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<SEC-DOCUMENT>0000950148-04-000710.txt : 20040325
<SEC-HEADER>0000950148-04-000710.hdr.sgml : 20040325
<ACCEPTANCE-DATETIME>20040325172310
ACCESSION NUMBER:		0000950148-04-000710
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20040325

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SAVE THE WORLD AIR INC
		CENTRAL INDEX KEY:			0001103795
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070]
		IRS NUMBER:				522088326
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-29185
		FILM NUMBER:		04690474

	BUSINESS ADDRESS:	
		STREET 1:		29229 CANWOOD STREET
		STREET 2:		SUITE 206
		CITY:			AGOURA HILLS
		STATE:			CA
		ZIP:			91301
		BUSINESS PHONE:		818.865.3500

	MAIL ADDRESS:	
		STREET 1:		29229 CANWOOD STREET
		STREET 2:		SUITE 206
		CITY:			AGOURA HILLS
		STATE:			CA
		ZIP:			91301
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>v97354e10ksb.htm
<DESCRIPTION>10KSB
<TEXT>
<HTML>
<HEAD>
<TITLE>10KSB</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


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<P align="center"><FONT size="2"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B></FONT>

<P align="center"><FONT size="2"><B>FORM 10-KSB</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2"><B>&#091;X&#093;</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>For the fiscal year ended December&nbsp;31, 2002.</B></FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD align="center" valign="top" colspan="3"><FONT size="2">
or</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2"><B>&#091;&nbsp;&nbsp;&nbsp;&#093;</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>For the transition period from ___________ to  ___________ </B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>Commission File Number 0-29185</B></FONT>

<P align="center"><FONT size="2"><B>SAVE THE WORLD AIR, INC.</B><BR>
<I>(Exact name of registrant as specified in its charter)</I></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>Nevada</B><BR>
<I>(State or other jurisdiction of<BR>
incorporation or organization)</I></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>52-2088326</B><BR>
<I>(I.R.S. Employer<BR>
Identification No.)</I></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>5125 Lankershim Boulevard<BR>
North Hollywood, California 91601</B><BR>
<I>(Address, including zip code, of principal executive offices)</I></FONT>

<P align="center"><FONT size="2"><B>(818)&nbsp;487-8000</B><BR>
<I>(Registrant&#146;s telephone number, including area code)</I></FONT>

<P align="center"><FONT size="2"><B>Securities registered pursuant to Section&nbsp;12(b) of the Exchange Act: None.</B></FONT>

<P align="center"><FONT size="2"><B>Securities registered pursuant to Section&nbsp;12(g) of the Exchange Act: Common Stock, $0.001 par value.</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Check whether the Registrant (1)&nbsp;filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12&nbsp;months (or for such shorter period that the registrant was required to file
such reports), and (2)&nbsp;has been subject to such filing requirements for the
past 90&nbsp;days. Yes &#091;&nbsp;&nbsp;&nbsp;&#093; No &#091;X&#093;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Check if disclosure of delinquent filers in response to Item&nbsp;405 of
Regulation&nbsp;S-B is not contained herein, and will not be contained, to the best
of Registrant&#146;s knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form&nbsp;10-KSB or any amendment to
this Form&nbsp;10-KSB. &#091;&nbsp;&nbsp;&nbsp;&#093;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Registrant&#146;s revenues for its most recent fiscal year: None.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate market value of voting and non-voting common equity held by
non-affiliates of the Registrant was approximately $51.6&nbsp;million
as of February&nbsp;29, 2004 based upon the closing price on the Pink Sheets reported
for such date. This calculation does not reflect a determination that certain
persons are affiliates of the Registrant for any other purpose.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of the Registrant&#146;s Common Stock outstanding as of
February&nbsp;29, 2004 was 34,691,821 shares.
</FONT>
<P align="center"><FONT size="2"><B>DOCUMENTS INCORPORATED BY REFERENCE</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transitional Small Business Disclosure Format (Check one): Yes &#091;&nbsp;&nbsp;&nbsp;&#093;
No &#091;X&#093;
</FONT>
<P>
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<P align="center"><FONT size="2">&nbsp;
</FONT>

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<P><HR noshade><P>

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center"><FONT size="2"><B>SAVE THE WORLD AIR, INC.</B></FONT>

<P align="center"><FONT size="2"><B>FORM 10-KSB</B></FONT>

<P align="center"><FONT size="2"><B>INDEX</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
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    <TD width="1%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Page</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD colspan="9"><DIV style="margin-left:10px; text-indent:-10px"  align="center"><FONT size="2"><B><A href="#101">PART I</A></B></FONT></DIV></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#102">ITEM 1</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#102">Business</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;&nbsp;2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#103">ITEM 2</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#103">Properties</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#104">ITEM 3</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#104">Legal Proceedings</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#105">ITEM 4</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#105">Submission of Matters to a Vote of Security Holders</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="9"><DIV style="margin-left:10px; text-indent:-10px" align="center"><FONT size="2"><A href="#106"><B>PART II</B></A></FONT></DIV></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#107">ITEM 5</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#107">Market for Common Equity and Related Stockholder Matters</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#108">ITEM 6</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#108">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operation</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#109">ITEM 7</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#109">Financial Statements</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#110">ITEM 8</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#110">Change in and Disagreements With Accountants on Accounting and Financial Disclosure</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#111">ITEM 8A</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#111">Controls and Procedures</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="9"><DIV style="margin-left:10px; text-indent:-10px" align="center"><FONT size="2"><A href="#112"><B>PART III</B></A></FONT></DIV></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#113">ITEM 9</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#113">Directors and Executive Officers of Registrant</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#114">ITEM 10</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#114">Executive Compensation</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#115">ITEM 11</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#115">Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#116">ITEM 12</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#116">Certain Relationships and Related Transactions</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#117">ITEM 13</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#117">Exhibits and Reports on Form 8-K</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><A href="#118">ITEM 14</A></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><A href="#118">Principal Accountant Fees and Services</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="5" align="left"><FONT size="2"><A href="#119">SIGNATURES</A></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97354exv10w1.txt">EXHIBIT 10.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97354exv10w2.txt">EXHIBIT 10.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97354exv10w3xay.txt">EXHIBIT 10.3(A)</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97354exv31w1.txt">EXHIBIT 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97354exv31w2.txt">EXHIBIT 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97354exv32w1.txt">EXHIBIT 32.1</A></FONT></TD></TR>
</TABLE>
</CENTER>
<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center"><FONT size="2">1
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P align="left"><FONT size="2"><B>Notice Regarding Prior Filings</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Annual Report on Form&nbsp;10-KSB (Annual Report) for the fiscal year
ended December&nbsp;31, 2002, together with any of our subsequent filings and public
disclosures, contain updated information and disclosures that may be material
to an understanding of the subject matter herein and the periods prior to the
period covered by this report.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Among other matters disclosed in our most recent filings with the
Securities and Exchange Commission (Commission or SEC), we have reported:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commission&#146;s filing of an enforcement action against Save the World
Air, Inc. (SWA or the Company), its former sole director and officer, Jeffrey
Muller (Muller), and others for violation of U.S. securities laws;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s engagement of new and independent executive management team,
outside auditing and legal professionals, advisory board, research and
development team, and other outside consultants including the RAND
Corp.;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s settlement of the enforcement action against SWA, only, and active
cooperation with the Commission in its action against the remaining
defendants;
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s filing of a cross-complaint against Muller and others which seeks,
among other things, cancellation of eight million shares of common stock plus common stock
purchase options for ten million shares and termination of the
royalty agreement with Muller;
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s settlement of potential disputes concerning its patent rights for
the ZEFS device and certain potential claims of the Muller bankruptcy
estate;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s
filing of international patent applications for the ZEFs device;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s
successful capital raise of over $2.8&nbsp;million in a private placement;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s engagement of RAND Corp. to conduct independent testing and review
of SWA&#146;s products and marketing feasibility studies;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s
successful initial testing of its products;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA&#146;s
development of new products and technologies; and
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other facts, transactions and events which may be material to an
investor&#146;s understanding of SWA&#146;s history, future prospects, and the risks and
benefits of an investment in SWA.
</FONT>
<A name="101"></A>
<P align="center"><FONT size="2"><B>PART I</B></FONT>

<A name="102"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;1. Business</B></FONT>

<P align="left"><FONT size="2"><B>Special Cautionary Note Regarding Forward-Looking Statements</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Annual Report contains forward-looking statements. These
forward-looking statements include predictions regarding our future:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">revenues and profits;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">customers;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">research and development expenses;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">scientific test results;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">sales and marketing expenses;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">general and administrative expenses;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">liquidity and sufficiency of existing cash;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">technology and products;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">the outcome of pending or threatened litigation; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">the effect of recent accounting pronouncements on our financial condition and results of operations.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You can identify these and other forward-looking statements by the use of
words such as &#147;may,&#148; &#147;will,&#148; &#147;expects,&#148; &#147;anticipates,&#148; &#147;believes,&#148;
&#147;estimates,&#148;, &#147;continues,&#148; 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.
</FONT>
<P align="center"><FONT size="2">2
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth below under the heading &#147;Risk Factors.&#148; 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.
</FONT>
<P align="left"><FONT size="2"><B>General</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop proprietary devices that can be installed on motor vehicles and
are designed to reduce harmful emissions, improve fuel efficiency and improve
performance. Our prototype devices we call &#147;ZEFS&#148; are intended to
significantly reduce hydrocarbon and carbon monoxide emissions, while
significantly increasing fuel economy. We have devoted the bulk of our efforts
to complete the design and development of our production models and raising the
financing required to do so. We have generated no revenues and our business is
in the development stage. We have taken actions to secure our intellectual
property rights to the ZEFS device and we eventually plan to initiate marketing
efforts by sale or license of our ZEFS technology, which we intend to license
to automobile manufacturers and market to auto parts retailers.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our company was incorporated on February&nbsp;18, 1998, as a Nevada corporation
under the name Mandalay Capital Corporation. We changed our name to Save the
World Air, Inc. on February&nbsp;11, 1999 following the acquisition of marketing and
manufacturing rights of the ZEFS device from Jeffrey Muller. During the past
three years, we have been acquiring new technologies, developing products using
our technologies and conducting scientific tests regarding our technologies.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.savetheworldair.com. Information
contained on the website is not a part of this Annual Report.
</FONT>
<P align="left"><FONT size="2"><B>Background</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principle business focus currently rests with development and
distribution of a device designed to solve the complex problems caused by
automobile pollution. Throughout the past few years, we have designed and
tested multiple versions of the ZEFS device for use on carbureted and fuel
injection gasoline engines and are currently in the process of adapting this
technology to work on engines that use diesel fuels.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The incomplete and inefficient burning of fossil fuel in an automobile
engine results in unburned gases, such as hydrocarbons and carbon monoxide
being expelled as a by-product from the engine&#146;s exhaust. These emissions from
automobile engines have contributed to significant air pollution and depletion
of the ozone layer that protects us from harmful ultraviolet radiation. As a
result, the world has experienced significant changes to its air quality since
the beginning of the 20th century and, because of the added vehicles, the
problem has gotten progressively worse with each passing year. Forecasts
published by the World Resources Institute indicate that by the year 2010 the
number of automobiles in operation worldwide will exceed 800&nbsp;million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SWA acquired the worldwide manufacturing and marketing rights to the ZEFS
device from its inventors. When the ZEFS device is fitted to internal
combustion engines, using diesel fuel or gasoline, it may reduce the emission
of dangerous polluting carbon monoxide, hydrocarbon exhaust gases and nitric
oxide gases.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ZEFS device operates by using magnetic energy to reduce the size of
the fuel molecules passing from the carburetor or fuel injector of the vehicle
to the intake manifold prior to combustion. This, in turn, creates an
atomization process in which fuel molecules are able to bond effectively with
oxygen atoms resulting in cleaner fuel burning by the engine.
</FONT>
<P align="left"><FONT size="2"><B>Strategy</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, we plan to refine and commercialize the ZEFS technology into a
wide variety of carbureted and fuel-injection based vehicles. In addition, we
are engaged in independent laboratory testing of the ZEFS technology premise in
order to gain better market acceptance by automobile manufacturers and
governmental regulatory officials.
</FONT>

<P align="center"><FONT size="2">3
</FONT>

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<P align="left"><FONT size="2"><B><I>Independent Laboratory and Scientific Testing</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and testing using government standard test equipment in the
United States has demonstrated that the ZEFS device may lead to reduced engine
emissions, such as carbon monoxide and hydrocarbons. In tests conducted at the
Northern California Diagnostics Laboratory, the ZEFS device reduced carbon
monoxide, hydrocarbons, and nitrous oxide fume levels and increased gas mileage
for the test vehicle.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002 we retained the RAND Corporation to study the validity
and market potential of our technology. RAND determined that sufficient
theoretical basis exists to warrant entry into a comprehensive product testing
program. 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.
</FONT>
<P align="left"><FONT size="2"><B><I>Governmental Mandates to Reduce Air Pollution</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Governments internationally recognize the serious effects caused by air
pollution and have enacted legislation to mandate that automobile manufacturers
be required to reduce exhaust emissions caused by their products. The approach
used by auto makers 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 types of converters may be less
effective than our technology in reducing emissions, increasing horsepower and
increasing fuel economy in order to achieve emission reductions. We anticipate
that further government mandates may force automobile manufacturers to adopt
better solutions to reducing emissions.
</FONT>
<P align="left"><FONT size="2"><B><I>Technology Transfer</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are actively continuing with our research on the ZEFS device for use on
gasoline-powered engines and have taken steps to finalize the development of
versions of the device to fit on carbureted, center point, and multi-port fuel
injection systems. We anticipate we will use these prototype devices to serve
as demonstration units, during presentations before the major automobile
manufacturers. It is our long-term objective to facilitate the adoption of
this technology by major automobile manufacturers.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We developed this strategy of technology transfer because auto makers will
likely require approximately two to three years to fully inspect, test, and
integrate the ZEFS devices into their new car designs, as well as to adapt it
to their legacy vehicles. Since the ZEFS device is presently protected by
international patent, we view the technology transfer strategy as the most
viable option to gain widespread adoption of the technology by major automobile
manufacturers without compromising our ownership of the technology. We intend
to assist these manufacturers with the full integration of our technology, by
not only supporting the required engineering and system integration efforts,
but also by reducing costs associated with such process so that they may not be
prohibitive to the endeavor.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of the complexity and enormity of the task of designing ZEFS
variants to fit every make and model of car manufactured over the past twenty
years, we will rely heavily on the cooperation of the major auto-makers to
support this function, including engineering, marketing, and installation of
the device. Additionally, we are cognizant that in order to preserve the
integrity of the warranties provided to car owners by the manufacturers, these
manufacturers must be involved in the process of designing and installing the
ZEFS device on legacy vehicles. We envision that a cooperative venture between
car makers and us will result in the most optimal mechanism for the
installation of ZEFS on the greatest percentage of cars possible, through
agreements between the company, the auto makers and their dealerships. This
approach to the distribution of the ZEFS device to the after market assures
compatibility with the original design specifications of the auto makers and
facilitates the continued manufacturer endorsement of the new car warranty
program. A revenue sharing arrangement is planned, between us, the automobile
makers, and their licensed dealers to assure equitable returns for all entities
relative to the distribution of the ZEFS device to the automobile after market.
</FONT>
<P align="left"><FONT size="2"><B><I>Diesel Engine Market</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to create a near term capital revenue stream for the company, we
are currently engaged in the development of a variant of the ZEFS device for
use on diesel engines such as those used on large trucks, buses, and electrical
generators. Because these types of vehicles use engines provided from Cummins,
Caterpillar, or
</FONT>
<P align="center"><FONT size="2">4
</FONT>

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<P><FONT size="2">Detroit Diesel almost exclusively, the number of ZEFS variants needed to
service these fleets is considerably less than the number required to satisfy
the automobile market. This fact alone makes entry into the diesel engine
market extremely attractive for our business, offering a large number of
potential customers with a minimum of expense for research and development of
product variants. This market is seen as extremely viable for us and our
products because of the expressed need by the trucking industry, large-scale
transportation providers, fleet operators, school districts, transit
authorities and corporations to reduce emissions and costs associated with fuel
expenditures and operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The business strategy relative to this particular market rests in the
realization that these professional transportation operators maintain large
fleets of vehicles that would directly benefit from the &#147;cost savings&#148;
associated with the fuel economy aspect of the ZEFS device, as well as these
entities realizing a significant residual benefit in improved customer
relations through a demonstrative reduction in the amount of pollution they
contribute on an annual basis to the environment. In addition to our plan of
negotiating distribution agreements with the manufacturers of diesel engines
(similar to the technology transfer strategy cited earlier for the automobile
manufacturers), we plan to market the diesel engine versions of the ZEFS device
to after market customers directly. It is believed that direct marketing of
the ZEFS device to large-scale entities like rapid transit districts, school
districts, large fleet operations, and trucking associations will facilitate
the immediate generation of a sustainable capital revenue stream that can be
used to enhance company operations, provide for expanded research, and return
dividends to its shareholders.
</FONT>
<P align="left"><FONT size="2"><B>Competition</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
Many of our competitors have greater financial, research, marketing and staff
resources than we do. For instance, automobile manufacturers have already
developed catalytic converters on automobiles, in order to reduce emissions.
While we believe that our technology has greater benefits, it may be unable to
gain market acceptance. Further, research and development throughout the world
is constantly uncovering new technologies. Although we are unaware of any,
there can be no assurance that no existing or future technology is currently or
will be superior to the ZEFS device.
</FONT>
<P align="left"><FONT size="2"><B>Intellectual Property and Royalties</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 1998, Jeffrey Muller transferred to the Company all of the
marketing and manufacturing rights to the ZEFS technology in exchange for
5,000,000 shares of common stock, $500,000 and $10 royalty for each unit sold.
In November 2002, under our settlement with the Muller bankruptcy trustee, the
trustee transferred all ownership and legal rights to the international patent
application for the ZEFS 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2002, we settled a dispute with Kevin &#147;Pro&#148; Hart, who claimed
proprietary rights to the ZEFS technology. He assigned to us all rights to the
ZEFS technology in exchange for an option to purchase 500,000 shares of our
common stock at $1.00 share and $0.20 royalty on each device we sell.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We obtained the patent application for the ZEFS device (PCT/AU1/00585)
filed originally by Jeff Muller in Australia in May 2000. The International
Filing Application for our ZEFS technology was filed on May&nbsp;19, 2001 (Official
No.&nbsp;10/275946) &#091;PCT/AU1/00585&#093; and modified as ZEFS Mark II on July&nbsp;9, 2003.
If approved, the duration of the patent is 20&nbsp;years from the date the original
application was filed. We are unable to state at this time how long the United
States patent review process will take and is unable to give any assurances
that the Patent will be granted. 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 66 countries worldwide.
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the status of the ZEFS patent application
in the following countries.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Country</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Filing Date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Status</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Australia</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
2001 258057
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Brazil</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
0.111.365-8
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Canada</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
2409195
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">China</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
01809802.9
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Under examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eurasian(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
200201237
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Under examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Europe(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
019331222.2
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">India</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
IN/PCT/2002/01523
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Japan</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
586731/2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Must request Examination by
May&nbsp;21, 2008</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Mexico</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
PA/A/2002/11365
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting examination</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">New Zealand</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
523113
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Granted</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">South Africa</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
2002/10013
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Awaiting Grant</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">South Korea</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
2002 7015531
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Must request Examination by
May&nbsp;21, 2006</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">United States</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
10/275946
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">May&nbsp;21, 2001
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Examination requested
October 2003</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp; Eurasian patent application covers the countries of Azerbaijan,
Armenia, Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, the
Russian Federation, Tajikistan, Ukraine and Turkmenistan.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp; Europe patent application covers the countries of Austria, Belgium,
Switzerland, Lichtenstein, Cyprus, Germany, Denmark, Spain, Finland, France,
Great Britain, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,
Sweden, Turkey, Lithuania, Latvia, Slovenia, Romania and Macedonia.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2003, we completed the initial patent application process in
Australia for our Multiport Fuel Rail Emissions device and our ZEFS Mark III
system, a product designed to reduce emissions in fuel injection engines.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P align="left"><FONT size="2"><B>Research and Development</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have established a research and development facility in Queensland,
Australia. We have purchased test vehicles, test engines and testing equipment.
We have completed testing on ZEFS devices for the VW Beetle and Ford Mustangs,
which has been provided to RAND for evaluation. Through 2003, we have
continued research on devices for the two and four-stroke engines and thin line
two and four barrel carbureted devices. We have expanded research and
development to include applications of the ZEFS technology to diesel engines,
motorbikes and boats. No proceeds were spent on research and development prior
to 2002. We spent $202,470 on research and development in fiscal year 2002 and
672,000 in fiscal year 2003.
</FONT>
<P align="left"><FONT size="2"><B>Government Regulations and Probability of Affecting Business</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to control the sell licenses to manufacture of our products and
to market them worldwide through international distributorships. As such,
importation and exportation regulations may impact our activities. A breach of
such laws or regulations may result in the imposition of penalties, fines,
suspension or revocation of licenses. We are not currently involved in any
such judicial or administrative proceedings and believe that we are in
compliance with all applicable regulations.
</FONT>
<P align="center"><FONT size="2">6
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although it is impossible to predict with certainty, the effect that
additional importation and exportation requirements and other regulations may
have on future earnings and operations, we are presently unaware of any future
regulations that may have a material effect on our financial position, but
cannot rule out the possibility.
</FONT>
<P align="left"><FONT size="2"><B>Advisory Board</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Advisory Board provides specific expertise in areas of research and
development relevant to our business and meets with our management personnel
from time to time to discuss our present and long-term research and development
activities. Advisory Board members include:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sir Jack Brabham, Triple Formula One World Champion and Twice Formula One
World Constructors Champion and is an expert in the areas of racing car design.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Erin Brockovich Ellis, Director of Environmental Research, Masry and
Vititoe, P.C. Ms.&nbsp;Ellis is an environmental activist and a research expert
with respect to complex environmental matters.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kevin &#147;Pro&#148; Hart, famous Australian artist and inventor of the &#147;ZEFS&#148;
device.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jack Reader, Director, BIFS Technologies Corporation. Mr.&nbsp;Reader is
a systems engineer and an expert in business management and energy conservation.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bobby Unser, Jr., Founder, Unser Driving, Inc. Mr.&nbsp;Unser is an expert in
motor racing and stunt driving.
</FONT>
<P align="left"><FONT size="2"><B>Employees</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, we had four full-time employees, including our
Chief Operating Officer, Chief Financial Officer, and Executive Vice President,
Business Development. We utilize the services of three full-time consultants
in our R&#038;D facility in Australia and four part-time consultants to assist us
with marketing and other matters. We intend to hire additional personnel, as
needed. We believe that our success depends, in part, on our ability to hire,
assimilate and retain additional qualified personnel.
</FONT>
<P align="left"><FONT size="2"><B>Risk Factors</B></FONT>

<P align="left"><FONT size="2"><B><I>We expect to incur future losses and may not be able to achieve profitability.</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred net losses every year since our inception in 1998.
Although we expect to generate revenue from sales of our ZEFS device, we
anticipate net losses and negative cash flow to continue for the foreseeable
future. We expect that our operating expenses will increase significantly in
the near term, due in part to significant investments we intend to make in
research and development. Consequently, we will need to generate significant
additional revenue to achieve profitability. Although our management is
optimistic that we will generate additional revenue, we may not be able to
operate profitability. If we cannot achieve or sustain profitability, we may
not be able to fund our expected cash needs or continue our operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We will need additional capital to meet our operating needs, and we cannot
be sure that additional financing will be available.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, our primary business goal requires an investment
of approximately $400,000 per quarter and our current resources will be
sufficient to fund operations through June&nbsp;30, 2004. We believe we will
require additional capital in order to operate beyond this six-month period.
Our management is cautiously optimistic that, given our recent private
financing and discussions with potential capital sources, it will be successful
in obtaining funds. However, additional capital may not be available on
favorable terms to us, or at all. If we cannot obtain needed capital, our
research and development, manufacturing and marketing plans, business and
financial condition and our ability to reduce losses and generate profits are
likely to be materially and adversely affected.
</FONT>
<P align="center"><FONT size="2">7
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>As a company in the early stage of development with an unproven business
strategy, our limited history of operations makes evaluation of our business
and prospects difficult.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we are not able to devote adequate resources to product development and
commercialization, we may not be able to develop our products.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business strategy is to develop, manufacture and market ZEFS products
using our technology that can be installed on motor vehicles that reduce
harmful emissions, improve fuel efficiency, reduce operating costs and improve
performance. We believe that our revenue growth and profitability, if any,
will substantially depend upon our ability to:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">raise additional capital for research and development;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">complete development of new products; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">successfully introduce and commercialize new products.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our products are still under development, including ZEFS devices
employable with carburetors, multiport fuel injection, diesel engines and other
internal combustion engines. 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The commercial viability of the ZEFS device is unproven, and we may not be
able to attract customers.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the best of our knowledge, no consumer or automobile manufacturer has
used the ZEFS device to reduce motor vehicle emissions to date. Although an
independent EPA-certified testing facility has tested the ZEFS device and
confirmed its core functionality in reducing harmful emissions, we have hired
Rand Corporation to undertake a comprehensive study regarding all aspects of
the ZEFS device and its market potential. Consequently, the commercial
viability of the ZEFS device is unproven at this time. If commercial
opportunities are not realized from the use of the ZEFS device, we may not be
able to attract customers.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If our products and services do not gain market acceptance, it is unlikely
that we will become profitable.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Compared to these
technologies, our technology is unproven, and the use of our technology by
these companies 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:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">the willingness and ability of consumers and industry partners to adopt new technologies;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">the willingness of governments to mandate reduction of motor vehicle emissions;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">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;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">our ability to manufacture products and provide services in
sufficient quantities with acceptable quality and at an acceptable
cost; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">our ability to place and service sufficient quantities of our
products.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">8
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we are not able to successfully market and distribute our products, our
ability to generate revenue will be adversely affected.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success is dependent upon our ability to successfully develop
and maintain marketing, distribution or sales capabilities. We intend to sell
our products to consumers and industry partners, or major automobile
manufacturers, looking to sell new products and services in existing
distribution channels. However, if our marketing and distribution strategy is
unsuccessful, our ability to sell our products will be adversely affected and
our revenue will decrease.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our future revenues are unpredictable, and our operating results are
likely to fluctuate from quarter to quarter.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our future operating results will fluctuate from quarter
to quarter due to a variety of factors, including:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">delays in product development;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">market acceptance of our new products;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">changes in the demand for, and pricing, of our products;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">competition and pricing pressure from competitive products;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">manufacturing delays; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
   <TD width="1%" align="left"><FONT size="2">&#149;</FONT></TD>
   <TD width="1%" nowrap><FONT size="2">&nbsp;&nbsp;</FONT></TD>
   <TD width="97%"><FONT size="2">expenses related to, and the results of, proceedings relating to our intellectual property.</FONT></TD>
</TR>
</TABLE>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A large portion of our expenses, including expenses for our facilities,
equipment and personnel, is relatively fixed. We plan to increase operating
expenses significantly in 2004 as we increase our research and development,
production 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.
</FONT>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our capitalization is uncertain, and the value of our shares may be
diluted.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock purchase options for 10&nbsp;million shares issued to our former director
and CEO, Jeffrey Muller, and others are subject to ongoing litigation. In
addition, there are at least 8&nbsp;million shares outstanding which we believe
are owned or controlled by Jeffrey Muller and which are also the subject of
litigation. We expect the court to order the cancellation of all these shares.
If we are unsuccessful in our litigation to void the 10&nbsp;million options, the
larger number of outstanding shares from exercising these stock options and
shares will result in substantial dilution of the value of our shares.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If recent changes in our senior management are not successful, we may not
be able to achieve our business objectives.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our senior management consists of four: President and Chief Executive
Officer, Edward L. Masry; Treasurer, Chief Financial Officer and Chief
Operating Officer, Eugene E. Eichler; Executive Vice President, Business
Development, Bruce H. McKinnon; and Vice President of Marketing and Sales,
Nathan Shelton. We also have appointed five members to our Board of Advisors
as follows: Bobby Unser, Jr., Erin Brockovich, John Reader, PhD, Sir Jack
Brabham and Kevin &#147;Pro&#148; Hart. In addition, we expect to add more industry
professionals to our management team. We believe our officers will
successfully manage our business and these advisors will provide us assistance
during this development period, however, any changes may place a strain on our
management processes. If these changes are not successful, we may not be able
to implement our business goals.
</FONT>
<P align="center"><FONT size="2">9
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we lose our key personnel or are unable to attract and retain
additional personnel, we may be unable to achieve profitability.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success is substantially dependent on the efforts of our senior
management, particularly Edward L. Masry, Eugene Eichler, Bruce McKinnon, and
Nathan Shelton. 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may face costly intellectual property disputes.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 device, 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;28, 2002, in settlement of Kevin Charles &#147;Pro&#148; Hart&#146;s challenge to
our rights to the ZEFS international patent application, Pro Hart assigned all
his patent rights to us in exchange for certain stock options and other
consideration. This settlement with Pro Hart effectively was subject to our
resolution of Mr.&nbsp;Muller&#146;s claims to the ZEFS international patent application.
We have obtained a preliminary injunction prohibiting Mr.&nbsp;Muller, among
others, from selling, transferring or encumbering, among other things, all
interest he or Ms.&nbsp;Muller may have in the pending patent rights of the ZEFS
device. This litigation remains ongoing. However, as disclosed in a press
release and Form&nbsp;8-K filed on November&nbsp;12, 2002, we have reached a settlement
with the bankruptcy trustee for the estate of Mr.&nbsp;Muller and his wife, Lynette
A. Muller, transferring all ownership and legal rights to the international
patent application for the ZEFS device.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may become subject to additional litigation involving our rights to
patents and inventions. Infringement and other intellectual property claims,
with or without merit, can be expensive and time-consuming to litigate and can
divert management&#146;s attention from core business. Further, as a result of
litigation or other proceedings, we may be required to seek licenses from third
parties that may not be available on reasonable terms, if at all.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our common stock is subject to penny stock regulation, which may make it
more difficult for us to raise capital.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is considered penny stock under SEC regulations. It is
subject to rules that impose additional sales practice requirements on
broker-dealers who sell our securities. For example, broker-dealers must make
a suitability determination for the purchaser, receive the purchaser&#146;s written
consent to the transaction prior to sale, and make special disclosures
regarding sales commissions, current stock price quotations, recent price
information and information on the limited market in penny stock. Because of
these additional obligations, some broker-dealers may not effect transactions
in penny stocks, which may adversely affect the liquidity of our common stock
and shareholders&#146; ability to sell our common stock in the secondary market.
This lack of liquidity may make it difficult for us to raise capital in the
future.
</FONT>
<A name="103"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;2. Properties</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal administrative facility is located in approximately 1,000
square feet of leased office space in North Hollywood, California. We sublease
this space from KZ Golf, Inc. One of our directors, Bruce H. McKinnon, is an
owner of KZ Golf, Inc. The sublease of this facility will expire on October
31, 2005, with an option to extend the term for 24&nbsp;months. We believe that our
present North Hollywood facility is adequate for our current and planned
administrative activities. Our research and development facility located in Queensland,
Australia is leased.
</FONT>
<P align="center"><FONT size="2">10
</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
We do not have any policies with respect to investments in real estate or
interests in real estate, real estate mortgages or securities of or interests
in persons primarily engaged in real estate activities.
</FONT>
<A name="104"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;3. Legal Proceedings</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;19, 2001, the Securities and Exchange Commission (SEC)&nbsp;filed
civil charges in the United States Federal District Court, Southern District of
New York against us, our former President and sole director Jeffrey Muller,
and others alleging that we and the other defendants associated with the
promotion of our stock sales. 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 controlled by Muller. On March&nbsp;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&nbsp;2, 2002. Under this settlement, we were not required to
pay any fines or restitution. The SEC&#146;s action continues against Muller and
others.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;2, 2002, after an investigation by a newly constituted board of
directors, we filed a cross-complaint in the SEC action against Jeffrey Muller
and others seeking injunctive relief, disgorgement and financial restitution
for a variety of acts and omissions in connection with sales of our stock and
other transactions occurring between 1998 and 2002. We are also seeking
cancellation of such shares and Muller&#146;s stock option agreement and royalty
arrangement. Among other things, we allege that Muller and certain others sold
stock without consideration and without registration under federal securities
laws; engaged in self-dealing and entered into various undisclosed
related-party transactions; misappropriated for their own use proceeds from
sales of our stock; and entered into various undisclosed arrangements regarding
the control, voting and disposition of their stock.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;30, 2002, the U.S. Federal District Court, Southern District of
New York, granted our application for a preliminary injunction against Muller
and others, which prevents Muller and other cross-defendants from selling,
transferring, or encumbering any of our assets and property, from selling or
transferring any of our stock that they may own or control, or from taking any
action to injure us or our business and shareholders. The order also prevents
Muller from exercising any control over our corporation and serving as our
officer or director. 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of the litigation, we have obtained control over Muller&#146;s
patent rights to the ZEFS device. Under that certain Buy-Sell Agreement
between Jeffrey Muller and us dated December&nbsp;29, 1998, Muller, who was listed
on the ZEFS devise patent application as the inventor of the ZEFS device,
granted us the marketing, manufacturing and distribution rights to the ZEFS
device. On November&nbsp;7, 2002, under our settlement with the Muller bankruptcy
trustee, the trustee transferred all ownership and legal rights to this
international patent application for the ZEFS device to us. Pursuant to this
agreement, the company is also entitled to entire royalty rights previously
claimed by Muller.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The litigation against Muller and others has been pending before the Court
and will be scheduled for further proceedings and final disposition by summary
judgment motions within the near future. Although the outcome of these motions
cannot be predicted with any degree of certainty, it is expected that the
Court&#146;s ruling will either significantly narrow the issues for any later trial
or will result in a disposition of the case in a manner favorable to the
company. SWA is contending that it is entitled to a judgment divesting Muller
of any right to exercise option rights to 10&nbsp;million shares of SWA stock, the
entry of an existing preliminary injunction to prevent Muller from any
involvement with the company and a monetary judgment against Muller and others
in the amount of several million dollars. While we belive 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.
</FONT>
<P align="center"><FONT size="2">11
</FONT>

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<A name="105"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;4. Submission of Matters to a Vote of Security Holders.</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2002.
</FONT>
<A name="106"></A>
<P align="center"><FONT size="2"><B>PART II</B></FONT>

<A name="107"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;5. Market for Common Equity and Related Stockholder Matters</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is traded on the Pink Sheets under the symbol &#147;ZERO.&#148; The
following table sets forth the high and low closing prices of the common stock
for the quarters indicated as quoted on the Pink Sheets.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1">2001</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1">2002</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1">2003</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">High</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">Low</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">High</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">Low</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">High</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">Low</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">First Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Second Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fourth Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">2.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">0.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the records of our transfer agent, we had 996 stockholders of
record of our common stock at December&nbsp;31, 2003.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently expect 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From November 2002 through October 2003, we issued 13,917,414 shares of
our common stock and warrants to purchase an aggregate 13,442,414 shares of
common stock for approximately $2.8&nbsp;million in cash from a group of private
investors, converting $500,000 in debt held by various lenders and legal
services valued at $20,853. The net proceeds from the financing equals
$2,548,286 after deductions of commissions. We issued two types of warrants in
this private financing. In November 2002, we issued warrants to purchase an
aggregate 950,000 shares of common stock at a purchase price per share of $0.20
exercisable within 18&nbsp;months. From December 2002 through October 2003, we
issued warrants to purchase an aggregate 12,492,414 shares of common stock at a
per share purchase price of $0.50 exercisable within five years. The issuance
of shares and warrants described above was made in reliance on the exemptions
from registration set forth in Section&nbsp;4(2) of the Securities Act of 1933 (the
&#147;Act&#148;), as amended. We made no public solicitation in connection with the
issuance of the above-mentioned securities. We relied on representation from
the recipients of the securities that they purchased the securities for
investment only and not with a view to any distribution thereof and that they
were aware of our business affairs and financial condition and had sufficient
information to reach an informed and knowledgeable decision regarding their
acquisition of the securities.
</FONT>
<A name="108"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;6. Management&#146;s Discussion and Analysis or Plan of Operation</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 in Item&nbsp;7 of this Form&nbsp;10-KSB.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 in Item&nbsp;1 and elsewhere in
this Form&nbsp;10-KSB, particularly in &#147;Risk Factors,&#148; that could cause actual
results to differ materially from those projected. The forward-looking
statements set forth in this Form&nbsp;10-KSB are as of December&nbsp;31, 2003, and we
undertake no duty to update this information.
</FONT>
<P align="center"><FONT size="2">12
</FONT>

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<P align="left"><FONT size="2"><B>Capitalization</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the SEC action against Jeffrey Muller and others, we seek, among other
relief, the cancellation of eight million shares held beneficially and/or of
record by Muller and others, common stock purchase options for an additional
ten million shares, and Muller&#146;s original royalty agreement. See Item&nbsp;3, Legal
Proceedings. The cancellation of these shares and options will have a
significant positive effect on our capitalization.
</FONT>
<P align="left"><FONT size="2"><B>Results of Operation</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have not generated any revenues and our business is in the
development stage. We have focused our efforts on verifying and developing the
ZEFS device. We expect to begin marketing the ZEFS device by the end of the
fourth quarter of 2004.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating costs and expenses consist primarily of research and
development expenses and general and administrative expenses. We expect our
operating costs to increase once we begin to manufacture and market the ZEFS
device. Our research and development expenses include contractual payments to
RAND, consultants&#146; fees, capital expenditures, cost of services and supplies
We expect our research and development costs to increase as we continue to
develop the ZEFS device and develop new applications of our technology.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our general and administrative expenses include compensation expenses
related to executive and other administrative personnel, facility lease, the
costs of our insurance and legal and accounting support. We expect our general
and administrative expenses to increase as we expand our infrastructure in
support of our anticipated increased operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had a net loss of $2,749,199 for the year ended December&nbsp;31, 2002,
compared to a net loss of $2,735,013 for the year ended December&nbsp;31, 2001. We
expect an increase in net loss through 2004 attributable to increased general
and administrative expenses and commencement of marketing.
</FONT>
<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred negative cash flow from operations in the developmental
stage since our inception in 1998. As of December&nbsp;31, 2002 we had cash of
$107,489 and an accumulated deficit of $7.8&nbsp;million. Our 2002 negative
operating cash flows were funded primarily through Masry &#038; Vititoe, a law firm
in which our Chief Executive Officer and President, Edward Masry, is a member,
and a private financing that we commenced in November 2002. We anticipate
additional operating losses, which may increase, through at least 2004 as we
expand our research and development program and commence marketing of the ZEFS
device.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we have sufficient cash to fund our operations through
June&nbsp;30, 2004. To the extent our capital resources are insufficient to meet
our future capital requirements, we will need to raise additional capital or
incur new debt to fund our operations. There can be no assurance that
additional equity or debt financing will be available. If we are unable to
obtain additional capital, we may be required to delay, reduce the scope of or
eliminate our research and development programs, reduce any marketing
activities or relinquish rights to technologies that we might otherwise seek to
develop or commercialize.
</FONT>
<P align="left"><FONT size="2"><B>Critical Accounting Policies</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The methods, estimates and judgments we use in applying our most critical
accounting policies have a significant impact on the results that we report in
our Financial Statements. The SEC considers an entity&#146;s most critical
accounting policies to be those policies that are both most important to the
portrayal of a company&#146;s
</FONT>
<P align="center"><FONT size="2">13
</FONT>

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<P><FONT size="2">financial condition and results of operations and those that require
management&#146;s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about matters that are inherently uncertain at
the time of estimation. We believe the following critical accounting policies,
among others, require significant judgments and estimates used in the
preparation of our Financial Statements:
</FONT>
<P align="left"><FONT size="2"><B><I>Stock-Based Compensation</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for stock-based compensation to employees as defined by using
the intrinsic-value method prescribed in Accounting Principles Board Opinion
(APB)&nbsp;No.&nbsp;25, &#147;Accounting for Stock Issued to Employees.&#148;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for stock option and warrant grants issued to non-employees
using the guidance of SFAS No.&nbsp;123, &#147;Accounting for Stock-Based Compensation&#148;
and EITF No.&nbsp;96-18: &#147;Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services,&#148; whereby the fair value of such option and warrant grants is
determined using the Black-Scholes option pricing model at the earlier of the
date at which the non-employee&#146;s performance is completed or a performance
commitment is reached.
</FONT>
<P align="left"><FONT size="2"><B><I>Estimates</I></B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Certain significant estimates were made in connection with
preparing our financial statements as described in Note 1 of our Financial
Statements. See Item&nbsp;7, Financial Statements. Actual results could differ
from those estimates.
</FONT>
<P align="left"><FONT size="2"><B>New Accounting Pronouncements</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, the FASB issued SFAS No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation-Transition and Disclosure.&#148; SFAS No.&nbsp;148 amends SFAS
No.&nbsp;123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based compensation. It also amends the disclosure method of accounting
for stock-based compensation. It also amends the disclosure requirements of
SFAS No.&nbsp;123. If an entity elects to adopt the recognition provisions of the
fair value based method of accounting for stock-based compensation in a fiscal
year beginning before December&nbsp;16, 2003, that change in accounting principle
shall be reported using either the (i)&nbsp;prospective method, (ii)&nbsp;the modified
prospective method, or (iii)&nbsp;the retroactive restatement method as defined in
SFAS No.&nbsp;148. SFAS no. 148 is effective for fiscal years ending after December
15, 2002. Since the Company has elected to continue accounting for stock-based
compensation under APB No.&nbsp;25, the adoption of SFAS No.&nbsp;148 has had no impact
to the Company&#146;s financial position or results of operations. The Company&#146;s
financial statement disclosures have been designed to conform to the new
disclosure requirements prescribed by SFAS No.&nbsp;148.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2003, the FASB issued SFAS No.&nbsp;150, &#147;Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.&#148;
SFAS No.&nbsp;150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
provisions of SFAS No.&nbsp;150 are effective for financial instruments entered into
or modified after May&nbsp;31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June&nbsp;15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities., which are subject to
the provisions of this statement for the first fiscal period beginning after
December&nbsp;15, 2004. The Company believes that the adoption of SFAS No.&nbsp;150 will
not have an impact on its financial position or results of operations.
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<A name="109"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;7. Financial Statements</B></FONT>



<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>YEARS ENDED DECEMBER 31, 2002 AND 2001</B>



<P align="center" style="font-size: 10pt"><B>CONTENTS</B>


<DIV align="left">
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</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="91%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page</B><HR size="1" noshade></TD>
</TR>

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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Independent auditor&#146;s report</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Financial statements</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#120">Balance sheets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#121">Statements of operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#122">Statements of stockholders&#146; deficit</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">19-21</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#123">Statements of cash flows</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">22-23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#124">Notes to financial statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">24-43</TD>
    <TD>&nbsp;</TD>
</TR>

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</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">15
</DIV>



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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>INDEPENDENT AUDITORS REPORT</B>



<P align="left" style="font-size: 10pt">To the Board of Directors<BR>
Save the World Air, Inc.

<P align="left" style="font-size: 10pt">We have audited the accompanying balance sheets of Save the World Air, Inc. (a
development stage enterprise) as of December&nbsp;31, 2002 and 2001 and the related
statements of operations, changes in stockholders&#146; deficiency and cash flows
for the years then ended and for the period from inception (February&nbsp;18, 1998)
to December&nbsp;31, 2002. These financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an opinion on these
financial statements based on our audits.


<P align="left" style="font-size: 10pt">We conducted our audits in
accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.


<P align="left" style="font-size: 10pt">In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Save the World Air, Inc. (a
development stage enterprise) as of December&nbsp;31, 2002 and 2001 and the results
of its operations and its cash flows for the years then ended and for the
period from inception (February&nbsp;18, 1998) to December&nbsp;31, 2002, in conformity
with accounting principles generally accepted in the United States of America.



<P align="left" style="font-size: 10pt">WEINBERG &#038; COMPANY, P.A.


<P align="left" style="font-size: 10pt">March&nbsp;10, 2004<BR>
Boca Raton, Florida


<P align="center" style="font-size: 10pt">16
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="121"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>BALANCE SHEETS<BR>
DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Current assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,556</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,556</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Property and equipment</B>, net of accumulated
depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>TOTAL ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">131,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,562</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><B>LIABILITIES
AND STOCKHOLDERS&#146; DEFICIENCY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Current liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,838</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payables to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">237,787</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">994,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262,625</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Advances from founding executive officer</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Commitments and contingencies</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Stockholders&#146; deficiency</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, $.001 par value: 200,000,000
shares authorized, 20,235,847 and
18,085,847 shares issued and outstanding
at December&nbsp;31, 2002 and 2001,
respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,086</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Common stock to be issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,133,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,220,322</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,572,060</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,408,333</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Deficit accumulated during the development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,851,545</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,102,346</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total stockholders&#146;deficiency</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,880,413</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,272,271</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><B>TOTAL LIABILITIES AND STOCKHOLDERS&#146; DEFICIENCY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">131,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,562</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">17
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="121"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>STATEMENTS OF OPERATIONS<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001 AND FOR THE PERIOD<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2002</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cumulative</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>since</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>inception</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net sales</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,748,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,733,844</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,846,618</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net loss before provision for income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,748,110</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,733,844</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,846,618</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Provision for income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,927</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(7,851,545</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net loss per common share, basic and diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.17</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Weighted average common shares outstanding,
basic and diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,568,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,242,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="122"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2002</B>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>during the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>stockholders'</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>to be issued</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>development stage</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>deficiency</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance, February&nbsp;18, 1998 </B>(date of inception)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock on April&nbsp;18, 1998</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">.0015 - .01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,030,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,307</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,307</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance, December&nbsp;31, 1998 </B>(as corrected, see Note 1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,030,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,030</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,270</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(21,307</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,993</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock on May&nbsp;18, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1.00 - 6.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516,936</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock for ZEFS on September&nbsp;14, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on May&nbsp;18, 1999</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,513</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,075,264</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,075,264</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance, December&nbsp;31, 1999 </B>(as corrected, see Note 1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,297,125</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,297</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>580,452</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1,096,571</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(500,822</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for employee compensation on February&nbsp;8, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on February&nbsp;8, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on April&nbsp;18, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,260</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for directors fees on April&nbsp;18, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on May&nbsp;19, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for directors fees on June&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on June&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,251</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on June&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for employee compensation on June&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,820</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on June&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,213</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for promotional services on July&nbsp;28, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,214</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on July&nbsp;28, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,985</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on August&nbsp;4, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,620</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for promotional services on August&nbsp;16, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,250</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on September&nbsp;5, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,874</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on September&nbsp;10, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,750</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on November&nbsp;2, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,653</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on November&nbsp;4, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,653</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY &#151; Continued<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2002</B>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>during the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>stockholders'</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>to be issued</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>development stage</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>deficiency</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on December&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,541</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for filing services on December&nbsp;20, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,586</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on December&nbsp;26, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,925</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other stock issuance on August&nbsp;24, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,260</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common shares cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64,245</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64,300</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,270,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,270,762</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance, December&nbsp;31, 2000 </B>(as corrected, see Note 1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,645,935</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,646</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,437,873</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(2,367,333</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(913,814</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on January&nbsp;8, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,048</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on February&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,245</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on March&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,753</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for legal services on March&nbsp;13, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.32</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on April&nbsp;3, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,458</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for legal services on April&nbsp;4, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,730</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on April&nbsp;4, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,760</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on April&nbsp;5, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for filing fees on April&nbsp;30, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,034</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for filing fees on September&nbsp;19, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,276</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for professional services on September&nbsp;28, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for directors services on October&nbsp;5, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for legal services on October&nbsp;17, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,666</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on October&nbsp;18, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">380,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on October&nbsp;19, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for exhibit fees on October&nbsp;22, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,751</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for directors services on November&nbsp;2, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on November&nbsp;7, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on November&nbsp;20, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,140</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on November&nbsp;27, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,800</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for consulting services on November&nbsp;28, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183,260</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY &#151; Continued<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2002</B>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deficit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>during the</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>stockholders'</B></TD>
</TR>
<TR style="font-size: 7pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>to be issued</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>development stage</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>deficiency</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Intrinsic value of options issued to employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,600,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fair value of options issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,318</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,667</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance, December&nbsp;31, 2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,085,847</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,086</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,220,322</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(2,408,333</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(5,102,346</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1,272,271</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock issued for directors services on December&nbsp;10, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">857,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">860,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock paid for, but not issued (2,305,000 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fair value of options issued to non-employees for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54,909</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891,182</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance, December&nbsp;31, 2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20,235,847</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>20,236</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>389,875</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>7,133,081</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(1,572,060</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(7,851,545</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(1,880,413</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="123"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>STATEMENTS OF CASH FLOWS<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001 AND FOR THE PERIOD<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2002</B>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cumulative</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>since</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>inception</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(7,851,545</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Adjustments to reconcile net loss to
net cash used in operating
activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Write off of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Fair value of options issued for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">642,318</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Issuance of common stock for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">860,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,042,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,309,854</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Amortization of deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,082,849</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">527</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Changes in operating liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,927</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198,882</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,475</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436,669</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(797,554</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(172,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,869,401</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from investing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,860</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,041</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,901</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,860</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,041</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,901</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Increase in payables to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549,472</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Advances from founding executive officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">517,208</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock for cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">541,236</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash received for common stock to be issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389,875</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">918,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,997,791</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net increase in cash</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash</B>, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash</B>, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>STATEMENTS OF CASH FLOWS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001 AND FOR THE PERIOD<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2002</B>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cumulative</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>since</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>inception</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Supplemental disclosures of cash flow
information</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Cash paid during the year for</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Non-cash investing and financing
activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Acquisition of intangible asset
through advance from related
party and issuance of common
stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">505,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred compensation from stock options issued
for services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,600,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,654,909</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Purchase of property and equipment financed
by advance from related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,550</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See notes to financial statements.


<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="124"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Description of business, significant matters and prior period corrections</B></TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Description of business



<P align="left" style="margin-left:6%; font-size: 10pt">Save the World Air, Inc. (the &#147;Company&#148;) was incorporated in Nevada on
February&nbsp;18, 1998 under the name Mandalay Capital Corp. The Company
changed its name to Save the World Air, Inc. on February&nbsp;11, 1999
following the signing of an agreement by and between the Company and
Jeffrey Alan Muller, the Company&#146;s founding executive officer and
director, with respect to the Company&#146;s purchase of the Zero Emission
Fuel-Saving Device (the &#147;Agreement&#148;). Under the terms of the Agreement,
the Company issued 5,000,000 shares of its common stock to Mr.&nbsp;Muller
and agreed to pay him a total of $500,000 for the marketing and
distribution rights of the device, and a $10 royalty for every unit of
the device sold (see additional discussion in the Significant Matters
and prior period corrections section of this note). The Company
acquired the worldwide exclusive manufacturing, marketing and
distribution rights for the Zero Emission Fuel-Saving Device (&#147;ZEFS&#148;) by
entering into the Agreement. The ZEFS is a product, which is fitted to
an internal combustion engine and is expected to reduce carbon monoxide
hydrocarbons and toxic exhaust emissions. The ZEFS is currently
undergoing testing to determine the achievable levels of reduced
emissions and commercial viability.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant matters



<P align="left" style="margin-left:6%; font-size: 10pt">On December&nbsp;19, 2001, the Securities and Exchange Commission (&#147;SEC&#148;)
filed civil charges in federal district court in New York, New York,
against the Company, Mr.&nbsp;Muller, and others associated with the
promotion of Company stock sales, alleging that they engaged in a
fraudulent scheme to manipulate the market for the Company&#146;s stock.


<P align="center" style="font-size: 10pt">24
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Description of business and significant matters and prior period
corrections </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant matters &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">The SEC&#146;s complaint alleges that from at least February&nbsp;1999 through at
least April&nbsp;2001, the Company and Mr.&nbsp;Muller carried out a fraudulent
promotional campaign using press releases, Internet postings, an
elaborate Internet website, and televised media events to disseminate
false and materially misleading information about the Company&#146;s product
and commercial prospects. The complaint also alleges that the Company&#146;s
and Mr.&nbsp;Muller&#146;s actions led to the artificial inflation of the price
and trading volume of the Company stock, causing its market
capitalization to be as much as $218,728,062. The promotional
information distributed by the Company and Mr.&nbsp;Muller included: (1)
announcements of significant licensing agreements and other important
business developments, and (2)&nbsp;announcements concerning public
automotive demonstrations that purportedly proved or would prove that
the ZEFS materially reduces emissions and improves fuel economy in motor
vehicles. The complaint further alleges that the purported licensing
agreements and other purported business events simply did not exist, and
the then current ZEFS demonstrations did not prove that the ZEFS
actually worked as represented. At the same time that he publicly
promoted the Company, Mr.&nbsp;Muller privately sold millions of shares of
the Company&#146;s restricted stock that, if sold at then-prevailing market
prices, would have provided him with over $9&nbsp;million in personal
profits. He concealed these sales by failing to disclose in SEC
filings, as required, any changes in his beneficial ownership in the
Company. The SEC complaint also states that the Company and Mr.&nbsp;Muller
made at least nine SEC filings that contain false financial statements
and disclosures.


<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Description of business and significant matters and prior period
corrections </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant matters &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">In October&nbsp;2001, Edward Masry became the Company&#146;s new President and
Chief Executive Officer. Because of the nature and scope of the SEC&#146;s
allegations regarding the Company&#146;s financial statements and SEC
filings, Masry has assembled a new management team and newly constituted
board of directors for the Company, in addition to selecting new
independent auditors and corporate counsel.



<P align="left" style="margin-left:6%; font-size: 10pt">The Company entered into discussions with the SEC concerning the SEC&#146;s
complaint and negotiated a consent order in which it agreed, among other
terms, to observe all securities laws. Based upon this consent order
and related judgment, the proceedings against the Company were
terminated. The Company has since caused an investigation into the
facts and circumstances surrounding the allegations in the SEC&#146;s
complaint. Based upon review of the history leading to the filing of
the complaint, the Company&#146;s board of directors authorized the filing of
cross-claims against Mr.&nbsp;Muller and others (including ten offshore
companies) seeking disgorgement of stock obtained from the Company, to
invalidate the transfer of several million shares to Mr.&nbsp;Muller and
family members for inadequate or no consideration, rescission of stock
options transferred to Mr.&nbsp;Muller and/or his family members, for the
transfer of rights to patent claims from Mr.&nbsp;Muller to the Company and
rescission of royalty rights held by Mr.&nbsp;Muller and/or his family
members. Upon filing of the cross complaint, in July&nbsp;2002, the Company
obtained a temporary restraining order against Mr.&nbsp;Muller which, among
other things, prohibits Mr.&nbsp;Muller from serving as an officer or
director of the Company and enjoins Mr.&nbsp;Muller and others from selling,
conveying, transferring or encumbering any shares which Mr.&nbsp;Muller
controls or in which he has an interest. The Company believes the
temporary restraining order may affect as many as seventeen million shares or
more of the Company&#146;s stock, in the form of issued shares and
option rights.



<P align="left" style="margin-left:6%; font-size: 10pt">In the course of the legal proceedings, the Company has obtained
complete control over all ownership claims to the ZEFS patent rights and
all royalty interests previously held and claimed by Mr.&nbsp;Muller and
certain others.


<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Description of business and significant matters and prior period
corrections </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant matters &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">The Company has continued to prosecute its claims and has substantially
completed all pretrial procedures in preparation for the disposition of
the case through dispositive pretrial motions and/or eventual trial on
the merits of the claims. Based upon the substantial discovery
completed and other evidence obtained to date, the Company believes
there is very little risk of an adverse decision on the merits of its
cross complaint.



<P align="left" style="margin-left:6%; font-size: 10pt">Based on the status of current legal proceedings, the Company believes
it will not have to pay $1,017,208 of advances due to Mr.&nbsp;Muller. The
Company also believes that the option Mr.&nbsp;Muller holds to purchase
10,000,000 shares of the Company&#146;s stock will be cancelled (see Note 3).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior period corrections



<P align="left" style="margin-left:6%; font-size: 10pt">The Company&#146;s new management team has evaluated the results of
operations since inception and has corrected certain previously reported
balances and results of operations. Those corrections are reflected in
the cumulative since inception amounts reported in the financial
statements herein. However, the financial statements previously filed
with the SEC which include the three quarterly financial statements
filed for 2001, the financial statements filed for the year ended
December&nbsp;31, 2000, including each of the 2000 quarterly financial
statements filed, the financial statements filed for the year ended
December&nbsp;31, 1999, and the financial statements filed for the period
from inception (February&nbsp;18, 1998) to December&nbsp;31, 1998, have not been
restated to reflect such corrections. Those corrections include, among
other things, the reversal of $125,000 of revenue recorded in 1999 and
the write off of $505,000 recorded as an intangible asset for the rights
to the ZEFS device first reported on the balance sheet at December&nbsp;31,
1999, and subsequent annual and quarterly periods ending through
September&nbsp;30, 2001.


<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Description of business and significant matters and prior period
corrections </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior period corrections &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">The corrections also include adjustments of the stockholders&#146; equity and
expense accounts to reflect the issuance of stock options to
non-employees for services and certain fraudulent activity that the
Company alleges was carried out by Mr.&nbsp;Muller. In addition to the
complaints filed by the SEC, the Company has alleged that Mr.&nbsp;Muller
sold shares of the Company&#146;s stock and fraudulently diverted the
proceeds away from the Company. The Company has alleged that Mr.&nbsp;Muller
spent and distributed the proceeds for personal gain, and other purposes
that did not benefit the Company. The actual amount of proceeds that
was misappropriated has not been determined, but has been estimated by
management to be $516,684 as described below. These estimated losses
have been recorded in expenses in the accompanying cumulative since
inception statement of operations.



<P align="left" style="margin-left:6%; font-size: 10pt">In connection with the corrections, the Company analyzed all of the
sales of the Company&#146;s stock from inception until October&nbsp;2001, when the
new management team was put into place. It was discovered that certain
of the Company&#146;s stock sales were recorded at par value at times when
the trading price of the stock was substantially higher than par. The
Company believes that Mr.&nbsp;Muller sold the stock at prices above par and
spent the proceeds for personal use and other activities that did not
benefit the Company. The Company believes that most of this alleged
fraudulent activity took place in 1999 when 5,267,125 shares of the
Company&#146;s stock were issued and a $571,449 increase in common stock
and additional paid-in capital was reported in the Company&#146;s financial
statements. Of the 5,267,125 shares, 5,000,000 were issued to Mr.
Muller, at .001 par value, 69,122 were issued for services of $49,513
and 198,003 were issued to investors for $516,936. The Company believes
that the 198,003 shares were sold by Mr.&nbsp;Muller to the investors and
that the proceeds were diverted away from the Company. The actual
selling prices for some of these shares are unknown and have been
estimated by the Company as described in the paragraph below. During
1999, the trading price of the Company&#146;s stock ranged from $0.10 to
$8.25, with a weighted average trading price (weighted by trading
volume) of $0.85. In addition, the Company confirmed the number of shares and
selling price with individual stockholders that purchased shares
in 1999 private placements noting that, based on responses to
confirmation inquires, the Company&#146;s stock was sold at prices ranging
from $1.00 to $6.40, with a weighted average selling price of $2.57.


<P align="center" style="font-size: 10pt">28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Description of business and significant matters and prior period
corrections </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior period corrections &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">The Company performed a search of the corporate and accounting records
to determine how much cash was received for the historical issuances of
the Company&#146;s common stock, and how much the fair value of the services
rendered was for stock issued for services. In certain cases, no
documentation was available to support the amounts for which stock was
issued for cash or services. In order to reconstruct the accounting for
the Company&#146;s equity issuances the Company employed a variety of methods
to determine or estimate the value of the issuances including; written
confirmation from stockholders, stockholder statements, and estimation
of fair value. In instances where the Company estimated the fair value
of stock issued for cash, the fair value was determined using
management&#146;s judgment and the information available, including
established fair value of stock sold at a date near the issuance in
question and trends in the trading price of the stock. In instances
where stock was issued for services, the Company recorded the issuances
based on the trading price of the stock on the date the services were
performed, which was assumed to be the date the stock was issued. These
corrections resulted in adjustments to the previously reported
stockholders&#146; equity accounts and results of operations for 1999 and
2000.



<P align="left" style="margin-left:6%; font-size: 10pt">The Company&#146;s analysis of the stock transactions resulted in the
determination that the loss due to Mr.&nbsp;Muller&#146;s alleged fraudulent
activity was in the range of approximately $400,000 to $600,000. The
actual loss that should have been recorded in the 1999 financial
statements is $516,684. This loss has been recorded in the cumulative
since inception statement of operations presented herein. The following
corrections have been made to the Company&#146;s previously reported
financial statements. The impact of these corrections is reflected in
the stockholders&#146; deficiency and deficit accumulated during the development
stage presented herein.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Decrease in assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(505,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(505,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Increase in additional paid in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">566,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,423,603</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Decrease in revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(125,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,980</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Increase in expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">947,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">897,930</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Increase in deficit accumulated during the development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,072,599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,980,509</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="left" style="margin-left:6%; font-size: 10pt">The corrections of the financial statements reflect management&#146;s best
estimates of the business and financial activity for those items for
which source documentation of the transactions was not available.
Actual results of those transactions could differ from management&#146;s
estimates.


<P align="center" style="font-size: 10pt">29
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies</B></TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Development stage enterprise



<P align="left" style="margin-left:6%; font-size: 10pt">The Company is a development stage enterprise as defined by Statement of
Financial Accounting Standards (SFAS)&nbsp;No.&nbsp;7, &#147;Accounting and Reporting
by Development Stage Enterprises.&#148; All losses accumulated since the
inception of the Company have been considered as part of the Company&#146;s
development stage activities.



<P align="left" style="margin-left:6%; font-size: 10pt">A team has been assembled for the research and development of the
technology and potential markets for the ZEFS and to establish
relationships with potential customers. Significant design work has been
completed, and patent applications have been filed in 64 countries.
There is no assurance that any of the filed patents will be granted.
The Company is continuing in its product development efforts and several
studies are underway to evaluate the effectiveness of the ZEFS in
eliminating pollutants and emissions from internal combustion engines.
The Company has had no sales to date. As such, the Company continues to
remain a development stage enterprise. The ability of the Company to
commercialize its products will depend on, among other things, the
Company&#146;s ability to demonstrate the merits of the ZEFS and develop
markets and distribution channels.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liquidity



<P align="left" style="margin-left:6%; font-size: 10pt">The Company is subject to the usual risks associated with a development
stage enterprise. These risks include, among others, those associated
with product development, acceptance of the product by users and the
ability to raise the capital necessary to sustain operations. Since its
inception, the Company has incurred significant losses. The Company
anticipates increasing expenditures over at least the next year as the
Company continues its product development and evaluation efforts, and
begins its marketing activities. Without significant revenue increases,
these expenditures will likely result in additional losses. The Company
has obtained $553,022 of working capital and expense advances from
related parties and $517,208 of working capital advances from its
founding executive officer (see Note 3). The Company is in the process
of raising additional funds and has raised $2,372,510 in 2003 through
the sale of 9,484,000 shares of its common stock in private placement
transactions (see Note 9).


<P align="center" style="font-size: 10pt">30
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment and depreciation



<P align="left" style="margin-left:6%; font-size: 10pt">Property and equipment are stated at cost. Depreciation is computed
using the straight-line method based on the estimated useful lives of
the assets, generally ranging from three to ten years. Expenditures for
major renewals and improvements that extend the useful lives of property
and equipment are capitalized. Expenditures for repairs and maintenance
are charged to expense as incurred. Leasehold improvements are
amortized using the straight-line method over the shorter of the
estimated useful life of the asset or the lease term.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets



<P align="left" style="margin-left:6%; font-size: 10pt">The Company accounts for the impairment and disposition of long-lived
assets in accordance with SFAS No.&nbsp;144, &#147;Accounting for the Impairment
or Disposal of Long-Lived Assets.&#148; In accordance with SFAS No.&nbsp;144,
long-lived assets to be held are reviewed for events or changes in
circumstances that indicate that their carrying value may not be
recoverable. The Company periodically reviews the carrying value of
long-lived assets to determine whether or not an impairment to such
value has occurred. No impairments were recorded during the period from
inception (February&nbsp;18, 1998) through December&nbsp;31, 2002, and the years
ended December&nbsp;31, 2002 and 2001.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Earnings (loss)&nbsp;per share



<P align="left" style="margin-left:6%; font-size: 10pt">Basic earnings (loss)&nbsp;per share is computed by dividing net income
(loss)&nbsp;available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution, using the treasury stock method,
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company. In computing diluted earnings per share, the treasury stock
method assumes that outstanding options and warrants are exercised and
the proceeds are used to purchase common stock at the average market
price during the period. Options and warrants will have a dilutive
effect under the treasury stock method only when the average market
price of the common stock during the period exceeds the exercise price
of the options and warrants. For the years ended December&nbsp;31, 2002 and
2001, the dilutive impact of outstanding stock options of 14,000,000 and
13,900,000, respectively, and 1,850,000 warrants in 2002 has been
excluded because their impact on the loss per share is antidilutive.


<P align="center" style="font-size: 10pt">31
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes



<P align="left" style="margin-left:6%; font-size: 10pt">The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS)&nbsp;No.&nbsp;109, &#147;Accounting for Income
Taxes.&#148; Under SFAS No.&nbsp;109, income taxes are recognized for the amount
of taxes payable or refundable for the current year and deferred tax
liabilities and assets are recognized for the future tax consequences of
transactions that have been recognized in the Company&#146;s financial
statements or tax returns. A valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax asset
will not be realized.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation



<P align="left" style="margin-left:6%; font-size: 10pt">The Company accounts for stock-based compensation using the
intrinsic-value method prescribed in Accounting Principles Board Opinion
(APB)&nbsp;No.&nbsp;25, &#147;Accounting for Stock Issued to Employees.&#148;



<P align="left" style="margin-left:6%; font-size: 10pt">The Company accounts for stock option and warrant grants issued to
non-employees using the guidance of SFAS No.&nbsp;123, &#147;Accounting for
Stock-Based Compensation&#148; and EITF No.&nbsp;96-18: &#147;Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services,&#148; whereby the fair value of
such option and warrant grants is determined using the Black-Scholes
option pricing model at the earlier of the date at which the
non-employee&#146;s performance is completed or a performance commitment is
reached.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Business and credit concentrations



<P align="left" style="margin-left:6%; font-size: 10pt">The Company&#146;s cash balances in financial institutions at times may
exceed federally insured limits. As of December&nbsp;31, 2002, before
adjustments for outstanding checks and deposits in transit, the Company
had $205,521 on deposit with a bank. The deposits are federally insured
up to $100,000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimates



<P align="left" style="margin-left:6%; font-size: 10pt">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 the Company&#146;s financial statements as
described in Note 1. Actual results could differ from those estimates.


<P align="center" style="font-size: 10pt">32
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of financial instruments



<P align="left" style="margin-left:6%; font-size: 10pt">The carrying amounts of financial instruments, including cash, accrued
expenses, and payables to related parties and founding officer
approximate fair value because of their short maturity as of December
31, 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent accounting pronouncements



<P align="left" style="margin-left:6%; font-size: 10pt">In July&nbsp;2002, the FASB issued SFAS No.&nbsp;146, &#147;Accounting for Costs
Associated with Exit or Disposal Activities&#148;. SFAS No.&nbsp;146 nullifies
Emerging Issues Task Force Issue No.&nbsp;94-3: &#147;Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring).&#148; SFAS
No.&nbsp;146 requires that a liability be recognized for those costs only
when the liability is incurred, that is, when it meets the definition of
a liability in the FASB&#146;s conceptual framework. SFAS No.&nbsp;146 also
establishes fair value as the objective for initial measurement of
liabilities related to exit or disposal activities. SFAS No.&nbsp;146 is
effective for exit or disposal activities that are initiated after
December&nbsp;31, 2002, with earlier adoption encouraged. Management does
not expect the adoption of SFAS No.&nbsp;146 will have a material impact on
the Company&#146;s financial position or results of operations.



<P align="left" style="margin-left:6%; font-size: 10pt">In December&nbsp;2002, the FASB issued SFAS No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation-Transition and Disclosure.&#148; SFAS No.&nbsp;148
amends SFAS No.&nbsp;123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based compensation. It also amends the disclosure requirements of
SFAS No.&nbsp;123. If an entity elects to adopt the recognition provisions
of the fair value based method of accounting for stock-based
compensation in a fiscal year beginning before December&nbsp;16, 2003, that
change in accounting principle shall be reported using either the (i)
prospective method, (ii)&nbsp;the modified prospective method, or (iii)&nbsp;the
retroactive restatement method as defined in SFAS No.&nbsp;148. SFAS No.&nbsp;148
is effective for fiscal years ending after December&nbsp;15, 2002. Since the
Company has elected to continue accounting for stock-based compensation
under APB No.&nbsp;25, the adoption of SFAS No.&nbsp;148 has had no impact to the
Company&#146;s financial position or results of operations. The Company&#146;s
financial statement disclosures have been designed to conform to the new
disclosure requirements prescribed by SFAS No.&nbsp;148.


<P align="center" style="font-size: 10pt">33
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of significant accounting policies </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent accounting pronouncements &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">In May&nbsp;2003, the FASB issued SFAS No.&nbsp;150, &#147;Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity.&#148; SFAS No.&nbsp;150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). The provisions of SFAS
No.&nbsp;150 are effective for financial instruments entered into or modified
after May&nbsp;31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June&nbsp;15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities,
which are subject to the provisions of this statement for the first
fiscal period beginning after December&nbsp;15, 2004. The Company believes
that the adoption of SFAS No.&nbsp;150 will not have an impact on its
financial position or results of operations.



<P align="left" style="margin-left:6%; font-size: 10pt">In January&nbsp;2003, the FASB issued FASB Interpretation No.&nbsp;46 (FIN 46),
&#147;Consolidation of Variable Interest Entities,&#148; which clarifies the
application of Accounting Research Bulletin No.&nbsp;51, &#147;Consolidated
Financial Statements,&#148; relating to consolidation of certain entities.
In December&nbsp;2003, the FASB issued a revised FIN 46 &#147;46R&#148; that replaced
the original FIN 46. FIN 46R requires identification of a company&#146;s
participation in variable interest entities (VIEs), which are defined as
entities with a level of invested equity that is not sufficient to fund
future activities to permit it to operate on a standalone basis. For
entities identified as a VIE, FIN 46R sets forth a model to evaluate
potential consolidation based on an assessment of which party to the VIE
(if any) bears a majority of the exposure to its expected losses, or
stands to gain from a majority of its expected returns. FIN 46R also
sets forth certain disclosures regarding interests in VIEs that are
deemed significant, even if consolidation is not required. The Company
is not currently participating in, or invested in any VIEs, as defined
in FIN 46R.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Certain relationships and related transactions</B></TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advances from founding executive officer



<P align="left" style="margin-left:6%; font-size: 10pt">All of the marketing and manufacturing rights for the ZEFS were acquired
from Mr.&nbsp;Muller, for 5,000,000 shares of common stock, $500,000 and a
$10 royalty for each unit sold (see discussion below), pursuant to the
Agreement entered into in December&nbsp;1998, by and between the Company and
Mr.&nbsp;Muller. Working capital advances in the amount of $517,208 and
payment in the amount of $500,000 for marketing and distribution rights
of the ZEFS are due to Mr.&nbsp;Muller. Such amounts are interest free and
do not have any due dates for payment (see Note 1).


<P align="center" style="font-size: 10pt">34
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Certain relationships and related transactions </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advances from founding executive officer &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">In January&nbsp;2000, the Company entered into an agreement offering Mr.
Muller and Lynne Muller, Mr.&nbsp;Muller&#146;s wife, the option to purchase
5,000,000 shares each at $0.10 per share as consideration for work
performed for the Company. Mrs.&nbsp;Muller subsequently transferred her
option to Mr.&nbsp;Muller.



<P align="left" style="margin-left:6%; font-size: 10pt">In connection with the Company&#146;s legal proceedings against Mr.&nbsp;Muller,
the Company is attempting to obtain a judgment that will relieve the
Company of $1,017,208, which represents all amounts due Mr.&nbsp;Muller.
These amounts include the $500,000 due for the marketing and
distribution rights of the ZEFS and the working capital advances of
$517,208. As described in the Significant Matters section of Note 1,
the Company has already been relieved of the $10 royalty interest that
Mr.&nbsp;Muller held for each unit sold. In addition, the Company is also
attempting to obtain a judgment that will cancel the options to purchase
10,000,000 shares granted to Mr. and Mrs.&nbsp;Muller, collectively. Based
on the status of current legal proceedings, the Company does not believe
that it will have to pay Mr.&nbsp;Muller the $500,000 for the rights to the
ZEFS device and the $517,208 of advances. The Company also believes
that the option Mr.&nbsp;Muller holds to purchase 10,000,000 shares of the
Company&#146;s stock will be cancelled and no longer valid.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to related parties



<P align="left" style="margin-left:6%; font-size: 10pt">Masry &#038; Vititoe, a law firm in which Edward Masry is a partner, has
advanced $553,022 and $21,000 as of December&nbsp;31, 2002 and 2001,
respectively, to the Company for working capital purposes. The advances
payable to Masry &#038; Vititoe were allocations to the Company for shared
expenses, primarily payroll. These advances are unsecured, non-interest
bearing, and are due on demand. These advances have subsequently been
converted to common stock (see Note 9).


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Property and equipment</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">At December&nbsp;31, 2002 and 2001, property and equipment consist of the
following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="88%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Office equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,041</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(527</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">35
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income taxes</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">The Company has net operating loss (NOL)&nbsp;carryforwards in the amount of
approximately $2.3&nbsp;million, which begin to expire in 2018. The deferred
tax asset related to these NOL carryforwards has been fully reserved.
The provision for income taxes represents the minimum state income taxes
payable plus estimated penalties and interest.



<P align="left" style="margin-left:6%; font-size: 10pt">The Company&#146;s ability to utilize its NOL is dependent upon current filing
status with the Internal Revenue Service (IRS)&nbsp;and is subject to the
IRS&#146;s statute of limitations. Currently, the Company has not filed any
returns with the IRS.



<P align="left" style="margin-left:6%; font-size: 10pt">A reconciliation of the Company&#146;s tax provision to income taxes at the
applicable statutory rates is shown below.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes at statutory federal rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(934,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(929,904</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">State income taxes, net of federal benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164,952</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164,101</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,099,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,094,005</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minimum state income taxes, plus penalties and interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,169</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,169</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stockholders&#146; deficiency</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">As of December&nbsp;31, 2002, the Company has authorized 200,000,000 shares of
its common stock, of which 20,235,847 shares were issued and outstanding
and 2,305,000 shares were to be issued. As described in Note 1,
estimates and judgments were used by management to determine the fair
value for certain issuances of the outstanding shares. These estimates
have impacted the amounts previously recorded in the 2000 and 1999
financial statements for common stock, additional paid-in capital and
expenses (see Note 1).


<P align="center" style="font-size: 10pt">36
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stockholders&#146; deficiency </B>- Continued</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">The Company&#146;s significant stockholders are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="71%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>ownership</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mr.&nbsp;Jeffrey Muller and controlled by Mr.&nbsp;Muller
through beneficial ownership</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,716,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mr.&nbsp;Edward Masry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.9</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Edward Skoda</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">19.8</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Remaining stockholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,519,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">32.2</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,235,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="left" style="margin-left:6%; font-size: 10pt">In connection with the cross complaint the Company has filed against Mr.
Muller, the Company is seeking various legal remedies relating to at
least 7,000,000 of the 8,716,710 shares controlled by Mr.&nbsp;Muller (see
Note 1). The Company is also seeking the rescission of options to
purchase 10,000,000 shares of the Company&#146;s stock held by Mr.&nbsp;Muller (see
Notes 1 and 3). Management cannot predict the outcome of any of the
pending matters related to the shares controlled by Mr.&nbsp;Muller, or if the
10,000,000 option shares will be rescinded.



<P align="left" style="margin-left:6%; font-size: 10pt">In 2002, 2,150,000 shares of stock were issued to directors and officers
of the Company for services rendered. The aggregate fair value of these shares on
the date of issuance was $860,000, and has been recorded as
compensation expense in 2002.



<P align="left" style="margin-left:6%; font-size: 10pt">In November and December&nbsp;2002, the Company sold 2,305,000 shares of its
common stock in a series of private placement transactions. The Company
received proceeds, net of offering costs, in the amount of $389,875 for
the shares prior to December&nbsp;31, 2002, but did not issue the stock
certificates until March&nbsp;20, 2003. These shares are shown as common
stock to be issued in the accompanying financial statements.



<P align="left" style="margin-left:6%; font-size: 10pt">In 2001, 2,439,912 shares of stock were for services rendered. The
aggregate fair value of these shares on the date of issuance was
$2,042,571, and has been recorded as compensation expense in 2001.


<P align="center" style="font-size: 10pt">37
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options and Warrants</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">The Company issues stock options to employees, directors and consultants
under no formal plan. Employee options vest according to the terms of
the specific grant and expire from 8 to 10&nbsp;years from date of grant.
Non-employee option grants to date are vested upon issuance. The
weighted average remaining contractual life of employee options
outstanding at December&nbsp;31, 2002 was 8.13&nbsp;years. Stock option activity
for the years ended December&nbsp;31, 2001 and 2002, was as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Avg.</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options outstanding, January&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options, December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options, December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="left" style="margin-left:6%; font-size: 10pt">Options outstanding at December&nbsp;31, 2002 and the related weighted average
exercise price and remaining life information is as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Range of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>prices</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>outstanding</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>life in years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>price</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="right"><DIV style="margin-left:10px; text-indent:-10px">$0.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:10px; text-indent:-10px">0.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="right"><DIV style="margin-left:10px; text-indent:-10px">0.40&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:10px; text-indent:-10px">0.50&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">

<TD align="right"><DIV style="margin-left:10px; text-indent:-10px">1.00&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:10px; text-indent:-10px">$0.10-$1.00&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options and Warrants </B>- Continued</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">The 10,000,000 options exercisable at $0.10 per share in the table above
are held by Mr.&nbsp;Muller. The options have been accounted for as employee
stock options under the provisions of APB No.&nbsp;25. Accordingly, no
compensation expense has been recorded in the statements of operations.
However, the $1,000,000 fair value of the options has been reflected in
the pro forma net loss below. The 10,000,000 options do not have an
expiration date and vested in 1999. For purposes of computing fair value
method stock-based employee compensation expense for the 10,000,000
employee options above, a ten-year life was used in the Black-Scholes
option-pricing model, as ten years is the longest term for other option
grants.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intrinsic value of employee options



<P align="left" style="margin-left:6%; font-size: 10pt">Certain employee options have been granted with exercise prices less the
than fair market value of the Company&#146;s stock at the date of grant. As
the grants were to employees, the intrinsic value method, as allowed
under APB No.&nbsp;25, was used to calculate the related compensation
expense. In 2000 and 2001, $2,600,000 and $191,667, respectively, of deferred
compensation and related amortization to expense was recognized for
these options. In 2002, $850,000 of employee deferred compensation was
amortized and recognized as expense. The remaining deferred
compensation expense will be recognized over the remaining vesting
periods of the employee options through 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-employee warrants and options



<P align="left" style="margin-left:6%; font-size: 10pt">In 2002, 1,850,000 warrants and 100,000 options were issued to
non-employees. In 2001, 650,000 options were issued to non-employees.
The Company estimated the combined fair values of the warrants and
options for each respective year to be $684,464 and $442,316,
respectively, using the Black-Scholes option-pricing model. In 2002,
$629,555 of the total fair value was related to the 1,850,000 warrants
issued for private placement finder&#146;s fees. Accordingly, this amount
was offset against the proceeds. The remaining $54,909 was for the
100,000 options issued for non-employee services and was recorded as
deferred compensation and will be amortized to expense as the services
are provided. In 2002, $41,182 was amortized to expense. In 2001,
$299,998 of the total fair value was related to options issued for
private placement finder&#146;s fees. This amount was also offset against
the proceeds. The remaining $142,318 was for services and was charged
to expense in 2001.


<P align="center" style="font-size: 10pt">39
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options and Warrants </B>- Continued</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">The following table summarizes certain information about the company&#146;s
stock purchase warrants.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Avg.</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Warrants</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants outstanding, January&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants outstanding, December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.35</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants cancelled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Warrants outstanding, December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="left" style="margin-left:6%; font-size: 10pt">The Company has elected to account for stock-based compensation using
the intrinsic value method prescribed in APB No.&nbsp;25 and related
interpretations, and follow the pro forma disclosure requirements of
SFAS No.&nbsp;123. Accordingly, no compensation expense has been recognized
related to the granting of stock options, except as noted above. The
following table illustrates the effect on net income as if the Company
had applied the fair value recognition provisions of SFAS No.&nbsp;123 to
stock-based employee compensation.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cumulative</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>since</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>inception</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,735,013</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(7,851,545</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Add: total fair value method stock-based
employee compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(949,977</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(308,328</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,258,302</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less: deferred compensation amortization for
below market employee options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,041,667</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,849,176</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,851,674</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(9,068,183</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.15</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.18</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">40
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options </B>- Continued</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">The fair market value of the stock options at the grant date was
estimated using the Black-Scholes pricing model with the following
weighted average assumptions:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="75%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.15</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.57</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">289.12</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expected dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and contingencies</B></TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Legal matters



<P align="left" style="margin-left:6%; font-size: 10pt">On December&nbsp;19, 2001, the Securities and Exchange Commission (SEC)&nbsp;filed
civil charges in the United States Federal District Court, Southern
District of New York against the Company, its former President and sole
director Jeffrey Muller, and others associated with the promotion of
Company stock sales. The SEC complaint alleged the existence of a
promotional campaign using press releases, internet postings, and
elaborate website, and televised media events to disseminate false and
materially misleading information as part of a fraudulent scheme to
manipulate the market for stock in the Company which was controlled by
Mr.&nbsp;Muller. On March&nbsp;22, 2002, management signed a Consent to Final
Judgment of Permanent Injunction and Other Relief in settlement of this
action as against the corporation only, which the court approved on July
2, 2002. Under this settlement, the Company was not required to pay any
fines or restitution. The SEC&#146;s action continues against Mr.&nbsp;Muller and
others.



<P align="left" style="margin-left:6%; font-size: 10pt">On July&nbsp;2, 2002, after an investigation by a newly constituted board of
directors, the Company filed a cross-complaint in the SEC action against
Mr.&nbsp;Muller and others seeking injunctive relief, disgorgement and
financial restitution for a variety of acts and omissions in connection
with sales of Company stock and other transactions occurring between
1998 and 2002. The Company is also seeking cancellation of such shares
and Mr.&nbsp;Muller&#146;s stock option agreement and royalty arrangement. Among
other things, the Company alleges that Mr.&nbsp;Muller and certain others
sold stock without consideration and without registration under federal
securities laws; engaged in self-dealing and entered into various
undisclosed related-party transactions; misappropriated for their own
use proceeds from sales of stock; and entered into various undisclosed
arrangements regarding the control, voting and disposition of their
stock.


<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and contingencies </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Legal matters &#151; Continued



<P align="left" style="margin-left:6%; font-size: 10pt">On July&nbsp;30, 2002, the U.S. Federal District Court, southern District of
New York, granted the Company&#146;s application for a preliminary injunction
against Mr.&nbsp;Muller and others, which prevents Mr.&nbsp;Muller and other
cross-defendants from selling, transferring, or encumbering any of the
Company&#146;s assets and property, from selling or transferring any of the
Company&#146;s stock that they may own or control, or from taking any action
to injure the Company or its business and shareholders. The order also
prevents Mr.&nbsp;Muller from exercising any control over the corporation and
serving as officer or director. While management believes that the
Company has valid claims, there can be no assurance that an adverse
result or settlement would not have a material adverse effect on the
Company&#146;s financial position or cash flow.



<P align="left" style="margin-left:6%; font-size: 10pt">In the course of the litigation, the Company has obtained control over
Mr.&nbsp;Muller&#146;s patent rights to the ZEFS device. Under that certain
Buy-Sell Agreement with Mr.&nbsp;Muller dated December&nbsp;29, 1998, Mr.&nbsp;Muller,
who was listed on the ZEFS devise patent application as the inventor of
the ZEFS device, granted the Company the marketing, manufacturing and
distribution rights to the ZEFS device. On November&nbsp;7, 2002, under the
settlement with the Muller bankruptcy trustee, the trustee transferred
all ownership and legal rights to this international patent application
for the ZEFS device to the Company. Pursuant to this agreement, the
Company is also entitled to entire royalty rights previously claimed
by Mr.&nbsp;Muller.



<P align="left" style="margin-left:6%; font-size: 10pt">The litigation against Mr.&nbsp;Muller and others has been pending before the
Court and will be scheduled for further proceedings and final
disposition by summary judgment motions within the near future.
Although the outcome of these motions cannot be predicted with any
degree of certainty, it is expected that the Court&#146;s ruling will either
significantly narrow the issues for any later trial or will result in a
disposition of the case in a manner favorable to the Company. The
Company contends that it is entitled to a judgment divesting Mr.&nbsp;Muller
of any right to exercise option rights to 10&nbsp;million shares of Company
stock, the entry of an existing preliminary injection to prevent Mr.
Muller from any involvement with the Company and a monetary judgment
against Mr.&nbsp;Muller and others in the amount of several million dollars.
While Company management believes that the Company has valid claims,
there can be no assurance that an adverse result or settlement would not
have a material adverse effect on the Company&#146;s financial position or
cash flow.


<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>SAVE THE WORLD AIR, INC.<BR>
(A DEVELOPMENT STAGE ENTERPRISE)</B>


<P align="left" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS &#151; Continued<BR>
YEARS ENDED DECEMBER 31, 2002 AND 2001</B>


<P align="left" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and contingencies </B>- Continued</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Royalty agreements



<P align="left" style="margin-left:6%; font-size: 10pt">The Company has entered into various royalty agreements whereby it has
agreed to provide an aggregate of $0.80 per unit for each ZEFS device
sold. Certain of these royalty agreements were reached in exchange for
the royalty recipients&#146; release of their claims to the intellectual
property rights to the ZEFS.



<P align="left" style="margin-left:6%; font-size: 10pt">In connection with these royalty agreements, the Company has committed
to issue options to purchase an aggregate of 1,000,000 shares of common
stock at $1.00 per share. The options expire 10&nbsp;years from the date of
grant and will be granted when the Company is in full compliance with
the SEC.



<P align="left" style="margin-left:6%; font-size: 10pt">Also, in connection with the royalty agreements, the Company has
committed to issue an aggregate of 728,000 shares of common stock
according to the following schedule:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="10%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>300,000 shares on April&nbsp;4, 2004</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>300,000 shares on April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>128,000 shares upon completion of successful ZEFS
testing, as defined.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leases



<P align="left" style="margin-left:6%; font-size: 10pt">In 2002 and 2001, the Company had no leases of any property. In October
2003, the Company subleased a portion of a building in North Hollywood,
California. The lease term is from November&nbsp;1, 2003 through October&nbsp;31,
2005 and carries an option to renew for two additional years with a 10
percent increase in the rental rate. Monthly rent is $2,000.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Subsequent events</B></TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">In 2003, the Company sold 9,484,000 shares of common stock for $2,372,510
in private placements.



<P align="left" style="margin-left:6%; font-size: 10pt">In 2003, the Company issued warrants to purchase common stock in
connection with the private placements. Warrants to purchase a total of
11,517,414 shares of common stock at $0.50 per share were issued. These
warrants have a 5-year term.



<P align="left" style="margin-left:6%; font-size: 10pt">In 2003, Masry and Vititoe converted $500,000 of its advances due from
the Company, in the amount of $553,022, to 2,000,000 shares of common
stock.



<P align="center" style="font-size: 10pt">43
</DIV>


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<A name="110"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective April&nbsp;10, 2002, we approved a change in our independent public
accountants for the year ended December&nbsp;31, 2002, from Hoiberg Business Group,
of Carrara, Queensland, Australia to Good Swartz Brown &#038; Berns LLP.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We did not consult with Good Swartz Brown &#038; Berns LLP during the fiscal
years ended December&nbsp;31, 2000 and 2001, and the interim period from December
31, 2001 through July&nbsp;30, 2002, with respect to (i)&nbsp;the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial statements
or (ii)&nbsp;any matter that was the subject of any prior disagreement between us
and our previous independent accountant.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The report of Hoiberg Business Group for the years ended December&nbsp;31, 2000
and December&nbsp;31, 2001 contained no adverse opinions, disclaimer of opinion or
qualification or modification as to uncertainty, audit scope or accounting
principles. During the fiscal years ended December&nbsp;31, 2000 and 2001, and the
interim period from December&nbsp;31, 2001 through November&nbsp;4, 2002, there were no
disagreements between us and Hoiberg Business Group on any accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Hoiberg Business
Group, would have caused it to make reference to the subject matter of the
disagreement in connection with its report. No event described in paragraph
(a)(1)(iv) of Item&nbsp;304 of Regulation&nbsp;S-B has occurred within our fiscal years
ended December&nbsp;31, 2000 and 2001, or the period from December&nbsp;31, 2001 through
April&nbsp;10, 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2003, the SEC promulgated that no annual or quarterly report
submitted to the SEC may include financial reports audited by independent
public accountants unregistered with the Public Company Accounting Oversight
Board (PCAOB). Our current accountants, Good Swartz Brown &#038; Berns LLP,
recently indicated that they would not be registered with the PCAOB,
and as such, they resigned as our independent public accountants. In
November 2003, our Board of Directors retained Weinberg &#038; Co., an independent accounting firm
that was registered with the PCAOB.
</FONT>
<A name="111"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;8A. Controls and Procedures</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Evaluation of disclosure controls and procedures: Our management
evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Annual Report on Form&nbsp;10-KSB. Based
on this evaluation,
</FONT>
<P align="center" style="font-size: 10pt">43


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<P><FONT size="2">our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. It should be noted that the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp; Changes in internal control over financial reporting: There was no
change in our internal control over financial reporting that occurred during
the period covered by this Annual Report on Form&nbsp;10-KSB that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
</FONT>


<P align="center"><FONT size="2">44
</FONT>

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<A name="112"></A>
<P align="center"><FONT size="2"><B>PART III</B></FONT>

<A name="113"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;9. Directors and Executive Officers of Registrant</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding our directors and
executive officers as of December&nbsp;31, 2003:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="41%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1">Name</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1">Age</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1">Position</FONT></TD>
    <TD nowrap align="center" colspan="5"><FONT size="1">Director Since</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD colspan="5"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Edward L. Masry, Esq.(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
71</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Executive Officer,
President, Chairman of the
Board
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2001</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eugene E. Eichler, CPA(1)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
76</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Operating Officer,
Chief Financial Officer,
Treasurer and Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2002</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Bruce H. McKinnon(1)(2)(3)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
61</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Director and Executive
Vice President
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2002</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Nathan Shelton(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
54</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Vice President of
Marketing and Distribution
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">N/A</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Robert F. Sylk(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
65</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Director and Vice President
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2001</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Hon. J. Joseph Brown, AO(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
72</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2002</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">John F. Price, PhD(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
60</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2002</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Joseph Helleis(1)(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
66</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">2002</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Janice Holder(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
57</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Corporate Secretary
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">N/A</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Jeffrey Muller(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">
50</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">1999</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Member of the Audit Committee.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Member of the Compensation Committee.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Member of the Nominating and Corporate Governance Committee.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Member of the Disclosure Committee.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">On July&nbsp;30, 2002, Jeffrey Muller was prohibited by court order from
acting as our officer or director. See Item&nbsp;3 above for a more detailed
discussion.</FONT></TD>
</TR>


<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Ms. Holder&#146;s status as an
executive officer was approved by our board of directors on
November&nbsp;21, 2003.</FONT></TD>
</TR>

</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no family relationships between any director and executive
officer.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Edward L. Masry, Esq. </I>has served as our Chairman of the Board of
Directors, Chief Executive Officer and President since October 2001. Mr.&nbsp;Masry
has been a member of the law firm of Masry &#038; Vititoe since 1986 and was Mayor
of Thousand Oaks City and currently a member of the City Council. From 1960 to
1986, he was a partner of various law firms. Mr.&nbsp;Masry was corporate director
of Merlin Olsen Porsche Audi from 1970 to 1988 and corporate director of
Gabriel Olsen Volkswagen from 1969 to 1973. Mr.&nbsp;Masry received a J.D. from
Loyola Law School, Los Angeles.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Eugene E. Eichler, CPA </I>has served as our Chief Operating Officer, Chief
Financial Officer and Treasurer since October 2001 and as our director since
May 2002. Mr.&nbsp;Eichler was the Chief Financial Officer and Firm Administrator of
the law firm Masry &#038; Vititoe from 1982 to October 2001. From 1974 to 1982, Mr.
Eichler provided financial consulting services to Foundation for HMO&#146;s, Acne
Care Medical Clinics and Earth Foods, Inc. From 1960 to 1974, Mr.&nbsp;Eichler
headed financial consulting services for Milburn Industries and Brown, Eichler
&#038; Company. From 1953 to 1960, he held the position of Chief Budgets and
Forecasts at North American Aviation. From 1951 to 1953, Mr.&nbsp;Eichler held
various audit positions at the Atomic Energy Commission. Mr.&nbsp;Eichler received a
B.A. from University of Montana.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Bruce H. McKinnon </I>has served as our director since May 2002 and our
Executive Vice-President &#150; Business Development since December 2003. Mr.
McKinnon has served as Chief Executive Officer and President of KZ Golf, Inc.,
an international golf equipment company, since 1994. 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.
</FONT>
<P align="center"><FONT size="2">45
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Nathan Shelton </I>has served as our Vice President of Marketing and
Distribution since 2003. From 2002 until present, he operates his own
consulting firm. He was the Chief Executive Officer and Chief Marketing
Officer at K&#038;N Engineering from 1984 to 2002 and was also Chairman of the
Specialty Equipment Market Association, a trade association of automotive after
market manufacturers and distributors.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Robert F. Sylk </I>has served as our director since October 2001 and our Vice
President &#150; Investor Relations since May 2002. He currently is one of the
board of directors of the La Quinta Chamber of Commerce and Chairman of the
Ambassadors Committee. From 1991 to 2003, he has served as a senior executive
of Mirage Resorts. He was a delegate to the California Tourism and Trade
Commission from 1994 to 1998. From 1993 to 1997, he was Senior Vice President
of the Marina Del Rey Chamber of Commerce. He was a board member for the L.A.
County Department of Beaches and Harbors and on the Board of the U.S.O. from
1993 to 2000. Mr.&nbsp;Sylk is presently a director for the Agua Caliente Casino,
located in Rancho Mirage, Calif.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hon. J. Joseph Brown AO </I>has served as our director since May 2002. 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.&nbsp;Brown has also served as director of Macquarie Tourism and
Leisure since 1990. From 1983 to 1988, Mr.&nbsp;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 Olympic Bid teams for Brisbane
(1992), Melbourne (1996)&nbsp;and the successful Sydney Bid (2000). Mr.&nbsp;Brown was
Founding Director of the Sydney Olympic Games Organizing Committee in 1992 and
the Sydney Paralympic Organizing Committee in 1998.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>John F. Price, PhD </I>has served as our director since May 2002. 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.&nbsp;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.&nbsp;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.&nbsp;Price received a B.Sc. and M.Sc. from the University of Melbourne and a
Ph.D. from the Australian National University.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Joseph Helleis </I>has served as our director since May 2002. After his
honorable discharge from the United States Navy in 1960, Mr.&nbsp;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.
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. From 2000 to 2002, he was President/Chief
Executive Officer with Bank of Whittier. From 2002 to present, he has been
operating his own financial services consulting firm, Joseph Helleis and
Associates. Mr.&nbsp;Helleis has an AA degree from the National Institute of
Credit.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Janice Holder </I>has served as our Corporate Secretary since October 2001.
From 1964 through 1984, Ms.&nbsp;Holder managed various medical facilities in Orange
County. Since 1984, she has been the Office Manager for the Law Offices of
Masry &#038; Vititoe.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Jeffrey Muller </I>was elected as our director in February, 1999. In July
2002, he was enjoined by court order from acting as a director or officer of
our corporation.
</FONT>

<P><FONT size="2"><B>Section 16(a) Beneficial Ownership Reporting
Compliance</B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and ten percent or greater stockholders to file reports of
ownership and changes in ownership with the SEC. The same persons are
required to furnish us with copies of all Section&nbsp;16(a) forms
they file. Based solely upon a review of the copies of the forms
furnished to us and the representations made by the reporting persons
to us, we believe that during 2002 our directors, officers and ten
percent or greater stockholders complied with all filing requirements under
Section&nbsp;16(a) of the Exchange Act.
</FONT>

<P align="center"><FONT size="2">46
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<A name="114"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;10. Executive Compensation</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth compensation information for our Chief
Executive Officer and other executive officers as of the end of fiscal year
2002.
</FONT>
<P align="center"><FONT size="2"><B>Summary Compensation Table</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Annual Compensation</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Long-term Compensation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Awards</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Securities</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Restricted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Under-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>All</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="2"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Stock</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>lying</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Other</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="2"><FONT size="1"><B>and</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Salary</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Award(s)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Options</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Compensation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="2"><FONT size="1"><B>Principal Position</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Fiscal Year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>($)</B>(4)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>($)</B>(5)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(#)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>($)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><FONT size="2">Edward L. Masry, Esq. (1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">President and Chief</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">950,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Executive Officer</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><FONT size="2">Eugene Eichler, CPA (2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Chief Operating</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Officer, Chief</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Financial Officer and
Treasurer</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><FONT size="2">Janice Holder (3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Corporate Secretary</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Mr.&nbsp;Masry was appointed President and Chief Executive Officer in October
2001 at no annual salary. Prior to being appointed President and Chief
Executive Officer, Mr.&nbsp;Masry was not an executive officer of the Company.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Mr.&nbsp;Eichler was appointed Chief Operating Officer, Chief Financial Officer
and Treasurer in October 2001. Prior to being appointed to these positions,
Mr.&nbsp;Eichler was not an executive officer of the Company.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Ms.&nbsp;Holder was appointed
Corporate Secretary in October 2001 and given executive officer
status in November&nbsp;2003. Prior to
being appointed Corporate Secretary, Ms.&nbsp;Holder was not an executive officer of
the Company.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">The law firm Masry &#038; Vititoe, PC paid for Mr.&nbsp;Eichler&#146;s and Ms.&nbsp;Holders&#146;
salaries from January&nbsp;1, 2002 through December 2002 pursuant to an arrangement
in which we reimbursed Masry &#038; Vititoe, PC for a portion of their respective
salaries.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">The number and value of vested and unvested restricted stock based upon the
closing market price of the common stock at December&nbsp;31, 2002 ($0.35) were as
follows: Masry, 1,000,000 vested shares valued at $350,000; Eichler, 500,000
unvested shares valued at $175,000; and Holder, 50,000 unvested shares valued
at $17,500. Mr.&nbsp;Eichler&#146;s and Ms.&nbsp;Holder&#146;s respective shares vest 12&nbsp;months
from their issuance on October&nbsp;21, 2002. The board does not intend to pay
dividends on these restricted shares.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">47
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>




<P align="center"><FONT size="2"><B>Option Grants in Last Fiscal Year</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding options granted
during fiscal year 2002 to each of the persons named in the Summary
Compensation Table.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Potential Realizable</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Value of Assumed</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Percentage of Total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Annual Rates of Stock</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Securities</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Options/SARs</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Price Appreciation for</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Underlying</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Granted to</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Exercise or</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Option Term</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Options</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Employees in</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Base Price</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><hr size="1"></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Granted (#)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Fiscal Year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>($/Sh)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Expiration Date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>5% ($)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>10% ($)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Edward Masry, Esq</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Eugene Eichler, CPA</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Janice Holder</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>Aggregated Option Exercises in Fiscal Year 2002 and Year-End Option Values</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information with respect to persons named
in the Summary Compensation Table concerning exercised and unexercised options
held as of December&nbsp;31, 2002.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Number of Securities</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Underlying Unexercised</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Value of Unexercised</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Options at Fiscal Year-End (#)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>In-the-Money Options ($) (1)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Acquired</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>On</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Exercise</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Realized</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(#)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>($)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Exercisable</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Unexercisable</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Exercisable</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Unexercisable</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Edward Masry, Esq</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Eugene Eichler, CPA</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Janice Holder</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Market value of our common stock at fiscal year-end minus the exercise
price. The market value of our common stock on December&nbsp;31, 2002 was $0.35 per
share.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) of the Securities Exchange Act requires our executive
officers, directors and ten percent stockholders to file reports of ownership
and changes in ownership with the SEC. Based solely on our review of such
forms, we believe that all our executive officers, directors and ten percent
stockholders complied with the applicable filing requirements.
</FONT>
<P align="center"><FONT size="2">48
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<A name="115"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding the beneficial
ownership of our common stock as of February&nbsp;29, 2004 as to (i)&nbsp;each of the
executive officers named in the Summary Compensation Table, (ii)&nbsp;each director
and nominee for director, (iii)&nbsp;each person who is known by us to own
beneficially more than five percent of our outstanding common stock and (iv)
all directors and executive officers as a group. Unless otherwise indicated,
the address of each listed stockholder is c/o Save the World Air, Inc., 5125
Lankershim Boulevard, North Hollywood, California 91601. As of
February&nbsp;29, 2004, there were 34,691,821 shares of common stock outstanding.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number of Shares of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common Stock</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Percentage of</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Beneficially</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shares Beneficially</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Name and Address of Beneficial Owner</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Owned(1)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Owned</B>(2)</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><FONT size="2"><B>Named Executive Officers and
Directors</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Edward L. Masry, Esq.(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.2</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Eugene Eichler, CPA(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">750,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Bruce H. McKinnon(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">409,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.2</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Nathan Shelton</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Robert F. Sylk</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">335,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">4143 Via Marina, #1118<br>
Marina Del Rey, CA 90292</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Hon. J. Joseph Brown, AO</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Level 10, Westfield Towers<br>
100 William Street<br>
Sydney NSW 2011<br>
Australia</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">John F. Price, PhD</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">291,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">14/2 New McLean Street<br>
Edgecliff, NSW 2027<br>
Australia</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Joseph Helleis</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">2639 Barefoot Lane<br>
Rowland Heights, CA 91748</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Janice Holder</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Jeffrey Muller(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">41 Murlong Crescent,<br>
Palm Beach<br>
Queensland, Australia 4221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2"><B>Five Percent Stockholders</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Edward Skoda(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">1773 Nelson Street, Suite&nbsp;101<br>
Vancouver, BC<br>
Canada V6G 1M6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2">Cecil Kyte(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,261,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.3</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">2934 Torito Road<br>
Santa Barbara, CA 93108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><FONT size="2"><B>All Executive Officers and
Directors as a Group</B>(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><FONT size="2">(10 persons)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,385,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38.0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">49
</FONT>

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<P align="left"><FONT size="2">Notes</FONT>

<P><FONT size="2"><B>&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>Less than one percent.
</FONT>
<P><FONT size="2">(1)&nbsp; Unless otherwise indicated, all persons named in the table have sole voting
and investment power with respect to the shares of common stock beneficially
owned by them, which includes the shares of common stock that such individual
has the right to acquire either currently or within 60&nbsp;days of February&nbsp;29, 2004, including upon the exercise of an option.
</FONT>
<P><FONT size="2">(2)&nbsp; Percentage of beneficial ownership is
based upon 34,691,821 shares of our
common stock outstanding as of February&nbsp;29, 2004. For each named person, this
percentage includes common stock that such person has the right to acquire
either currently or within 60&nbsp;days of February&nbsp;29, 2004, including upon the
exercise of an option, however, such common stock is not deemed outstanding for
the purpose of computing the percentage owned by any other person.
</FONT>
<P><FONT size="2">(3)&nbsp; Includes stock options to purchase 2,000,000 shares of our common stock
exercisable either currently or within 60&nbsp;days of February&nbsp;29, 2004. Also
includes 2,000,000 shares and warrants to purchase an aggregate 2,000,000
shares held by Masry &#038; Vititoe, PC, with respect to which Mr.
Masry disclaims beneficial ownership except to
the extent of his proportional share therein. Mr.&nbsp;Masry, our Chief Executive
Officer and President, is a member of Masry &#038; Vititoe, PC, and may be deemed a
beneficial owner of the shares held by such entity because of his status as a
member.
</FONT>
<P><FONT size="2">(4)&nbsp; Includes stock options to purchase 250,000 shares of our common stock
exercisable either currently or within 60&nbsp;days of February&nbsp;29, 2004.
</FONT>
<P><FONT size="2">(5)&nbsp; Mr.&nbsp;McKinnon is a participant in the KZ Golf, Inc. Defined Benefit Pension
Plan, which is the owner of 9,100 shares of our common stock.
</FONT>
<P><FONT size="2">(6)&nbsp; Includes stock options to purchase 10,000,000 shares of our common stock.
These shares and options held by Mr.&nbsp;Muller are subject to pending litigation.
Management has previously refused requests by Muller to exercise these options. See Item&nbsp;3 above.
</FONT>
<P><FONT size="2">(7)&nbsp; These shares are subject to pending litigation against Jeffrey Muller, our
former Chief Executive Officer and sole director, his immediate family and
various other persons and entities in the United States District Court,
Southern District of New York, Case Number 01 Civ. 11586. We believe Edward
Skoda acted in concert with Mr.&nbsp;Muller with respect to these shares.
</FONT>
<P><FONT size="2">(8)&nbsp; Includes warrants to purchase 1,060,000 shares of our common stock
exercisable either currently or within 60&nbsp;days of February 29, 2004.
</FONT>
<P><FONT size="2">(9)&nbsp; Includes shares of our common stock issuable upon exercise of stock options
or warrants currently exercisable within 60&nbsp;days of February&nbsp;29, 2004, as well
as shares held by the entity referenced in footnote 3 that is affiliated with
Mr.&nbsp;Masry.
</FONT>

<P align="center"><FONT size="2">50
</FONT>

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<A name="116"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;12. Certain Relationships and Related Transactions</B></FONT>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During fiscal year 2002, we entered into an agreement with Mr.&nbsp;Masry, our
Chairman of the Board, President and Chief Executive Officer, for the
reimbursement of a $500,000 loan made by Masry &#038; Vititoe, PC, of which Mr.
Masry is a member, to us. In June 2003, we paid this loan in full by issuing
an aggregate 2,000,000 shares at a price per share of $0.25 and warrants to
purchase an aggregate 2,000,000 shares at an exercise price of $0.50 for a
five-year period.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 2003, we entered into a lease agreement with KZ Golf, Inc. to
lease office space for our primary administrative facility. Mr.&nbsp;McKinnon, one
of our directors is an owner of KZ Golf, Inc. See Item&nbsp;2 herein for detailed
information on this lease.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Item&nbsp;3 above regarding settlement agreement with Muller bankruptcy
trustee.
</FONT>
<P align="center"><FONT size="2">51
</FONT>

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<A name="117"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;13. Exhibits and Reports on Form&nbsp;10-KSB</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The exhibits listed below are required by Item&nbsp;601 of Regulation&nbsp;S-B.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1">Exhibit No.</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1">Description</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">3(i)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Articles of Incorporation, as amended, of the Registrant.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">3(ii)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Bylaws of the Registrant.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Commercial Sublease between the Registrant and KZ Golf, Inc., dated October&nbsp;16, 2003.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
General Tenancy Agreement between the Registrant and Autumlee Pty Ltd., dated November&nbsp;15, 2003.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.3(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Agreement between the Registrant and RAND, dated December&nbsp;13, 2002.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.3(a)*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Agreement between the Registrant and RAND, dated May&nbsp;7, 2003.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.4(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Deed and Document Conveyance between the Trustee of the Property of Jeffrey Ann Muller and Lynette Anne Muller (Bankrupts).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.5(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Assignment and Bill of Sale between Pro Hart and the Registrant dated May&nbsp;28, 2002.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">31.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certification of Chief Executive Officer of Annual Report Pursuant to Rule&nbsp;13(a)&#150;15(e) or Rule&nbsp;15(d)&#150;15(e).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">31.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certification of Chief Financial Officer of Annual Report Pursuant to 18 U.S.C. Section&nbsp;1350.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">32.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certification of Chief Executive Officer and Chief Financial Officer of Annual Report pursuant to Rule&nbsp;13(a)&#150;15(e) or Rule&nbsp;15(d)&#150;15(e).</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Confidential Treatment Requested.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Incorporated by reference from Registrant&#146;s Registration Statement on Form
10-SB (Registration Number 000-29185), as amended, filed on March&nbsp;2, 2000.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Incorporated by reference from Registrant&#146;s Form&nbsp;8-K filed on December
30, 2002.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Incorporated by reference from Registrant&#146;s Form&nbsp;8-K filed on November
12, 2002.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We filed two reports on Form&nbsp;8-K during the last quarter of the fiscal
year ending December&nbsp;31, 2002, in which we reported a letter to the
stockholders from our CEO on our settlement with Pro Hart and Jeffrey Muller&#146;s
bankruptcy trustee on November&nbsp;12, 2002, and our agreement with RAND on
December&nbsp;30, 2002.
</FONT>
<A name="118"></A>
<P align="left"><FONT size="2"><B>Item&nbsp;14. Principal Accountant Fees and Services</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weinberg &#038; Co. was first appointed in fiscal year 2003 but audited our
financial statements for fiscal years 2002 and 2001.
</FONT>
<P align="left"><FONT size="2"><B>Fees Billed by Weinberg &#038; Co. During Fiscal Years 2002 and 2001</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no fees billed to us during fiscal year 2002 by Weinberg &#038; Co.,
an independent accounting firm that our board of directors recently retained to
provide only audit services.
</FONT>
<P align="center"><FONT size="2">52
</FONT>

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<A name="119"></A>
<P align="center"><FONT size="2"><B>SIGNATURES</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Section&nbsp;13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
</FONT>



<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" colspan="3"><FONT size="2">SAVE THE WORLD AIR, INC.</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Date: March 25, 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">/s/ EDWARD L. MASRY</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Edward L. Masry, Esq., <br>Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities listed
below on March 25, 2004.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="10">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1">Name</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1">Title</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">/s/ EDWARD L. MASRY
<HR size="1" noshade>
Edward L. Masry, Esq.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chief Executive Officer and Chairman of the Board</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">/s/ EUGENE E. EICHLER
<HR size="1" noshade>
Eugene E. Eichler, CPA</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
President, Chief Financial Officer,
Treasurer and Director</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">/s/ BRUCE H. MCKINNON
<HR size="1" noshade>
Bruce H. McKinnon</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Executive Vice President &#151; Business Development, Chief Operating Officer  and
Director</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top"><FONT size="2">/s/ ROBERT F. SYLK
<HR size="1" noshade>
Robert F. Sylk</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top"><FONT size="2">/s/ JOHN BROWN
<HR size="1" noshade>
Hon. J. Joseph Brown, AO</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top"><FONT size="2">/s/ JOHN F. PRICE
<HR size="1" noshade>
John F. Price, PhD</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR><TD>&nbsp;</TD></TR>
<TR>
    <TD valign="top"><FONT size="2">/s/ JOSEPH HELLEIS
<HR size="1" noshade>
Joseph Helleis</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">53</FONT>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>v97354exv10w1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.1

COMMERCIAL SUBLEASE


This sublease is made between KZG (hereinafter "Sublessor") and Save the World
Air, Inc. (hereinafter "Sublessee").

Sublessee hereby leases from Sublessor the following premises on the following
terms and conditions.

1.      DESCRIPTION OF SUBLET PROPERTY.

Sublessor sublets the following premises:

        a. One office in the Executive Suite in the building located at 5125
        Lankershim Blvd., North Hollywood, CA 91601.

        b. Non-exclusive and shared use of the following common areas in said
        building: executive suite conference room, large sale conference room,
        kitchen, bathrooms, lobby and hallways.

        c. Use of parking area for parking automobiles.

2.      TERM AND RENT.

Sublessor demises the above premises for a term of two years, commencing
November 1, 2003 and terminating on October 31, 2005, or sooner as provided
herein at the annual rental of twenty four thousand dollars ($24,000) payable in
equal installments in advance on the first day of each month in the sum of
$2,000 per month during the term of this sublease.

3.      USE.

Sublessee shall use and occupy the premises for the purpose of general
administration of its business.

4.      Care and Maintenance and Services.

Sublessor shall provide the maintenance, cleaning and care of the premises and
shall maintain the premises in good order and repair. Sublessor shall also
provide telephone receptionist to answer Sublessee's phones during normal
business hours.

5.      Alterations.

Sublessee shall not, without first obtaining the written consent of Sublessor,
make any alterations, additions, or improvements, in, to or about the premises.

6.      Ordinances and Statutes.


<PAGE>

Sublessee shall comply with all statutes, ordinances, and requirements of all
municipal, state and federal authorities now in force, or which may hereafter be
in force, pertaining to the premises, occasioned by or affecting the use thereof
by Sublessee.

7.      Assignment and Subletting.

Lessee shall not assign this sublease or sublet any portion of the premises
without prior written consent of the Sublessor, which shall not be unreasonably
withheld. Any such assignment or subletting without consent shall be void and at
the option of the Sublessor, may terminate this Sublease.

8.      Utilities.

Sublessor shall pay all utilities except telephone and fax which expenses shall
be Sublessee's expense.

9.      Indemnification of Sublessor.

Sublessor shall not be liable for any damage or injury to Sublessee or any other
person (on the premises at the request of or for the benefit of Sublessee) or to
any property, occurring on the demised premises or any part thereof, and
Sublessee agrees to hold Sublessor harmless from any claims for damages, no
matter how caused.

10.     Insurance.

Sublessee, at its expense, shall maintain public liability insurance including
bodily injury and property damage insuring Sublessee and Sublessor with minimum
coverage as follows:

        Sublessee shall provide Sublessor with a Certificate of Insurance
showing Sublessor as an additional insured. The Certificate shall provide for a
ten-day written notice to Sublessor in the event of cancellation or material
change of coverage. To the maximum extent permitted by insurance policies which
may be owned by Sublessor or Sublessee, Sublessee and Sublessor, for the benefit
of each other, waive any and all rights of subrogation which might otherwise
exist.

11.     Eminent Domain

If the premises or any part thereof or any estate therein, or any other part of
the building materially affecting Sublessee's use of the premises, shall be
taken by eminent domain, this lease shall terminate on the date when title vest
pursuant to such taking.

12.     Destruction of Premises.

In the event of partial destruction of the premises during the term hereof, from
any cause, Sublessor shall forthwith repair the same, provided that such repairs
can be made within sixty (60) days under existing governmental laws and
regulations, but such partial


<PAGE>

destruction shall not terminate this Sublease, except that Sublessee shall be
entitled to a proportionate reduction of rent during repairs based on the extent
the repairs interfere with the business of Sublessee on the premises. If repairs
cannot be made within sixty (60) days, Sublessor at its option may terminate
this Sublease.

13.     Sublessor's Remedies on Default.

If Sublessee defaults in the payment of rent, or any additional rent, or
defaults in the performance of any of the other covenants or conditions hereof,
Sublessor may give Sublessee notice of such default and if Sublessee does not
cure any such default within three (3) business days, Sublessor at its sole
option may terminate the Sublease and Sublessee shall quit and surrender the
premises to Sublessor, without extinguishing Sublessees's liability. If this
Sublease shall have been so terminated by Sublessor, Sublessor may at any time
thereafter resume possession of the premises by any lawful means and remove
Sublessee or other occupants and their effects. No failure to enforce any term
shall be deemed a waiver.

14.     Attorneys fees.

In case suit should be brought for recovery of the premises, or for any sum due
hereunder, or because of any act which may arise out of the possession of the
premises by either party, the prevailing party shall be entitled to all costs
incurred in connection with such action, including reasonable attorneys fees.

15.     Waiver.

No failure of Sublessor to enforce any term hereof shall be deemed to be a
waiver.

16.     Notices.

Any notice which either party may or is required to give, shall be given by
e-mail and shall be considered given on the day the e-mail is sent.

17.     Heirs, Assigns, Successors.

This Sublease is binding upon and inures to the benefit of the heirs, assigns
and successors in interest to the parties.

18.     Option to Renew.

Provided that Sublessee is not in default in the performance of this lease,
Sublessee shall have the option to renew the Sublease for an additional term of
two years commencing at the expiration of the initial lease term. All of the
terms and conditions of the Sublease shall apply during the renewal term except
that the Sublease payment shall be 10% greater which would be equal to $2,200
per month. The option shall be exercised by a


<PAGE>

written notice given to Sublessor not less than sixty (60) days prior to the
expiration of the initial Sublease term. If notice is not timely given, this
option will expire.

19.     Radon Gas Disclosure.
As required by law, Sublessor makes the following disclosure: "Radon Gas" is a
naturally occurring radioactive gas that, when it has accumulated in a building
in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been
found in buildings in California. Additional information regarding radon and
radon testing may be obtained from your county public health unit.

20.     Entire Agreement.

The foregoing constitutes the entire agreement between the parties and may be
modified only by a writing signed by both parties.

Signed this 16th day of October, 2003 in North Hollywood, California:

SAVE THE WORLD AIR, INC.                KZG


/s/ EUGENE E. EICHLER                   /s/ JENNIFER KING
- ---------------------------             ----------------------------------------
By: Gene Eichler                        By: Jennifer King
Title: CFO                              Title: President

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>v97354exv10w2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.2


GENERAL TENANCY AGREEMENT    (Not to be used for Residential Tenancies)


Memorandum of Agreement made the November day 15th of 2003

BETWEEN Autumlee Pty Ltd of Unit 206 Suncity Gold Coast Hgw Surfers Paradise in
the state of Queensland (hereinafter called the Landlord)


And of

STWA Inc of 5125 Lankersham Boulevard North Hollywood California 91601 in "the
state Queensland (hereinafter called the Tenant)

             ,
..

WHEREBY in consideration of the rent hereinafter reserved and the covenants and
conditions hereinafter contained on the part of the Tenant to be observed and
performed the 'Landlord agrees to let to the Tenant and the Tenant agrees to
take from the Landlord the ...FACTORY unit

          .     .      .
and premises situated In Taree  Street        the land
being described as Factory 1 lot 94 Taree St Andrews
County of Ward Parish of Mudgeeraba Town of Burleigh Junction Qld

Area 2152 Sq. feet more or less, being the property known as ...................
and last occupied by..................................to be held by the said
STWA Inc ...............................................as Tenant at the rental
of $1292.00 AUD per calendar Month SUCH tenancy to commence on November day
of..................15th ...........,2003 the year and such tenancy is to
continue
                         .

for the term of 2 years + 2 X 2 Year Option.
The rent is to be paid by the Tenant to the Landlord or his agent in advance on
the 15th day of each and every Month of the tenancy, the first of such payments
to be made on November day 15 the year of 2003

The Tenant hereby agrees:-

1. To keep and at the end of this tenancy to deliver up the said Unit
1.....................................,. and premises to the said Landlord in a
clean condition and in good order and repair as at present, fair wear

<PAGE>




and tear and damage by fire, storm, flood, tempest or any act of God excepted.

2. Not to make, nor suffer to be made, any material alteration in the
said...Unit #1 ................,.........and premises or any part thereof
without the consent in writing of the said Landlord.

3 Not to use or permit to be used the premises or any part hereof for any
purpose other than a research on vehicle parts or carry on or permit to be
carried upon the same any noisome dangerous or offensive trade business or
process nor do nor suffer to be done anything which may annoy persons in the
neighborhood of the premises or which may render the Landlord liable to pay more
than the present amount of water rates or sewerage Of cleansing charges or.,
which may Render the Landlord liable to pay in respect of the buildings or any
part thereof more than the ordinary or present rate of premium for insurance
fire or which may make void or unavoidable any policy for such for such
insurance.

4 To keep clean any drains or water pipes on the said premises.

5. To indemnify the Landlord against all losses damages and expenses which he
may sustain; expend or-be put unto by reason of any neglect, misconduct, or
misperformance on the part of the Tenant of any of the covenants and agreements
herein before contained.

7. That the Landlord may by himself or his agent at all reasonable times enter
into and upon the said described premises and view the state of repair thereof.

8. AND the Tenant will upon the date of expiration or-determination of the
tenancy hereby created deliver up to the Landlord peaceably and quietly the
possession of the demised premises and every part thereof together with all
erections, buildings, improvements, and fixtures, which he is not entitled in
terms of his tenancy to remove.

9. The Tenant will keep the furniture and effects (if any) which are now hereby
leased with the premises and a list of which is contained in the schedule hereto
attached marked "A" in .god, condition and at the end of the tenancy leave the
said furniture and effects clean and in as good state condition and repair as
they are now in and will make compensation 'for any damage done or for any
article missing (reasonable wear and tear and damage by accidental fire'
excepted).

10. If at any time during the said term the buildings on the said land or any
part thereof shall be damaged by fire then and in every such case all moneys
received. by the Landlord in respect of such damage shall be forthwith laid out
and expended in reinstating the same so far as the said moneys will extend and
as from the date of such damage until the said Insurance moneys shall have been
'laid out in making good such damage the 'said rental shall abate by a fair and
just proportion PROVIDED ALWAYS that if at anytime during 'the said term the
buildings on the said land shall be completely destroyed by f)re or so damaged
by fire as to be uninhabitable then and in any such case these presents shall
ipso facto determine and should any dispute or difference arising touching or
concerning any matter or thing in this clause of these presents referred to then
the same shall be determined by a single arbitrator to be agreed upon by the
parties hereto and failing such agreement then the dispute or difference shall
be referred to the arbitration of two arbitrators (and in case of their
disagreeing by their umpire) one of such arbitrators to be appointed by the
Tennant and every such reference shall be deemed to be an arbitration within the
meaning of the "Arbitration Act of 1973" and be subject to the provisions as to
Arbitration contained in the said Act.

11. In case the rent payable hereunder or any part thereof shall be unpaid on
any day on which the same ought to be paid and shall remain unpaid for seven
days thereafter whether lawfully demanded or not in case the Tenant becomes
bankrupt or insolvent or in case of the breach non-observance or non-performance
by


<PAGE>

the Tenant of any agreement or stipulation herein on the Tenant's part contained
or implied then and in every such case it shall be lawful for the Landlord
forthwith or at any time thereafter without notice or Suit to 'enter upon any
part of the said lands in the flame of the whole and determine the estate of the
Tenant under these presents but without releasing the Tenant from liability in
respect of any breach of any of the same agreements and stipulations and it is
hereby declared that the power of re-entry implied in leases by "Property Law
Act 1974-1978" shall be implied herein but shall be modified accordingly.

- --------------------------------------------------------------------------------

AS WITNESS the hand of the said parties the day and the year first above.

Signed by the said


/s/ MICHAEL WHIRLDON  Director
.....................................
In the presence of                           Autumlee Pty Ltd.
                                             ...................................
[ILLEGIBLE]                                  Landlord
.....................................



Signed by the said  /s/ JOHN KOSTIC
                   .................

.....................................
In the presence of                           JOHN KOSTIC   STWA INC.
                                             ...................................
[ILLEGIBLE]                                  Tenant
.....................................


<PAGE>

I _


                                  ANNEXURE' A'

        1.      Term of tenancy to be 2 year plus 2 x 2 year's option. The first
                year rent is $1292.00 including all outgoings per month.

        2.      Rental increase for the 1st year of the 2x2 YEAR option period
                is to be 5% or C.P.I. (whichever is the greater) being added to
                be rental of the preceding month.

        3.      Lessee agrees to conduct the business wholly within the confines
                of the demised premises and not to obstruct the vehicle access
                to other occupants of the adjacent building.

        4.      Lessee has the right to change or attach signage to the outside
                walls of the demised premises but only after obtaining the
                consent from the' Lessor as to the size and placement of the
                signage. This is to have Council approval if necessary, cost
                paid by the Lessee.

        5.      Tenancy to commence November 15th 2003.

        6.      Lessee to give 2 months notice in writing prior to the
                expiration of the initial 2 year period. Such notice being of
                the intention to take up the option offered.

        7.      C.P.l.(Consumer Price Index) as mentioned in the preceding
                clauses will be as for the City of Brisbane.

        8.      The Lessee acknowledges that it has not relied upon any
                representation by the Lessor or any other person or Corporation
                in and about entering into this agreement other than is set out
                herein.


LESSOR /s/ MICHAEL WHIRLDON           LESSEE /s/ JOHN KOSTIC
      ................................      .....................


WITNESS [ILLEGIBLE]                 WITNESS
       .............................       ......................


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3(A)
<SEQUENCE>5
<FILENAME>v97354exv10w3xay.txt
<DESCRIPTION>EXHIBIT 10.3(A)
<TEXT>
<PAGE>

                                                                 EXHIBIT 10.3(a)


                       [CONFIDENTIAL TREATMENT REQUESTED.
           CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
              AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]


                                    AGREEMENT

This Agreement, effective on the date last signed below, by and between Save the
World Air, Inc. and the RAND Corporation ["RAND"], witnesseth that, in
consideration of the services mutually to be rendered herein, SAVE THE WORLD
AIR, INC. and RAND so mutually agree as follows:

1. WORK SCOPE:

RAND will use its best efforts in performance of the attached scope of work
(Exhibit A).

2. TERM:

The term of this Agreement will run from May 7, 2003 to May 7, 2004.

3. INDEPENDENT CONTRACTOR:

RAND is entering into, and shall perform the work called for under this
agreement, as an independent contractor and not as an employee of Save the World
Air, Inc.. This agreement does not create or constitute a joint venture, agency,
partnership or other similar relationship between the parties.

4. PROGRAM DELIVERABLES:

RAND will provide Save the World Air, Inc. with deliverables as outlined in
Exhibit A. RAND will be solely responsible for its findings and conclusions in
all materials provided by RAND in the course of this project.

5. PUBLICATIONS:

It is an intention of this Agreement that publication of the results of the
policy and analytical research supported herein may be made available to the
public. These publications, including derivative works from the final
deliverables, will be copyrighted in RAND's name. RAND will acknowledge Save the
World Air, Inc. sponsorship in all publications resulting from this Agreement
and will provide Save the World Air, Inc. with a copy of each proposed
publication. Save the World Air, Inc. will review all documents within three (3)
weeks of receipt. RAND will be free to proceed with publication after the three
(3) week period whether or not any comments have been received from Save the
World Air, Inc. However, if comments are received, they will be considered by
RAND prior to publication.

6. USE OF NAMES:

RAND and Save the World Air, Inc. will obtain prior written permission from each
other before using the name, symbols, and/or marks of the other in any form of
publicity in connection with this agreement or the services provided hereunder.
This shall not include legally required disclosure by RAND or Save the World
Air, Inc. that identifies the existence of this agreement.

Save the World Air, Inc. will not use, nor authorize others to use, the name,
symbols, and/or marks of RAND in any advertising or publicity material or make
any form of representation or statement in relation to this Agreement or any
work product produced in

<PAGE>

accordance with this Agreement which would constitute an express or implied
endorsement by RAND of any commercial product or service without prior written
approval from RAND.

7. TERMINATION:

Either party may terminate this agreement by providing the other with sixty (60)
days written notice. In the event that either party hereto shall commit any
breach or default of any of the terms or conditions of this Agreement, and also
fail to remedy such default or breach within sixty (60) days after receipt of
written notice thereof, the party giving notice may, at its option and in
addition to any other remedies which it may have at law or in equity, terminate
this agreement by sending notice of termination in writing to the other party to
such effect, and such termination shall be effective as of the date of the
receipt of such notice. RAND will be reimbursed for all costs and non-cancelable
commitments incurred in connection with RAND's services performed in accordance
with this Agreement to and including the effective date of termination,
including but not limited to costs incurred in transition between Tasks
described in Attachment A and costs incurred in winding down any Tasks described
in Attachment A regardless of whether such Task had been completed.

8. PROPIETARY INFORMATION:

During the course of conducting the work in accordance with this agreement, Save
the World Air, Inc. may provide RAND with proprietary information regarding Save
the World Air, Inc.'s research and development and product design. This
information may take various forms including written, designs and drawings, and
oral. This information will be clearly designated as "proprietary." RAND agrees
not to disclose any such confidential information for as long as it remains
unpublished unless such information: (a) was in the public domain at the time it
was disclosed to RAND; (b) entered the public domain subsequent to the time it
was disclosed to RAND through no fault of RAND; (c) was in RAND's possession
free of any obligation of confidence at the time it was disclosed to RAND; (d)
was rightfully communicated to RAND free of any obligation of confidence
subsequent to the time it was disclosed to RAND; or (e) was disclosed by Save
the World Air, Inc. to a third party without any confidentiality restrictions.

In addition, RAND may disclose certain proprietary information, without
violating the obligations of this Agreement, to the extent the disclosure is
required by an order of a court or other governmental body having jurisdiction,
provided that RAND provides Save the World Air, Inc. with reasonable prior
written notice of such disclosure in order to permit Save the World Air, Inc. to
seek confidential treatment of or a protective restricting disclosure or use of
such information, and cooperates with Save the World Air, Inc. in such efforts.

9. SUBCONTRACTS

To perform the work called for under this Agreement, RAND reserves the right, in
its sole discretion, to subcontract such work to third parties selected by RAND
based on quality and price. Funding for subcontracted work is not included in
the price of this contract as stated in section 11. RAND will provide summary
information to Save the World Air, Inc regarding any potential subcontractor.
The contract will then be amended

<PAGE>

to add the necessary funding and payment terms. RAND will not enter into any
subcontract relationship prior to receiving payment(s) from Save the World Air,
Inc. sufficient to cover the subcontract obligation.

10. LIMITATION OF LIABILITY; INDEMNIFICATION.

In no event will RAND or any of its employees or agents be liable under or in
connection with this Agreement or in connection with any services provided or
work product produced under this Agreement for any damages, including, but not
limited to, indirect, incidental, special or consequential damages, including
loss of profits, revenue, data or use, incurred by Save the World Air, Inc., or
any third party, whether in any action in contract or tort or based on a
warranty, including damages or losses arising out of, connected with or
resulting from the provision of the services under this Agreement, except to the
extent such damages are due to the gross negligence, bad faith or willful
misconduct of RAND.

Should RAND become the subject of any third-party claim or incur any liability
or expense in connection with the performance of the services, Save the World
Air, Inc., shall be obligated to defend against such claim with counsel
reasonably acceptable to RAND and shall indemnify and hold harmless RAND from
any such claim, liability or expense, except to the extent such claim, liability
or expense is due to the gross negligence, bad faith or willful misconduct of
RAND. At its election, RAND may retain its own counsel to participate in the
defense, and the fees and expenses of such counsel shall be paid by Save the
World Air, Inc., if representation of RAND by the counsel retained by Save the
World Air, Inc. would be inappropriate due to actual or potential differing
interests between RAND and any other party represented by such counsel in such
proceeding. Any settlement negotiated by Save the World Air, Inc. and its
counsel shall be subject to the prior written approval of RAND.

11. PAYMENT SCHEDULE:

Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If the
timeline specified below changes due to, among other things, availability of
information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline. The parties anticipate that the Funding as
stated will cover all of RAND's expenses and fees incurred in the performance of
the work; provided, however, that if RAND notifies Save the World Air, Inc. that
its expenses and fees may be in excess of the stated Funding, RAND shall not be
obligated to incur any expenses or fees in excess of the Funding, and the
parties shall endeavor in good faith to renegotiate the amount of available
Funding. Any modifications to costs and fees outlined below shall require a
written instrument, signed by both parties to this Agreement. All references to
"Tasks" or "Task" below refer to, and are qualified in their entirety by, the
descriptions on Attachment A hereto. Total cost for RAND's work on the contract,
exclusive of subcontract costs, is $225,000 to be allocated as follows:

<PAGE>

1. $25,000 upon signing of agreement by both parties

2. Beginning May 1, 2003, $25,000 per month for eight (8) months upon
presentation of monthly invoices.

12. ENTIRE AGREEMENT

This Agreement constitutes the complete, final and exclusive embodiment of the
agreement between Save the World Air, Inc. and RAND with regard to the subject
matter hereof. It is entered into without reliance on any promise, warranty or
representation, written or oral, other than those expressly contained herein,
and it supersedes any other such promises, warranties or representations. This
Agreement may not be modified or amended except in a written agreement signed by
authorized personnel of both Save the World Air, Inc. and RAND. This Agreement
will bind and inure to the benefit of the successors and assigns of the parties
hereto. The failure to enforce any right or remedy resulting from any breach of
this Agreement will not be deemed to be a waiver of any other or subsequent
breach. For purposes of construing this Agreement, no ambiguities will be
construed against either party as the drafter. If any provision of this
Agreement is determined to be invalid or unenforceable, in whole or in part,
such determination will not affect any other provision of this Agreement and the
provision in question will be modified so as to be rendered enforceable in a
manner consistent with the intent of the parties insofar as possible. This
Agreement will be construed and enforced in accordance with the laws of the
State of California as applied to contracts between California residents made
and to be performed entirely within California. This Agreement may be executed
in counterparts or with facsimile signatures, which will be deemed equivalent to
originals.

IN WITNESS WHEREOF, Save the World Air, Inc. and RAND have executed this
contract as of the date signed below.

Agreed and Accepted:

SAVE THE WORLD AIR, INC.                       RAND

By: /s/ Edward L. Masry                    By: /s/ Joanne B. Shelby
    -----------------------                    ------------------------

Title: Chief Executive Officer             Title: Director of Contract and Grant
                                                      Services RAND
Date: May 5,2003                           Date:  5/07/03

<PAGE>

 PROPOSAL TO DESIGN AND OVERSEE TESTING PROGRAM FOR "DEVICE FOR SAVING FUEL AND
      REDUCING EMISSIONS" DESCRIBED UNDER PATENT APPLICATION PCT/AU1/00585

RAND proposes to design and oversee a device testing program as follows:

        Task 1: Design device testing program
        Task 2: Pre-combustion fuel testing (testing phase I)
        Task 3: Small, spark-ignition gasoline engine testing (testing phase II)
        Task 4: Additional engine testing (testing phase III)
        Task 5: Summary of results and recommendations for next steps

TASK 1: DESIGN DEVICE TESTING PROGRAM

RAND will consider findings of its technical review of magnetic fuel treatment,
and review available protocols for laboratory tests of aftermarket vehicle
retrofit devices. These will guide the initial design of a testing program that
aims to achieve consistent, statistically significant results describing a
possible effect that can be attributable to the device. Device testing will
occur in three phases, with the first two being conducted simultaneously. In
each phase, an appropriate experimental design will be applied. Design
considerations will include selection of an appropriate experimental device,
determination of sufficient sample size, appropriate testing order, and
variables to be controlled and measured. For each of the testing phases RAND
will identify 2 or 3 potential sources for the testing and will request short
proposals from them. RAND will then choose a source for the testing based on
competency and cost. It is possible that one source will be able to accomplish
all three testing phases, but it is more likely that different organizations
will be responsible for different types of testing.

Deliverables (1) Draft Request for Proposals (RFP) that can be distributed to
independent research laboratories that are appropriately equipped and staffed to
conduct Phase 1 pre-combustion fuel tests, briefly described below. (2) Project
Memorandum that summarizes experimental design, and outlines an implementation
approach that includes names of independent laboratories appropriately equipped
to conduct Phase 2 and 3 exhaust emissions tests.

TASK 2: PRE-COMBUSTION FUEL TESTING (TESTING PHASE I)

RAND will oversee work and interpret results of an independent laboratory (under
separate contract) that will explore one possible mechanism for magnetic fuel
treatment-improved pre-combustion atomization of fuel. Note that this is only
one possible mechanism, but appears to be the most widely believed by proponents
of magnetic fuel treatment, and may be tested in a laboratory. The experimental
approach will be detailed in an RFP prepared under Task 1, and summarized
briefly as follows:

First, in a simple modeling exercise, we will attempt to understand how changes
in fuel viscosity and/or surface tension affect nozzle efficiency and droplet
size. Next, we will measure the effect of a magnetic field on viscosity and
surface tension for a range of fuels (including diesel). If the observed changes
in fluid properties are on the same order-of-magnitude as the changes required
to impact the atomization process, these two studies provide evidence of a
physical basis for the effects of magnetic fuel treatment on combustion
processes.

Deliverable. Project Memorandum describing modeling and fuel testing methodology
and results.

TASK 3: SMALL, SPARK IGNITION GASOLINE ENGINE TESTING (TESTING PHASE II)



<PAGE>

RAND will oversee work and interpret results of an independent laboratory (under
separate contract) identified by the California Air Resources Board. The
laboratory will test the device on a small, spark-ignition gasoline engine
(e.g., two-stroke motorcycle or lawnmower engine.) The experimental approach
will be detailed in a Project Memorandum prepared under Task 1, but essentially
entails measurement of a range of exhaust emissions, with and without the device
installed, while carefully controlling operating conditions and testing order. A
sufficient number of experimental runs (n) will be conducted. Use of a simple,
small engine-we believe-lends itself to more cost-effective testing that is
aimed at achieving consistent, statistically significant results. Results are
relevant to this class of engines, and may also warrant further testing of a
wider range of engines and fuel types in Phase 3.

Deliverable. Project Memorandum describing device testing methodology and
results. TASK 4: ADDITIONAL ENGINE TESTING (TESTING PHASE III)

At the discretion of RAND, and in light of results of Phase 1 and 2 testing,
RAND may continue the testing program in this phase.

RAND will expand device testing to include installation on larger, carbureted
and fuel-injected, spark-ignition gasoline and compressed-ignition diesel
engines. Development and implementation of this phase of the testing program
will take place in coordination with the Environmental Protection Agency (EPA),
as part of EPA's Motor Vehicle Aftermarket Retrofit Device Program.

As in Phase 2, RAND will work with an independent testing laboratory (under
separate contract) identified by the California Air Resources Board to conduct
testing of the device. A range of relevant exhaust emissions will be measured,
with and without the device installed, while operating conditions and testing
order are controlled. Testing may include both laboratory and road tests. A
sufficient number of experimental runs (n) will be conducted.

Deliverable. (1) RAND published research paper describing device testing
methodology and results of all phases of the testing program. (2) Draft
application for official review of the device and testing results by the EPA,
under the EPA Motor Vehicle Aftermarket Retrofit Device Program, with results to
be reported in the Federal Register. Note that part of the application also
requires explanation of the theoretical basis of the device.

TASK 5: SUMMARY OF RESULTS AND RECOMMENDATIONS FOR NEXT STEPS

RAND will review all the results, summarize them in a report for STW, Inc; and
evaluate what the results mean for the potential for this product. If the tests
have come out successful, RAND will address different market opportunities based
on the results and suggest future directions for the deployment of the product.
If the tests have come out unsuccessful, RAND will outline the apparent reasons
for why the product did not operate as expected n the patent application.

SCHEDULE

         Task 1: One month
         Task 2: approximately 6 months (depending on availability of labs),
         conducted in parallel with testing Phase 2
         Task 3: 6 months (depending on availability of labs)
         Task 4: 6 months (depending on availability of labs), conducted after
         Phases 1 and 2 are completed.
         Task 5: 1 month after final lab results
<PAGE>

              AGREEMENT NO. STWA-TEST-CONTRACT, MODIFICATION NO. 1

                                     BETWEEN

                                 RAND CORPORATION

                                       AND

                            SAVE THE WORLD AIR, INC.

                                       FOR

                  DEVICE FOR SAVING FUEL AND REDUCING EMISSIONS

This Contract Modification is entered into as of the ____th day of August 2003.

The following Articles are revised as shown below:

9. SUBCONTRACTS

To perform the work called for under this Agreement, RAND reserves the right, in
its sole discretion, to subcontract such work to third parties selected by RAND
based on quality and price. Funding for subcontracted work is not included in
the price of this contract as stated in section 11. RAND will provide summary
information to Save the World Air, Inc regarding any potential subcontractor.
The contract will then be amended to add the necessary funding and payment
terms. RAND will not enter into any subcontract relationship prior to receiving
payment(s) from Save the World Air, Inc. sufficient to cover the subcontract
obligation.

Awarded Subcontracts:

 Task 4: Additional Engine Testing (Testing Phase III) - $75,000 to [***]

11. PAYMENT SCHEDULE:

Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If the
timeline specified below changes due to, among other things, availability of
information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline. The parties anticipate that the Funding as
stated will cover all of RAND's expenses and fees incurred in the performance of
the work; provided, however, that if RAND notifies Save the World Air, Inc. that
its expenses and fees may be in excess of the stated Funding, RAND shall not be
obligated to incur any expenses or fees in excess of the Funding, and the
parties shall endeavor in good faith to renegotiate the amount of available
Funding. Any



***Confidential Treatment Requested

<PAGE>

modifications to costs and fees outlined .below shall require a written
instrument, signed by both parties to this Agreement. All references to "Tasks"
or "Task" below refer to, and are qualified in their entirety by, the
descriptions on Attachment A hereto. Total cost for RAND's work on the contract,
inclusive of subcontract costs, is $300,000 to be allocated as follows:

1. $25,000 upon signing of agreement by both parties

2. Beginning May 1, 2003, $25,000 per month for eight (8) months upon
presentation of monthly invoices.

3. 30 days past execution of Modification 1, pay $75,000.

ACCEPTED FOR:

RAND Corporation                            Save the World Air, Inc.

Name Signed: /s/ Joanne B. Shelby           Name Signed: /s/ Eugene E. Eichler
             --------------------                        ----------------------
Name Typed:  Joanne B. Shelby               Name Typed:  Eugene E. Eichler

Title:       Director, Contracts & Grants   Title:       Chief Operating Officer

Date         8/21/03                        Date:        9/18/03

<PAGE>

              AGREEMENT No. STWA-TEST-CONTRACT, MODIFICATION NO. 2

                                     BETWEEN

                                RAND CORPORATION

                                       AND

                            SAVE THE WORLD AIR, INC.

                                       FOR

                  DEVICE FOR SAVING FUEL AND REDUCING EMISSIONS

This Contract Modification is entered into as of the 17th day of October 2003.

The following Articles are revised as shown below:

9. SUBCONTRACTS

To perform the work called for under this Agreement, RAND reserves the right, in
its sole discretion, to subcontract such work to third parties selected by RAND
based on quality and price. Funding for subcontracted work is not included in
the price of this contract as stated in section 11. RAND will provide summary
information to Save the World Air, Inc regarding any potential subcontractor.
The contract will then be amended to add the necessary funding and payment
terms. RAND will not enter into any subcontract relationship prior to receiving
payment(s) from Save the World Air, Inc. sufficient to cover the subcontract
obligation.

Awarded Subcontracts:

 Task 4: Additional Engine Testing (Testing Phase III) - $75,000 to [***]

 Task 2: Pre-Combustion Fuel Testing (Testing Phase I) - $65,000 to [***]

11. PAYMENT SCHEDULE:

Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If the
timeline specified below changes due to, among other things, availability of
information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline. The parties anticipate that the Funding as
stated will cover all of RAND's expenses and fees incurred in the performance of
the work; provided, however, that if RAND notifies Save the World Air, Inc. that
its expenses and fees may be in excess of the stated Funding, RAND shall not be
obligated to incur any expenses or fees in excess of the Funding, and the



***Confidential Treatment Requested

<PAGE>

parties shall endeavor in good faith to renegotiate the amount of available
Funding. Any modifications to costs and fees outlined below shall require a
written instrument, signed by both parties to this Agreement. All references to
"Tasks" or "Task" below refer to, and are qualified in their entirety by, the
descriptions on Attachment A hereto. Total cost for RAND's work on the contract,
inclusive of subcontract costs, is $365,000 to be allocated as follows:

1. $25,000 upon signing of agreement by both parties

2. Beginning May 1, 2003, $25,000 per month for eight (8) months upon
presentation of monthly invoices.

3. 30 days past execution of Modification 1, pay $75,000. (received payment Oct.
7, 2003)

4. 30 days past execution of Modification 2, pay $65,000. (received payment Oct.
7, 2003)

ACCEPTED FOR:

RAND Corporation                            Save the World Air, Inc.

Name Signed: /s/ Joanne B. Shelby           Name Signed: /s/ Eugene E. Eichler
             --------------------                        ----------------------
Name Typed:  Joanne B. Shelby               Name Typed:  Eugene E. Eichler

Title:       Director, Contracts & Grants   Title:       Chief Operating Officer

Date         10/13/03                       Date:        10-17-2003

<PAGE>

              AGREEMENT NO. STWA-TEST-CONTRACT, MODIFICATION NO. 3

                                     BETWEEN

                                RAND CORPORATION

                                       AND

                            SAVE THE WORLD AIR, INC.

                                       FOR

                  DEVICE FOR SAVING FUEL AND REDUCING EMISSIONS

This Contract Modification is entered into as of the ____th day of January 2004.

The following Articles are revised as shown below:

1.WORK SCOPE

RAND will use its best efforts in performance of the attached scope of work
(Revision 1 Exhibit A).

2.TERM

The term of this Agreement will run from May 07,2003 to July 7, 2004.

11. PAYMENT SCHEDULE:

Payment by Save the World Air, Inc. to RAND for the work supported by this
Agreement will be paid in accordance with the following payment schedule. If the
timeline specified below changes due to, among other things, availability of
information, availability of testing facilities and length of time for
completion, RAND and Save the World Air, Inc. shall discuss such changes and
mutually agree on a revised timeline. The parties anticipate that the Funding as
stated will cover all of RAND's expenses and fees incurred in the performance of
the work; provided, however, that if RAND notifies Save the World Air, Inc. that
its expenses and fees may be in excess of the stated Funding, RAND shall not be
obligated to incur any expenses or fees in excess of the Funding, and the
parties shall endeavor in good faith to renegotiate the amount of available
Funding. Any modifications to costs and fees outlined below shall require a
written instrument, signed by both parties to this Agreement. All references to
"Tasks" or "Task" below refer to, and are qualified in their entirety by, the
descriptions on Attachment A hereto. Total cost for RAND's work on the contract,
inclusive of subcontract costs, is $665,000 to be allocated as follows:

1. $25,000 upon signing of agreement by both parties

<PAGE>

Exhibit A Addendum to STWA Contract SOW

Task 6 Run a series of tests on 2 different vehicles at [***]
   RAND proposes as a next step that STWA supply another carbureted vehicle and
   RAND will oversee testing with new protocols at [***]. In addition, STWA
   might consider also supplying a fuel-injected to be tested as well. In
   addition, RAND will systematically evaluate the individual smog tests that
   were done, to map them graphically and see if there are any patterns that can
   help.
        Additional RAND Costs: $50,000 to be paid $25,000 on Feb 1 and $25,000
                  on March 1.

        Additional Lab Costs: Some of the costs will be covered under existing
                  funds, and RAND will supply an accounting of the costs and
                  inform STWA of additional funds that may be needed for [***]

Task 7 Oversee testing of a small engine at [***]

   RAND will execute a contract with [***] to test the new small engine
   device. RAND will oversee and evaluate the testing in the same manner that
   RAND is working with [***].
        Additional RAND Costs: $25,000 to be paid March 1
        Lab Costs: To be determined. RAND will send a letter to STWA with the
                  testing amount which STWA will pay before RAND executes a
                  contract.

Task 8 Oversee R&D efforts by Australian team.
   RAND will work with and help guide the efforts of the Australian team by
   helping to design tests and interpret results. RAND would be responsible for
   helping focus the R&D efforts, set reporting guidelines, and oversee the
   efforts of the group in Australia. The R&D team needs to focus on getting the
   existing device into marketable form, and hone their testing abilities. RAND
   will evaluate the materials provided to us, and work with them on a testing
   regime that we can compare to others, and develop consistent framework and
   guidelines for further development.

        Additional RAND costs including travel up to $200,000.
                  STWA will pay $25,000 on February 1. On the 25th each month
                  RAND will estimate the time and material cost needs of the
                  following month and STWA will be billed for that amount. Any
                  funds left over from the month will be rolled into the next
                  months requirements. If RAND exceeded the months costs,
                  additional costs will be billed the following month.



***Confidential Treatment Requested

<PAGE>

AGREEMENT No. STWA-TEST-CONTRACT, Modification No. 3 (cont.)

2. Beginning May 1, 2003, $25,000 per month for eight (8) months upon
presentation of monthly invoices.

3.30 days past execution of Modification 1, pay $75,000. (received payment Oct.
7, 2003)

4.30 days past execution of Modification 2, pay $65,000. (received payment Oct.
7, 2003)

5.30 days past execution of Modification 3, pay $50,000 ($25,000 each for Tasks
6 and 7)

6. On March 1, 2004 pay $50,000 ($25,000 each for Tasks 6 and 7)

7.30 days past execution of Modification 3, pay $25,000 for Task 8. On the 25th
each month RAND will estimate the time and material cost needs of the following
month and STWA will be billed for that amount. Any funds left over from the
month will be rolled into the next month's requirements. If RAND exceeded the
months costs, additional costs will be billed the following month. Total cap for
Task 8: $200,000.

ACCEPTED FOR:

RAND Corporation                            Save the World Air, Inc.

Name Signed: /s/ Joanne B. Shelby           Name Signed: /s/ Eugene E. Eichler
             --------------------                        ----------------------
Name Typed:  Joanne B. Shelby               Name Typed:  Eugene E. Eichler

Title:       Director, Contracts & Grants   Title:       Chief Operating Officer

Date         1/20/04                        Date:        2/6/04

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>6
<FILENAME>v97354exv31w1.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<PAGE>

                                                                    Exhibit 31.1
I, Edward L. Masry, certify that:

1. I have reviewed this 10-KSB of Save the World Air, Inc. (the "Company");

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented ire this report;

4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business
issuer and have:

        a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;

        b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

        c. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

        d. Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and

5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
small business issuer's auditors and the audit committee of the small business
issuer's board of directors (or persons performing the equivalent functions):

        a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and

        b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.

Date:

March 25, 2004
- -------------------------------

/s/ EDWARD L. MASRY
- -------------------------------
[Signature]

Edward L. Masry, Esq.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>7
<FILENAME>v97354exv31w2.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<PAGE>

                                                                    Exhibit 31.2
I, Eugene Eichler, Chief Financial Officer, certify that:

1. I have reviewed this 10-KSB of Save the World Air, Inc. (the "Company");

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented ire this report;

4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business
issuer and have:

        a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;

        b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

        c. Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

        d. Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's fourth
fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and

5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
small business issuer's auditors and the audit committee of the small business
issuer's board of directors (or persons performing the equivalent functions):

        a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and

        b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's internal
control over financial reporting.

Date:

March 25, 2004
- -------------------------------

/s/ EUGENE E. EICHLER
- -------------------------------
[Signature]

Eugene Eichler, CPA


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>8
<FILENAME>v97354exv32w1.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<PAGE>

                                                                    Exhibit 32.1

      CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
                                   PURSUANT TO

                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        I, Edward L. Masry, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Save the World Air, Inc. on Form 10-KSB for the fiscal year
ended December 31, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Annual Report on Form 10-KSB fairly presents in all material respects the
financial condition and results of operations of Save the World Air, Inc.

Dated: March 25, 2004                  By: /s/ EDWARD L. MASRY
      ---------------------                -----------------------------
                                           Edward L. Masry, Esq.
                                           Chairman of the Board and
                                           Chief Executive Officer

A signed original of this written statement required by Section 906 has been
provided to Save the World Air, Inc. and will be retained by Save the World Air,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

        I, Eugene Eichler, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Save the World Air, Inc. on Form 10-KSB for the fiscal year
ended December 31, 2002 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Annual Report on Form 10-KSB fairly presents in all material respects the
financial condition and results of operations of Save the World Air, Inc.

Dated: March 25, 2004                   By: /s/ EUGENE E. EICHLER
      ---------------------                -----------------------------
                                           Eugene Eichler, CPA
                                           Chief Financial Officer and
                                           Chief Operating Officer

A signed original of this written statement required by Section 906 has been
provided to Save the World Air, Inc. and will be retained by Save the World Air,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
