
|
|
|
5.2
|
%
|
Bruce H. McKinnon(6)
|
|
|
1,544,512
|
|
|
|
4.0
|
%
|
Joseph Helleis(8)
|
|
|
525,000
|
|
|
|
1.4
|
%
|
John Price(7)
|
|
|
441,000
|
|
|
|
1.2
|
%
|
John Brown(7)
|
|
|
400,000
|
|
|
|
1.1
|
%
|
All directors and executive
officers as a group (8 persons)(9)
|
|
|
15,208,466
|
|
|
|
33.0
|
%
|
|
|
|
(1)
|
|
Unless otherwise indicated, the address of each listed person is
c/o Save the World Air, Inc., 5125 Lankershim Boulevard,
North Hollywood, California 91601.
|
|
(2)
|
|
Percentage of beneficial ownership is based upon
37,141,264 shares of our common stock outstanding as of
June 23, 2006. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Shares of
common stock subject to options and warrants currently
exercisable or convertible, or exercisable or convertible within
60 days, are deemed outstanding for determining the number
of shares beneficially owned and for computing the percentage
ownership of the person holding such options, but are not deemed
outstanding for computing the percentage ownership of any other
person. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in
the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them.
|
|
(3)
|
|
Under the rules of the SEC, Mr. Masry is a Named Executive
Officer of our company for 2005. Mr. Masry passed away on
December 6, 2005. Includes options to purchase
2,328,740 shares of our common stock exercisable either
currently or within 60 days after March 31, 2006 and
60,000 shares of our common stock held by
Mr. Masrys wife. Also includes 2,800,000 shares
and warrants to purchase an aggregate 1,200,000 shares of
our common stock held by Masry & Vititoe, PC. Mr.
Masry, our late Chairman and Chief Executive Officer, was a
shareholder of Masry & Vititoe, PC, and may be deemed
to have been a beneficial owner of the shares held by such
entity during the period that Mr. Masry served as our Chairman
and Chief Executive Officer. During is lifetime, Mr. Masry
disclaimed beneficial ownership of these shares except to the
extent of his proportional share therein.
|
39
|
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(4)
|
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Includes warrants to purchase 1,110,000 shares of our
common stock exercisable either currently or within 60 days
after June 23, 2006.
|
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(5)
|
|
Includes options to purchase 1,371,127 shares of our common
stock, warrants to purchase 107,143 shares of our common
stock held by the Eichler/Wise Family Trust, a revocable trust
of which Mr. Eichler is a Trustee; exercisable or
convertible either currently or within 60 days after
June 23, 2006.
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(6)
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|
Mr. McKinnon is a participant in the KZ Golf, Inc. Defined
Benefit Pension Plan, which is the owner of 69,814 shares
of our common stock. Includes options to purchase
996,127 shares of our common stock exercisable either
currently or within 60 days after June 23, 2006. Also
includes warrants to purchase 78,571 shares of our common
stock, exercisable or convertible either currently or within
60 days after June 23, 2006, held by KZ Golf, Inc.
Mr. McKinnon is a principal stockholder of KZ Golf, Inc.
|
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(7)
|
|
Includes options to purchase 150,000 shares of our common
stock exercisable either currently or within 60 days after
June 23, 2006.
|
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(8)
|
|
Includes options to purchase 275,000 shares of our common
stock exercisable either currently or within 60 days after
June 23, 2006.
|
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(9)
|
|
In addition to the securities indicated in the foregoing
footnotes, this amount includes warrants and options to purchase
412,742 shares of our common stock and promissory notes
convertible into 35,714 shares of our common stock,
exercisable or convertible either currently or within
60 days after June 23, 2006.
|
SELLING
SECURITY HOLDERS
Selling
Security Holders Table
The table below sets forth information concerning the resale of
the shares of common stock by the selling security holders. We
will not receive any proceeds from the resale of the common
stock by the selling security holders. We will receive proceeds
for the exercise, if any, of the warrants referenced below.
The shares to be offered by the selling security holders:
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were acquired in a private offering $1,075,000 aggregate
principal amount of our 9% convertible notes, or Bridge
Notes, convertible into an aggregate 1,535,715 shares at
$0.70 per share, all of which shares were issued when the
Bridge Notes were converted; and warrants, or Bridge Warrants,
to purchase up to an aggregate 2,303,568 shares of our
common stock at an exercise price of $1.00 per
share; or
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were acquired in a private offering in an aggregate amount of
873,018 shares of our common stock at $1.89 per share,
and warrants, or PIPE Warrants, to purchase up to an aggregate
436,511 shares of our common stock at an exercise price of
$2.70 per share; or
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are issuable to Spencer Clarke LLC and their affiliates upon
exercise of warrants issued to them, pursuant to which they may
purchase up to 294,501 shares of our common stock at
various exercise prices, in connection with investment banking
services rendered to us from time to time, including with
respect to the foregoing offerings.
|
The shares being registered hereunder and upon exercise of the
warrants and offered pursuant to this prospectus are
restricted securities under applicable federal and
state securities laws and are being registered under the
Securities Act of 1933, as amended (the Securities
Act), to give the selling security holders the opportunity
to sell these shares publicly. This prospectus is part of a
registration statement on
Form SB-2
filed by us with the Securities and Exchange Commission under
the Securities Act covering the resale of such shares of our
common stock from time to time by the selling security holders.
No estimate can be given as to the amount or percentage of our
common stock that will be held by the selling security holders
after any sales made pursuant to this prospectus because the
selling security holders are not required to sell any of the
shares being registered under
40
this prospectus. The following table assumes that the selling
security holders will sell all of the shares listed in this
prospectus.
The following table sets forth the beneficial ownership of the
selling security holders. The term selling security
holder or selling security holders includes
the stockholders listed below and their respective transferees,
assignees, pledges, donees or other successors. Beneficial
ownership is determined in accordance with
Rule 13d-3
of the Securities and Exchange Act of 1934 and generally
includes voting or investment power with respect to securities.
Shares of common stock subject to options, warrants and
convertible securities currently exercisable or convertible, or
exercisable or convertible within 60 days are deemed
outstanding, including for purposes of computing the percentage
ownership of the person holding the option, warrant or
convertible security, but not for purposes of computing the
percentage of any other holder.
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Beneficial Ownership Before
Offering(1)
|
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Beneficial Ownership
|
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|
|
|
|
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Number of
|
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After Offering
|
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|
Number of
|
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|
|
|
|
Shares Being
|
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|
Number
|
|
|
|
|
Name of Selling Security
Holder
|
|
Shares
|
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|
Percent(2)
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Offered
|
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|
of Shares
|
|
|
Percent(1)(2)
|
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|
James Cummings(3)
|
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535,142
|
|
|
|
1.4
|
%
|
|
|
89,285
|
|
|
|
445,857
|
|
|
|
1.2
|
%
|
Jan Fredriksson(4)
|
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178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
Joseph Fung(5)
|
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357,143
|
|
|
|
1.0
|
%
|
|
|
357,143
|
|
|
|
0
|
|
|
|
0
|
|
Arthur E. Feather(6)
|
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763,888
|
|
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2.1
|
%
|
|
|
763,888
|
|
|
|
0
|
|
|
|
0
|
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Richard and Lois Bins(7)
|
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89,285
|
|
|
|
*
|
|
|
|
89,285
|
|
|
|
0
|
|
|
|
0
|
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James W. Poitras, Trustee,
James W. Poitras Revocable Trust(8)
|
|
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178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
James R. Barrons, Trustee,
Barrons Family Trust(9)
|
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426,587
|
|
|
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1.1
|
%
|
|
|
426,587
|
|
|
|
0
|
|
|
|
0
|
|
Barton Katz, Trustee,
Katz Family Trust(10)
|
|
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178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
Andre N. Dawson and Vanessa
Dawson, Trustees
Andre Nolan Dawson Family Trust(11)
|
|
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426,587
|
|
|
|
1.1
|
%
|
|
|
426,587
|
|
|
|
0
|
|
|
|
0
|
|
Earl Pomberg(12)
|
|
|
178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
Jerome Dreyfuss(13)
|
|
|
178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
Robert Katz(14)
|
|
|
178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
Phillip A. Cole(15)
|
|
|
178,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
|
0
|
|
|
|
0
|
|
Lawrence Chimerine(16)
|
|
|
89,285
|
|
|
|
*
|
|
|
|
89,285
|
|
|
|
0
|
|
|
|
0
|
|
William Klingenstein(17)
|
|
|
89,285
|
|
|
|
*
|
|
|
|
89,285
|
|
|
|
0
|
|
|
|
0
|
|
John and Elaine Proudman(18)
|
|
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89,285
|
|
|
|
*
|
|
|
|
89,285
|
|
|
|
0
|
|
|
|
0
|
|
Eugene E. Eichler, Trustee
Eichler/Wise Family Trust(19)
|
|
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2,049,699
|
|
|
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5.2
|
%
|
|
|
178,572
|
|
|
|
1,871,127
|
|
|
|
4.8
|
%
|
Alfred Leifer(20)
|
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187,570
|
|
|
|
*
|
|
|
|
178,570
|
|
|
|
9,000
|
|
|
|
0
|
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Michael Jadon(21)
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|
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193,572
|
|
|
|
*
|
|
|
|
178,572
|
|
|
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15,000
|
|
|
|
0
|
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Paul R. Vega(22)
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|
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99,285
|
|
|
|
*
|
|
|
|
89,285
|
|
|
|
10,000
|
|
|
|
0
|
|
Richard Nahigian(23)
|
|
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778,570
|
|
|
|
2.1
|
%
|
|
|
178,570
|
|
|
|
600,000
|
|
|
|
1.6
|
%
|
James Callison, M.D.,
Trustee
J. Callison Family Trust(24)
|
|
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39,683
|
|
|
|
*
|
|
|
|
39,683
|
|
|
|
0
|
|
|
|
0
|
|
Shahrokh Soltani(25)
|
|
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66,666
|
|
|
|
*
|
|
|
|
66,666
|
|
|
|
0
|
|
|
|
0
|
|
Carpen Leong(26)
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19,841
|
|
|
|
*
|
|
|
|
19,841
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|
|
|
0
|
|
|
|
0
|
|
Joseph Chan(27)
|
|
|
19,841
|
|
|
|
*
|
|
|
|
19,841
|
|
|
|
0
|
|
|
|
0
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership Before
Offering(1)
|
|
|
Beneficial Ownership
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
After Offering
|
|
|
|
Number of
|
|
|
|
|
|
Shares Being
|
|
|
Number
|
|
|
|
|
Name of Selling Security
Holder
|
|
Shares
|
|
|
Percent(2)
|
|
|
Offered
|
|
|
of Shares
|
|
|
Percent(1)(2)
|
|
|
Majid Noori(28)
|
|
|
92,063
|
|
|
|
*
|
|
|
|
92,063
|
|
|
|
0
|
|
|
|
0
|
|
Janet Bhoopsingh(29)
|
|
|
158,730
|
|
|
|
*
|
|
|
|
158,730
|
|
|
|
0
|
|
|
|
0
|
|
Richard M. Moss(30)
|
|
|
158,730
|
|
|
|
*
|
|
|
|
158,730
|
|
|
|
0
|
|
|
|
0
|
|
Nite Capital LP(31)
|
|
|
119,055
|
|
|
|
*
|
|
|
|
119,055
|
|
|
|
0
|
|
|
|
0
|
|
Spencer Clarke LLC(32)
|
|
|
65,452
|
|
|
|
*
|
|
|
|
53,627
|
|
|
|
11,825
|
|
|
|
*
|
|
Reid Drescher (33)
|
|
|
149,548
|
|
|
|
*
|
|
|
|
149,548
|
|
|
|
0
|
|
|
|
0
|
|
Robert Perthius (34)
|
|
|
13,544
|
|
|
|
*
|
|
|
|
13,544
|
|
|
|
0
|
|
|
|
0
|
|
Geoffrey Finkel (35)
|
|
|
12,299
|
|
|
|
*
|
|
|
|
12,299
|
|
|
|
0
|
|
|
|
0
|
|
Vito DiVenere (36)
|
|
|
3,009
|
|
|
|
*
|
|
|
|
3,009
|
|
|
|
0
|
|
|
|
0
|
|
John Venezia (37)
|
|
|
3,009
|
|
|
|
*
|
|
|
|
3,009
|
|
|
|
0
|
|
|
|
0
|
|
David Drescher (38)
|
|
|
3,009
|
|
|
|
*
|
|
|
|
3,009
|
|
|
|
0
|
|
|
|
0
|
|
Michael Sheldon (39)
|
|
|
3,009
|
|
|
|
*
|
|
|
|
3,009
|
|
|
|
0
|
|
|
|
0
|
|
Victor Greene (40)
|
|
|
13,613
|
|
|
|
*
|
|
|
|
13,613
|
|
|
|
0
|
|
|
|
0
|
|
Charles Sayegh (41)
|
|
|
34,992
|
|
|
|
*
|
|
|
|
34,992
|
|
|
|
0
|
|
|
|
0
|
|
ToniAnn Vivona (42)
|
|
|
1,765
|
|
|
|
*
|
|
|
|
1,765
|
|
|
|
0
|
|
|
|
0
|
|
Joseph Turpin (43)
|
|
|
2,310
|
|
|
|
*
|
|
|
|
2,310
|
|
|
|
0
|
|
|
|
0
|
|
Ricardo Gellineau (44)
|
|
|
767
|
|
|
|
*
|
|
|
|
767
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
*
|
|
less than 1%.
|
|
(1)
|
|
Assumes each selling security holder exercises all warrants held
by such person.
|
|
(2)
|
|
Assumes 37,141,264 shares of common stock are outstanding
immediately before and immediately after the offering.
|
|
(3)
|
|
Represents (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share, all of which are
being registered. Includes in Beneficial Ownership Before
Offering Number of Shares but excludes
from Beneficial Ownership Before
Offering Number of Shares Being
Offered (i) 103,000 shares of common stock;
(ii) 107,143 shares of common stock issuable upon
conversion of $75,000 of Investor Notes;
(iii) 75,000 shares of common stock underlying
warrants that are exercisable at $1.50 per share and
(iv) 160,714 shares of common stock underlying
warrants that are exercisable at $1.00 per share, none of which
are being registered.
|
|
(4)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(5)
|
|
Represents (i) 142,857 shares of common stock and
(ii) 214,286 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(6)
|
|
Represents (i) 390,211 shares of common stock,
(ii) 267,857 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(iii) 105,820 shares of common stock underlying
warrants that are exercisable at $2.70 per share, all of
which are being registered.
|
|
(7)
|
|
Represents (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share, all of which are
being registered.
|
|
(8)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(9)
|
|
Represents (i) 212,963 shares of common stock,
(ii) 160,714 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(iii) 52,910 shares of common stock underlying
warrants that are exercisable at $2.70 per share, all of
which are being registered.
|
42
|
|
|
(10)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(11)
|
|
Represents (i) 212,963 shares of common stock,
(ii) 160,714 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(iii) 52,910 shares of common stock underlying
warrants that are exercisable at $2.70 per share, all of
which are being registered.
|
|
(12)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(13)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(14)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(15)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered.
|
|
(16)
|
|
Represents (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share, all of which are
being registered.
|
|
(17)
|
|
Represents (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share, all of which are
being registered.
|
|
(18)
|
|
Represents (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share, all of which are
being registered.
|
|
(19)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered. Includes in Beneficial
Ownership Before Offering Number of
Shares but excludes from Beneficial Ownership Before
Offering Number of Shares Being Offered
(i) 500,000 shares of common stock owned by Eugene E.
Eichler and (ii) 1,371,127 shares of common stock
underlying options owned by Eugene E. Eichler that are
exercisable either currently or within 60 days after
June 21, 2006, none of which are being registered. See
Security Ownership of Certain Beneficial Owners and
Management.
|
|
(20)
|
|
Includes (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share held by Alfred Leifer,
Trustee, Leifer Trust; and (i) 35,714 shares of common
stock and (ii) 53,571 shares of common stock
underlying warrants that are exercisable at $1.00 per share held
by Alfred Leifer, Trustee, Tesoro/Leifer Community Property
Trust, all of which are being registered. Also includes in
Beneficial Ownership Before
Offering Number of Shares but excludes
from Beneficial Ownership Before
Offering Number of Shares Being
Offered (i) 3,000 shares of common stock owned
by Alfred Leifer, Trustee, Leifer Trust,
(ii) 3,000 shares of common stock owned by Alfred
Leifer IRA and (iii) 3,000 shares of common stock
owned by Alfred Leifer and Anne Tesoro Leifer Joint Tenants,
none of which are being registered.
|
|
(21)
|
|
Represents (i) 71,429 shares of common stock and
(ii) 107,143 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered. Includes in Beneficial
Ownership Before Offering Number of
Shares but excludes from Beneficial Ownership Before
Offering Number of Shares Being Offered,
15,000 shares of common stock, none of which are being
registered.
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(22)
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Represents (i) 35,714 shares of common stock and
(ii) 53,571 shares of common stock underlying warrants
that are exercisable at $1.00 per share, all of which are
being registered. Includes in Beneficial Ownership Before
Offering Number of Shares but excludes
from Beneficial Ownership Before
Offering Number of Shares Being Offered,
10,000 shares of common stock, none of which are being
registered.
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(23)
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Represents (i) 71,428 shares of common stock and
(ii) 107,142 shares of common stock underlying
warrants that are exercisable at $1.00 per share, all of
which are being registered. Includes in Beneficial
Ownership Before Offering Number of
Shares but excludes from Beneficial Ownership Before
Offering Number of Shares Being Offered
(i) 300,000 shares of common stock and
(ii) 300,000 shares of common stock underlying
warrants that are exercisable at $0.50 per share, none of
which are being registered.
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(24)
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Represents (i) 26,455 shares of common stock and
(ii) 13,228 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(25)
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Represents (i) 44,444 shares of common stock and
(ii) 22,222 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(26)
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Represents (i) 13,227 shares of common stock and
(ii) 6,614 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(27)
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Represents (i) 13,227 shares of common stock and
(ii) 6,614 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(28)
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Represents (i) 61,375 shares of common stock and
(ii) 30,688 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(29)
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Represents (i) 105,820 shares of common stock and
(ii) 52,910 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(30)
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Represents (i) 105,820 shares of common stock and
(ii) 52,910 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered.
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(31)
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Represents (i) 79,370 shares of common stock and
(ii) 39,685 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered. Nite Capital LP, is a private investment fund
that is owned by its investors and managed by the general
partner, whose manager is Keith Goodman, who has voting and
investment control over the shares listed.
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(32)
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Represents (i) 207,199 shares of common stock
underlying warrants that are exercisable at $1.00 per share and
(ii) 87,302 shares of common stock underlying warrants
that are exercisable at $2.70 per share, all of which are
being registered. Includes in Beneficial Ownership Before
Offering Number of Shares but excludes
from Beneficial Ownership Before
Offering Number of Shares Being
Offered, 11,825 shares of common stock underlying
warrants that are exercisable at $2.60 per share, none of
which are being registered. Spencer Clarke LLC is an investment
banking firm and a member of the National Association of
Securities Dealers, Inc.
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(33)
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Includes (i) 69,191 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 32,197 shares of common stock underlying warrants
that are exercisable at $2.70 per share, held by Reid Drescher.
Also includes (i) 30,700 shares of common stock
underlying warrants that are exercisable at $1.00 per share and
(ii) 17,460 shares of common stock underlying warrants
that are exercisable at $2.70 per share, held by Spencer Clarke
Holdings LLC. Spencer Clarke Holdings LLC is managed by Spencer
Clarke Ltd., whose President and sole stockholder is Reid
Drescher, who has ultimate voting and investment control over
such shares. The selling security holder is the President and
CEO of Spencer Clarke LLC.
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(34)
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Represents (i) 8,634 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 4,910 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(35)
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Represents (i) 8,480 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 3,819 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(36)
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Represents (i) 1,918 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 1,091 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(37)
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Represents (i) 1,918 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 1,091 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(38)
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Represents (i) 1,918 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 1,091 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(39)
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Represents (i) 1,918 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 1,091 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(40)
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Represents (i) 9,248 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 4,365 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(41)
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Represents (i) 15,350 shares of common stock
underlying warrants that are exercisable at $1.00 per share and
(ii) 19,642 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(42)
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Represents 1,765 shares of common stock underlying warrants
that are exercisable at $1.00 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(43)
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Represents (i) 1,765 shares of common stock underlying
warrants that are exercisable at $1.00 per share and
(ii) 545 shares of common stock underlying warrants
that are exercisable at $2.70 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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(44)
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Represents 767 shares of common stock underlying warrants
that are exercisable at $1.00 per share. The selling security
holder is an affiliate of Spencer Clarke LLC.
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The information in the above table is as of the date of this
prospectus. Information concerning the selling security holders
may change from time to time and any such changed information
will be described in supplements to this prospectus if and when
necessary.
Relationships
with Selling Security Holders
From October 2005 through February 2006, we sold
(i) $1,075,000 aggregate principal amount of our Bridge
Notes and (ii) 2,303,568 of our two-year Bridge Warrants to
purchase 2,303,568 shares of our common stock, in a private
offering conducted by Spencer Clarke, LLC of New York, as our
placement agent. The Bridge Notes were convertible at
$0.70 per share and the Bridge Warrants are exercisable at
$1.00 per share. As part of the offering, warrants
exercisable for 153,572 shares of our common stock were
issued to Spencer Clarke. In 2006, all of the Bridge Notes were
converted into a total of 1,535,715 shares of Common Stock
on or before the maturity date.
In May 2006, we sold an aggregate (i) 873,018 shares
of common stock and (ii) three-year PIPE warrants to
purchase 436,511 shares of common stock at $2.70 per
share, in a private offering conducted by Spencer Clarke, LLC,
of New York, as our placement agent. As part of the offering,
warrants exercisable for 87,302 shares of our common stock
were issued to Spencer Clarke.
Certain of the selling security holders are our existing
stockholders who acquired their securities from us previously in
one or more private placements. None of such selling security
holders have had any position, office or other material
relationship (other than as purchasers of securities) with us or
any of our affiliates within the past three years, other than as
follows. Eugene E. Eichler, the trustee of the Eichler/Wise
Family Trust, is our Chief Executive Officer and Chief Financial
Officer. Alfred Leifer, the trustee of the Leifer Trust and the
Tesoro/Leifer Community Property Trust, is our Secretary and
Controller.
Spencer Clarke LLC is the Companys investment banker. They
have been issued warrants for investment banking services
provided to us from time to time, including in connection with
offerings of our securities, which securities being registered
under this prospectus. The shares issuable upon exercise of
certain of these warrants, at various exercise prices, are being
registered hereunder.
PLAN OF
DISTRIBUTION
Each selling security holder of our common stock and any of
their transferees, pledgees, assignees, donees, and
successors-in-interest
may, from time to time, sell any or all of their shares of
common stock on the stock exchange, market or trading facility
on which the shares are traded or in private transactions. These
sales may be at fixed or negotiated prices. A selling security
holder may use any one or more of the following methods when
selling shares:
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ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
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an exchange distribution in accordance with the rules of the
applicable exchange;
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privately negotiated transactions;
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broker-dealers may agree with the selling security holders to
sell a specified number of such shares at a stipulated price per
share;
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a combination of any such methods of sale; or
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any other method permitted pursuant to applicable law.
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The selling security holders may also sell shares under
Rule 144 under the Securities Act, if available, rather
than under this prospectus.
Broker-dealers engaged by the selling security holders may
arrange for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the
selling security holders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to
be negotiated. Each selling security holder does not expect
these commissions and discounts relating to its sales of shares
to exceed what is customary in the types of transactions
involved.
The selling security holders and any broker-dealers or agents
that are involved in selling the shares of common stock may be
deemed to be underwriters within the meaning of the
Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the
Securities Act. Because selling security holders may be deemed
to be underwriters within the meaning of the Securities Act,
they will be subject to the prospectus delivery requirements of
the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the
sale of common stock will be paid by the selling security holder
and/or
the
purchasers. Each selling security holder has represented and
warranted to our company that it acquired the securities subject
to this registration statement in the ordinary course of such
selling security holders business and, at the time of its
purchase of such securities such selling security holder had no
agreements or understandings, directly or indirectly, with any
person to distribute any such securities.
There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the
selling security holders. We are required to pay certain fees
and expenses incurred by us incident to the registration of the
shares. We have agreed to indemnify the selling security holders
against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
The selling security holders may from time to time pledge or
grant a security interest in some or all of the shares owned by
them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell
shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of selling security holders to
include the pledgee, transferee or other
successors-in-interest
as selling security holders under this prospectus. Upon our
company being notified in writing by a selling security holder
that any material arrangement has been entered into with a
broker-dealer for the sale of common stock through a block
trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement
to this prospectus will be filed, if required, pursuant to
Rule 424(b) under the Securities Act, disclosing
(i) the name of each such selling security holder and of
the participating broker-dealer(s), (ii) the number of
shares involved, (iii) the price at which such the shares
of common stock were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct
any investigation to verify the information set out or
incorporated by reference in this prospectus, and
(vi) other facts material to the transaction. In addition,
upon our company being notified in writing by a selling security
holder that a donee or pledgee intends to sell more than
500 shares of common stock, a supplement to this prospectus
will be filed if then required in accordance with applicable
securities law.
46
Under applicable rules and regulations under the Exchange Act,
any person engaged in the distribution of the resale shares may
not simultaneously engage in market making activities with
respect to our common stock for a period of two business days
prior to the commencement of the distribution. In addition, the
selling security holders will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the
timing of purchases and sales of shares of our common stock by
the selling security holders or any other person. We will make
copies of this prospectus available to the selling security
holders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the
sale.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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.
In December 2005, Eugene Eichler, the Companys Chief
Executive Officer, loaned $45,000 to the Company for working
capital purposes. The loan was unsecured, bore interest at
6% per annum and was due on demand. In February 2006,
Mr. Eichler converted the loan into the Companys
Bridge Notes, which notes themselves were convertible into
64,286 shares of common stock at a conversion price of
$.70 per share, and, in addition, received warrants to
purchase 96,429 shares of common stock at an exercise price
of $1.00 per share, as part of a private offering which we
were conducting at that time. Mr. Eichlers Bridge Notes
were converted prior to the maturity of the Bridge Notes into
64,286 shares of common stock. The securities that were
issued to Mr. Eichler upon both conversions described above were
issued to him on the same terms as the securities we issued to
all other investors during that private offering and upon the
conversion of the Bridge Notes into shares of common stock.
DESCRIPTION
OF SECURITIES
We are presently authorized to issue 200,000,000 shares of
$.001 par value common stock. As of June 23, 2006, we
had 37,141,264 shares of common stock issued and
outstanding.
Common
Stock
The holders of our common stock are entitled to equal dividends
and distributions per share with respect to the common stock
when, as and if declared by the Board of Directors from funds
legally available therefor. No holder of any shares of common
stock has a preemptive right to subscribe for any of our
securities, nor are any common shares subject to redemption or
convertible into other securities. Upon liquidation, dissolution
or winding- up of our company, and after payment of creditors,
if any, the assets will be divided pro rata on a
share-for-share
basis among the holders of the shares of common stock. All
shares of common stock now outstanding are fully paid, validly
issued and non-assessable. Each share of our common stock is
entitled to one vote with respect to the election of any
director or any other matter upon which stockholders are
required or permitted to vote.
47
Stock
Purchase Warrants
Bridge
Warrants
The Bridge Warrants which may be exercised for the shares of our
common stock being registered in this prospectus entitle the
holder to purchase the stated number of shares of our common
stock at an exercise price of $1.00 per share, subject to
adjustment in the event of stock splits, stock dividends,
reclassifications or other similar transactions. These warrants
are exercisable until 5 p.m. Eastern time on the second
anniversary of the date of their issuance.
These Warrants may be exercised by surrendering the warrant
certificates evidencing the warrants to be exercised with the
accompanying form of election to purchase, together with payment
of the aggregate exercise price in cash.
The holders of these warrants have no right to vote on matters
submitted to our stockholders and have no right to receive any
dividends which may be declared on our Common Stock. The holders
of these warrants will not be entitled to share in our assets in
the event of liquidation, dissolution or the winding up of the
Company. If a bankruptcy or reorganization is commenced by or
against the Company, a bankruptcy court may hold that any of
these unexercised warrants are executory contracts which may be
subject to rejection by us, and the holders of these warrants
may, even if sufficient funds are available, receive nothing or
less than they would have been entitled to if they had exercised
their warrants prior to the commencement of any bankruptcy case.
PIPE
Warrants
The so-called PIPE Warrants which may be exercised for the
shares of our common stock being registered in this prospectus
entitle the holder to purchase the stated number of shares of
our common stock at an exercise price of $2.70 per share,
subject to adjustment in the event of stock splits, stock
dividends, reclassifications or other similar transactions.
These warrants are exercisable until 5 p.m. California time
on May 24, 2009.
These warrants may be exercised by surrendering the warrant
certificates evidencing the warrants to be exercised with the
accompanying form of election to purchase, together with payment
of the aggregate exercise price in cash.
The holders of these warrants have no right to vote on matters
submitted to our stockholders and have no right to receive any
dividends which may be declared on our Common Stock. The holders
of these warrants will not be entitled to share in our assets in
the event of liquidation, dissolution or the winding up of the
Company. If a bankruptcy or reorganization is commenced by or
against the Company, a bankruptcy court may hold that any of
these unexercised warrants are executory contracts which may be
subject to rejection by us, and the holders of these warrants
may, even if sufficient funds are available, receive nothing or
less than they would have been entitled to if they had exercised
their warrants prior to the commencement of any bankruptcy case.
Convertible
Notes
Our 9% convertible subordinated notes, or Investor Notes,
are due July 31
,
2006. The Company may, at its
option, require that these 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. We have not yet satisfied this
condition, but intend to seek voluntary conversion of the
Investor Notes on or prior to their maturity. As of
June 23, 2006, noteholders holding $213,720 aggregate
principal amount of Investor Notes voluntarily converted their
Investor Notes into 305,314 shares of our common stock.
Shares Eligible
For Future Sale
As of June 23, 2006, we had 37,141,264 shares of common
stock outstanding. That number does not include
(i) 7,181,257 shares that are reserved for issuance
under outstanding options and that may be issued if and when the
options are exercised, (ii) 22,075,058 shares that are
reserved for issuance under warrants and that may be issued if
and when such warrants are exercised (3,034,580 of these shares
underlying warrants are included in this prospectus),
(iii) 1,839,512 shares that are reserved for issuance
if and when our Investor Notes are exercised;
48
and (iv) 3,068,743 shares that are reserved for
issuance in connection with options that may be granted under
the 2004 Plan.
Freely Tradeable Shares After
Offering
.
As of June 23, 2006 (and
excluding the 5,443,313 shares covered by this prospectus),
24,757,012 shares of our 37,141,264 outstanding shares of common
stock were free trading shares. Upon the sale of all the shares
covered by this prospectus, an additional 5,443,313 shares
will be freely tradable without restriction or limitation under
the Securities Act. Assuming the exercise for all shares upon
exercise of the related warrants, after the completion of this
offering there will be 40,175,844 shares of common stock
outstanding, of which 30,200,325 shares will be tradable
without restriction under the Securities Act.
Rule 144
.
In general, under
Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted
securities shares for at least one year, including persons who
may be deemed our affiliates, as that term is
defined under the Securities Act, would be entitled to sell
within any three month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares
(approximately 371,413 shares if the currently outstanding
warrants and options are not exercised and the Investor Notes
are not converted, or approximately 682,371 shares if all
options and warrants are exercised and all Investor Notes are
converted) or the average weekly trading volume of shares during
the four calendar weeks preceding such sale. Sales under
Rule 144 are subject to certain manner of sale provisions,
notice requirements and the availability of current public
information about the company. A person who has not been our
affiliate at any time during the three months preceding a sale,
and who has beneficially owned his shares for at least two
years, would be entitled under Rule 144(k) to sell such
shares without regard to any volume limitations under
Rule 144.
Form S-8
Registration of Options
.
We intend to file a
registration statement on
Form S-8
covering the shares of common stock that have been issued or
reserved for issuance under our stock option plan, which permits
the resale of such shares in the public marketplace.
Transfer
Agent
Our transfer agent is Nevada Agency and Trust Company, in
Reno, Nevada.
EXPERTS
The financial statements for the years ended December 31,
2005 and 2004 included in this prospectus have been audited by
Weinberg & Co., P.A. to the extent and for the periods
indicated in their report thereon. Such financial statements
have been included in this prospectus and registration statement
in reliance upon the report of Weinberg & Co., P.A. and
upon the authority of such firm as experts in auditing and
accounting.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provide that no officer or
director shall be personally liable to us or our stockholders
for monetary damages except as provided pursuant to Nevada
Revised Statutes. Our bylaws and Articles of Incorporation also
provide that we will indemnify and hold harmless each person who
serves at any time as a director, officer, employee or agent of
us from and against any and all claims, judgments and
liabilities to which such person shall become subject by reason
of the fact that he is or was a director, officer, employee or
agent of us, and shall reimburse such person for all legal and
other expenses reasonably incurred by him or her in connection
with any such claim or liability. We also have the power to
defend such person from all suits or claims in accordance with
the Nevada Revised Statutes. The rights accruing to any person
under our bylaws and Articles of Incorporation do not exclude
any other right to which any such person may lawfully be
entitled, and we may indemnify or reimburse such person in any
proper case, even though not specifically provided for by the
bylaws and Articles of Incorporation.
In the employment agreements that we entered into with
Messrs. Eichler, McKinnon and Bautista, we have agreed to
indemnify each such employee for all claims arising out of
performance of his duties as CEO, President
49
and Executive Vice President of Operations, respectively, other
than those arising out of each such persons gross
negligence, recklessness or willful misconduct, to the fullest
extent permitted by law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the small business issuer for expenses incurred or paid by a
director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
LEGAL
MATTERS
SEC Law Firm, Los Angeles, California has rendered an opinion
with respect to the validity of the shares of common stock
covered by this prospectus.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on
Form SB-2
under the Securities Act for the common stock offered under this
prospectus. We are subject to the informational requirements of
the Exchange Act, and file annual and current reports, proxy
statements and other information with the Commission. These
reports, proxy statements and other information filed by Save
the World air, Inc. can be read and copied at the
Commissions Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by
calling the Commission at
1-800-SEC-0330.
The Commission also maintains a website that contains reports,
proxy statements, information statements and other information
concerning Save the World Air, Inc. located at
http://www.sec.gov. This prospectus does not contain all the
information required to be in the registration statement
(including the exhibits), which we have filed with the
Commission under the Securities Act and to which reference is
made in this prospectus.
50
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
DECEMBER 31, 2004 AND 2005 AND MARCH 31, 2006
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
84,826
|
|
|
$
|
279,821
|
|
|
$
|
320,344
|
|
Other current assets
|
|
|
2,602
|
|
|
|
9,009
|
|
|
|
8,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
87,428
|
|
|
|
288,830
|
|
|
|
329,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net of accumulated
depreciation
|
|
|
35,596
|
|
|
|
295,374
|
|
|
|
314,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
4,500
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,024
|
|
|
$
|
588,704
|
|
|
$
|
647,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS DEFICIENCY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
64,089
|
|
|
$
|
155,456
|
|
|
$
|
128,423
|
|
Accrued expenses
|
|
|
84,420
|
|
|
|
179,461
|
|
|
|
246,337
|
|
Accrued research and development
fees
|
|
|
50,000
|
|
|
|
680,000
|
|
|
|
595,000
|
|
Accrued professional fees
|
|
|
876,452
|
|
|
|
450,555
|
|
|
|
523,970
|
|
Payable to shareholder
|
|
|
|
|
|
|
45,000
|
|
|
|
|
|
Payable to related parties
|
|
|
36,478
|
|
|
|
158,732
|
|
|
|
158,732
|
|
Finders fees payable
|
|
|
1,521
|
|
|
|
8,916
|
|
|
|
5,666
|
|
Convertible debentures, net
|
|
|
|
|
|
|
318,759
|
|
|
|
1,245,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,112,960
|
|
|
|
1,996,879
|
|
|
|
2,904,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from founding executive
officer
|
|
|
1,017,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par
value: 200,000,000 shares authorized, 37,784,821,
31,387,418, and 32,343,967 (unaudited) shares issued and
outstanding at December 31, 2004 and 2005 and
March 31, 2006, respectively
|
|
|
37,784
|
|
|
|
31,387
|
|
|
|
32,344
|
|
Common stock to be issued
|
|
|
119,000
|
|
|
|
612,521
|
|
|
|
224,845
|
|
Additional paid-in capital
|
|
|
15,043,028
|
|
|
|
18,336,178
|
|
|
|
20,730,675
|
|
Deferred compensation
|
|
|
(76,068
|
)
|
|
|
(142,187
|
)
|
|
|
|
|
Deficit accumulated during the
development stage
|
|
|
(17,130,888
|
)
|
|
|
(20,246,074
|
)
|
|
|
(23,244,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficiency
|
|
|
(2,007,144
|
)
|
|
|
(1,408,175
|
)
|
|
|
(2,256,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,024
|
|
|
$
|
588,704
|
|
|
$
|
647,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
52
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS
OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004 AND 2005 AND THREE
MONTHS ENDED
MARCH 31, 2005 AND 2006 (UNAUDITED) AND FOR THE PERIOD
FROM
INCEPTION (FEBRUARY 18, 1998) TO MARCH 31,
2006 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
Years Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
Since
|
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
Inception
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating expenses
|
|
|
3,323,030
|
|
|
|
2,980,046
|
|
|
|
661,595
|
|
|
|
2,940,011
|
|
|
|
18,785,425
|
|
Research and development
expenses
|
|
|
1,873,464
|
|
|
|
1,150,361
|
|
|
|
401,485
|
|
|
|
57,294
|
|
|
|
3,860,881
|
|
Non-cash patent settlement
cost
|
|
|
1,610,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,610,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other
income
|
|
|
(6,806,560
|
)
|
|
|
(4,130,407
|
)
|
|
|
(1,063,080
|
)
|
|
|
(2,997,305
|
)
|
|
|
(24,256,372
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
954
|
|
Settlement of litigation and debt
|
|
|
|
|
|
|
1,017,208
|
|
|
|
|
|
|
|
|
|
|
|
1,017,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for
income taxes
|
|
|
(6,806,046
|
)
|
|
|
(3,113,199
|
)
|
|
|
(1,063,080
|
)
|
|
|
(2,997,305
|
)
|
|
|
(23,238,210
|
)
|
Provision (benefit) for income
taxes
|
|
|
(2,766
|
)
|
|
|
1,987
|
|
|
|
1,976
|
|
|
|
800
|
|
|
|
5,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,803,280
|
)
|
|
$
|
(3,115,186
|
)
|
|
$
|
(1,065,056
|
)
|
|
$
|
(2,998,105
|
)
|
|
$
|
(23,244,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share,
basic and diluted
|
|
$
|
(0.19
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, basic and diluted
|
|
|
35,841,225
|
|
|
|
38,248,575
|
|
|
|
38,036,260
|
|
|
|
31,468,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
53
FROM INCEPTION (FEBRUARY 18, 1998) TO
DECEMBER 31, 2005
AND THREE MONTHS ENDED MARCH 31, 2006 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
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
|
|
|
|
(Unaudited)
|
|
|
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
|
|
54
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
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
|
|
|
|
(Unaudited)
|
|
|
Stock issued for consulting
services on July 28, 2000
|
|
|
4.88
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
47,975
|
|
|
|
|
|
|
|
|
|
|
|
47,985
|
|
Stock issued for consulting
services on August 4, 2000
|
|
|
2.13
|
|
|
|
35,033
|
|
|
|
35
|
|
|
|
|
|
|
|
74,585
|
|
|
|
|
|
|
|
|
|
|
|
74,620
|
|
Stock issued for promotional
services on August 16, 2000
|
|
|
2.25
|
|
|
|
25,000
|
|
|
|
25
|
|
|
|
|
|
|
|
56,225
|
|
|
|
|
|
|
|
|
|
|
|
56,250
|
|
Stock issued for consulting
services on September 5, 2000
|
|
|
2.25
|
|
|
|
12,833
|
|
|
|
13
|
|
|
|
|
|
|
|
28,861
|
|
|
|
|
|
|
|
|
|
|
|
28,874
|
|
Stock issued for consulting
services on September 10, 2000
|
|
|
1.50
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
14,740
|
|
|
|
|
|
|
|
|
|
|
|
14,750
|
|
Stock issued for consulting
services on November 2, 2000
|
|
|
0.88
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
8,643
|
|
|
|
|
|
|
|
|
|
|
|
8,653
|
|
Stock issued for consulting
services on November 4, 2000
|
|
|
0.88
|
|
|
|
9,833
|
|
|
|
10
|
|
|
|
|
|
|
|
8,643
|
|
|
|
|
|
|
|
|
|
|
|
8,653
|
|
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
|
|
55
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
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
|
|
|
|
(Unaudited)
|
|
|
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
|
|
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
|
)
|
|
|
|
|
|
|
|
|
56
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
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
|
|
|
|
(Unaudited)
|
|
|
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
|
|
57
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
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
|
|
|
|
(Unaudited)
|
|
|
Stock and warrants issued for cash
on October 21, 2003
|
|
|
0.25
|
|
|
|
1,845,000
|
|
|
|
1,845
|
|
|
|
|
|
|
|
459,405
|
|
|
|
|
|
|
|
|
|
|
|
461,250
|
|
Stock and warrants issued for cash
on October 28, 2003
|
|
|
0.25
|
|
|
|
1,570,000
|
|
|
|
1,570
|
|
|
|
|
|
|
|
390,930
|
|
|
|
|
|
|
|
|
|
|
|
392,500
|
|
Stock and warrants issued for cash
on November 19, 2003
|
|
|
0.25
|
|
|
|
500,000
|
|
|
|
500
|
|
|
|
|
|
|
|
124,500
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Finders 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
|
|
58
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
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
|
|
|
|
(Unaudited)
|
|
|
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
|
|
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
|
|
59
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
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Deficit
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Total
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Additional
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Accumulated
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Stockholders
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Price per
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Common Stock
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Common Stock
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Paid-in
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Deferred
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During the
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Development
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Share
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Shares
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Amount
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to be Issued
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Capital
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Compensation
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Development Stage
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Stage Deficiency
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(Unaudited)
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Stock issued upon exercise of
warrants on January 31, 2005
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0.40
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500
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1
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199
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200
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Stock issued for cash on
February 17, 2005
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1.00
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325,000
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325
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324,675
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325,000
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Stock issued for cash on
March 31, 2005
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1.00
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215,000
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215
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214,785
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215,000
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Stock issued for cash on
May 17, 2005
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1.00
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5,000
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5
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4,995
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5,000
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Stock issued for cash on
June 7, 2005
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1.00
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300,000
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300
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299,700
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300,000
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Stock issued for cash on
August 5, 2005
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1.00
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480,500
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480
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480,020
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480,500
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Stock issued for cash on
August 9, 2005
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1.00
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100,000
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100
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99,900
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100,000
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Stock issued for cash on
October 27, 2005
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1.00
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80,000
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80
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79,920
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80,000
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Common stock cancelled on
December 7, 2005
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Various
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(8,047,403
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)
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(8,047
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)
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8,047
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Stock issued for settlement of
payables on December 21, 2005
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57,092
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57,092
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Stock issued for settlement of
payables on December 31, 2005
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555,429
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555,429
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Finders fees related to stock
issuances
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(109,840
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(109,840
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Intrinsic value of options issued
to employees
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243,750
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(243,750
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Fair value of options issued for
settlement costs
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31,500
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31,500
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Fair value of warrants issued for
settlement costs
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4,957
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4,957
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Fair value of warrants issued to
non-employees for services
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13,505
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13,505
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Amortization of deferred
compensation
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177,631
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177,631
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Warrants issued with convertible
notes
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696,413
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696,413
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Intrinsic value of beneficial
conversion associated with convertible notes
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756,768
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756,768
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Net loss for year ended
December 31, 2005
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(3,115,186
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(3,115,186
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60
SAVE THE
WORLD AIR, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS
DEFICIENCY (Continued)
|
|
|
|
|
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Deficit
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Total
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Additional
|
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Accumulated
|
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Stockholders
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Price per
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
During the
|
|
|
Development
|
|
|
|
Share
|
|
|
Shares
|
|
|
Amount
|
|
|
to be Issued
|
|
|
Capital
|
|
|
Compensation
|
|
|
Development Stage
|
|
|
Stage Deficiency
|
|
|
|
(Unaudited)
|
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Balance, December 31,
2005
|
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31,387,418
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$
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31,387
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$
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612,521
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$
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18,336,178
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$
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(142,187
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)
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$
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(20,246,074
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)
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$
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(1,408,175
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)
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Stock issued, for previously
settled payables (unaudited)
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846,549
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847
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(612,521
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)
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611,674
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Stock issued upon exercise of
warrants on March 23, 2006 (unaudited)
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25,000
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25
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37,475
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37,500
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Stock issued upon exercise of
warrants on March 27, 2006 (unaudited)
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75,000
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75
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87,425
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87,500
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Stock issued upon exercise of
warrants on March 30, 2006 (unaudited)
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10,000
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10
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9,990
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10,000
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Common stock paid for, but not
issued (unaudited)
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18,125
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18,125
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Common stock for convertible notes
converted to stock, but not issued (unaudited)
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206,720
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206,720
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Fair value of options issued to
employees and officers (unaudited)
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478,490
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& |