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<SEC-DOCUMENT>0000950129-04-002126.txt : 20040415
<SEC-HEADER>0000950129-04-002126.hdr.sgml : 20040415
<ACCEPTANCE-DATETIME>20040415171901
ACCESSION NUMBER:		0000950129-04-002126
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		8
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040415

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:		04736575

	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>v97738e10ksb.htm
<DESCRIPTION>FORM 10KSB - FISCAL YEAR ENDED DECEMBER 31, 2003
<TEXT>
<HTML>
<HEAD>
<TITLE>SAVE THE WORLD AIR, INC.</TITLE>
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<!-- PAGEBREAK -->
<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>

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    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
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<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, 2003.</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>

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<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;X&#093; No &#091;&nbsp;&nbsp;&nbsp;&nbsp;&#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
$57.3&nbsp;million
as of March&nbsp;31, 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
March&nbsp;31, 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;Portions of the
Registrant&#146;s Proxy Statement for its 2004 Annual Meeting of
Stockholders (the &#147;Proxy Statement&#148;), to be filed with the
Securities and Exchange Commission, are incorporated by reference
into Part III of this Form&nbsp;10-KSB.
</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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<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>

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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>
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    <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>
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<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">&nbsp;&nbsp;9</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">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="#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">11</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">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="#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">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="#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">14</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">44</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">44</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">46</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">46</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">46</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">46</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">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="#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">47</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">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv10w6.txt">EXHIBIT 10.6</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv10w7.txt">EXHIBIT 10.7</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv10w8.txt">EXHIBIT 10.8</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv10w9.txt">EXHIBIT 10.9</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv31w1.txt">EXHIBIT 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv31w2.txt">EXHIBIT 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v97738exv32w1.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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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<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 on Form 10-KSB (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><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 principal 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">2
</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 intend to 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. We envision entering into 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">3
</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 our 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. See
&#147;Item&nbsp;3. Legal Proceedings&#148; and Note&nbsp;1 to Notes
to Financial Statements&#148; below.</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.
Mr.&nbsp;Hart currently serves as a member of our Advisory Board. See
&#147;Advisory Board&#148; below.</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 approximately 64&nbsp;countries worldwide.
</FONT>

<P align="center"><FONT size="2">4
</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>
<HR noshade size="1" width="10%" align="left">
<div><FONT size="1">&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></div>

<P><FONT size="1">&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">5
</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, 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, is a famous Australian artist and inventor of the &#147;ZEFS&#148;
device.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jack Reader, Ph.D., 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>Executive Officers</B></FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding our executive officers as of December&nbsp;31, 2003:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="29%">&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="58%">&nbsp;</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>Age</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</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 nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Edward L. Masry, Esq.</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">Chairman of the
Board, Chief Executive Officer and President</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eugene E. Eichler, CPA</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 and Treasurer</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Bruce H. McKinnon</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">Executive Vice
President of Business Development</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Nathan Shelton</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>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Robert F. Sylk</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">Vice President</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Janice Holder</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>
</TR>
</TABLE>
</CENTER>

<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 a director since May 2002 and our
Executive Vice-President of 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><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 a director since October 2001 and our Vice
President of 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>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 align="left"><FONT size="2"><B>Risk Factors</B></FONT>

<P align="left"><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 not yet
generated any revenue from operations and, accordingly, we have incurred net losses every year since our inception in 1998.
Although we expect to generate revenue eventually 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 $450,000 per quarter and our current resources will be
sufficient to fund operations through June&nbsp;30, 2004. We will
require additional capital in order to operate beyond this date.
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">6
</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">7
</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>Any 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 and not subject to
significant reduction. In addition, 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 10,000,000 shares issued to our former director
and CEO, Jeffrey Muller, and others are subject to ongoing litigation. In
addition, there are more than 8,700,000 shares outstanding which we believe
are owned or controlled by Jeffrey Muller and which are also the subject of
litigation. We are optimistic that the court to order the cancellation of all these shares.
If we are unsuccessful in our litigation to void the 10,000,000 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 align="center"><FONT size="2">8
</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. We do not maintain key man insurance for
any of these individuals.
</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, Mr.&nbsp;Hart assigned all
his patent rights to us in exchange for certain stock options and other
consideration. This settlement with Mr.&nbsp;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 his wife, Lynn Muller, may have in the pending patent rights of the ZEFS
device. This litigation remains ongoing. However, we have reached a settlement
with the bankruptcy trustee for the estate of Mr.&nbsp;Muller and his wife,
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;<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., pursuant to a lease we entered into on
October&nbsp;16, 2003. The rent is $2,000 per month and is renewable,
at our option, for an additional two-year term at $2,200 per month.  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.</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development facility located in Queensland,
Australia is leased. We entered into the lease for this facility on
November&nbsp;15, 2003 and the lease is for a term of two years. The
rent is AUD$1,292 (approximately US$1,000) per month and is
renewable, at our option, for an additional two-year term at an
increase of the greater of 5% or the increase in the then-current
Australian consumer price index.
</FONT>

<P align="center"><FONT size="2">9
</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 then sole director Jeffrey Muller,
and others, alleging that we and the other defendants were engaged in
a fraudulent scheme to promote our stock. The SEC complaint alleged the existence of a
promotional campaign using press releases, Internet postings, an elaborate
website, and televised media events to disseminate false and materially
misleading information as part of a fraudulent scheme to manipulate the market
for stock in our corporation, which was then controlled by Mr.&nbsp;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
Mr.&nbsp;Muller and
others.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;2, 2002,
after an investigation by our newly constituted board of
directors, we 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 our stock and
other transactions occurring between 1998 and 2002. We are also seeking
cancellation of such shares and Mr.&nbsp;Muller&#146;s stock option agreement and royalty
arrangement. Among other things, we allege 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 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 Mr.&nbsp;Muller
and others, which prevents Mr.&nbsp;Muller and other cross-defendants from selling,
transferring, or encumbering any of our assets and property, from selling or
transferring any of our stock that they may own or control, or from taking any
action to injure us or our business and shareholders. The order also prevents
Mr.&nbsp;Muller from exercising any control over our corporation and
serving as an
officer or director of our company. While we believe that we have valid claims,
there can be no assurance that an adverse result or settlement would not have a
material adverse effect on our financial position or cash flow.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of the
litigation, we have obtained control over Mr.&nbsp;Muller&#146;s
patent rights to the ZEFS device. Under a Buy-Sell Agreement
between Jeffrey Muller and us 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 us the marketing, manufacturing and distribution rights to the ZEFS
device. In conjunction with these proceedings, a settlement agreement was reached whereby
the $10&nbsp;per unit royalty previously due to Mr.&nbsp;Muller was terminated and
replaced with a $.20&nbsp;per unit royalty payable to the bankruptcy trustee. 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.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, we are optimistic 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. We contend that we are entitled to a judgment canceling all
of the approximately 8,716,710&nbsp;shares of our common stock which
we believe are controlled, directly or indirectly, by Mr.&nbsp;Muller, divesting Mr.&nbsp;Muller
of any right to exercise options for 10,000,000 shares of
our stock, the
entry of an existing preliminary injunction to prevent Mr.&nbsp;Muller from any
involvement with the company and a monetary judgment against Muller and others
in the amount of several million dollars. 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 align="center"><FONT size="2">10
</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 2003.
</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="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><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><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><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><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><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><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><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><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;In 2003, 11,517,414 warrants were issued to investors and non-employees.
In 2002, 1,850,000 warrants and 100,000 options were issued to
non-employees. In 2003,
$8,933,483 of the
total fair value of $10,173,653 was related to 9,434,000 warrants issued to
private placement investors; $1,190,519 was related to the
2,000,000 warrants
issued in connection with a related party debt settlement; and
$49,651 was related to the 83,414 warrants issued in connection with
payment for legal services. In 2002,
$629,555 of the total fair value of $684,464 was related to warrants
issued for private placement finder&#146;s fees. This amount
was offset against the proceeds from the private placements,
resulting in net proceeds to us of $54,909 for this transaction.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The issuances of
shares and warrants described above were 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
issuances 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">11
</FONT>

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

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The company is a
development stage company that has not yet commenced operations and
does not generate revenue. The company&#146;s current focus is on
research and development of proprietary devices that can be installed
on motor vehicles and which are designed to reduce harmful emissions,
improve fuel efficiency and improve performance. Our prototype device
is called &#147;ZEFS&#148;. We have devoted the bulk of our efforts
to complete the design and development of our production models and
raise the financing required to do so and fund our expenses.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that
these efforts will continue for at least the rest of 2004. We
anticipate that we will begin limited marketing of our ZEFS device in
late 2004. However, we do not envision generating any revenue in
2004. We anticipate that we will need to raise
additional capital by the middle of 2004 to fund continuing research
and development activities and meet our operating expenses.
</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 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
$2,476,063 for the year ended December&nbsp;31, 2003,
compared to a net loss of $2,749,199 for the year ended December&nbsp;31, 2002. We
expect an increase in net loss through 2004 attributable to increased general
and administrative expenses and commencement of marketing, without
the benefit of any revenue.
</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, 2003 we had cash of
$926,052 and an accumulated deficit of $10,327,608&nbsp;million. Our 2003 negative
operating cash flows were funded primarily through 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. Thereafter, we will need to raise additional capital or
incur new debt to fund our operations. We believe that exercises of
in-the-money options and warrants, with various expiration dates
during 2004, will provide sufficient proceeds to meet our capital
requirements through at least the end of 2004. In addition, we are
actively exploring additional sources of financing. However, there can be no assurance that
additional equity or debt financing will be available or available on
terms favorable to the company. If we are unable to
obtain additional capital, we may be required to delay, reduce the
scope of, or
eliminate, our research and development programs, 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>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 all shares of our common stock
controlled, directly or indirectly, by Mr.&nbsp;Muller and his
affiliates, options to purchase an additional
10,000,000 shares of our common stock, and Mr.&nbsp;Muller&#146;s
original royalty agreement. See &#147;Item&nbsp;3, Legal
Proceedings.&#148; The cancellation of these shares and options would have a
significant positive effect on our capitalization.
</FONT>

<P align="left"><FONT size="2"><B>Critical Accounting Policies and Estimates</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">12
</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><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><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>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">13
</FONT>

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

<!-- End Table Head -->
<!-- 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">15</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">16</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">17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#122">Statements
of stockholders&#146; deficiency</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">18-20</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">21-22</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">23-43</TD>
    <TD>&nbsp;</TD>
</TR>

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



<P align="center" style="font-size: 10pt">14
</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">

<!-- link1 "INDEPENDENT AUDITORS&#146; REPORT" -->

<P align="center" style="font-size: 10pt"><B>INDEPENDENT AUDITORS&#146; 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, 2003 and 2002 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, 2003. 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 auditing standards generally accepted in the 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, 2003 and 2002 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, 2003, in conformity
with accounting principles generally accepted in the United States of America.


<P align="left" style="font-size: 10pt">The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has a net loss of $2,476,063, a negative
cash flow from operations of $1,595,861 and a stockholders&#146; deficiency of
$833,386. These factors raise substantial doubt about its ability to continue
as a going concern. Management&#146;s plans concerning this matter are also
described in Note 2. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



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



<P align="left" style="font-size: 10pt">April&nbsp;2, 2004<br>
Boca Raton, Florida



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



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



<!-- link1 "BALANCE SHEETS" -->

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



<P align="left" style="font-size: 10pt"><B>BALANCE SHEETS</B><br>
<B>DECEMBER 31, 2003 AND 2002</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="67%">&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="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</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">$</TD>
    <TD align="right">926,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left: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:40px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">926,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,489</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">35,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,924</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">$</TD>
    <TD align="right">961,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">131,413</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">Accounts payable and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">713,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">436,669</TD>
    <TD>&nbsp;</TD>
</TR>




<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,927</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payables to related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553,022</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:40px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">777,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">994,618</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>
</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, 34,128,261 and
20,235,847 shares issued and outstanding
at December&nbsp;31, 2003 and 2002,
respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"> 34,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"> 20,236</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock to be issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,250</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">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,162,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,133,081</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(708,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,572,060</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deficit accumulated during the development stage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,327,608</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</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="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:30px; text-indent:-10px">Total stockholders&#146; deficiency</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(833,386</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,880,413</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:10px; text-indent:-10px"><B>TOTAL LIABILITIES AND STOCKHOLDERS&#146; DEFICIENCY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">961,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">131,413</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>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">See notes to financial statements.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">16</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>

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



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

<!-- link1 "STATEMENTS OF OPERATIONS" -->

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



<P align="left" style="font-size: 10pt"><B>STATEMENTS OF OPERATIONS</B><br>
<B>YEARS ENDED DECEMBER 31, 2003 AND 2002 AND FOR THE PERIOD FROM</B><br>
<B>INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2003</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&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="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>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>2003</B><HR size="1" noshade></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>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">2,475,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,748,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,322,101</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>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Loss before other income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,475,483</TD>
    <TD nowrap>)</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">(10,322,101</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Other Income</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">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440</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">440</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"><B>Loss before provision for income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,475,043</TD>
    <TD nowrap>)</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">(10,321,661</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <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">1,020</TD>
    <TD>&nbsp;</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">5,947</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"><B>Net loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,476,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(10,327,608</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net loss per common share, basic
and diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.15</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">
    <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">26,768,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,518,861</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>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">See notes to financial statements.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD valign="bottom">17</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>

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



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

<!-- link1 "STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY" -->

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



<P align="left" style="font-size: 10pt"><B>STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY</B><br>
<B>FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2003</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="61%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></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>Deficit accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total stockholders&#146;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price per</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" 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>development</B></TD>
</TR>
<TR style="font-size: 8pt" 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>stage 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">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</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 align="right" nowrap>.0015 &#150; .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>)</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 align="right">1.00 &#150; 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>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(500,822</B></TD>
    <TD nowrap>)</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>

<TR valign="bottom">
    <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>

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

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>

</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
 <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">See notes to financial statements.
</DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">&nbsp;</TD>

</TR>

<TR valign="bottom">
    <TD align="center" valign="bottom" colspan="3">18</TD>
</TR>


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








<P align="center" style="font-size: 10pt">&nbsp;
</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.</B><br>
<B>(A DEVELOPMENT STAGE ENTERPRISE)</B>



<P align="left" style="font-size: 10pt"><B>
STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY - Continued</B><br>
<B>FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2003</B>


<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&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><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>Common Stock</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>Additional</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>Deficit accumulated</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total
stockholders&#146;</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 nowrap align="center" colspan="3"><FONT size="1"><B>Price per</B></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 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>paid-in</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Deferred</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>during the</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>development</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 nowrap align="center" colspan="3"><FONT size="1"><B>share</B></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 nowrap align="center" colspan="3"><FONT size="1"><B>Amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>to be issued</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>compensation</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>development stage</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>stage deficiency</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="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>
    <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><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for filing services on December&nbsp;20, 2000</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.50</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">5,172</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,581</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,586</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for professional services on December&nbsp;26, 2000</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.38</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">12,960</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">13</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">4,912</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">4,925</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Other stock issuance on August&nbsp;24, 2000</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2.13</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">4,258</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">4,260</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Common shares cancelled</FONT></DIV></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="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(55,000</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(55</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(64,245</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(64,300</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Net loss</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(1,270,762</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(1,270,762</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><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><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><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><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><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><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><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><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1"><B>Balance, December&nbsp;31, 2000 </B>(as corrected, see Note 1)</FONT></DIV></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 align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>15,645,935</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>15,646</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>&#151;</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>1,437,873</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>&#151;</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(2,367,333</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(913,814</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on January&nbsp;8, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.31</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">9,833</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">10</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">3,038</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">3,048</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

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

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

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for legal services on March&nbsp;13, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.32</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">150,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">47,850</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">48,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on April&nbsp;3, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">9,833</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">10</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,448</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,458</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for legal services on April&nbsp;4, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">30,918</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">31</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">7,699</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">7,730</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

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

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on April&nbsp;5, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">132,600</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">132</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">33,018</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">33,150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

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

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for filing fees on September&nbsp;19, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.85</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,678</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,274</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,276</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for professional services on September&nbsp;28, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.62</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">150,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">92,850</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">93,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for directors services on October&nbsp;5, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.60</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">100,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">59,900</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">60,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for legal services on October&nbsp;17, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.60</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">11,111</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">11</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6,655</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6,666</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on October&nbsp;18, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.95</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">400,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">400</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">379,600</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">380,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on October&nbsp;19, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">150,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">187,350</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">187,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for exhibit fees on October&nbsp;22, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1.35</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">5,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6,745</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6,751</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

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

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on November&nbsp;7, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.85</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">20,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">20</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">16,980</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">17,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on November&nbsp;20, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.98</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">43,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">43</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">42,097</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">42,140</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on November&nbsp;27, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.98</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">10,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">10</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD align="right"><FONT size="1">9,790</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">9,800</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for consulting services on November&nbsp;28, 2001</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.98</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">187,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">187</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">183,073</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">183,260</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Intrinsic value of options issued to employees</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,600,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,600,000</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Fair value of options issued to non-employees for services</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">142,318</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">142,318</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">See notes to financial statements.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="left" valign="bottom">19</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>

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



<P align="center" style="font-size: 10pt">&nbsp;
</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.</B><br>
<B>(A DEVELOPMENT STAGE ENTERPRISE)</B>



<P align="left" style="font-size: 10pt"><B>STATEMENTS OF STOCKHOLDERS&#146; DEFICIENCY - Continued</B><br>
<B>FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2003</B>




<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&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="1%">&nbsp;</TD>
    <TD width="2%">&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="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&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="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&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><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>Common Stock</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>Additional</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>Deficit accumulated</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total
stockholders&#146;</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 nowrap align="center" colspan="3"><FONT size="1"><B>Price per</B></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 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>paid-in</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Deferred</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>during the</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>development</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 nowrap align="center" colspan="3"><FONT size="1"><B>share</B></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 nowrap align="center" colspan="3"><FONT size="1"><B>Amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>to be issued</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>compensation</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>development stage</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>stage deficiency</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="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>
    <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><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Amortization of deferred compensation</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">191,667</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">191,667</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Net loss</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,735,013</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,735,013</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><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><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><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><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><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><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><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><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1"><B>Balance, December&nbsp;31, 2001</B></FONT></DIV></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 align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>18,085,847</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>18,086</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>&#151;</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>6,220,322</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(2,408,333</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(5,102,346</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(1,272,271</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued for directors services on December&nbsp;10, 2002</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.40</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,150,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">857,850</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">860,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Common stock paid for, but not issued (2,305,000 shares)</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">0.15-0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">389,875</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">389,875</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Fair value of options issued to non-employees for services</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">54,909</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(54,909</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Amortization of deferred compensation</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">891,182</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">891,182</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Net loss</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,749,199</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,749,199</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><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><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><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><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><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><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><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><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1"><B>Balance, December&nbsp;31, 2002</B></FONT></DIV></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 align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>20,235,847</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>&nbsp;</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>20,236</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>389,875</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>7,133,081</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(1,572,060</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(7,851,545</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>(1,880,413</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued, previously paid for</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.15</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,425,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,425</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(213,750</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">212,325</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock issued, previously paid for</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">880,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">880</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(220,000</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">219,120</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on March&nbsp;20, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">670,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">670</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">166,830</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">167,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on April&nbsp;4, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">900,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">900</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">224,062</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">224,962</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on April&nbsp;8, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">100,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">24,900</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">25,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on May&nbsp;8, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,150,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,150</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">286,330</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">287,480</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on June&nbsp;16, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">475,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">475</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">118,275</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">118,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock
and warrants issued for legal services on June&nbsp;27, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.55</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">83,414</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">83</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">45,794</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">45,877</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Debt converted to stock and warrants on June&nbsp;27, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,000,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">2,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">498,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">500,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on July&nbsp;11, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">519,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">519</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">129,231</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">129,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on September&nbsp;29, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,775,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,775</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">441,976</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">443,751</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on October&nbsp;21, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,845,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,845</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">459,405</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">461,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on October&nbsp;28, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,570,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">1,570</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">390,930</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">392,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Stock and warrants issued for cash on November&nbsp;19, 2003</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">500,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">124,500</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">125,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Finders&#146; fees related to stock issuances</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">43,875</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(312,582</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(268,707</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Common stock paid for, but not issued (25,000 shares)</FONT></DIV></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">0.25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">6,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Amortization of deferred comp</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">863,727</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">863,727</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">Net loss for year ended December&nbsp;31, 2003</FONT></DIV></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 align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,476,063</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1">(2,476,063</FONT></TD>
    <TD nowrap><FONT size="1">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">&nbsp;</FONT></DIV></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><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><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><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><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><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><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><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1"><B>Balance, December&nbsp;31, 2003</B></FONT></DIV></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 align="right"><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>34,128,261</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>$</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>34,128</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>$</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>6,250</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="1"><B>$</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>10,162,177</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1"><B>$</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>(708,333</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1"><B>$</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>(10,327,608</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="1"><B>$</B></FONT></TD>
    <TD align="right"><FONT size="1"><B>(833,386</B></FONT></TD>
    <TD nowrap><FONT size="1"><B>)</B></FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="1">&nbsp;</FONT></DIV></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><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">See notes to financial statements.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="left" valign="bottom">20</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>

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




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




<!-- link1 "STATEMENTS OF CASH FLOWS" -->

<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, 2003 AND 2002 AND FOR THE PERIOD<BR>
FROM INCEPTION (FEBRUARY 18, 1998) TO DECEMBER 31, 2003</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="50%">&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="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>&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 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>2003</B><HR size="1" noshade></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>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">$</TD>
    <TD align="right">(2,476,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(10,327,608</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">&#151;</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">45,877</TD>
    <TD>&nbsp;</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">3,355,731</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">863,727</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">1,946,576</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">5,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,732</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">1,064</TD>
    <TD>&nbsp;</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">5,991</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 nowrap align="right">&nbsp;</TD>
    <TD align="right">(35,671</TD>
    <TD nowrap>)</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">400,998</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:40px; text-indent:-10px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,595,861</TD>
    <TD nowrap>)</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">(3,465,262</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>
</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">(16,525</TD>
    <TD nowrap>)</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">(37,426</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>
</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">(16,525</TD>
    <TD nowrap>)</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">(37,426</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>
</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">4,881</TD>
    <TD>&nbsp;</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">554,353</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">&#151;</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">2,419,818</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">3,350,929</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">6,250</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">6,250</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:40px; text-indent:-10px">Net cash provided by financing
activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,430,949</TD>
    <TD>&nbsp;</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">4,428,740</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"><B>Net increase in cash</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">818,563</TD>
    <TD>&nbsp;</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">926,052</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">107,489</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">&#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>
    <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">$</TD>
    <TD align="right">926,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">107,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">926,052</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>
</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">


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002 AND FOR THE<BR>
PERIOD FROM INCEPTION (FEBRUARY 18, 1998) TO <BR>
DECEMBER 31, 2003</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="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&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>&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 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>2003</B><HR size="1" noshade></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>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:20px; 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:20px; 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: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>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; 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">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Non-cash investing and financing
activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Acquisition of intangible asset
through advance from related
party and issuance of common
stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</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:20px; text-indent:-10px">Deferred compensation from stock 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">54,909</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:20px; 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">&#151;</TD>
    <TD>&nbsp;</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">3,550</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Conversion of related party debt to equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500,000</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">500,000</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>

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


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



</TABLE>

<!-- link1 "NOTES TO FINANCIAL STATEMENTS" -->

<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, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Description of business</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Significant matters</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.
</TD>
</TR>
</TABLE>

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

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

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


</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Significant matters - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.
</TD>
</TR>
</TABLE>

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

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

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


</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Significant matters - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In conjunction with these proceedings, a settlement agreement was reached whereby
the $10&nbsp;per unit royalty previously due to Mr.&nbsp;Muller was terminated and
replaced with a $.20&nbsp;per unit royalty payable to the bankruptcy trustee. 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 the Company.</TD>
</TR>

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

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

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on the status of current legal proceedings, the Company
is optimistic that
it will not have to pay $1,017,208 of advances due to Mr.&nbsp;Muller. The
Company also is optimistic 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).
</TD>
</TR>
</TABLE>

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

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

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


</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Prior period corrections</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

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

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

<P align="center" style="font-size: 10pt">26
</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><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Prior period corrections</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.
</TD>
</TR>
</TABLE>

<P align="center" style="font-size: 10pt">27
</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><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Prior period corrections - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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; deficit and deficit accumulated during the development
stage presented herein.</TD>
</TR>

</TABLE>

<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>

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


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Development stage enterprise</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 approximately 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.</TD>
</TR>

</TABLE>



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


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Going concern</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As reflected in the accompanying financial statements, the
Company has a net loss of $2,476,063, a negative cash flow from
operations of $1,595,861 and a stockholders&#146; deficiency of $833,386.
These factors raise substantial doubt about its ability to continue as a
going concern. The ability of the Company to continue as a going
concern is dependent on the Company&#146;s ability to raise additional funds
and implement its business plan. The financial statements do not
include any adjustments that might be necessary if the Company is unable
to continue as a going concern.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 revenue,
these expenditures will result in additional losses. The Company
has obtained $557,903 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 raised $2,375,943
($2,419,818 net of finder&#146;s fees) in 2003 through the sale of
approximately
9,504,000 shares of its common stock in private placement transactions.</TD>
</TR>
</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company believes that it has sufficient cash to fund its
operations through June&nbsp;30, 2004. Thereafter, the Company will
need to raise additional capital or incur new debt to fund its
operations. The Company believes that exercises of in-the-money
options and warrants, with various expiration dates during 2004, will
provide sufficient proceeds to meet its capital requirements through
at least the end of 2004. In addition, the Company is actively
exploring additional sources of financing. However, there can be no
assurance that additional equity or debt financing will be available
or available on terms favor to the Company. If the Company is unable
to obtain additional capital, it may be required to delay, reduce the
scope of, or eliminate, its research and development programs, reduce
any marketing activities or relinquish rights to technologies that
the Company might otherwise seek to develop or commercialize.</TD>
</TR>

</TABLE>



<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Property and equipment and depreciation</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Long-lived assets</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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, 2003.</TD>
</TR>

</TABLE>

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


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Earnings (loss)&nbsp;per share</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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, 2003 and
2002, the dilutive impact of outstanding stock options of 14,000,000 and
14,000,000, respectively, and 13,367,414 warrants in 2003 has been
excluded because their impact on the loss per share is antidilutive.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Income taxes</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock-based compensation</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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;</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>

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


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business and credit concentrations</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company&#146;s cash balances in financial institutions at times may
exceed federally insured limits. As of December&nbsp;31, 2003, before
adjustments for outstanding checks and deposits in transit, the Company
had $984,024 on deposit with two banks. The deposits are federally
insured up to $100,000 on each bank.</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:1%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimates


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:1%; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair value of financial instruments


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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, 2003.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Recent accounting pronouncements</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">32
</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><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Recent accounting pronouncements - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, the FASB issued FASB Interpretation No.&nbsp;46 (FIN 46),
&#147;Consolidation of Variable Interest Entities, &#147; 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.</TD>
</TR>

</TABLE>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Advances from founding former executive officer</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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).</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">33
</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><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Advances from founding former executive officer - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2000, the Company entered into an agreement offering Mr.
Muller and Lynn 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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Due to related parties</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Masry &#038; Vititoe, a law firm in which Edward Masry is a partner, has
advanced $57,903 and $553,022 as of December&nbsp;31, 2003 and 2002,
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 were unsecured, non-interest
bearing, and were due on demand. In June&nbsp;2003, Masry &#038; Vititoe converted
$500,000 of its advances due from the Company into 2,000,000 shares of
common stock and 2,000,000 warrants (see Note 6). Mr. Masry is the
Company&#146;s Chairman of the Board and Chief Executive Officer.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lease agreement</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2003, the Company entered into a lease agreement with an
entity to lease office space for its primary administrative facility. A
director of the Company owns the entity. (see Note 8).</TD>
</TR>

</TABLE>

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


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>At December&nbsp;31, 2003 and 2002, property and equipment consist of the
following:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&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="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>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>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</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">$</TD>
    <TD align="right">40,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,451</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">(5,732</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(527</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">$</TD>
    <TD align="right">35,244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,924</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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation expense for the year ended December&nbsp;31, 2003 and 2002 was
$5,205 and $492, respectively.</TD>
</TR>

</TABLE>


<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has net operating loss (NOL)&nbsp;carryforwards in the amount of
approximately $5.2&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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A reconciliation of the Company&#146;s tax provision to income taxes at the
applicable statutory rates is shown below.</TD>
</TR>

</TABLE>

<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>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>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</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">$</TD>
    <TD align="right">(841,861</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(934,388</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">(148,564</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164,952</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">990,425</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,099,340</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">1,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089</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">$</TD>
    <TD align="right">1,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,089</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>

<!-- 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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of December&nbsp;31, 2003, the Company has authorized 200,000,000 shares of
its common stock, of which 34,128,261 shares were issued and outstanding,
and 25,000 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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company&#146;s significant stockholders are as follows:</TD>
</TR>

</TABLE>

<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="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&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.
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">25.5</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">3,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.8</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">11.7</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">18,411,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">53.9</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">34,128,261</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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the cross complaint the Company has filed against Mr.
Muller, the Company is seeking various legal remedies relating to all
of the 8,716,710 shares which the Company believes are controlled,
directly or indirectly, 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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 were shown as common
stock to be issued in the 2002 financial statements and common stock
issued in the 2003 financial statements.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In June&nbsp;2003, the Company issued 2,000,000 shares of common stock and
2,000,000 warrants to convert $500,000 of related party debt into equity
(see Note 7).</TD>
</TR>

</TABLE>

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

</TABLE>

<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2003, the Company sold 25,000 shares of its common stock in a
series of private placement transactions. The Company received proceeds,
net of offering costs, in the amount of $6,250 for the shares prior to
December&nbsp;31, 2003, but did not issue the stock certificates until
February&nbsp;2, 2004. These shares are shown as common stock to be issued in
the accompanying financial statements.</TD>
</TR>

</TABLE>


<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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, 2003 was 8.13&nbsp;years. Stock option activity
for the years ended December&nbsp;31, 2002 and 2003, was as follows:</TD>
</TR>

</TABLE>

<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, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</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>&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">&#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">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, 2003</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="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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Options outstanding at December&nbsp;31, 2003 and the related weighted average
exercise price and remaining life information is as follows:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&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="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&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>&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>&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" colspan="3"><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" 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>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" colspan="3"><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">$</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</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>&nbsp;</TD>
    <TD align="right">0.10</TD>
    <TD>&nbsp;</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">6.83</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">2,000,000</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>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</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">8.79</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">750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD>&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">3.71</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>&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">8.67</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>&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 align="right">$</TD>
    <TD nowrap align="right">0.10-$1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Intrinsic value of employee options</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain employee options were 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 2003 and 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.</TD>
</TR>

</TABLE>

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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Non-employee warrants and options</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2003, 11,517,414 warrants were issued to investors and non-employees.
In 2002, 1,850,000 warrants and 100,000 options were issued to
non-employees. The Company estimated the combined fair values of the
warrants and options for each respective year to be $10,173,653 and
$684,464, using the Black-Scholes option-pricing model. In 2003,
$8,933,483 of the
total fair value of $10,173,653 was related to 9,434,000 warrants issued to
private placement investors; $1,190,519 was related to the
2,000,000 warrants
issued in connection with the related party debt settlement; and
$49,651 was related to the 83,414 warrants issued in connection with
payment for legal services. In 2002,
$629,555 of the total fair value of $684,464 was related to warrants
issued for private placement finder&#146;s fees. Accordingly, this amount
was offset against the proceeds from the private placements. The
remaining $54,909 was for the 100,000 options issued in 2002 for
non-employee services and was recorded as deferred compensation and was
amortized to expense as the services were provided. In 2003 and 2002,
$13,727 and $41,182, respectively, were amortized to expense.</TD>
</TR>

</TABLE>

<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following table summarizes certain information about the Company&#146;s
stock purchase warrants:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&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, 2002</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">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>&nbsp;</TD>
    <TD align="right">0.35</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">11,517,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.43</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, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,367,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.48</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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>


</TABLE>

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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&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 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>2003</B><HR size="1" noshade></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>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">$</TD>
    <TD align="right">(2,476,063</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,749,199</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(10,327,608</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">(949,977</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,208,302</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">850,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,891,667</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">$</TD>
    <TD align="right">(2,576,040</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2,849,176</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(10,644,243</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma loss per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.15</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>
<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- 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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal matters</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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
then sole
director Jeffrey Muller, and others were engaged in a fraudulent
scheme to promote the Company&#146;s stock. 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 then 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.</TD>
</TR>

</TABLE>

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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal matters - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On July&nbsp;2, 2002, after an investigation by the
Company&#146;s 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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 an officer or director of the Company. 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.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In the course of the litigation, the Company has obtained control over
Mr.&nbsp;Muller&#146;s patent rights to the ZEFS device. Under a 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. In conjunction with these proceedings, a settlement agreement was reached whereby
the $10&nbsp;per unit royalty previously due to Mr.&nbsp;Muller was terminated and
replaced with a $.20&nbsp;per unit royalty payable to the bankruptcy trustee. 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.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">41
</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><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Legal matters - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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, the Company is optimistic 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 canceling all of
the 8,716,710&nbsp;shares of the Company&#146;s Common
stock which the Company believes are controlled, directly or
indirectly, by Mr.&nbsp;Muller, divesting Mr.&nbsp;Muller
of any right to exercise options for 10,000,000 shares of Company
stock, the entry of an existing preliminary injection to prevent
Mr.&nbsp;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.</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Royalty agreements</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has entered into five royalty agreements whereby it has
agreed to pay from $.05 to $.25 per unit for each ZEFS device
sold. Two of these royalty agreements, at $.20 per unit each, were reached in exchange for
the royalty recipients&#146; release of their claims to the intellectual
property rights to the ZEFS device.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 reporting requirements.</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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:</TD>
</TR>

</TABLE>


<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="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="right">&nbsp;</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="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="right">&nbsp;</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="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>128,000 shares upon completion of successful ZEFS
testing, as defined</TD>
</TR>

</TABLE>


<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Leases</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2002, the Company had no leases of any property. In October&nbsp;2003,
the Company subleased a portion of a building in North Hollywood,
California from an entity that is owned by a director of the Company.
The lease term is from November&nbsp;1, 2003 through October&nbsp;31, 2005 and
carries an option to renew for two additional years with a 10&nbsp;percent
increase in the rental rate. Monthly rent is $2,000 under this lease.</TD>
</TR>

</TABLE>

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

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


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



</TABLE>


<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 - Continued<BR>
YEARS ENDED DECEMBER 31, 2003 AND 2002</B>


<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>
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Leases - Continued</TD>
</TR>

</TABLE>


<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following is a schedule by years of future minimum rental payments
required under the non-cancelable operating lease:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&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="22%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</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>&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44,000</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>&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>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Subsequent events</B></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">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;2, 2004 the board of directors approved the
2004 Stock Option Plan. Effective January&nbsp;1, 2004, the Company
granted 900,000 options to purchase shares at $0.98; 193,912 options
to purchase shares at $1.15; and 78,740 options to purchase shares at
$1.27. All options were granted to directors or employees of the
Company.</TD>
</TR>

</TABLE>



<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, our Board of Directors 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 rules 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 prior accountants, Good Swartz Brown &#038; Berns LLP,
indicated that they would not be registered with the PCAOB,
and as such, they resigned as our independent public accountants. On
November 21, 2003, our Board of Directors approved the dismissal of
Good Swartz Brown &#038; Berns, LLP as our independent public
accountant and retained Weinberg &#038; Company, P.A.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the last fiscal year prior to and preceding the
resignation of Good Swartz Brown &#038; Berns, LLP and any subsequent interim period preceding
such resignation, there were no disagreements with Good Swartz Brown
&#038; Berns, LLP on any matter
of accounting principles or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to Good Swartz Brown &#038; Berns, LLP's satisfaction, would
have caused it to make reference to the subject matter of the disagreement in connection with its reports;
and there were no reportable events described under Item 304(a)(1)(iv) of Regulation S-B.
During the last two fiscal years, Good Swartz Brown &#038; Berns did not issue any audit
reports containing a disclaimer or adverse or qualified opinion.
</FONT>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We did not consult
with Weinberg &#038; Company, P.A. for the years ended
December 31, 2001 and December 31, 2002 and through November 21, 2003, 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>





<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">44


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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">45
</FONT>

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


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain information required by Part III is incorporated
by reference from our Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for our 2004 Annual Meeting of Stockholders to be
held on May 24, 2004 (the &#147;Proxy Statement&#148;).
</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 information required by this section is incorporated by
reference from the section entitled &#147;Election of Directors&#148; in the Proxy Statement. Item 405 of
Regulation S-B calls for disclosure of any known late filing or failure by an insider
to file a report required by Section 16 of the Exchange Act. This disclosure is incorporated
by reference to the section entitled &#147;Section 16(a) Beneficial Ownership Reporting Compliance&#148;
in the Proxy Statement.  The information required by this Item with respect to our executive officers is
contained in Item 1 of Part I of this Annual Report under the heading &#147;Executive Officers
of the Registrant&#148;.
</FONT>

<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 information required by this section is incorporated by reference from
the information in the section entitled &#147;Executive Compensation and Other Matters&#148; in
the Proxy Statement.
</FONT>



<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 information required by this section is
incorporated by reference from the information in the section entitled &#147;Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters&#148; in the
Proxy Statement.
</FONT>

<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;The information required by this section is incorporated
by reference from the information in the section entitled &#147;Certain Relationships and Related
Transactions&#148; in the Proxy Statement.
</FONT>

<P align="center"><FONT size="2">46</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;8-K</B></FONT>


<P><FONT size="2">(a) The following documents are filed as part of
this Form&nbsp;10-KSB.
</font>

<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="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Financial Statements:</TD>
</TR>

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reference is made to the contents to Financial Statements of Save the World
Air, Inc. under Item&nbsp;7 of this Form 10-KSB.</TD>
</TR>

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

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits:</TD>
</TR>



</TABLE>



<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(4)</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(4)</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" nowrap><FONT size="2">10.3(a)(4)*</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">10.6&#134;**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Consulting Agreement
between Joseph Helleis and the Registrant dated
December&nbsp;1, 2003.</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.7&#134;**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Employment Agreement
between Edward L. Masry and the Registrant dated December&nbsp;1,
2003.</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.8&#134;**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Employment Agreement
between Eugene&nbsp;E. Eichler and the Registrant dated
December&nbsp;1, 2003.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">10.9&#134;**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Employment Agreement
between Bruce H. McKinnon and the Registrant dated December&nbsp;1,
2003.</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
previously requested.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<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">Filed herewith.</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">&#134;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Indicates management contract
or compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item&nbsp;13 of Form&nbsp;10-KSB.</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>

<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">Incorporated by reference from
Registrant&#146;s Form&nbsp;10-KSB for the fiscal year ended
December&nbsp;31, 2002.</FONT></TD>
</TR>

</TABLE>
<P><FONT size="2">(b) Reports on
Form&nbsp;8-K</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;26,
2003, we filed a report on
Form&nbsp;8-K, as amended, in which we
reported a change of principal accountant.
</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;The information
required by this section is incorporated by reference from the
information in the section entitled &#147;Ratification of Appointment
of Independent Auditors&#148; in the Proxy Statement.
</font>


<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>


<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: April&nbsp;13, 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<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 April&nbsp;13, 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">/s/ Edward L. Masry<FONT size="2"><BR>
<HR size="1" noshade>
Edward L. Masry</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">/s/ Eugene E. Eichler<FONT size="2"><BR>
<HR size="1" noshade>
Eugene E. Eichler</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">/s/ Bruce H. McKinnon<FONT size="2"><BR>
<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 of Business Development, Chief Operating Officer  and
Director</FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR>
    <TD valign="top">/s/ Robert F. Sylk<FONT size="2"><BR>
<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">/s/ J. Joseph Brown<FONT size="2"><BR>
<HR size="1" noshade>
J. Joseph Brown</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">/s/ John F. Price<FONT size="2"><BR>
<HR size="1" noshade>
John F. Price</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">/s/ Joseph Helleis<FONT size="2"><BR>
<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>

<TR><TD>&nbsp;</TD></TR>
<TR>
    <TD valign="top">&nbsp;<FONT size="2"><BR>
<HR size="1" noshade>
Jeffrey Muller</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">48</FONT>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>3
<FILENAME>v97738exv10w6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.6

                              CONSULTING AGREEMENT

         This Consulting Agreement ("Agreement") is made effective and entered
into as of December 1, 2003, by and between SAVE THE WORLD AIR, INC., a Nevada
corporation (the "Company"), and JOSEPH HELLEIS ("Consultant"), with reference
to the following facts:

                                    RECITALS

          A.   The Company has developed proprietary technologies for reducing
               harmful emissions from fuel combustion engines and improving fuel
               efficiency, among other benefits and is currently in process of
               organizational development as it prepares to bring its products
               to market.

          B.   The Company desires to engage the services of Consultant as an
               independent contractor to assist with organizational and
               administrative matters, as specified by the Company from time to
               time during its transitional period of development.

          C.   Consultant has expertise in the area of the Company's business
               requirements and desires to provide consulting services for the
               Company upon the terms and conditions contained herein.

         NOW, THEREFORE, the Company and Consultant hereby mutually agree as
follows:

         Section 1. Scope of Services to be provided. Development of Company
         Policies and Procedures and such policies' implementation and
         administration when deemed appropriate by the Company.

               (a)  Consultant shall undertake and perform the tasks outlined.
                    in Section 1 and such additional or other responsibilities
                    as may be reasonably assigned to Consultant from time to
                    time by the Company's Chief Executive Officer, President and
                    Chief Operating Officer.

               (b)  Consultant shall keep confidential any proprietary or
                    confidential information of the Company, including without
                    limitation all information that may constitute a trade
                    secret or otherwise confer strategic or competitive
                    advantages to the Company, by use of passwords, locked
                    cabinets, identification of such information and materials
                    as "Confidential" and other limits on access as may be
                    customary or appropriate or set forth in Company policies.

         Section 2. Non-Disclosure Obligations. Concurrently with the parties'
                    execution of this Agreement, Consultant shall execute and
                    deliver to the Company the Confidentiality Agreement
                    attached hereto as Annex B (the "Confidentiality
                    Agreement"), the provisions of which are incorporated herein
                    by this reference.

<PAGE>

         Section 3. Consultant's Representations and Covenants. Consultant
                    represents, warrants and covenants to the Company that:

               (a)  Consultant shall devote such time, energy, interest,
                    ability, and skill as may be fairly and reasonably necessary
                    to provide to the Company the services described in Section
                    1 above.

               (b)  Consultant shall not, during the term of this Agreement,
                    directly or indirectly, promote, participate, or engage in
                    any business activity that would materially interfere with
                    the performance of Consultant's duties under this Agreement
                    or which is competitive with the Company's or any Company
                    Affiliate's business, including, without limitation, any
                    involvement as a shareholder, director, officer, employee,
                    partner, joint venturer, consultant, advisor, individual
                    proprietor, lender, or agent of any business, without the
                    prior written consent of the Company. The term "Affiliate"
                    shall mean, with respect to any person or entity, any other
                    person or entity which, directly or indirectly through one
                    or more intermediaries, is in control of, is controlled by
                    or is under common control with, such person or entity.
                    "Control of," "controlled by" and "under common control
                    with" mean the possession, directly or indirectly, of the
                    power to direct or cause the direction of the management
                    policies of a person or entity, by contract or credit
                    arrangement, as trustee or executor, or otherwise. The term
                    "Affiliate" includes, but is not limited to, each and every
                    subsidiary of the Company.

               (c)  During the term of this Agreement and for a period of one
                    year after the termination of this Agreement, Consultant
                    shall not solicit, attempt to solicit, or cause to be
                    solicited any customers of the Company for purposes of
                    promoting or selling products or services which are
                    competitive with those of the Company, nor shall Consultant
                    solicit, attempt to solicit, or cause to be solicited any
                    employees, agents, or other independent contractors of the
                    Company to cease their relationship with the Company.

               (d)  Consultant does not have any agreements with or commitments
                    to any other person or entity which conflict with any of
                    Consultant's obligations to the Company arising under this
                    Agreement.

               (e)  Consultant shall maintain any and all licenses and permits
                    as may be required for Consultant to provide the consulting
                    services contemplated hereby. In the event Consultant shall
                    utilize the services or shall acquire any products in order
                    to render the consulting services contemplated hereby,
                    Consultant shall be solely responsible for the payment for
                    such services and products, except to the extent
                    reimbursable by the Company in accordance with 0 below.
                    Consultant shall be solely responsible for any and all
                    income and other taxes that may be due to any state, local
                    or federal governmental authorities in respect of the
                    compensation to Consultant pursuant to this Agreement.
                    Consultant acknowledges that the Company shall not make any
                    withholdings from payments to Consultant hereunder.

                                      -2-
<PAGE>

               (f)  Except upon the express written consent of the Company,
                    Consultant shall have no authority, and shall not represent,
                    suggest or imply that Consultant has the authority, express
                    or implied: (1) to bind the Company to any agreements or
                    arrangements, written or oral; (2) to make an offer or
                    accept an offer on behalf of the Company; or (3) to make
                    representations, warranties, guaranties, commitments or
                    covenants on behalf of Company.

         Section 4. Ownership.

               (a)  The compensation payments set forth herein shall be full and
                    complete compensation both for all obligations assumed by
                    Consultant hereunder and for any and all Creations (as
                    defined in the Confidentiality Agreement) assigned under
                    this Agreement.

               (b)  The Company shall retain the exclusive right to use or
                    distribute, at its sole discretion, any and all Creations.
                    Consultant shall make no claim on any consideration received
                    by the Company for the sale, lease or use of the Creations.

         Section 5. Term. This Agreement shall terminate on December 31, 2004,
                    unless earlier terminated in accordance with this Section 5.
                    In addition, this Agreement shall terminate automatically
                    upon the death of Consultant, or the mental or physical
                    incapacity of Consultant for a period of 60 consecutive
                    days. Either party hereto may terminate this Agreement upon
                    a material breach of this Agreement by the other party; and
                    the Company may terminate this Agreement upon a material
                    breach of the Confidentiality Agreement by Consultant.

         Section 6. Compensation. Consultant's compensation for his services
                    hereunder shall be at a monthly rate of $3,500.00.

         Section 7. Reimbursement of Business Expenses. To the extent Consultant
                    is authorized by the Company to make expenditures to carry
                    out Consultant's duties hereunder, the Company shall
                    reimburse Consultant for the actual costs thereof, subject
                    to receipt of such documentation and other information as
                    the Company may reasonably request or require in accordance
                    with its policies, and subject further to any limitations on
                    the amount that Consultant may be authorized to incur in
                    making expenditures on the Company's behalf. Reimbursement
                    for each qualifying expense shall be made upon the
                    presentation of a receipt by Consultant of such expense item
                    and any and all other documentation which the Company may
                    reasonably require regarding the expense item submitted to
                    Company.

         Section 8. Independent Contractor. Consultant shall be retained by the
                    Company only for the purposes and to the extent set forth in
                    this Agreement, and his relation to the Company, during the
                    term of this Agreement, shall be that of an

                                      -3-
<PAGE>

                    independent contractor. Consultant shall not be considered
                    as having an employee status.

        Section 9.  Injunctive Relief. Remedies at law shall be deemed to be
                    inadequate for any breach of any of the covenants of this
                    Agreement, and the Company shall be entitled to injunctive
                    relief in addition to any other remedies it may have in the
                    event of such breach.

        Section 10. Amendments; Consents. No amendment, modification,
                    supplement, termination, or waiver of any provision in this
                    Agreement, and no consent to any departure therefrom, shall
                    be effective unless in writing and signed by both Consultant
                    and the Company and then only in the specific instance and
                    for the specific purpose given.

        Section 11. Notices. Any notices required or permitted to be given in
                    writing will be deemed received when personally delivered
                    or, if earlier, ten (10) days after mailing by registered or
                    certified United States mail, postage prepaid, and return
                    receipt requested. Notice to the Company is valid if sent to
                    the Company's principal place of business and notice to
                    Consultant is valid if sent to Consultant at Consultant's
                    address as it appears in the Company's records. The Company
                    or Consultant may change their address only by notice given
                    to the other in the manner set forth herein.

        Section 12. Counterparts; Facsimile Signatures. This Agreement may be
                    executed in two or more counterparts, and the counterparts,
                    taken together, shall constitute one original. Executed
                    copies of this Agreement and any amendments or modifications
                    thereto may be delivered by facsimile transmission in lieu
                    of an original.

        Section 13. Binding Effect; Assignment. This Agreement shall be
                    binding upon and inure to the benefit of Consultant and the
                    Company and their respective permitted successors and
                    assigns. This Agreement, including the rights and
                    obligations hereunder, shall not be assigned, delegated or
                    transferred by Consultant without the prior written consent
                    of the Company.

        Section 14. Integration; Construction. This Agreement (together with
                    the appendices thereof) shall comprise the complete and
                    integrated agreement of the Company and Consultant and shall
                    supersede all prior agreements, written or oral, on the
                    subject matter hereof. Neither party hereto shall have a
                    provision construed against it by reason of such party
                    having drafted the same.

        Section 15. Survival. The rights and obligations provided in Section 3
                    (b), Section 4, Section 6, Section 9, Section 13 and Section
                    19 shall survive termination of this Agreement.

        Section 16. Governing Law. This Agreement shall be governed by, and
                    construed and enforced in accordance with, the laws of the
                    State of California.

                                       -4-
<PAGE>

        Section 17. Severability of Provisions. Any provision in this
                    Agreement that is held to be inoperative, unenforceable, or
                    invalid in any jurisdiction shall be, as to that
                    jurisdiction only, inoperative, unenforceable, or invalid
                    without affecting the remaining provisions in that
                    jurisdiction or the operation, enforceability, or validity
                    of those provisions in any other jurisdiction, and to this
                    end the provisions of this Agreement shall be severable.

        Section 18. Headings. Headings of this Agreement are included for
                    convenience only and shall not be considered a part of this
                    Agreement for any other purpose.

        Section 19. Attorneys' Fees. In the event of any litigation or other
                    dispute arising as a result of or by reason of this
                    Agreement, the prevailing party in any such litigation or
                    other dispute shall be entitled to, in addition to any other
                    damages assessed, its reasonable attorneys' fees, and all
                    other costs and expenses incurred in connection with
                    settling or resolving such dispute. The attorneys' fees
                    which the prevailing party is entitled to recover shall
                    include fees for prosecuting or defending any appeal and
                    shall be awarded for any supplemental proceedings until the
                    final judgment is satisfied in full. In addition to the
                    foregoing award of attorneys' fees to the prevailing party,
                    the prevailing party in any lawsuit on this Agreement shall
                    be entitled to its reasonable attorneys' fees incurred in
                    any post judgment proceedings to collect or enforce the
                    judgment. This attorneys' fees provision is separate and
                    several and shall survive the merger of this Agreement into
                    any judgment.

        Section 20. Waiver; Rights and Remedies. Neither Consultant's nor the
                    Company's failure to exercise any right under this Agreement
                    shall constitute a waiver of any other term or condition of
                    this Agreement with respect to any other preceding,
                    concurrent, or subsequent breach, nor shall it constitute a
                    waiver by the Company or Consultant of its rights at any
                    time thereafter to require exact and strict compliance with
                    any of the terms of this Agreement. The rights and remedies
                    set forth in this Agreement shall be in addition to any
                    other rights or remedies which may be granted by law.

[Signature page follows]

                                      -5-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed or caused their
         respective duly authorized officer to execute this Agreement as of the
         date first set forth above.

                                        CONSULTANT

                                        By______________________________________
                                           Name: Joseph Helleis

                                        SAVE THE WORLD AIR, INC.

                                        By______________________________________
                                           Name:  Eugene E. Eichler
                                           Title: Chief Operating Officer

                                      -6-

<PAGE>

                            CONFIDENTIALITY AGREEMENT

         This Confidentiality Agreement ("Agreement") which constitutes Annex A,
is entered into by and between the individual whose name appears on the
signature page of the related Consulting Agreement ("Consultant"), on the one
hand, and Save the World Air, Inc., a Nevada corporation (the "Company"), on the
other, with reference to the following facts:

         RECITALS

         A.                This Agreement is being entered into pursuant to that
                           certain Consulting Agreement of even date herewith,
                           between the Company and Consultant ("Consulting
                           Agreement").

         B.                The Company has retained the services of Consultant
                           to provide Policies and Procedures and other services
                           as called upon from time to time.

         C.                The Company desires to protect various proprietary
                           and confidential information that it uses in its
                           business.

         Therefore, the parties hereto do hereby agree as follows:

         1.       Definition of Confidential Information.

                  (a)      For the purposes of this Agreement, the term
"Confidential Information" shall mean information, material and trade secrets
(i) proprietary to the Company or to any Affiliate (as defined below) of the
Company or (ii) designated as confidential by the Company, whether or not owned
or developed by the Company, which Consultant may obtain knowledge of or access
to, through or as a result of, Consultant's relationship with the Company or
with any Affiliate of the Company.

                  (b)      Without limiting the generality of the foregoing,
Confidential Information shall include, but is not limited to, the following
types of information and other information of a similar nature (whether or not
reduced to writing or still in development):

                  (i)      The "Technology," which means:

                           (1) Any and all "Creations" as defined below; and

                           (2) any and all enhancements thereto.

                  (ii)     Economic and financial analyses, marketing techniques
         and materials, marketing and development plans, customer names and
         other information related to customers, price lists, pricing policies,
         financial information and Consultant files.

                  (iii)    Information constituting a "trade secret" as defined
         in California Civil Code Section 3426.1.

                  (iv)     Any information described above which Company obtains
         from another party and which Company treats as proprietary or
         designates as Confidential Information, whether or not owned or
         developed by the Company.

<PAGE>

                  (c)      The term "Creations" shall mean any and all
discoveries, ideas, inventions, concepts, software in various states of
development, designs, drawings, specifications, techniques, models, data, source
code, object code, documentation, diagrams, flow charts, research, developments,
processes, procedures, "know-how," any enhancements to the foregoing and
Consultant's files that may be conceived or developed by Consultant, either
alone or with others, during the term of this Agreement, whether or not
conceived or developed during Consultant's working hours, that relate to the
Products or the Company's Business (each as defined in the Consulting Agreement)
or to the Company's actual or demonstrably anticipated research and development,
or that result from any services rendered by Consultant for the Company.

                  (d)      The term "Affiliate" shall mean, with respect to any
person or entity, any other person or entity which, directly or indirectly
through one or more intermediaries, is in control of, is controlled by or is
under common control with such person or entity. "Control of," "controlled by"
and "under common control with" mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
person or entity, by contract or credit arrangement, as trustee or executor or
otherwise. The term "Affiliate" includes, but is not limited to, each and every
subsidiary of the Company, if any.

                  (e)      INFORMATION PUBLICLY KNOWN THAT IS GENERALLY EMPLOYED
BY THE TRADE AT OR AFTER THE TIME CONSULTANT FIRST LEARNS OF SUCH INFORMATION,
OR GENERIC INFORMATION OR KNOWLEDGE WHICH CONSULTANT WOULD HAVE LEARNED IN THE
COURSE OF SIMILAR SERVICES OR EMPLOYMENT ELSEWHERE IN THE TRADE, SHALL NOT BE
DEEMED PART OF THE CONFIDENTIAL INFORMATION.

                  (f)      Any capitalized terms used and not otherwise defined
herein shall have the meanings, if any, ascribed to them in the Consulting
Agreement.

         2.       Confidential Treatment. Consultant hereby agrees, during the
term of his consulting arrangement with Company and at all times thereafter, to
hold in confidence and not to directly or indirectly reveal, report, publish,
disclose or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Consultant's services for Company, without the prior written
consent of the chief executive officer of Company. Consultant agrees that, as
between Consultant and Company, Company owns all of the Confidential
Information, and Consultant hereby agrees to regard and preserve as confidential
all Confidential Information. Consultant hereby agrees not to take, retain or
copy, without the prior written consent of the chief executive officer of
Company, any or all of the Confidential Information. Without limiting the
generality of the foregoing, during the term hereof and after termination of
Consultant's employment with the Company, Consultant shall not use, build,
reverse-engineer, decompile, modify for use or disassemble any of the
Technology.

         3.       Ownership. The Technology including without limitations any
and all Creations shall be the sole and exclusive property of the Company. At
any time upon the request of the Company, Consultant shall: (i) assign, without
charge to the Company, all his rights, title, and interests in any of the
Creations to the Company; (ii) execute, acknowledge, and deliver any and all
instruments necessary to confirm the Company's complete ownership of the
Creations; and (iii) perform all other reasonable acts which may be necessary to
perfect and to protect the Company's ownership rights in the Creations.
Consultant hereby assigns to the Company all of his right, title and inters in
and to the Creations. Consultant shall disclose promptly and only to

                                       -2-
<PAGE>

the Company, and shall make an adequate record of, any and all Creations
conceived or developed by Consultant (either alone or jointly with others)
during the term of this Agreement and within one year thereafter, whether or not
the property of the Company.

         4.       Return of Materials and Copies. All notes, data, reference
materials, sketches, drawings, memoranda, documentation and records in any way
incorporating or reflecting any of the Confidential Information and all
proprietary rights therein, including copyrights, shall belong exclusively to
Company, and Consultant hereby agrees to turn over promptly all copies of such
materials in Consultant's control to Company upon Company's request or upon
termination of Consultant's employment by Company.

         5.       Non-Competition and Non-Solicitation. During the Company's
employment of Consultant and for a period of two (2) years following the term of
the Consulting Agreement, Consultant shall not assist, become employed by or
engage in any consulting or other services for any person or entity that is
engaged in any business or other activity in competition with the Company, nor
solicit or entice any of the Company's employees to do any of the foregoing.
During the Company's employment of Consultant and for a period of two (2) years
following the term of the Consulting Agreement, Consultant shall not set up or
take preliminary steps to set up or engage in any business enterprise that would
be in competition with the Company and Consultant shall disclose to the Company,
any and all competitive plans that Consultant may have, without regard to
Consultant's intent to act or not act on such plans.

         6.       Fiduciary Obligations. Nothing in this Agreement is intended
to limit Consultant's obligations to Company in any capacity, and Consultant
shall be bound by all fiduciary and other obligations to Company which may arise
by reason of Consultant's employment, capacity or other duties to the Company.

         7.       Injunctive Relief. Due to the unique nature of the
Confidential Information, Consultant understands and hereby agrees that Company
will suffer irreparable harm in the event that Consultant fails to comply with
any of Consultant's obligations under Section 2 or 3 above and that monetary
damages will be inadequate to compensate Company for such breach. Accordingly,
Consultant hereby agrees that Company will be entitled, in addition to any other
remedies available to it at law or in equity, to injunctive relief to enforce
the terms of Sections 2 and 3 above.

         8.       Amendments; Consents. No amendment, modification, supplement,
termination or waiver of any provision in this Agreement, and no consent to any
departure therefrom, shall be effective unless in writing and signed by both
Consultant and Company and then only in the specific instance and for the
specific purpose given.

         9.       Notice. Any notices required or permitted to be given in
writing and will be deemed received when personally delivered or, if earlier,
ten (10) days after mailing by registered or certified United States mail,
postage prepaid, and with return receipt requested. Notice to the Company is
valid if sent to the Company's principal place of business and notice to
Consultant is valid if sent to Consultant at Consultant's address as it appears
in the Company's records.

         10.      Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all such
counterparts when taken together shall be deemed to be but one and the same
instrument.

                                      -3-
<PAGE>

         11.      Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of Consultant and Company and their respective
permitted successors and assigns. This Agreement, including the rights and
obligations hereunder, shall not be assigned or transferred by Consultant
without the prior written consent of Company.

         12.      Integration; Construction. This Agreement (together with the
Consulting Agreement) shall comprise the complete and integrated agreement of
the Company and Consultant and shall supersede all prior agreements, written or
oral, on the subject matter hereof. Neither party hereto shall have a provision
construed against it by reason of such party having drafted the same.

         13.      Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California.

         14.      Severability of Provisions. Any provision in this Agreement
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall be, as to that jurisdiction only, inoperative, unenforceable or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability or validity of those provisions in any other
jurisdiction, and to this end the provisions of this Agreement shall be
severable.

         15.      Headings. Headings of this Agreement are included for
convenience only and shall not be considered a part of this Agreement for any
other purpose.

         16.      Attorneys' Fees. In the event of any litigation or other
dispute arising as a result of or by reason of this Agreement, the prevailing
party in any such litigation or other dispute shall be entitled to, in addition
to any other damages assessed, its reasonable attorneys' fees, and all other
costs and expenses incurred in connection with settling or resolving such
dispute. The attorneys' fees which the prevailing party is entitled to recover
shall include fees for prosecuting or defending any appeal and shall be awarded
for any supplemental proceedings until the final judgment is satisfied in full.
In addition to the foregoing award of attorneys' fees to the prevailing party,
the prevailing party in any lawsuit on this Agreement shall be entitled to its
reasonable attorneys' fees incurred in any post judgment proceedings to collect
or enforce the judgment. This attorneys' fees provision is separate and several
and shall survive the merger of this Agreement into any judgment.

         17.      Waiver; Rights and Remedies. Neither Consultant's nor
Company's failure to exercise any right under this Agreement shall constitute a
waiver of any other term or condition of this Agreement with respect to any
other preceding, concurrent or subsequent breach, nor shall it constitute a
waiver by the Company or Consultant of its rights at any time thereafter to
require exact and strict compliance with any of the terms of this Agreement. The
rights and remedies set forth in this Agreement shall be in addition to any
other rights or remedies which may be granted by law.

                                      -4-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed or caused their
         respective duly authorized officer to execute this Agreement as of the
         date first set forth above.

                                   SAVE THE WORLD AIR, INC.

                                   By  _________________________________
                                       Its Chief Operating Officer

                                   CONSULTANT

                                   By __________________________________

                                     Name  Joseph Helleis

                                   Address: 2639 Barefoot Lane

                                   Rowland Heights, CA 91748

                                      -5-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>v97738exv10w7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

                  AGREEMENT made as of the xxth day of MONTH-YEAR by and between
SAVE THE WORLD AIR, INC. ("STWA"), a Nevada chartered corporation, and Edward L.
Masry (the "Executive").

BACKGROUND

                  A.       STWA desires to employ the Executive and the
Executive is willing to serve on the terms and conditions herein provided.

                  B.       In order to effect the foregoing, the parties hereto
desire to enter into an employment agreement on the terms and conditions set
forth below.

                  NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties contained herein, and
intending to be legally bound hereby, the parties hereto agree as follows:

                  1.       DEFINITIONS AND SPECIAL PROVISIONS. Each capitalized
word and term used herein shall have the meaning ascribed to it in the glossary
appended hereto, unless the context in which such word or term is used otherwise
clearly requires. Such glossary is incorporated herein by reference and made a
part hereof.

                  2.       EMPLOYMENT. STWA hereby agrees to employ the
Executive, and the Executive hereby agrees to serve STWA, on the terms and
conditions set forth herein.

                  3.       TERM OF AGREEMENT. The Executive's employment under
this Agreement shall commence on the date hereof and, except as otherwise
provided herein, shall continue until December 31, 2007; provided, however, that
commencing on December 31, 2007 and each anniversary thereafter, the term of
this Agreement shall automatically be extended for one additional year beyond
the term otherwise established unless, prior to such date, STWA or the Executive
shall have given a Notice of Non-Extension.

                  4.       POSITION AND DUTIES. The Executive shall serve as
Chief Executive Officer of STWA and he shall have such responsibilities, duties
and authority as he may from time to time deem appropriate in his best judgment.
He shall also serve as a Chairman of STWA's Board of Directors and upon any
committees thereof as requested by the Board. Nothing herein shall be construed
as precluding him from devoting a reasonable amount of time to civic,
charitable, trade association and other activities that do not represent
conflicts and are not otherwise in any way detrimental to STWA.

                  5.       COMPENSATION AND RELATED MATTERS.

                  BASE COMPENSATION. During the period of the Executive's
                  employment hereunder, the executive's annual base compensation
                  shall be for a total consideration of $1.00

                           (a)      INCENTIVE COMPENSATION. During the period of
                  the Executive's employment hereunder, he shall be entitled to
                  participate in all incentive plans, stock option plans, and
                  similar arrangements as may be in effect and maintained by
                  STWA for executive officers on a basis and at award levels
                  consistent and commensurate with his position and duties
                  hereunder.

                           (b)      EMPLOYEE BENEFIT PLANS AND OTHER PLANS OR
                  ARRANGEMENTS. The Executive shall be entitled to participate
                  in all Employee Benefit Plans of STWA that either, are in
                  effect at present or that may be adopted in the future. In
                  addition, he shall be entitled to participate in and

                                      G-1
<PAGE>

                  enjoy any other plans and arrangements which provide for sick
                  leave, vacation, sabbatical, or personal days, club
                  memberships and dues, education payment or reimbursement,
                  business-related seminars, and similar fringe benefits
                  provided to or for the executive officers of STWA from time to
                  time. Notwithstanding the foregoing, Executive shall be
                  entitled to at least four (4) weeks vacation per calendar year
                  during each year of employment. Such vacation shall be
                  prorated during the year 2003 based on the date of this
                  Agreement.

                           (c)      EXPENSES. During the period of the
                  Executive's employment hereunder, he shall be entitled to
                  receive prompt reimbursement for all reasonable and customary
                  expenses, including transportation expenses, incurred by him
                  in performing services hereunder in accordance with the
                  general policies and procedures established by STWA.

                  6.       TERMINATION BY REASON OF DISABILITY.

                           (a)      IN GENERAL. In the event the Executive
                  becomes unable to perform his duties on a full-time basis by
                  reason of the occurrence of his Disability and, within 30 days
                  after a Notice of Termination is given, he shall not have
                  returned to the full-time performance of such duties, his
                  employment may be terminated by STWA.

                           (b)      BENEFITS. In the event of the termination of
                  the Executive's employment under Subparagraph (a), the term of
                  this Agreement shall continue for one year after the Date of
                  Termination, and STWA shall pay or provide the benefits set
                  forth below:

                                    (1)      The Executive shall be paid an
                                    amount equal to the higher of the aggregate
                                    bonus (es) paid to him with respect to one
                                    of the two years immediately preceding the
                                    year in which the Date of Termination
                                    occurs. Such amount shall be paid to him in
                                    cash on the first anniversary date of the
                                    Date of Termination.

                                    (2)      The Executive and his eligible
                                    dependents shall be entitled to continue to
                                    participate at the same aggregate benefit
                                    levels, for one year and at no out-of-pocket
                                    or tax cost to him, in the Welfare Benefit
                                    Plans in which he was a participant
                                    immediately prior to the Date of
                                    Termination, to the extent permitted under
                                    the terms of such plans and applicable law.
                                    To the extent STWA is unable to provide for
                                    continued participation in a Welfare Benefit
                                    Plan, it shall provide an equivalent benefit
                                    directly at no out-of-pocket or tax cost to
                                    him. For purposes of the preceding two
                                    sentences, STWA shall be deemed to have
                                    provided a benefit at no tax cost to him if
                                    it pays an additional amount to him or on
                                    his behalf, with respect to those benefits
                                    which would otherwise be nontaxable to him,
                                    calculated in a manner consistent with the
                                    provisions of Paragraph 12.

                           (c)      EARLIER CESSATION OF CERTAIN WELFARE
                           BENEFITS. Notwithstanding the provisions of
                           Subparagraph (b)(5), STWA shall not be required to
                           provide, at its cost, the welfare benefits covered
                           therein after the later of (i) the attainment by the
                           Executive and his spouse (if any) of age 65, or (ii)
                           the date specified in the relevant plan document for
                           benefit termination (assuming that he was employed
                           until age 65 or the normal retirement date, if any,
                           specified in such document).

                           (c)      DEATH DURING REMAINING TERM OF AGREEMENT.

                                    (1)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Disability and
                                    he is survived by a

                                      G-2
<PAGE>

                                    spouse, the compensation and benefits
                                    remaining to be paid and provided under
                                    Subparagraph (b) shall be unaffected by his
                                    death and shall be paid and provided to her
                                    or on her behalf; provided, however, that
                                    the extent of her rights to the accrued
                                    benefits described in Subparagraph (b)(4)
                                    shall be determined by reference to the
                                    relevant plan provisions and any elections
                                    made under such plans; and provided further,
                                    that STWA shall not be required to provide
                                    continued benefits with respect to her
                                    deceased husband; and provided further, that
                                    in no event shall STWA be required to
                                    provide, at its cost, the other welfare
                                    benefits described in Subparagraph (b)(5) to
                                    such spouse and her eligible dependents
                                    after the earlier of (i) her death, or (ii)
                                    the later of (A) her attainment of age 65,
                                    or (B) the date specified in the relevant
                                    plan document for benefit termination
                                    (assuming that the Executive was employed
                                    until age 65 or the normal retirement date,
                                    if any, specified in such document).

                                    (2)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Disability and
                                    he is not survived by a spouse, (i) STWA
                                    shall thereafter make the remaining payments
                                    described in Subparagraphs (b)(1) through
                                    (b)(3) directly to his estate, (ii) the
                                    extent of the rights of any person to the
                                    accrued benefits described in Subparagraph
                                    (b)(4) shall be determined by reference to
                                    the relevant plan provisions and any
                                    elections made under such plans, and (iii)
                                    STWA's obligation to provide continued
                                    benefits under Subparagraph (b)(5) shall
                                    terminate.

                           (d)      COMPENSATION AND BENEFITS UPON EXPIRATION OF
                  REMAINING TERM OF AGREEMENT. Upon the expiration of the
                  remaining term of this Agreement following the Executive's
                  termination for Disability, and provided his Disability then
                  continues, he shall be entitled to receive the compensation
                  and benefits provided under the terms of any long-term
                  disability plan of STWA in effect on the Date of Termination
                  or, if greater, at the expiration of such remaining term. If
                  such plan exists, such compensation and benefits shall
                  continue until the earlier of (i) his death, or (ii) the later
                  of (A) his attainment of age 65, or (B) the date specified in
                  the plan document for benefit termination. To the extent STWA
                  is unable to provide such compensation and benefits under its
                  long-term disability plan, if any, it shall provide equivalent
                  compensation and benefits directly at no out-of-pocket or tax
                  cost to him. For purposes of the preceding sentence, STWA
                  shall be deemed to have provided compensation and benefits at
                  no tax cost to him if it pays an additional amount to him or
                  on his behalf, with respect to the compensation and benefits
                  which would otherwise be nontaxable to him, calculated in a
                  manner consistent with the provisions of Paragraph 12.

                  7.       TERMINATION BY REASON OF DEATH.

                           (a)      COMPENSATION AND BENEFITS TO SURVIVING
                  SPOUSE. In the event the Executive dies while he is employed
                  under this Agreement and is survived by a spouse, STWA shall
                  pay or provide the compensation and benefits set forth below:

                                    (1)      The surviving spouse shall be paid
                                    an amount equal to the greater of (i) the
                                    Executive's highest base compensation
                                    received during one of the two calendar
                                    years immediately preceding the calendar
                                    year in which the Date of Termination
                                    occurs, or (ii) his base compensation in
                                    effect immediately prior to the Date of
                                    Termination (or prior to any reduction which
                                    entitled him to terminate his employment for
                                    Good Reason) for a period of one year,
                                    beginning with such Date

                                      G-3
<PAGE>

                                    of Termination. The frequency and manner of
                                    payment of such amounts shall be in
                                    accordance with STWA's executive payroll
                                    practices from time to time in effect.

                                    (2)      The surviving spouse shall be paid
                                    an amount equal to the highest payment made
                                    to Executive under each incentive bonus plan
                                    of STWA with respect to one of the two years
                                    immediately preceding the year in which the
                                    Date of Termination occurs. Such amount
                                    shall be paid in cash to her within 30 days
                                    after the Date of Termination.

                                    (3)      The surviving spouse shall be paid
                                    an amount equal to the sum of the highest
                                    annual contribution made on the Executive's
                                    behalf (other than his own salary reduction
                                    contributions) to each tax-qualified and
                                    non-qualified Defined Contribution Plan of
                                    STWA with respect to the year in which the
                                    Date of Termination occurs or one of the two
                                    years immediately preceding such year. Such
                                    amount shall be paid in cash to her within
                                    30 days after the Date of Termination or
                                    within 30 days after such amount can first
                                    be determined, whichever is later.

                                    (4)      Subject to the following sentence,
                                    the surviving spouse shall be paid benefits
                                    determined by reference to the excess of (i)
                                    the aggregate retirement benefits the
                                    Executive would have accrued under the terms
                                    of each tax-qualified and non-qualified
                                    Defined Benefit Plan as in effect
                                    immediately prior to the Date of
                                    Termination, had he (A) continued to be
                                    employed for a period of one year following
                                    the Date of Termination, and (B) received
                                    (on a pro rated basis, as appropriate) the
                                    greater of (I) the highest compensation
                                    taken into account under each such plan with
                                    respect to one of the two years immediately
                                    preceding the year in which the Date of
                                    Termination occurs, or (II) his annualized
                                    base compensation in effect immediately
                                    prior to the Date of Termination (or prior
                                    to any reduction which entitled him to
                                    terminate his employment for Good Reason),
                                    over (ii) the retirement benefits actually
                                    determined under such plans. The frequency,
                                    manner, and extent of payment of such
                                    benefits shall be consistent with the terms
                                    of the plans to which they relate and any
                                    elections made thereunder.

                                    (5)      The surviving spouse and her
                                    eligible dependents shall be entitled to
                                    continue to participate at the same
                                    aggregate benefit levels, for a period of
                                    one year following the Date of Termination
                                    and at no out-of-pocket or tax cost to her,
                                    in the Welfare Benefit Plans in which the
                                    Executive was a participant immediately
                                    prior to the Date of Termination, to the
                                    extent permitted under the terms of such
                                    plans and applicable law; provided, however,
                                    that STWA shall not be required to provide
                                    continued benefits with respect to her
                                    deceased husband; and provided further, that
                                    STWA shall not thereafter be required to
                                    provide, at its cost, the other welfare
                                    benefits covered by such plans to such
                                    spouse and her eligible dependents after the
                                    earlier of (i) her death, or (ii) the later
                                    of (A) her attainment of age 65, or (B) the
                                    date specified in the relevant plan document
                                    for benefit termination (assuming the
                                    Executive was employed until age 65 or the
                                    normal retirement date, if any, specified in
                                    such document). To the extent STWA is unable
                                    to provide for continued participation in a
                                    Welfare Benefit Plan as required, it shall
                                    provide an equivalent benefit directly at no
                                    out-of-pocket or tax

                                      G-4
<PAGE>

                                    cost to her. For purposes of the preceding
                                    two sentences, STWA shall be deemed to have
                                    provided a benefit at no tax cost to her if
                                    it pays an additional amount to her or on
                                    her behalf, with respect to those benefits
                                    which would otherwise be nontaxable to her,
                                    calculated in a manner consistent with the
                                    provisions of Paragraph 12.

                           (b)      COMPENSATION AND BENEFITS TO ESTATE, ETC. In
                  the event the Executive dies while he is employed under this
                  Agreement and is not survived by a spouse, (i) STWA shall make
                  the payments described in Subparagraphs (a)(1) through (a)(3)
                  directly to his estate, (ii) the extent of the rights of any
                  person to the accrued benefits described in Subparagraph
                  (a)(4) shall be determined by reference to the relevant plan
                  provisions and any elections made under such plans, and (iii)
                  STWA's obligation to provide benefits under Subparagraph
                  (a)(5) shall terminate.

                  8.       TERMINATION BY STWA FOR CAUSE.

                           (a)      IN GENERAL. In the event STWA intends to
                  terminate the Executive's employment for Cause, it shall
                  deliver a Notice of Termination to him which specifies a Date
                  of Termination not less than 30 days following the date of
                  such notice, unless a shorter period of notice is required by
                  the principal regulator of STWA or any affiliate of STWA.

                           (b)      COMPENSATION. Within 30 days after the
                  Executive's termination under Subparagraph (a), STWA shall pay
                  him, in one lump sum, his accrued but unpaid base compensation
                  and vacation compensation earned through the Date of
                  Termination.

                  9.       TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON.

                           (a)      IN GENERAL. In the event the Executive
                  intends to terminate his employment without Good Reason, he
                  shall deliver a Notice of Termination to STWA which specifies
                  a Date of Termination not less than (i) 90 days following the
                  date of such notice, if a Change in Control shall not have
                  occurred, or (ii) 30 days following the date of such notice,
                  if a Change in Control shall have occurred.

                           (b)      COMPENSATION. Within 30 days after the
                  Executive's termination under Subparagraph (a), STWA shall pay
                  him, in one lump sum, his accrued but unpaid base compensation
                  and vacation compensation earned through the Date of
                  Termination.

                  10.      TERMINATION BY STWA WITHOUT DISABILITY OR CAUSE.

                           (a)      IN GENERAL. In the event STWA intends to
                  terminate the Executive's employment for any reason other than
                  Disability or Cause, it shall deliver a Notice of Termination
                  to him which specifies a Date of Termination not less than 90
                  days following the date of such notice.

                           (b)      COMPENSATION AND BENEFITS DURING REMAINING
                  TERM OF AGREEMENT. In the event of the termination of the
                  Executive's employment under Subparagraph (a), STWA shall pay
                  or provide the compensation and benefits described in
                  Paragraph 6(b), except that all such compensation and benefits
                  shall be for the remaining term of this Agreement determined
                  in accordance with Section 3 hereof, unless a change in
                  control has occurred prior to such termination of employment,
                  in which case all such compensation and benefits shall be for
                  a term of three (3) years from the Date of Termination and the
                  term of this Agreement shall continue until all such
                  compensation and benefits are paid to Executive in full.

                                      G-5
<PAGE>

                           (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b)
                  COMPENSATION AND BENEFITS. In the event the Executive suffers
                  a Disability during the remaining term of this Agreement
                  following the Date of Termination, STWA's obligation to pay or
                  fund any disability insurance premiums on his behalf shall be
                  suspended while his Disability continues, provided the
                  cessation of payment or funding does not result in the
                  termination of disability benefits. Any amounts described in
                  Paragraph 6(b) and otherwise payable under Subparagraph (b)
                  shall be reduced (but not below zero) by the dollar amount of
                  disability benefits received by him pursuant to plans or
                  policies funded, directly at its cost, by STWA.

                           (d)      EARLIER CESSATION OF CERTAIN WELFARE
                  BENEFITS. Notwithstanding the provisions of Subparagraph (b),
                  STWA shall not be required to provide, at its cost, the
                  welfare benefits covered by Paragraph 6(b)(5) after the later
                  of (i) the attainment by the Executive and his spouse (if any)
                  of age 65, or (ii) the date specified in the relevant plan
                  document for benefit termination (assuming that he was
                  employed until age 65 or the normal retirement date, if any,
                  specified in such document).

                           (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                                    (1)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination without Disability
                                    or Cause by STWA and he is survived by a
                                    spouse, the compensation and benefits
                                    required to be paid and provided under
                                    Subparagraph (b) shall be unaffected by his
                                    death and shall be paid and provided to her
                                    or on her behalf; provided, however, that
                                    the extent of her rights to the accrued
                                    benefits described in Paragraph 6(b)(4)
                                    shall be determined by reference to the
                                    relevant plan provisions and any elections
                                    made under such plans; and provided further,
                                    that STWA shall not be required to provide
                                    continued benefits with respect to her
                                    deceased husband; and provided further, that
                                    in no event shall STWA be required to
                                    provide, at its cost, the other welfare
                                    benefits described in Paragraph 6(b)(5) to
                                    such spouse and her eligible dependents
                                    after the earlier of (i) her death, or (ii)
                                    the later of (A) her attainment of age 65,
                                    or (B) the date specified in the relevant
                                    plan document for benefit termination
                                    (assuming that the Executive was employed
                                    until age 65 or the normal retirement date,
                                    if any, specified in such document).

                                    (2)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination without Disability
                                    or Cause and he is not survived by a spouse,
                                    (i) STWA shall thereafter make the remaining
                                    payments described in Paragraphs 6(b)(1)
                                    through 6(b)(3) directly to his estate, (ii)
                                    the extent of the rights of any person to
                                    the accrued benefits described in Paragraph
                                    6(b)(4) shall be determined by reference to
                                    the relevant plan provisions and any
                                    elections made under such plans, and (iii)
                                    STWA's obligation to provide the continued
                                    benefits described in Paragraph 6(b)(5)
                                    shall terminate.

                  11.      TERMINATION BY THE EXECUTIVE FOR GOOD REASON.

                           (a)      IN GENERAL. In the event the Executive
                  intends to terminate his employment for Good Reason, he shall
                  deliver a Notice of Termination to STWA which specifies a Date
                  of Termination not less than 30 days following the date of
                  such notice.

                           (b)      COMPENSATION AND BENEFITS DURING REMAINING
                  TERM OF AGREEMENT. In the event of the termination of the
                  Executive's employment under Subparagraph (a), STWA shall

                                      G-6
<PAGE>

                  pay or provide the compensation and benefits described in
                  Paragraph 6(b), except that all such compensation and benefits
                  shall be for a term of three (3) years from the Date of
                  Termination and the term of this Agreement shall continue
                  until all such compensation and benefits are paid to Executive
                  in full.

                           (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b)
                  COMPENSATION AND BENEFITS. In the event the Executive suffers
                  a Disability during the remaining term of this Agreement
                  following the Date of Termination, STWA's obligation to pay or
                  fund any disability insurance premiums on his behalf shall be
                  suspended while his Disability continues, provided the
                  cessation of payment or funding does not result in the
                  termination of disability benefits. Any amounts described in
                  Paragraph 6(b) and otherwise payable under Subparagraph (b)
                  shall be reduced (but not below zero) by the dollar amount of
                  disability benefits received by him pursuant to plans or
                  policies funded, directly at its cost, by STWA.

                           (d)      EARLIER CESSATION OF CERTAIN WELFARE
                  BENEFITS. Notwithstanding the provisions of Subparagraph (b),
                  STWA shall not be required to provide, at its cost, the
                  welfare benefits covered by Paragraph 6(b)(5) after the later
                  of (i) the attainment by the Executive and his spouse (if any)
                  of age 65, or (ii) the date specified in the relevant plan
                  document for benefit termination (assuming that he was
                  employed until age 65 or the normal retirement date, if any,
                  specified in such document).

                           (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                                    (1)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Good Reason
                                    and he is survived by a spouse, the
                                    compensation and benefits required to be
                                    paid and provided under Subparagraph (b)
                                    shall be unaffected by his death and shall
                                    be paid and provided to her or on her
                                    behalf; provided, however, that the extent
                                    of her rights to the accrued benefits
                                    described in Paragraph 6(b)(4) shall be
                                    determined by reference to the relevant plan
                                    provisions and any elections made under such
                                    plans; and provided further, that STWA shall
                                    not be required to provide continued
                                    benefits with respect to her deceased
                                    husband; and provided further, that in no
                                    event shall STWA be required to provide, at
                                    its cost, the other welfare benefits
                                    described in Paragraph 6(b)(5) to such
                                    spouse and her eligible dependents after the
                                    earlier of (i) her death, or (ii) the later
                                    of (A) her attainment of age 65, or (B) the
                                    date specified in the relevant plan document
                                    for benefit termination (assuming that the
                                    Executive was employed until age 65 or the
                                    normal retirement date, if any, specified in
                                    such document).

                                    (2)      In the event the Executive dies
                                    during the remaining term of this Agreement
                                    following his termination for Good Reason
                                    and he is not survived by a spouse, (i) STWA
                                    shall thereafter make the remaining payments
                                    described in Paragraphs 6(b)(1) through
                                    6(b)(3) directly to his estate, (ii) the
                                    extent of the rights of any person to the
                                    accrued benefits described in Paragraph
                                    6(b)(4) shall be determined by reference to
                                    the relevant plan provisions and any
                                    elections made under such plans, and (iii)
                                    STWA's obligation to provide the continued
                                    benefits described in Paragraph 6(b)(5)
                                    shall terminate.

                                      G-7
<PAGE>

                  12.      PROVISIONS RELATING TO EXCISE TAXES.

                           (a)      IN GENERAL. In the event the Executive
                  becomes liable, for any taxable year, for the payment of an
                  Excise Tax (because of a change in control) with respect to
                  the compensation and benefits payable by STWA under this
                  Agreement or otherwise, STWA shall make one or more Gross-Up
                  Payments to the Executive or on his behalf. The amount of any
                  Gross-Up Payment shall be calculated by a certified public
                  accountant or other tax professional designated jointly by the
                  Executive and STWA. The provisions of this paragraph shall
                  apply with respect to the Executive's surviving spouse or
                  estate, where relevant.

                           (b)      METHODOLOGY FOR CALCULATION OF GROSS-UP
                  PAYMENT. For purposes of determining the amount of any
                  Gross-Up Payment, the Executive shall be deemed to pay income
                  taxes at the highest federal, state, and local marginal rates
                  of tax for the calendar year in which the Gross-Up Payment is
                  to be made, net of the maximum reduction in federal income tax
                  which could be obtained from the deduction of state and local
                  income taxes. In the event that the Excise Tax is subsequently
                  determined to be less than the amount taken into account at
                  the time the Gross-Up Payment was made, the Executive shall
                  repay to STWA, at the time that the amount of such reduction
                  in Excise Tax is finally determined, the portion of the
                  Gross-Up Payment attributable to the reduction (plus a portion
                  of the Gross-Up Payment attributable to the Excise Tax and the
                  federal, state, and local income taxes imposed on the portion
                  of the Gross-Up Payment being repaid by the Executive to the
                  extent such repayment results in a reduction in Excise Tax or
                  federal, state, or local income tax), plus interest on the
                  amount of such repayment. Such interest shall be calculated by
                  using the rate in effect under Section 1274(d)(1) of the IRC,
                  on the date the Gross-Up Payment was made, for debt
                  instruments with a term equal to the period of time which has
                  elapsed from the date the Gross-Up Payment was made to the
                  date of repayment. In the event that the Excise Tax is
                  subsequently determined to exceed the amount taken into
                  account at the time the Gross-Up Payment was made (including
                  by reason of any payment the existence or amount of which
                  could not be determined at the time of the Gross-Up Payment),
                  STWA shall make an additional Gross-Up Payment with respect to
                  the excess at the time the amount thereof is finally
                  determined, plus interest calculated in a manner similar to
                  that described in the preceding sentence.

                           (c)      TIME OF PAYMENT. Any Gross-Up Payment
                  provided for herein shall be paid not later than the 30th day
                  following the payment of any compensation or the provision of
                  any benefit which causes such payment to be made; provided,
                  however, that if the amount of such payment cannot be finally
                  determined on or before such day, STWA shall pay on such day
                  an estimate of the minimum amount of such payment and shall
                  pay the remainder of such payment (together with interest
                  calculated in a manner similar to that described in
                  Subparagraph (b)) as soon as the amount thereof can be
                  determined. In the event that the amount of an estimated
                  payment exceeds the amount subsequently determined to have
                  been due, such excess shall constitute a loan by STWA to the
                  Executive, payable on the 30th day after demand by STWA
                  (together with interest calculated in a manner similar to that
                  described in Subparagraph (b)).

                           (d)      OTHER ARRANGEMENTS. Notwithstanding the
                  provisions of this paragraph to the contrary, the actual
                  amounts payable hereunder as Gross-Up Payments shall be
                  coordinated with any similar amounts paid to the Executive
                  under any other contract, plan, or arrangement.

                  13.      FEES AND EXPENSES OF THE EXECUTIVE.

                                      G-8
<PAGE>

                  After a Change in Control and except as provided in the
                  following sentence, STWA shall pay, within 30 days following
                  demand by the Executive, all legal, accounting, actuarial, and
                  related fees and expenses incurred by him in connection with
                  the enforcement of this Agreement. An arbitration panel or a
                  court of competent jurisdiction shall be empowered to deny
                  payment to the Executive of such fees and expenses only if it
                  determines that he instituted a proceeding hereunder, or
                  otherwise acted, in bad faith.

                  14.      REDUCTION FOR COMPENSATION AND BENEFITS RECEIVED
                  UNDER STWA SEVERANCE POLICY, ETC. Notwithstanding anything
                  herein to the contrary, in the event the Executive, his
                  surviving spouse, or any other person becomes entitled to
                  continued compensation and benefits hereunder by reason of the
                  Executive's termination of employment and, in addition,
                  compensation or similar benefits are payable under a severance
                  policy, program or arrangement maintained by STWA (other than
                  retirement plans), then the compensation or benefits otherwise
                  payable hereunder shall be reduced by the compensation or
                  benefits provided under such severance policy, program or
                  arrangement.

                  15.      MITIGATION. The Executive shall not be required to
                  mitigate the amount of any compensation or benefits which may
                  become payable hereunder by reason of his termination by
                  seeking other employment or otherwise, nor, except as
                  otherwise provided in the following sentence or elsewhere
                  herein, shall the amount of any such compensation or benefits
                  be reduced by any compensation or benefits received by the
                  Executive as the result of his employment by another employer.
                  Notwithstanding anything in this Agreement to the contrary,
                  STWA's obligation to provide any medical and dental benefits
                  hereunder may be suspended, with the written concurrence of
                  the Executive or, if applicable, his surviving spouse during
                  any period of time that such benefits are being provided by
                  reason of his or her employment.

                  16.      FUNDING OF COMPENSATION AND BENEFITS; ACCELERATION OF
                  CERTAIN PAYMENTS.

                           (a)      GRANTOR TRUST. In the event (i) the
                  Executive's employment is terminated without Cause or he
                  terminates his employment for Good Reason, and (ii) and a
                  Change in Control has occurred as of the Date of Termination
                  or occurs thereafter, the Executive shall have the right to
                  require STWA to establish a grantor trust (taxable to STWA)
                  and fund such trust, on an actuarially sound basis, to provide
                  the compensation and benefits to which he is entitled
                  hereunder, other than those which may be paid pursuant to the
                  provisions of Subparagraph (c). The specific terms of such
                  trust shall be as agreed to by the parties in good faith;
                  provided, however, that the trustee shall be a financial
                  institution independent of STWA; and provided further, that in
                  no event shall STWA be entitled to withdraw funds from the
                  trust for its benefit, or otherwise voluntarily assign or
                  alienate such funds, until such time as all compensation and
                  benefits required hereunder are paid and provided. The
                  determination of the extent of required funding, including any
                  supplemental funding in the event of adverse investment
                  performance of trust assets, shall be made by an actuary or a
                  certified public accountant retained by each party. To the
                  extent such professionals cannot agree on the proper level of
                  funding, they shall select a third such professional whose
                  determination shall be binding upon the parties.
                  Notwithstanding the foregoing, STWA shall remain liable for
                  all compensation and benefits required to be paid or provided
                  hereunder.

                           (b)      ALTERNATE SECURITY. In lieu of the right
                  given to the Executive under Subparagraph (a), he shall have
                  the right under such circumstances to require that STWA
                  provide (i) an irrevocable standby letter of credit issued by
                  a financial institution other than STWA or any Subsidiary of
                  STWA with a senior debt credit rating of "A" or better by
                  Moody's

                                      G-9
<PAGE>

                  Investors Service or Standard & Poor's Corporation, or (ii)
                  other security reasonably acceptable to him, to secure the
                  payment of such compensation and benefits.

                           (c)      ACCELERATED PAYMENT OF PRESENT VALUE OF
                  CERTAIN COMPENSATION. In the event (i) the Executive's
                  employment is terminated without Cause or he terminates his
                  employment for Good Reason, and (ii) a Change in Control has
                  occurred as of the Date of Termination or occurs thereafter,
                  the Executive shall have the continuing right to demand that
                  the present value of the remaining payments described in
                  Paragraphs 6(b)(1) through (3), and payable by reason of the
                  provisions of Paragraph 10 or 11 (as the case may be), be paid
                  to him in one lump sum within 30 days after the date written
                  demand is given. For purposes of calculating the present value
                  of such payments, a discount factor shall be applied to each
                  such payment which is equal to the relevant applicable federal
                  rate in effect on the date written demand is given by him,
                  determined by reference to the period of time between the date
                  of such notice and the scheduled time such payment would
                  otherwise be made. In the event any payment described in
                  Paragraphs 6(b)(1) through (3) is not yet determinable on the
                  date written demand is made, the other payments shall
                  nonetheless be made as provided above; and the undetermined
                  payment shall be made within 30 days after it becomes
                  determinable, calculated as provided in the preceding sentence
                  but by treating the date on which the payment becomes
                  determinable as the date of written notice. Nothing in this
                  subparagraph shall be construed as affecting the Executive's
                  right to one or more Gross-Up Payments in accordance with the
                  provisions of Paragraph 12; and a Gross-Up Payment (if
                  applicable) will be calculated and made with any payment made
                  under this subparagraph, as well as any other Gross-Up
                  Payments that may be required hereunder at a subsequent date.

                  17.      WITHHOLDING TAXES. All compensation and benefits
                  provided for herein shall, to the extent required by law, be
                  subject to federal, state, and local tax withholding.

                  18.      CONFIDENTIAL INFORMATION. The Executive agrees that
                  subsequent to his employment with STWA, he will not, at any
                  time, communicate or disclose to any unauthorized person,
                  without the written consent of the STWA, any proprietary or
                  other confidential information concerning STWA or any
                  Subsidiary of STWA; provided, however, that the obligations
                  under this paragraph shall not apply to the extent that such
                  matters (i) are disclosed in circumstances where the Executive
                  is legally obligated to do so, or (ii) become generally known
                  to and available for use by the public otherwise than by his
                  wrongful act or omission; and provided further, that he may
                  disclose any knowledge of insurance, financial, legal and
                  economic principles, concepts and ideas which are not solely
                  and exclusively derived from the business plans and activities
                  of STWA.

                  19.      COVENANTS NOT TO COMPETE OR TO SOLICIT.

                           (a)      NONCOMPETITION. During the period in which
                  he is employed by STWA and, if the Executive's employment
                  terminates under Paragraphs 6, for a period of 12 months after
                  the Date of Termination (the "Noncompetition Period"), the
                  Executive shall not, without the written consent in writing of
                  the Board of Directors of STWA, become an executive officer,
                  partner, consultant, director, or a four and nine-tenths
                  percent or greater shareholder or equity owner of any entity
                  engaged in the banking, lending, asset management, mutual
                  fund, financial planning or investment security business
                  within the California counties of Camden, Burlington, or any
                  other California county in which STWA has a branch or loan
                  production office. If at the time of the enforcement of this
                  paragraph a court holds that the duration, scope, or area
                  restrictions stated herein are unreasonable under the
                  circumstances then existing and, thus, unenforceable,

                                      G-10
<PAGE>

                  STWA and the Executive agree that the maximum duration, scope,
                  or area reasonable under such circumstances shall be
                  substituted for the stated duration, scope, or area.

                           (b)      NONSOLICITATION. During his employment and
                  the Noncompetition Period, the Executive shall not, whether on
                  his own behalf or on behalf of any other individual or
                  business entity, solicit, endeavor to entice away from STWA, a
                  Subsidiary or any affiliated company, or otherwise interfere
                  with the relationship of STWA, a Subsidiary or any affiliated
                  company with any person who is, or was within the then most
                  recent 12 month period, an employee or associate thereof;
                  provided, however, that this subparagraph shall not apply
                  following the occurrence of a Change in Control.

                           (c)      EXTENSION OF NONCOMPETITION PERIOD. The
                  Non-Competition Period shall be automatically extended by the
                  length of time (if any) in which the Executive is in violation
                  of any of the terms of this Section 19.

                  20.      ARBITRATION. To the extent permitted by applicable
                  law, any controversy or dispute arising out of or relating to
                  this Agreement, or any alleged breach hereof, shall be settled
                  by arbitration in Los Angeles, California in accordance with
                  the commercial rules of the American Arbitration Association
                  then in existence (to the extent such rules are not
                  inconsistent with the provisions of this Agreement), it being
                  understood and agreed that the arbitration panel shall consist
                  of three individuals acceptable to the parties hereto. In the
                  event that the parties cannot agree on three arbitrators
                  within 20 days following receipt by one party of a demand for
                  arbitration from another party, then the Executive and STWA
                  shall each designate one arbitrator and the two arbitrators
                  selected shall select the third arbitrator. The arbitration
                  panel so selected shall convene a hearing no later than 90
                  days following the selection of the panel. The arbitration
                  award shall be final and binding upon the parties, and
                  judgment may be entered thereon in the California Superior
                  Court or in any other court of competent jurisdiction.

                  21.      ADDITIONAL EQUITABLE REMEDY. The Executive
                  acknowledges and agrees that STWA's remedy at law for a breach
                  or a threatened breach of the provisions of Paragraphs 18 and
                  19 would be inadequate; and, in recognition of this fact and
                  notwithstanding the provisions of Paragraph 20, in the event
                  of such a breach or threatened breach by him, it is agreed
                  that STWA shall be entitled to request equitable relief in the
                  form of specific performance, temporary restraining order,
                  temporary or permanent injunction, or any other equitable
                  remedy which may then be available. Nothing in this paragraph
                  shall be construed as prohibiting STWA from pursuing any other
                  remedy available under this Agreement for such a breach or
                  threatened breach.

                  22.      RELATED AGREEMENTS. Except as may otherwise be
                  provided herein, to the extent that any provision of any other
                  agreement between STWA and the Executive shall limit, qualify,
                  duplicate, or be inconsistent with any provision of this
                  Agreement, the provision in this Agreement shall control and
                  such provision of such other agreement shall be deemed to have
                  been superseded, and to be of no force or effect, as if such
                  other agreement had been formally amended to the extent
                  necessary to accomplish such purpose.

                  23.      NO EFFECT ON OTHER RIGHTS. Except as otherwise
                  specifically provided herein, nothing contained in this
                  Agreement shall be construed as adversely affecting any rights
                  the Executive may have under any agreement, plan, policy or
                  arrangement to the extent any such right is not inconsistent
                  with the provisions hereof.

                                      G-11
<PAGE>

               24.      EXCLUSIVE RIGHTS AND REMEDY. Except for any explicit
               rights and remedies the Executive may have under any other
               contract, plan or arrangement with STWA, the compensation and
               benefits payable hereunder and the remedy for enforcement
               thereof shall constitute his exclusive rights and remedy in
               the event of his termination of employment.

               25.      DIRECTOR AND OFFICER LIABILITY INSURANCE;
               INDEMNIFICATION. STWA shall provide the Executive (including
               his heirs, executors, and administrators) with the maximum
               coverage permitted under its directors' and officers'
               liability insurance policy, as soon as STWA obtains such a
               policy, at STWA's expense and shall indemnify him as both a
               director and as an officer (and his heirs, executors, and
               administrators) to the fullest extent permitted under Federal
               and California law against all expenses and liabilities
               reasonably incurred by him in connection with or arising out
               of any action, suit, or proceeding in which he may be involved
               by reason of his having been an officer or director of STWA or
               any Subsidiary or affiliated company (whether or not he
               continues to be such an officer or director at the time of
               incurring such expenses or liabilities). Such expenses and
               liabilities shall include, but not be limited to, judgments,
               court costs, and attorneys' fees, and the costs of reasonable
               settlements.

               26.      NOTICES. Any notice required or permitted under this
               Agreement shall be sufficient if it is in writing and shall be
               deemed given (i) at the time of personal delivery to the
               addressee, or (ii) at the time sent certified mail, with
               return receipt requested, addressed as follows:

                        If to the Executive: Edward L. Masry

                        If to STWA           5125 Lankersham Boulevard
                                             North Hollywood, CA 91601
                                             Attention: Chairman of the Board of
                                                        Directors

               27.      NO WAIVER. The failure by any party to this Agreement
               at any time or times hereafter to require strict performance
               by any other party of any of the provisions, terms, or
               conditions contained in this Agreement shall not waive,
               affect, or diminish any right of the first party at any time
               or times thereafter to demand strict performance therewith and
               with any other provision, term, or condition contained in this
               Agreement. Any actual waiver of a provision, term, or
               condition contained in this Agreement shall not constitute a
               waiver of any other provision, term, or condition herein,
               whether prior or subsequent to such actual waiver and whether
               of the same or a different type. The failure of STWA to
               promptly terminate the Executive's employment for Cause or the
               Executive to promptly terminate his employment for Good Reason
               shall not be construed as a waiver of the right of
               termination, and such right may be exercised at any time
               following the occurrence of the event giving rise to such
               right.

               28.      SURVIVAL. Notwithstanding the nominal termination of
               this Agreement and the Executive's employment hereunder, the
               provisions hereof which specify continuing obligations,
               compensation and benefits, and rights (including the otherwise
               applicable term hereof) shall remain in effect until such time
               as all such obligations are discharged, all such compensation
               and benefits are received, and no party or beneficiary has any
               remaining actual or contingent rights hereunder.

                                      G-12
<PAGE>

                  29.      SEVERABILITY. In the event any provision in this
                  Agreement shall be held illegal or invalid for any reason,
                  such illegal or invalid provision shall not affect the
                  remaining provisions hereof, and this Agreement shall be
                  construed, administered and enforced as though such illegal or
                  invalid provision were not contained herein.

                  30.      BINDING EFFECT AND BENEFIT. The provisions of this
                  Agreement shall be binding upon and shall inure to the benefit
                  of the successors and assigns of STWA and the executors,
                  personal representatives, surviving spouse, heirs, devisees,
                  and legatees of the Executive.

                  31.      ENTIRE AGREEMENT. This Agreement embodies the entire
                  agreement among the parties with respect to the subject matter
                  hereof, and it supersedes all prior discussions and oral
                  understandings of the parties with respect thereto.

                  32.      NO ASSIGNMENT. This Agreement, and the benefits and
                  obligations hereunder, shall not be assignable by any party
                  hereto except by operation of law.

                  33.      NO ATTACHMENT. Except as otherwise provided by law,
                  no right to receive compensation or benefits under this
                  Agreement shall be subject to anticipation, commutation,
                  alienation, sale, assignment, encumbrance, charge, pledge, or
                  hypothecation, or to set off, execution, attachment, levy, or
                  similar process, and any attempt, voluntary or involuntary, to
                  effect any such action shall be null and void.

                  34.      CAPTIONS. The captions of the several paragraphs and
                  subparagraphs of this Agreement have been inserted for
                  convenience of reference only. They constitute no part of this
                  Agreement and are not to be considered in the construction
                  hereof.

                  35.      COUNTERPARTS. This Agreement may be executed in any
                  number of counterparts, each of which shall be deemed one and
                  the same instrument which may be sufficiently evidenced by any
                  one counterpart.

                  36.      NUMBER. Wherever any words are used herein in the
                  singular form, they shall be construed as though they were
                  used in the plural form, as the context requires, and vice
                  versa.

                  37.      APPLICABLE LAW. Except to the extent preempted by
                  federal law, the provisions of this Agreement shall be
                  construed, administered, and enforced in accordance with the
                  domestic internal law of the State of California without
                  reference to its laws regarding conflict of laws.

                  IN WITNESS WHEREOF, the parties have executed this Agreement,
                  or caused it to be executed, as of the date first above
                  written.

                      _____________________________________
                                 Edward L. Masry

                            SAVE THE WORLD AIR, INC.

                                      G-13
<PAGE>

                            By:____________________________________________
                                         Eugene E. Eichler
                                         President

                            Attest:________________________________________
                                         Janice Holder, Corporate Secretary

                                    GLOSSARY

                  "BOARD OF DIRECTORS" means the board of directors of the
                  relevant corporation.

                                      G-14
<PAGE>

                  "CAUSE" means (i) a documented repeated and willful failure by
                  the Executive to perform his duties, but only after written
                  demand and only if termination is effected by action taken by
                  a vote of (A) prior to a Change in Control, at least a
                  majority of the directors of STWA then in office, or (B) after
                  a Change in Control, at least 80% of the non-officer directors
                  of STWA then in office, (ii) his final conviction of a felony,
                  (iii) conduct by him which constitutes moral turpitude which
                  is directly and materially injurious to STWA or any Material
                  Subsidiary, (iv) willful material violation of corporate
                  policy, or (v) the issuance by the regulator of STWA or any
                  Subsidiary or affiliated company of an unappealable order to
                  the effect that he be permanently discharged.

                  For purposes of this definition, no act or failure to act on
                  the part of the Executive shall be considered "willful" unless
                  done or omitted not in good faith and without reasonable
                  belief that the action or omission was in the best interest of
                  STWA or any of its Subsidiaries or affiliated companies.

                  "CHANGE IN CONTROL" means the occurrence of any of the
                  following events:

                           (a)      any Person (except (i) STWA or any
                  Subsidiary or prior affiliate of STWA, or (ii) any Employee
                  Benefit Plan (or any trust forming a part thereof) maintained
                  by STWA or any Subsidiary or prior affiliate of STWA) is or
                  becomes the beneficial owner, directly or indirectly, of
                  STWA's securities representing 19.9% or more of the combined
                  voting power of STWA's then outstanding securities, or 50.1%
                  or more of the combined voting power of a Material
                  Subsidiary's then outstanding securities, other than pursuant
                  to a transaction described in Clause (c);

                           (b)      there occurs a sale, exchange, transfer or
                  other disposition of substantially all of the assets of STWA
                  or a Material Subsidiary to another entity, except to an
                  entity controlled directly or indirectly by STWA;

                           (c)      there occurs a merger, consolidation, share
                  exchange, division or other reorganization of or relating to
                  STWA, unless --

                                    (i)      the shareholders of STWA
                  immediately before such merger, consolidation, share exchange,
                  division or reorganization own, directly or indirectly,
                  immediately thereafter at least two-thirds of the combined
                  voting power of the outstanding voting securities of the
                  Surviving Company in substantially the same proportion as
                  their ownership of the voting securities immediately before
                  such merger, consolidation, share exchange, division or
                  reorganization; and

                                    (ii)     the individuals who, immediately
                  before such merger, consolidation, share exchange, division or
                  reorganization, are members of the Incumbent Board continue to
                  constitute at least two-thirds of the board of directors of
                  the Surviving Company; provided, however, that if the
                  election, or nomination for election by STWA's shareholders,
                  of any new director was approved by a vote of at least
                  two-thirds of the Incumbent Board, such director shall, for
                  the purposes hereof, be considered a member of the Incumbent
                  Board; and provided further, however, that no individual shall
                  be considered a member of the Incumbent Board if such
                  individual initially assumed office as a result of either an
                  actual or threatened Election Contest or Proxy Contest,
                  including by reason of any agreement intended to avoid or
                  settle any Election Contest or Proxy Contest; and

                                    (iii)    no Person (except (A) STWA or any
                  Subsidiary or prior affiliate of STWA, (B) any Employee
                  Benefit Plan (or any trust forming a part thereof) maintained
                  by STWA or any Subsidiary or prior affiliate of STWA, or (C)
                  the Surviving Company or any Subsidiary or prior affiliate of
                  the Surviving Company) has beneficial ownership of 19.9% or
                  more of the combined voting power of the Surviving Company's
                  outstanding voting securities immediately following such
                  merger, consolidation, share exchange, division or
                  reorganization;

                           (d)      a plan of liquidation or dissolution of
                  STWA, other than pursuant to bankruptcy or insolvency laws, is
                  adopted; or

                                      G-15
<PAGE>

                           (e)      during any period of two consecutive years,
                  individuals who, at the beginning of such period, constituted
                  the Board of Directors of STWA cease for any reason to
                  constitute at least a majority of such Board of Directors,
                  unless the election, or the nomination for election by STWA's
                  shareholders, of each new director was approved by a vote of
                  at least two-thirds of the directors then still in office who
                  were directors at the beginning of the period; provided,
                  however, that no individual shall be considered a member of
                  the Board of Directors of STWA at the beginning of such period
                  if such individual initially assumed office as a result of
                  either an actual or threatened Election Contest or Proxy
                  Contest, including by reason of any agreement intended to
                  avoid or settle any Election Contest or Proxy Contest.

                  Notwithstanding the foregoing, a Change in Control shall not
                  be deemed to have occurred if a Person becomes the beneficial
                  owner, directly or indirectly, of securities representing
                  19.9% or more of the combined voting power of STWA's then
                  outstanding securities solely as a result of an acquisition by
                  STWA of its voting securities which, by reducing the number of
                  shares outstanding, increases the proportionate number of
                  shares beneficially owned by such Person; provided, however,
                  that if a Person becomes a beneficial owner of 19.9% or more
                  of the combined voting power of STWA's then outstanding
                  securities by reason of share repurchases by STWA and
                  thereafter becomes the beneficial owner, directly or
                  indirectly, of any additional voting securities of STWA, then
                  a Change in Control shall be deemed to have occurred with
                  respect to such Person under Clause (a).

                  Notwithstanding anything contained herein to the contrary, if
                  the Executive's employment is terminated and he reasonably
                  demonstrates that such termination (i) was at the request of a
                  third party who has indicated an intention of taking steps
                  reasonably calculated to effect a Change in Control and who
                  effects a Change in Control, or (ii) otherwise occurred in
                  connection with, or in anticipation of, a Change in Control
                  which actually occurs, then for all purposes hereof, a Change
                  in Control shall be deemed to have occurred on the day
                  immediately prior to the date of such termination of his
                  employment.

                  "STWA" means Save The World Air, Inc.

                  "DATE OF TERMINATION" means:

                           (a)      if the Executive's employment is terminated
                  for Disability, 30 days after the Notice of Termination is
                  given (provided that he shall not have returned to the
                  performance of his duties on a full-time basis during such
                  30-day period);

                           (b)      if the Executive's employment terminates by
                  reason of his death, the date of his death;

                           (c)      if the Executive's employment is terminated
                  by STWA for Cause, the date of termination specified in the
                  Notice of Termination and determined in accordance with
                  Section 8(a);

                           (d)      if the Executive's employment is terminated
                  by him without Good Reason, the date of termination specified
                  in the Notice of Termination and determined in accordance with
                  Section 9(a);

                           (e)      if the Executive's employment is terminated
                  by STWA for any reason other than for Disability or Cause, the
                  date specified in the Notice of Termination and determined in
                  accordance with Section 10(a); or

                           (f)      if the Executive's employment is terminated
                  by him for Good Reason, the termination date specified in the
                  Notice of Termination and determined in accordance with
                  Section 11(a);

                  provided, however that the Date of Termination shall mean the
                  actual date of termination in the event the parties mutually
                  agree to a date other than that described above.

                  "DEFINED BENEFIT PLAN" has the meaning ascribed to such term
                  in Section 3(35) of ERISA.

                  "DEFINED CONTRIBUTION PLAN" has the meaning ascribed to such
                  term in Section 3(34) of ERISA.

                                      G-16
<PAGE>

                  "DISABILITY" has the meaning ascribed to the term "permanent
                  and total disability" in Section 22(e)(3) of the IRC.

                  "ELECTION CONTEST" means a solicitation with respect to the
                  election or removal of directors that, if STWA was subject to
                  the provisions of the 1934 Act, would be subject to the
                  provisions of Rule 14a-11 of the 1934 Act.

                  "EMPLOYEE BENEFIT PLAN" has the meaning ascribed to such term
                  in Section 3(3) of ERISA.

                  "ERISA" means the Employee Retirement Income Security Act of
                  1974, as amended and as the same may be amended from time to
                  time.

                  "EXCISE TAX" means the tax imposed by Section 4999 of the IRC
                  (or any similar tax that may hereafter be imposed by federal,
                  state or local law).

                  "EXECUTIVE" means NAME OF EXECUTIVE, an individual residing in
                  ADDRESS, California.

                  "GOOD REASON" means:

                           (a)      prior to a Change in Control--

                                    (i) the Executive's demotion to a lesser
                                    position, or any material diminution in his
                                    duties or responsibilities;

                                    (ii) a reduction in the Executive's base
                                    compensation, other than a reduction which
                                    is proportionate to a company-wide reduction
                                    in executive pay;

                                    (iii) a failure to increase the Executive's
                                    base compensation, consistent with his
                                    performance rating, within 24 months since
                                    the last increase, other than similar
                                    treatment on a company-wide basis for
                                    executives or a voluntary deferral by him of
                                    an increase; or

                                    (iv) any purported termination of the
                                    Executive's employment which is not in
                                    accordance with the terms of this Agreement;
                                    and

                           (b)      after a Change in Control--

                                    (i) a change in the Executive's status or
                                    position, or any material diminution in his
                                    duties or responsibilities;

                                    (ii) any increase in the Executive's duties
                                    inconsistent with his position;

                                    (iii) any reduction in the Executive's base
                                    compensation;

                                    (iv) a failure to increase the Executive's
                                    base compensation, consistent with his
                                    performance review, within 12 months of the
                                    last increase; or a failure to consider
                                    Executive for an increase within 12 months
                                    of his last performance review;

                                    (v) a failure to continue in effect any
                                    Employee Benefit Plan in which the Executive
                                    participates, including (whether or not they
                                    constitute Employee Benefit Plans) incentive
                                    bonus, stock option, or other qualified or
                                    nonqualified plans of deferred compensation
                                    (A) other than as a result of the normal
                                    expiration of such a plan, or (B) unless
                                    such plan is merged or consolidated into, or
                                    replaced with, a plan with benefits which
                                    are of equal or greater value;

                                      G-17
<PAGE>

                                    (vi) requiring the Executive to be based
                                    anywhere other than the county where his
                                    principal office was located immediately
                                    prior to the Change in Control;

                                    (vii) refusal to allow the Executive to
                                    attend to matters or engage in activities in
                                    which he was permitted to engage prior to
                                    the Change in Control;

                                    (viii) delivery to the Executive of a Notice
                                    of Nonextension;

                                    (ix) failure to secure the affirmation by a
                                    Successor, within three business days prior
                                    to a Change in Control, of this Agreement
                                    and its or STWA's continuing obligations
                                    hereunder (or where there is not at least
                                    three business days advance notice that a
                                    Person may become a Successor, within one
                                    business day after having notice that such
                                    Person may become or has become a
                                    Successor); or

                                    (x) any purported termination of the
                                    Executive's employment which is not in
                                    accordance with the terms of this Agreement.

Notwithstanding anything herein to the contrary, at the election of the
Executive, beginning with the 181st day following a Change in Control and
continuing through the first anniversary of such Change in Control, he may
terminate his employment for any reason or no reason and such termination will
be treated as having occurred for Good Reason.

                  "GROSS-UP PAYMENT" means an additional payment to be made to
or on behalf of the Executive in an amount such that the net amount retained by
him, after deduction of any Excise Tax on the Total Payments and any federal,
state, and local income tax and Excise Tax on such additional payment, equals
the Total Payments.

                  "INCUMBENT BOARD" means the Board of Directors of STWA as
constituted at any relevant time.

                  "IRC" means the Internal Revenue Code of 1986, as amended and
as the same may be amended from time to time.

                  "MATERIAL SUBSIDIARY" means a Subsidiary whose net worth,
determined under generally accepted accounting principles, at the fiscal year
end immediately prior to any relevant time is at least 25% of the aggregate net
worth of the controlled group of corporations of which STWA is parent.

                  "1934 ACT" means the Securities Exchange Act of 1934, as
amended and as the same may be amended from time to time.

                  "NOTICE OF NON-EXTENSION" means a written notice delivered to
or by the Executive which advises that the Agreement will not be extended as
provided in Paragraph 3.

                  "NOTICE OF TERMINATION" means a written notice that (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) gives the required advance notice of termination.

                  "PERSON" has the same meaning as such term has for purposes of
Sections 13(d) and 14(d) of the 1934 Act.

                  "PROXY CONTEST" means the solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors of STWA.

                  "SUBSIDIARY" means any business entity of which a majority of
its voting power or its equity securities or equity interests is owned, directly
or indirectly by STWA.

                                      G-18
<PAGE>

                  "SUCCESSOR" means any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time),
STWA's business directly, by merger or consolidation, or indirectly, by purchase
of STWA's voting securities or all or substantially all of its assets.

                  "SURVIVING COMPANY" means the business entity that is a
resulting company following a merger, consolidation, share exchange, division or
other reorganization of or relating to STWA.

                  "TOTAL PAYMENTS" means the compensation and benefits that
become payable under the Agreement or otherwise (and which may be subject to an
Excise Tax) by reason of the Executive's termination of employment, less the
federal, state and local income tax (but not any Excise Tax) on such
compensation and benefits, in each case determined without regard to any
Gross-Up Payments that may also be made.

                  "WELFARE BENEFIT PLAN" has the meaning ascribed to the term
"employee welfare benefit plan" in Section 3(1) of ERISA. For purposes of
determining the Executive's or his dependents' right to continued welfare
benefits hereunder following his termination of employment, the meaning of such
term shall include any retiree health plan maintained by STWA at any time after
the relevant Date of Termination, notwithstanding the fact that the Executive is
not a participant therein prior to such date.

                                      G-19

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>5
<FILENAME>v97738exv10w8.txt
<DESCRIPTION>EXHIBIT 10.8
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.8

                              EMPLOYMENT AGREEMENT

         AGREEMENT made as of the 1st day of December 2003 by and between SAVE
THE WORLD AIR, INC. ("STWA"), a Nevada chartered corporation, and Eugene E.
Eichler (the "Executive").

BACKGROUND

         A.       STWA desires to employ the Executive and the Executive is
willing to serve on the terms and conditions herein provided.

         B.       In order to effect the foregoing, the parties hereto desire to
enter into an employment agreement on the terms and conditions set forth below.

         NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:

         1.       DEFINITIONS AND SPECIAL PROVISIONS. Each capitalized word and
term used herein shall have the meaning ascribed to it in the glossary appended
hereto, unless the context in which such word or term is used otherwise clearly
requires. Such glossary is incorporated herein by reference and made a part
hereof.

         2.       EMPLOYMENT. STWA hereby agrees to employ the Executive, and
the Executive hereby agrees to serve STWA, on the terms and conditions set forth
herein.

         3.       TERM OF AGREEMENT. The Executive's employment under this
Agreement shall commence on the date hereof and, except as otherwise provided
herein, shall continue until December 31, 2007; provided, however, that
commencing on December 31, 2007 and each anniversary thereafter, the term of
this Agreement shall automatically be extended for one additional year beyond
the term otherwise established unless, prior to such date, STWA or the Executive
shall have given a Notice of Non-Extension.

         4.       POSITION AND DUTIES. The Executive shall serve as Chief
Operating Officer of STWA and he shall have such responsibilities, duties and
authority as may, from time to time, be generally associated with such position
and or as specifically detailed in the company's official "Position
Description." He shall also serve as a member of STWA's Board of Directors and
upon any committees thereof as requested by the Board. In addition, the
Executive shall serve in such capacity, with respect to each Subsidiary or
affiliated company, as the Board of Directors of each such Subsidiary or
affiliated company shall designate from time to time. During the term of this
Agreement, he shall devote substantially all of his working time and efforts to
the business and affairs of STWA, the Subsidiaries and affiliated companies;
provided, however, that nothing herein shall be construed as precluding him from
devoting a reasonable amount of time to civic, charitable, trade association and
similar activities that do not represent conflicts and are not otherwise in any
way detrimental to STWA.

                                                                               1
<PAGE>

         5.       COMPENSATION AND RELATED MATTERS.

         BASE COMPENSATION. During the period of the Executive's employment
         hereunder, STWA shall pay to him annual base compensation as follows:

         For the period from December 1, 2003 to December 31, 2004 at an annual
         rate not less than $192,000.00;

         The Board(s) of Directors of STWA shall periodically review the
         Executive's employment performance, in accordance with policies
         generally in effect from time to time, for possible merit or
         cost-of-living increases in such base compensation. Except for a
         reduction, should such reduction occur, which is proportionate to a
         company-wide reduction in executive pay, the annual base compensation
         paid to the Executive in any period shall not be less than the annual
         base compensation paid to him in any prior period. The frequency and
         manner of payment of such base compensation shall be in accordance with
         STWA's executive payroll practices from time to time in effect. Nothing
         herein shall be construed as precluding the Executive from entering
         into any salary reduction or deferral plan or arrangement during the
         term of this Agreement; provided, however, that his base compensation
         shall be determined without regard to any such salary reduction or
         deferral for purposes of calculating the amount of any compensation and
         benefits to which he or his surviving spouse may be entitled under
         Paragraph 6, 7, 10, or 11 following his termination of employment. The
         amounts set forth in the first sentence of this subparagraph (a) shall
         be pro rated to the extent such period is less than a year.

                  (a)      INCENTIVE COMPENSATION. During the period of the
         Executive's employment hereunder, he shall be entitled to participate
         in all incentive plans, stock option plans, and similar arrangements as
         may be in effect and maintained by STWA for executive officers on a
         basis and at award levels consistent and commensurate with his position
         and duties hereunder.

                  (b)      EMPLOYEE BENEFIT PLANS AND OTHER PLANS OR
         ARRANGEMENTS. The Executive shall be entitled to participate in all
         Employee Benefit Plans of STWA that either, are in effect at present or
         that may be adopted in the future. In addition, he shall be entitled to
         participate in and enjoy any other plans and arrangements which provide
         for sick leave, vacation, sabbatical, or personal days, club
         memberships and dues, education payment or reimbursement,
         business-related seminars, and similar fringe benefits provided to or
         for the executive officers of STWA from time to time. Notwithstanding
         the foregoing, Executive shall be entitled to at least four (4) weeks
         vacation per calendar year during each year of employment. Such
         vacation shall be prorated during the year 2003 based on the date of
         this Agreement.

                  (c)      EXPENSES. During the period of the Executive's
         employment hereunder, he shall be entitled to receive prompt
         reimbursement for all reasonable and customary expenses, including
         transportation expenses, incurred by him in

                                                                               2
<PAGE>

         performing services hereunder in accordance with the general policies
         and procedures established by STWA.

                  (d)      AUTOMOBILE. STWA shall provide for an unaccountable
         monthly automobile allowance of not less than $900.00. The company may,
         at its discretion, provide an automobile, mutually acceptable, to the
         Executive for his exclusive use.

         6.       TERMINATION BY REASON OF DISABILITY.

                  (a)      IN GENERAL. In the event the Executive becomes unable
         to perform his duties on a full-time basis by reason of the occurrence
         of his Disability and, within 30 days after a Notice of Termination is
         given, he shall not have returned to the full-time performance of such
         duties, his employment may be terminated by STWA.

                  (b)      COMPENSATION AND BENEFITS. In the event of the
         termination of the Executive's employment under Subparagraph (a), the
         term of this Agreement shall continue for one year after the Date of
         Termination, and STWA shall pay or provide the compensation and
         benefits set forth below:

                           (1)      The Executive shall be paid an amount per
                           annum equal to the greater of (i) his highest base
                           compensation (including the car allowance provided
                           for in Section 5(e)) received during one of the two
                           calendar years immediately preceding the calendar
                           year in which the Date of Termination occurs, or (ii)
                           his base compensation (including the car allowance
                           provided for in Section 5(e)) in effect immediately
                           prior to the Date of Termination (or prior to any
                           reduction which entitled him to terminate his
                           employment for Good Reason), over a period of one
                           year beginning with such Date of Termination. The
                           frequency and manner of payment of such amounts shall
                           be in accordance with STWA's executive payroll
                           practices from time to time in effect.

                           (2)      The Executive shall be paid an amount equal
                           to the higher of the aggregate bonus (es) paid to him
                           with respect to one of the two years immediately
                           preceding the year in which the Date of Termination
                           occurs. Such amount shall be paid to him in cash on
                           the first anniversary date of the Date of
                           Termination.

                           (3)      The Executive shall be paid an amount equal
                           to the highest annual contribution made on his behalf
                           (other than his own salary reduction contributions)
                           to each tax-qualified and non-qualified Defined
                           Contribution Plan of STWA with respect to the year in
                           which the Date of Termination occurs or one of the
                           two years immediately preceding such year. The amount
                           separately determined for each such plan shall be
                           aggregated and shall be paid to him in cash on the
                           first anniversary date of the Date of Termination.

                                                                               3
<PAGE>

                           (4)      The Executive shall accrue benefits equal to
                           the excess of (i) the aggregate retirement benefits
                           he would have received under the terms of each
                           tax-qualified and non-qualified Defined Benefit Plan
                           of STWA as in effect immediately prior to the Date of
                           Termination had he (A) continued to be employed for
                           one more year, and (B) received (on a pro rated
                           basis, as appropriate) the greater of (I) the highest
                           compensation taken into account under each such plan
                           with respect to one of the two years immediately
                           preceding the year in which the Date of Termination
                           occurs, or (II) his annualized base compensation in
                           effect immediately prior to the Date of Termination
                           (or prior to any reduction which entitled him to
                           terminate his employment for Good Reason), over (ii)
                           the retirement benefits he actually receives under
                           such plans. The frequency, manner and extent of
                           payment of such benefits shall be consistent with the
                           terms of the plans to which they relate and any
                           elections made thereunder.

                           (5)      The Executive and his eligible dependents
                           shall be entitled to continue to participate at the
                           same aggregate benefit levels, for one year and at no
                           out-of-pocket or tax cost to him, in the Welfare
                           Benefit Plans in which he was a participant
                           immediately prior to the Date of Termination, to the
                           extent permitted under the terms of such plans and
                           applicable law. To the extent STWA is unable to
                           provide for continued participation in a Welfare
                           Benefit Plan, it shall provide an equivalent benefit
                           directly at no out-of-pocket or tax cost to him. For
                           purposes of the preceding two sentences, STWA shall
                           be deemed to have provided a benefit at no tax cost
                           to him if it pays an additional amount to him or on
                           his behalf, with respect to those benefits which
                           would otherwise be nontaxable to him, calculated in a
                           manner consistent with the provisions of Paragraph
                           12.

                  (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b) COMPENSATION
         AND BENEFITS. Notwithstanding the provisions of Subparagraph (b)(5),
         STWA's obligation to pay or fund any disability insurance premiums on
         behalf of the Executive shall be suspended while his Disability
         continues, provided the cessation of payment or funding does not result
         in the termination of disability benefits. Any amounts otherwise due
         under Subparagraph (b) shall be reduced (but not below zero) by the
         dollar amount of disability benefits received by him pursuant to plans
         or policies funded, directly at its cost, by STWA.

                  (d)      EARLIER CESSATION OF CERTAIN WELFARE BENEFITS.
         Notwithstanding the provisions of Subparagraph (b)(5), STWA shall not
         be required to provide, at its cost, the welfare benefits covered
         therein after the later of (i) the attainment by the Executive and his
         spouse (if any) of age 65, or (ii) the date specified in the relevant
         plan document for benefit termination (assuming that he was employed
         until age 65 or the normal retirement date, if any, specified in such
         document).

                                                                               4
<PAGE>

                  (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                           (1)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Disability and he is survived by a
                           spouse, the compensation and benefits remaining to be
                           paid and provided under Subparagraph (b) shall be
                           unaffected by his death and shall be paid and
                           provided to her or on her behalf; provided, however,
                           that the extent of her rights to the accrued benefits
                           described in Subparagraph (b)(4) shall be determined
                           by reference to the relevant plan provisions and any
                           elections made under such plans; and provided
                           further, that STWA shall not be required to provide
                           continued benefits with respect to her deceased
                           husband; and provided further, that in no event shall
                           STWA be required to provide, at its cost, the other
                           welfare benefits described in Subparagraph (b)(5) to
                           such spouse and her eligible dependents after the
                           earlier of (i) her death, or (ii) the later of (A)
                           her attainment of age 65, or (B) the date specified
                           in the relevant plan document for benefit termination
                           (assuming that the Executive was employed until age
                           65 or the normal retirement date, if any, specified
                           in such document).

                           (2)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Disability and he is not survived by
                           a spouse, (i) STWA shall thereafter make the
                           remaining payments described in Subparagraphs (b)(1)
                           through (b)(3) directly to his estate, (ii) the
                           extent of the rights of any person to the accrued
                           benefits described in Subparagraph (b)(4) shall be
                           determined by reference to the relevant plan
                           provisions and any elections made under such plans,
                           and (iii) STWA's obligation to provide continued
                           benefits under Subparagraph (b)(5) shall terminate.

                  (f)      COMPENSATION AND BENEFITS UPON EXPIRATION OF
         REMAINING TERM OF AGREEMENT. Upon the expiration of the remaining term
         of this Agreement following the Executive's termination for Disability,
         and provided his Disability then continues, he shall be entitled to
         receive the compensation and benefits provided under the terms of any
         long-term disability plan of STWA in effect on the Date of Termination
         or, if greater, at the expiration of such remaining term. If such plan
         exists, such compensation and benefits shall continue until the earlier
         of (i) his death, or (ii) the later of (A) his attainment of age 65, or
         (B) the date specified in the plan document for benefit termination. To
         the extent STWA is unable to provide such compensation and benefits
         under its long-term disability plan, if any, it shall provide
         equivalent compensation and benefits directly at no out-of-pocket or
         tax cost to him. For purposes of the preceding sentence, STWA shall be
         deemed to have provided compensation and benefits at no tax cost to him
         if it pays an additional amount to him or on his behalf, with respect
         to the compensation and benefits which would otherwise be

                                                                               5
<PAGE>

         nontaxable to him, calculated in a manner consistent with the
         provisions of Paragraph 12.

         7.       TERMINATION BY REASON OF DEATH.

                  (a)      COMPENSATION AND BENEFITS TO SURVIVING SPOUSE. In the
                  event the Executive dies while he is employed under this
                  Agreement and is survived by a spouse, STWA shall pay or
                  provide the compensation and benefits set forth below:

                           (1)      The surviving spouse shall be paid an amount
                           equal to the greater of (i) the Executive's highest
                           base compensation received during one of the two
                           calendar years immediately preceding the calendar
                           year in which the Date of Termination occurs, or (ii)
                           his base compensation in effect immediately prior to
                           the Date of Termination (or prior to any reduction
                           which entitled him to terminate his employment for
                           Good Reason) for a period of one year, beginning with
                           such Date of Termination. The frequency and manner of
                           payment of such amounts shall be in accordance with
                           STWA's executive payroll practices from time to time
                           in effect.

                           (2)      The surviving spouse shall be paid an amount
                           equal to the highest payment made to Executive under
                           each incentive bonus plan of STWA with respect to one
                           of the two years immediately preceding the year in
                           which the Date of Termination occurs. Such amount
                           shall be paid in cash to her within 30 days after the
                           Date of Termination.

                           (3)      The surviving spouse shall be paid an amount
                           equal to the sum of the highest annual contribution
                           made on the Executive's behalf (other than his own
                           salary reduction contributions) to each tax-qualified
                           and non-qualified Defined Contribution Plan of STWA
                           with respect to the year in which the Date of
                           Termination occurs or one of the two years
                           immediately preceding such year. Such amount shall be
                           paid in cash to her within 30 days after the Date of
                           Termination or within 30 days after such amount can
                           first be determined, whichever is later.

                           (4)      Subject to the following sentence, the
                           surviving spouse shall be paid benefits determined by
                           reference to the excess of (i) the aggregate
                           retirement benefits the Executive would have accrued
                           under the terms of each tax-qualified and
                           non-qualified Defined Benefit Plan as in effect
                           immediately prior to the Date of Termination, had he
                           (A) continued to be employed for a period of one year
                           following the Date of Termination, and (B) received
                           (on a pro rated basis, as appropriate) the greater of
                           (I) the highest compensation taken into account under
                           each such plan with respect to one of the two years
                           immediately preceding the year in which

                                                                               6
<PAGE>

                           the Date of Termination occurs, or (II) his
                           annualized base compensation in effect immediately
                           prior to the Date of Termination (or prior to any
                           reduction which entitled him to terminate his
                           employment for Good Reason), over (ii) the retirement
                           benefits actually determined under such plans. The
                           frequency, manner, and extent of payment of such
                           benefits shall be consistent with the terms of the
                           plans to which they relate and any elections made
                           thereunder.

                           (5)      The surviving spouse and her eligible
                           dependents shall be entitled to continue to
                           participate at the same aggregate benefit levels, for
                           a period of one year following the Date of
                           Termination and at no out-of-pocket or tax cost to
                           her, in the Welfare Benefit Plans in which the
                           Executive was a participant immediately prior to the
                           Date of Termination, to the extent permitted under
                           the terms of such plans and applicable law; provided,
                           however, that STWA shall not be required to provide
                           continued benefits with respect to her deceased
                           husband; and provided further, that STWA shall not
                           thereafter be required to provide, at its cost, the
                           other welfare benefits covered by such plans to such
                           spouse and her eligible dependents after the earlier
                           of (i) her death, or (ii) the later of (A) her
                           attainment of age 65, or (B) the date specified in
                           the relevant plan document for benefit termination
                           (assuming the Executive was employed until age 65 or
                           the normal retirement date, if any, specified in such
                           document). To the extent STWA is unable to provide
                           for continued participation in a Welfare Benefit Plan
                           as required, it shall provide an equivalent benefit
                           directly at no out-of-pocket or tax cost to her. For
                           purposes of the preceding two sentences, STWA shall
                           be deemed to have provided a benefit at no tax cost
                           to her if it pays an additional amount to her or on
                           her behalf, with respect to those benefits which
                           would otherwise be nontaxable to her, calculated in a
                           manner consistent with the provisions of Paragraph
                           12.

                  (b)      COMPENSATION AND BENEFITS TO ESTATE, ETC. In the
         event the Executive dies while he is employed under this Agreement and
         is not survived by a spouse, (i) STWA shall make the payments described
         in Subparagraphs (a)(1) through (a)(3) directly to his estate, (ii) the
         extent of the rights of any person to the accrued benefits described in
         Subparagraph (a)(4) shall be determined by reference to the relevant
         plan provisions and any elections made under such plans, and (iii)
         STWA's obligation to provide benefits under Subparagraph (a)(5) shall
         terminate.

         8.       TERMINATION BY STWA FOR CAUSE.

                  (a)      IN GENERAL. In the event STWA intends to terminate
         the Executive's employment for Cause, it shall deliver a Notice of
         Termination to him which specifies a Date of Termination not less than
         30 days following the

                                                                               7
<PAGE>


         date of such notice, unless a shorter period of notice is required by
         the principal regulator of STWA or any affiliate of STWA.

                  (b)      COMPENSATION. Within 30 days after the Executive's
         termination under Subparagraph (a), STWA shall pay him, in one lump
         sum, his accrued but unpaid base compensation and vacation compensation
         earned through the Date of Termination.

         9.       TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON.

                  (a)      IN GENERAL. In the event the Executive intends to
         terminate his employment without Good Reason, he shall deliver a Notice
         of Termination to STWA which specifies a Date of Termination not less
         than (i) 90 days following the date of such notice, if a Change in
         Control shall not have occurred, or (ii) 30 days following the date of
         such notice, if a Change in Control shall have occurred.

                  (b)      COMPENSATION. Within 30 days after the Executive's
         termination under Subparagraph (a), STWA shall pay him, in one lump
         sum, his accrued but unpaid base compensation and vacation compensation
         earned through the Date of Termination.

         10.      TERMINATION BY STWA WITHOUT DISABILITY OR CAUSE.

                  (a)      IN GENERAL. In the event STWA intends to terminate
         the Executive's employment for any reason other than Disability or
         Cause, it shall deliver a Notice of Termination to him which specifies
         a Date of Termination not less than 90 days following the date of such
         notice.

                  (b)      COMPENSATION AND BENEFITS DURING REMAINING TERM OF
         AGREEMENT. In the event of the termination of the Executive's
         employment under Subparagraph (a), STWA shall pay or provide the
         compensation and benefits described in Paragraph 6(b), except that all
         such compensation and benefits shall be for the remaining term of this
         Agreement determined in accordance with Section 3 hereof, unless a
         change in control has occurred prior to such termination of employment,
         in which case all such compensation and benefits shall be for a term of
         three (3) years from the Date of Termination and the term of this
         Agreement shall continue until all such compensation and benefits are
         paid to Executive in full.

                  (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b) COMPENSATION
         AND BENEFITS. In the event the Executive suffers a Disability during
         the remaining term of this Agreement following the Date of Termination,
         STWA's obligation to pay or fund any disability insurance premiums on
         his behalf shall be suspended while his Disability continues, provided
         the cessation of payment or funding does not result in the termination
         of disability benefits. Any amounts described in Paragraph 6(b) and
         otherwise payable under Subparagraph (b) shall be reduced (but not
         below zero) by the dollar amount of disability benefits received by him
         pursuant to plans or policies funded, directly at its cost, by STWA.

                                                                               8
<PAGE>

                  (d)      EARLIER CESSATION OF CERTAIN WELFARE BENEFITS.
         Notwithstanding the provisions of Subparagraph (b), STWA shall not be
         required to provide, at its cost, the welfare benefits covered by
         Paragraph 6(b)(5) after the later of (i) the attainment by the
         Executive and his spouse (if any) of age 65, or (ii) the date specified
         in the relevant plan document for benefit termination (assuming that he
         was employed until age 65 or the normal retirement date, if any,
         specified in such document).

                  (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                           (1)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination without Disability or Cause by STWA and
                           he is survived by a spouse, the compensation and
                           benefits required to be paid and provided under
                           Subparagraph (b) shall be unaffected by his death and
                           shall be paid and provided to her or on her behalf;
                           provided, however, that the extent of her rights to
                           the accrued benefits described in Paragraph 6(b)(4)
                           shall be determined by reference to the relevant plan
                           provisions and any elections made under such plans;
                           and provided further, that STWA shall not be required
                           to provide continued benefits with respect to her
                           deceased husband; and provided further, that in no
                           event shall STWA be required to provide, at its cost,
                           the other welfare benefits described in Paragraph
                           6(b)(5) to such spouse and her eligible dependents
                           after the earlier of (i) her death, or (ii) the later
                           of (A) her attainment of age 65, or (B) the date
                           specified in the relevant plan document for benefit
                           termination (assuming that the Executive was employed
                           until age 65 or the normal retirement date, if any,
                           specified in such document).

                           (2)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination without Disability or Cause and he is not
                           survived by a spouse, (i) STWA shall thereafter make
                           the remaining payments described in Paragraphs
                           6(b)(1) through 6(b)(3) directly to his estate, (ii)
                           the extent of the rights of any person to the accrued
                           benefits described in Paragraph 6(b)(4) shall be
                           determined by reference to the relevant plan
                           provisions and any elections made under such plans,
                           and (iii) STWA's obligation to provide the continued
                           benefits described in Paragraph 6(b)(5) shall
                           terminate.

         11.      TERMINATION BY THE EXECUTIVE FOR GOOD REASON.

                  (a)      IN GENERAL. In the event the Executive intends to
         terminate his employment for Good Reason, he shall deliver a Notice of
         Termination to STWA which specifies a Date of Termination not less than
         30 days following the date of such notice.

                                                                               9
<PAGE>


                  (b)      COMPENSATION AND BENEFITS DURING REMAINING TERM OF
         AGREEMENT. In the event of the termination of the Executive's
         employment under Subparagraph (a), STWA shall pay or provide the
         compensation and benefits described in Paragraph 6(b), except that all
         such compensation and benefits shall be for a term of three (3) years
         from the Date of Termination and the term of this Agreement shall
         continue until all such compensation and benefits are paid to Executive
         in full.

                  (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b) COMPENSATION
         AND BENEFITS. In the event the Executive suffers a Disability during
         the remaining term of this Agreement following the Date of Termination,
         STWA's obligation to pay or fund any disability insurance premiums on
         his behalf shall be suspended while his Disability continues, provided
         the cessation of payment or funding does not result in the termination
         of disability benefits. Any amounts described in Paragraph 6(b) and
         otherwise payable under Subparagraph (b) shall be reduced (but not
         below zero) by the dollar amount of disability benefits received by him
         pursuant to plans or policies funded, directly at its cost, by STWA.

                  (d)      EARLIER CESSATION OF CERTAIN WELFARE BENEFITS.
         Notwithstanding the provisions of Subparagraph (b), STWA shall not be
         required to provide, at its cost, the welfare benefits covered by
         Paragraph 6(b)(5) after the later of (i) the attainment by the
         Executive and his spouse (if any) of age 65, or (ii) the date specified
         in the relevant plan document for benefit termination (assuming that he
         was employed until age 65 or the normal retirement date, if any,
         specified in such document).

                  (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                           (1)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Good Reason and he is survived by a
                           spouse, the compensation and benefits required to be
                           paid and provided under Subparagraph (b) shall be
                           unaffected by his death and shall be paid and
                           provided to her or on her behalf; provided, however,
                           that the extent of her rights to the accrued benefits
                           described in Paragraph 6(b)(4) shall be determined by
                           reference to the relevant plan provisions and any
                           elections made under such plans; and provided
                           further, that STWA shall not be required to provide
                           continued benefits with respect to her deceased
                           husband; and provided further, that in no event shall
                           STWA be required to provide, at its cost, the other
                           welfare benefits described in Paragraph 6(b)(5) to
                           such spouse and her eligible dependents after the
                           earlier of (i) her death, or (ii) the later of (A)
                           her attainment of age 65, or (B) the date specified
                           in the relevant plan document for benefit termination
                           (assuming that the Executive was employed until age
                           65 or the normal retirement date, if any, specified
                           in such document).

                                                                              10
<PAGE>

                           (2)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Good Reason and he is not survived by
                           a spouse, (i) STWA shall thereafter make the
                           remaining payments described in Paragraphs 6(b)(1)
                           through 6(b)(3) directly to his estate, (ii) the
                           extent of the rights of any person to the accrued
                           benefits described in Paragraph 6(b)(4) shall be
                           determined by reference to the relevant plan
                           provisions and any elections made under such plans,
                           and (iii) STWA's obligation to provide the continued
                           benefits described in Paragraph 6(b)(5) shall
                           terminate.

         12.      PROVISIONS RELATING TO EXCISE TAXES.

                  (a)      IN GENERAL. In the event the Executive becomes
         liable, for any taxable year, for the payment of an Excise Tax (because
         of a change in control) with respect to the compensation and benefits
         payable by STWA under this Agreement or otherwise, STWA shall make one
         or more Gross-Up Payments to the Executive or on his behalf. The amount
         of any Gross-Up Payment shall be calculated by a certified public
         accountant or other tax professional designated jointly by the
         Executive and STWA. The provisions of this paragraph shall apply with
         respect to the Executive's surviving spouse or estate, where relevant.

                  (b)      METHODOLOGY FOR CALCULATION OF GROSS-UP PAYMENT. For
         purposes of determining the amount of any Gross-Up Payment, the
         Executive shall be deemed to pay income taxes at the highest federal,
         state, and local marginal rates of tax for the calendar year in which
         the Gross-Up Payment is to be made, net of the maximum reduction in
         federal income tax which could be obtained from the deduction of state
         and local income taxes. In the event that the Excise Tax is
         subsequently determined to be less than the amount taken into account
         at the time the Gross-Up Payment was made, the Executive shall repay to
         STWA, at the time that the amount of such reduction in Excise Tax is
         finally determined, the portion of the Gross-Up Payment attributable to
         the reduction (plus a portion of the Gross-Up Payment attributable to
         the Excise Tax and the federal, state, and local income taxes imposed
         on the portion of the Gross-Up Payment being repaid by the Executive to
         the extent such repayment results in a reduction in Excise Tax or
         federal, state, or local income tax), plus interest on the amount of
         such repayment. Such interest shall be calculated by using the rate in
         effect under Section 1274(d)(1) of the IRC, on the date the Gross-Up
         Payment was made, for debt instruments with a term equal to the period
         of time which has elapsed from the date the Gross-Up Payment was made
         to the date of repayment. In the event that the Excise Tax is
         subsequently determined to exceed the amount taken into account at the
         time the Gross-Up Payment was made (including by reason of any payment
         the existence or amount of which could not be determined at the time of
         the Gross-Up Payment), STWA shall make an additional Gross-Up Payment
         with respect to the excess at the time the amount thereof is finally
         determined, plus interest calculated in a manner similar to that
         described in the preceding sentence.

                                                                              11
<PAGE>

                  (c)      TIME OF PAYMENT. Any Gross-Up Payment provided for
         herein shall be paid not later than the 30th day following the payment
         of any compensation or the provision of any benefit which causes such
         payment to be made; provided, however, that if the amount of such
         payment cannot be finally determined on or before such day, STWA shall
         pay on such day an estimate of the minimum amount of such payment and
         shall pay the remainder of such payment (together with interest
         calculated in a manner similar to that described in Subparagraph (b))
         as soon as the amount thereof can be determined. In the event that the
         amount of an estimated payment exceeds the amount subsequently
         determined to have been due, such excess shall constitute a loan by
         STWA to the Executive, payable on the 30th day after demand by STWA
         (together with interest calculated in a manner similar to that
         described in Subparagraph (b)).

                  (d)      OTHER ARRANGEMENTS. Notwithstanding the provisions of
         this paragraph to the contrary, the actual amounts payable hereunder as
         Gross-Up Payments shall be coordinated with any similar amounts paid to
         the Executive under any other contract, plan, or arrangement.

         13.      FEES AND EXPENSES OF THE EXECUTIVE.

         After a Change in Control and except as provided in the following
         sentence, STWA shall pay, within 30 days following demand by the
         Executive, all legal, accounting, actuarial, and related fees and
         expenses incurred by him in connection with the enforcement of this
         Agreement. An arbitration panel or a court of competent jurisdiction
         shall be empowered to deny payment to the Executive of such fees and
         expenses only if it determines that he instituted a proceeding
         hereunder, or otherwise acted, in bad faith.

         14.      REDUCTION FOR COMPENSATION AND BENEFITS RECEIVED UNDER STWA
         SEVERANCE POLICY, ETC. Notwithstanding anything herein to the contrary,
         in the event the Executive, his surviving spouse, or any other person
         becomes entitled to continued compensation and benefits hereunder by
         reason of the Executive's termination of employment and, in addition,
         compensation or similar benefits are payable under a severance policy,
         program or arrangement maintained by STWA (other than retirement
         plans), then the compensation or benefits otherwise payable hereunder
         shall be reduced by the compensation or benefits provided under such
         severance policy, program or arrangement.

         15.      MITIGATION. The Executive shall not be required to mitigate
         the amount of any compensation or benefits which may become payable
         hereunder by reason of his termination by seeking other employment or
         otherwise, nor, except as otherwise provided in the following sentence
         or elsewhere herein, shall the amount of any such compensation or
         benefits be reduced by any compensation or benefits received by the
         Executive as the result of his employment by another employer.
         Notwithstanding anything in this Agreement to the contrary, STWA's
         obligation to provide any medical and dental benefits hereunder may be
         suspended, with the written concurrence of the Executive or, if
         applicable, his

                                                                              12
<PAGE>

         surviving spouse during any period of time that such benefits are being
         provided by reason of his or her employment.

         16.      FUNDING OF COMPENSATION AND BENEFITS; ACCELERATION OF CERTAIN
         PAYMENTS.

                  (a)      GRANTOR TRUST. In the event (i) the Executive's
         employment is terminated without Cause or he terminates his employment
         for Good Reason, and (ii) and a Change in Control has occurred as of
         the Date of Termination or occurs thereafter, the Executive shall have
         the right to require STWA to establish a grantor trust (taxable to
         STWA) and fund such trust, on an actuarially sound basis, to provide
         the compensation and benefits to which he is entitled hereunder, other
         than those which may be paid pursuant to the provisions of Subparagraph
         (c). The specific terms of such trust shall be as agreed to by the
         parties in good faith; provided, however, that the trustee shall be a
         financial institution independent of STWA; and provided further, that
         in no event shall STWA be entitled to withdraw funds from the trust for
         its benefit, or otherwise voluntarily assign or alienate such funds,
         until such time as all compensation and benefits required hereunder are
         paid and provided. The determination of the extent of required funding,
         including any supplemental funding in the event of adverse investment
         performance of trust assets, shall be made by an actuary or a certified
         public accountant retained by each party. To the extent such
         professionals cannot agree on the proper level of funding, they shall
         select a third such professional whose determination shall be binding
         upon the parties. Notwithstanding the foregoing, STWA shall remain
         liable for all compensation and benefits required to be paid or
         provided hereunder.

                  (b)      ALTERNATE SECURITY. In lieu of the right given to the
         Executive under Subparagraph (a), he shall have the right under such
         circumstances to require that STWA provide (i) an irrevocable standby
         letter of credit issued by a financial institution other than STWA or
         any Subsidiary of STWA with a senior debt credit rating of "A" or
         better by Moody's Investors Service or Standard & Poor's Corporation,
         or (ii) other security reasonably acceptable to him, to secure the
         payment of such compensation and benefits.

                  (c)      ACCELERATED PAYMENT OF PRESENT VALUE OF CERTAIN
         COMPENSATION. In the event (i) the Executive's employment is terminated
         without Cause or he terminates his employment for Good Reason, and (ii)
         a Change in Control has occurred as of the Date of Termination or
         occurs thereafter, the Executive shall have the continuing right to
         demand that the present value of the remaining payments described in
         Paragraphs 6(b)(1) through (3), and payable by reason of the provisions
         of Paragraph 10 or 11 (as the case may be), be paid to him in one lump
         sum within 30 days after the date written demand is given. For purposes
         of calculating the present value of such payments, a discount factor
         shall be applied to each such payment which is equal to the relevant
         applicable federal rate in effect on the date written demand is given
         by him, determined by reference to the period of time between the date
         of such notice and the scheduled time such payment would otherwise be
         made. In the

                                                                              13
<PAGE>

         event any payment described in Paragraphs 6(b)(1) through (3) is not
         yet determinable on the date written demand is made, the other payments
         shall nonetheless be made as provided above; and the undetermined
         payment shall be made within 30 days after it becomes determinable,
         calculated as provided in the preceding sentence but by treating the
         date on which the payment becomes determinable as the date of written
         notice. Nothing in this subparagraph shall be construed as affecting
         the Executive's right to one or more Gross-Up Payments in accordance
         with the provisions of Paragraph 12; and a Gross-Up Payment (if
         applicable) will be calculated and made with any payment made under
         this subparagraph, as well as any other Gross-Up Payments that may be
         required hereunder at a subsequent date.

         17.      WITHHOLDING TAXES. All compensation and benefits provided for
         herein shall, to the extent required by law, be subject to federal,
         state, and local tax withholding.

         18.      CONFIDENTIAL INFORMATION. The Executive agrees that subsequent
         to his employment with STWA, he will not, at any time, communicate or
         disclose to any unauthorized person, without the written consent of the
         STWA, any proprietary or other confidential information concerning STWA
         or any Subsidiary of STWA; provided, however, that the obligations
         under this paragraph shall not apply to the extent that such matters
         (i) are disclosed in circumstances where the Executive is legally
         obligated to do so, or (ii) become generally known to and available for
         use by the public otherwise than by his wrongful act or omission; and
         provided further, that he may disclose any knowledge of insurance,
         financial, legal and economic principles, concepts and ideas which are
         not solely and exclusively derived from the business plans and
         activities of STWA.

         19.      COVENANTS NOT TO COMPETE OR TO SOLICIT.

                  (a)      NONCOMPETITION. During the period in which he is
         employed by STWA and, if the Executive's employment terminates under
         Paragraphs 6, for a period of 12 months after the Date of Termination
         (the "Noncompetition Period"), the Executive shall not, without the
         written consent in writing of the Board of Directors of STWA, become an
         executive officer, partner, consultant, director, or a four and
         nine-tenths percent or greater shareholder or equity owner of any
         entity engaged in the banking, lending, asset management, mutual fund,
         financial planning or investment security business within the
         California counties of Camden, Burlington, or any other California
         county in which STWA has a branch or loan production office. If at the
         time of the enforcement of this paragraph a court holds that the
         duration, scope, or area restrictions stated herein are unreasonable
         under the circumstances then existing and, thus, unenforceable, STWA
         and the Executive agree that the maximum duration, scope, or area
         reasonable under such circumstances shall be substituted for the stated
         duration, scope, or area.

                  (b)      NONSOLICITATION. During his employment and the
         Noncompetition Period, the Executive shall not, whether on his own
         behalf or on behalf of any

                                                                              14
<PAGE>

         other individual or business entity, solicit, endeavor to entice away
         from STWA, a Subsidiary or any affiliated company, or otherwise
         interfere with the relationship of STWA, a Subsidiary or any affiliated
         company with any person who is, or was within the then most recent 12
         month period, an employee or associate thereof; provided, however, that
         this subparagraph shall not apply following the occurrence of a Change
         in Control.

                  (c)      EXTENSION OF NONCOMPETITION PERIOD. The
         Non-Competition Period shall be automatically extended by the length of
         time (if any) in which the Executive is in violation of any of the
         terms of this Section 19.

         20.      ARBITRATION. To the extent permitted by applicable law, any
         controversy or dispute arising out of or relating to this Agreement, or
         any alleged breach hereof, shall be settled by arbitration in Los
         Angeles, California in accordance with the commercial rules of the
         American Arbitration Association then in existence (to the extent such
         rules are not inconsistent with the provisions of this Agreement), it
         being understood and agreed that the arbitration panel shall consist of
         three individuals acceptable to the parties hereto. In the event that
         the parties cannot agree on three arbitrators within 20 days following
         receipt by one party of a demand for arbitration from another party,
         then the Executive and STWA shall each designate one arbitrator and the
         two arbitrators selected shall select the third arbitrator. The
         arbitration panel so selected shall convene a hearing no later than 90
         days following the selection of the panel. The arbitration award shall
         be final and binding upon the parties, and judgment may be entered
         thereon in the California Superior Court or in any other court of
         competent jurisdiction.

         21.      ADDITIONAL EQUITABLE REMEDY. The Executive acknowledges and
         agrees that STWA's remedy at law for a breach or a threatened breach of
         the provisions of Paragraphs 18 and 19 would be inadequate; and, in
         recognition of this fact and notwithstanding the provisions of
         Paragraph 20, in the event of such a breach or threatened breach by
         him, it is agreed that STWA shall be entitled to request equitable
         relief in the form of specific performance, temporary restraining
         order, temporary or permanent injunction, or any other equitable remedy
         which may then be available. Nothing in this paragraph shall be
         construed as prohibiting STWA from pursuing any other remedy available
         under this Agreement for such a breach or threatened breach.

         22.      RELATED AGREEMENTS. Except as may otherwise be provided
         herein, to the extent that any provision of any other agreement between
         STWA and the Executive shall limit, qualify, duplicate, or be
         inconsistent with any provision of this Agreement, the provision in
         this Agreement shall control and such provision of such other agreement
         shall be deemed to have been superseded, and to be of no force or
         effect, as if such other agreement had been formally amended to the
         extent necessary to accomplish such purpose.

         23.      NO EFFECT ON OTHER RIGHTS. Except as otherwise specifically
         provided herein, nothing contained in this Agreement shall be construed
         as adversely affecting any rights the Executive may have under any
         agreement, plan, policy or

                                                                              15
<PAGE>

         arrangement to the extent any such right is not inconsistent with the
         provisions hereof.

         24.      EXCLUSIVE RIGHTS AND REMEDY. Except for any explicit rights
         and remedies the Executive may have under any other contract, plan or
         arrangement with STWA, the compensation and benefits payable hereunder
         and the remedy for enforcement thereof shall constitute his exclusive
         rights and remedy in the event of his termination of employment.

         25.      DIRECTOR AND OFFICER LIABILITY INSURANCE; INDEMNIFICATION.
         STWA shall provide the Executive (including his heirs, executors, and
         administrators) with the maximum coverage permitted under its
         directors' and officers' liability insurance policy, as soon as STWA
         obtains such a policy, at STWA's expense and shall indemnify him as
         both a director and as an officer (and his heirs, executors, and
         administrators) to the fullest extent permitted under Federal and
         California law against all expenses and liabilities reasonably incurred
         by him in connection with or arising out of any action, suit, or
         proceeding in which he may be involved by reason of his having been an
         officer or director of STWA or any Subsidiary or affiliated company
         (whether or not he continues to be such an officer or director at the
         time of incurring such expenses or liabilities). Such expenses and
         liabilities shall include, but not be limited to, judgments, court
         costs, and attorneys' fees, and the costs of reasonable settlements.

         26.      NOTICES. Any notice required or permitted under this Agreement
         shall be sufficient if it is in writing and shall be deemed given (i)
         at the time of personal delivery to the addressee, or (ii) at the time
         sent certified mail, with return receipt requested, addressed as
         follows:

                  If to the Executive:              Eugene E. Eichler
                                                    4400 Carpenter Avenue
                                                    North Hollywood, CA 91607

                  If to STWA                        5125 Lankersham Boulevard
                                                    North Hollywood, CA 91601

                                                    Attention:  Chairman of the
                                                    Board of Directors

The name or address of any addressee may be changed at any time and from time to
time by notice similarly given.

         27.      NO WAIVER. The failure by any party to this Agreement at any
         time or times hereafter to require strict performance by any other
         party of any of the provisions, terms, or conditions contained in this
         Agreement shall not waive, affect, or diminish any right of the first
         party at any time or times thereafter to demand strict performance
         therewith and with any other provision, term, or

                                                                              16
<PAGE>

         condition contained in this Agreement. Any actual waiver of a
         provision, term, or condition contained in this Agreement shall not
         constitute a waiver of any other provision, term, or condition herein,
         whether prior or subsequent to such actual waiver and whether of the
         same or a different type. The failure of STWA to promptly terminate the
         Executive's employment for Cause or the Executive to promptly terminate
         his employment for Good Reason shall not be construed as a waiver of
         the right of termination, and such right may be exercised at any time
         following the occurrence of the event giving rise to such right.

         28.      SURVIVAL. Notwithstanding the nominal termination of this
         Agreement and the Executive's employment hereunder, the provisions
         hereof which specify continuing obligations, compensation and benefits,
         and rights (including the otherwise applicable term hereof) shall
         remain in effect until such time as all such obligations are
         discharged, all such compensation and benefits are received, and no
         party or beneficiary has any remaining actual or contingent rights
         hereunder.

         29.      SEVERABILITY. In the event any provision in this Agreement
         shall be held illegal or invalid for any reason, such illegal or
         invalid provision shall not affect the remaining provisions hereof, and
         this Agreement shall be construed, administered and enforced as though
         such illegal or invalid provision were not contained herein.

         30.      BINDING EFFECT AND BENEFIT. The provisions of this Agreement
         shall be binding upon and shall inure to the benefit of the successors
         and assigns of STWA and the executors, personal representatives,
         surviving spouse, heirs, devisees, and legatees of the Executive.

         31.      ENTIRE AGREEMENT. This Agreement embodies the entire agreement
         among the parties with respect to the subject matter hereof, and it
         supersedes all prior discussions and oral understandings of the parties
         with respect thereto.

         32.      NO ASSIGNMENT. This Agreement, and the benefits and
         obligations hereunder, shall not be assignable by any party hereto
         except by operation of law.

         33.      NO ATTACHMENT. Except as otherwise provided by law, no right
         to receive compensation or benefits under this Agreement shall be
         subject to anticipation, commutation, alienation, sale, assignment,
         encumbrance, charge, pledge, or hypothecation, or to set off,
         execution, attachment, levy, or similar process, and any attempt,
         voluntary or involuntary, to effect any such action shall be null and
         void.

         34.      CAPTIONS. The captions of the several paragraphs and
         subparagraphs of this Agreement have been inserted for convenience of
         reference only. They constitute no part of this Agreement and are not
         to be considered in the construction hereof.

         35.      COUNTERPARTS. This Agreement may be executed in any number of
         counterparts, each of which shall be deemed one and the same instrument
         which may be sufficiently evidenced by any one counterpart.

                                                                              17
<PAGE>

         36.      NUMBER. Wherever any words are used herein in the singular
         form, they shall be construed as though they were used in the plural
         form, as the context requires, and vice versa.

         37.      APPLICABLE LAW. Except to the extent preempted by federal law,
         the provisions of this Agreement shall be construed, administered, and
         enforced in accordance with the domestic internal law of the State of
         California without reference to its laws regarding conflict of laws.

         IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
         it to be executed, as of the date first above written.

                                               _________________________________
                                                       Eugene E. Eichler

                                               SAVE THE WORLD AIR, INC.

                                               By: _____________________________
                                                       Edward Masry
                                                       Chairman of the Board

                                               Attest: _________________________
                                                       Janice Holder
                                                       Corporate Secretary

                                                                              18
<PAGE>

GLOSSARY

         "BOARD OF DIRECTORS" means the board of directors of the relevant
         corporation.

         "CAUSE" means (i) a documented repeated and willful failure by the
         Executive to perform his duties, but only after written demand and only
         if termination is effected by action taken by a vote of (A) prior to a
         Change in Control, at least a majority of the directors of STWA then in
         office, or (B) after a Change in Control, at least 80% of the
         non-officer directors of STWA then in office, (ii) his final conviction
         of a felony, (iii) conduct by him which constitutes moral turpitude
         which is directly and materially injurious to STWA or any Material
         Subsidiary, (iv) willful material violation of corporate policy, or (v)
         the issuance by the regulator of STWA or any Subsidiary or affiliated
         company of an unappealable order to the effect that he be permanently
         discharged.

         For purposes of this definition, no act or failure to act on the part
         of the Executive shall be considered "willful" unless done or omitted
         not in good faith and without reasonable belief that the action or
         omission was in the best interest of STWA or any of its Subsidiaries or
         affiliated companies.

         "CHANGE IN CONTROL" means the occurrence of any of the following
         events:

                  (a)      any Person (except (i) STWA or any Subsidiary or
         prior affiliate of STWA, or (ii) any Employee Benefit Plan (or any
         trust forming a part thereof) maintained by STWA or any Subsidiary or
         prior affiliate of STWA) is or becomes the beneficial owner, directly
         or indirectly, of STWA's securities representing 19.9% or more of the
         combined voting power of STWA's then outstanding securities, or 50.1%
         or more of the combined voting power of a Material Subsidiary's then
         outstanding securities, other than pursuant to a transaction described
         in Clause (c);

                  (b)      there occurs a sale, exchange, transfer or other
         disposition of substantially all of the assets of STWA or a Material
         Subsidiary to another entity, except to an entity controlled directly
         or indirectly by STWA;

                  (c)      there occurs a merger, consolidation, share exchange,
         division or other reorganization of or relating to STWA, unless--

                           (i)      the shareholders of STWA immediately before
         such merger, consolidation, share exchange, division or reorganization
         own, directly or indirectly, immediately thereafter at least two-thirds
         of the combined voting power of the outstanding voting securities of
         the Surviving Company in substantially the same proportion as their
         ownership of the voting securities immediately before such merger,
         consolidation, share exchange, division or reorganization; and

                           (ii)     the individuals who, immediately before such
         merger, consolidation, share exchange, division or reorganization, are
         members of the Incumbent Board continue to constitute at least
         two-thirds of the board of directors of the Surviving Company;
         provided, however, that if the election, or nomination for election by
         STWA's shareholders, of any new director was approved by a vote of at
         least two-thirds of the Incumbent Board, such director shall, for the
         purposes hereof, be considered a member of the Incumbent Board; and
         provided further, however, that no individual shall be considered a
         member of the Incumbent Board if such individual initially assumed
         office as a result of either an actual or threatened Election Contest
         or

                                      G-19
<PAGE>

         Proxy Contest, including by reason of any agreement intended to avoid
         or settle any Election Contest or Proxy Contest; and

                           (iii)    no Person (except (A) STWA or any Subsidiary
         or prior affiliate of STWA, (B) any Employee Benefit Plan (or any trust
         forming a part thereof) maintained by STWA or any Subsidiary or prior
         affiliate of STWA, or (C) the Surviving Company or any Subsidiary or
         prior affiliate of the Surviving Company) has beneficial ownership of
         19.9% or more of the combined voting power of the Surviving Company's
         outstanding voting securities immediately following such merger,
         consolidation, share exchange, division or reorganization;

                  (d)      a plan of liquidation or dissolution of STWA, other
         than pursuant to bankruptcy or insolvency laws, is adopted; or

                  (e)      during any period of two consecutive years,
         individuals who, at the beginning of such period, constituted the Board
         of Directors of STWA cease for any reason to constitute at least a
         majority of such Board of Directors, unless the election, or the
         nomination for election by STWA's shareholders, of each new director
         was approved by a vote of at least two-thirds of the directors then
         still in office who were directors at the beginning of the period;
         provided, however, that no individual shall be considered a member of
         the Board of Directors of STWA at the beginning of such period if such
         individual initially assumed office as a result of either an actual or
         threatened Election Contest or Proxy Contest, including by reason of
         any agreement intended to avoid or settle any Election Contest or Proxy
         Contest.

         Notwithstanding the foregoing, a Change in Control shall not be deemed
         to have occurred if a Person becomes the beneficial owner, directly or
         indirectly, of securities representing 19.9% or more of the combined
         voting power of STWA's then outstanding securities solely as a result
         of an acquisition by STWA of its voting securities which, by reducing
         the number of shares outstanding, increases the proportionate number of
         shares beneficially owned by such Person; provided, however, that if a
         Person becomes a beneficial owner of 19.9% or more of the combined
         voting power of STWA's then outstanding securities by reason of share
         repurchases by STWA and thereafter becomes the beneficial owner,
         directly or indirectly, of any additional voting securities of STWA,
         then a Change in Control shall be deemed to have occurred with respect
         to such Person under Clause (a).

         Notwithstanding anything contained herein to the contrary, if the
         Executive's employment is terminated and he reasonably demonstrates
         that such termination (i) was at the request of a third party who has
         indicated an intention of taking steps reasonably calculated to effect
         a Change in Control and who effects a Change in Control, or (ii)
         otherwise occurred in connection with, or in anticipation of, a Change
         in Control which actually occurs, then for all purposes hereof, a
         Change in Control shall be deemed to have occurred on the day
         immediately prior to the date of such termination of his employment.

         "STWA" means Save The World Air, Inc.

         "DATE OF TERMINATION" means:

                  (a)      if the Executive's employment is terminated for
         Disability, 30 days after the Notice of Termination is given (provided
         that he shall not have returned to the performance of his duties on a
         full-time basis during such 30-day period);

                  (b)      if the Executive's employment terminates by reason of
         his death, the date of his

                                      G-20
<PAGE>

         death;

                  (c)      if the Executive's employment is terminated by STWA
         for Cause, the date of termination specified in the Notice of
         Termination and determined in accordance with Section 8(a);

                  (d)      if the Executive's employment is terminated by him
         without Good Reason, the date of termination specified in the Notice of
         Termination and determined in accordance with Section 9(a);

                  (e)      if the Executive's employment is terminated by STWA
         for any reason other than for Disability or Cause, the date specified
         in the Notice of Termination and determined in accordance with Section
         10(a); or

                  (f)      if the Executive's employment is terminated by him
         for Good Reason, the termination date specified in the Notice of
         Termination and determined in accordance with Section 11(a);

         provided, however that the Date of Termination shall mean the actual
         date of termination in the event the parties mutually agree to a date
         other than that described above.

         "DEFINED BENEFIT PLAN" has the meaning ascribed to such term in Section
         3(35) of ERISA.

         "DEFINED CONTRIBUTION PLAN" has the meaning ascribed to such term in
         Section 3(34) of ERISA.

         "DISABILITY" has the meaning ascribed to the term "permanent and total
         disability" in Section 22(e)(3) of the IRC.

         "ELECTION CONTEST" means a solicitation with respect to the election or
         removal of directors that, if STWA was subject to the provisions of the
         1934 Act, would be subject to the provisions of Rule 14a-11 of the 1934
         Act.

         "EMPLOYEE BENEFIT PLAN" has the meaning ascribed to such term in
         Section 3(3) of ERISA.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
         amended and as the same may be amended from time to time.

         "EXCISE TAX" means the tax imposed by Section 4999 of the IRC (or any
         similar tax that may hereafter be imposed by federal, state or local
         law).

         "EXECUTIVE" means NAME OF EXECUTIVE, an individual residing in ADDRESS,
         California.

         "GOOD REASON" means:

                  (a)      prior to a Change in Control--

                           (i)      the Executive's demotion to a lesser
                           position, or any material diminution in his duties or
                           responsibilities;

                           (ii)     a reduction in the Executive's base
                           compensation, other than a reduction which is
                           proportionate to a company-wide reduction in
                           executive pay;

                                      G-21
<PAGE>

                           (iii)    a failure to increase the Executive's base
                           compensation, consistent with his performance rating,
                           within 24 months since the last increase, other than
                           similar treatment on a company-wide basis for
                           executives or a voluntary deferral by him of an
                           increase; or

                           (iv)     any purported termination of the Executive's
                           employment which is not in accordance with the terms
                           of this Agreement; and

                  (b)      after a Change in Control--

                           (i)      a change in the Executive's status or
                           position, or any material diminution in his duties or
                           responsibilities;

                           (ii)     any increase in the Executive's duties
                           inconsistent with his position;

                           (iii)    any reduction in the Executive's base
                           compensation;

                           (iv)     a failure to increase the Executive's base
                           compensation, consistent with his performance review,
                           within 12 months of the last increase; or a failure
                           to consider Executive for an increase within 12
                           months of his last performance review;

                           (v)      a failure to continue in effect any Employee
                           Benefit Plan in which the Executive participates,
                           including (whether or not they constitute Employee
                           Benefit Plans) incentive bonus, stock option, or
                           other qualified or nonqualified plans of deferred
                           compensation (A) other than as a result of the normal
                           expiration of such a plan, or (B) unless such plan is
                           merged or consolidated into, or replaced with, a plan
                           with benefits which are of equal or greater value;

                           (vi)     requiring the Executive to be based anywhere
                           other than the county where his principal office was
                           located immediately prior to the Change in Control;

                           (vii)    refusal to allow the Executive to attend to
                           matters or engage in activities in which he was
                           permitted to engage prior to the Change in Control;

                           (viii)   delivery to the Executive of a Notice of
                           Nonextension;

                           (ix)     failure to secure the affirmation by a
                           Successor, within three business days prior to a
                           Change in Control, of this Agreement and its or
                           STWA's continuing obligations hereunder (or where
                           there is not at least three business days advance
                           notice that a Person may become a Successor, within
                           one business day after having notice that such Person
                           may become or has become a Successor); or

                           (x)      any purported termination of the Executive's
                           employment which is not in accordance with the terms
                           of this Agreement.

Notwithstanding anything herein to the contrary, at the election of the
Executive, beginning with the 181st day following a Change in Control and
continuing through the first anniversary of such Change in Control, he may
terminate his employment for any reason or no reason and such termination will
be treated as having occurred for Good Reason.

                                       G-22
<PAGE>

         "GROSS-UP PAYMENT" means an additional payment to be made to or on
behalf of the Executive in an amount such that the net amount retained by him,
after deduction of any Excise Tax on the Total Payments and any federal, state,
and local income tax and Excise Tax on such additional payment, equals the Total
Payments.

         "INCUMBENT BOARD" means the Board of Directors of STWA as constituted
at any relevant time.

         "IRC" means the Internal Revenue Code of 1986, as amended and as the
same may be amended from time to time.

         "MATERIAL SUBSIDIARY" means a Subsidiary whose net worth, determined
under generally accepted accounting principles, at the fiscal year end
immediately prior to any relevant time is at least 25% of the aggregate net
worth of the controlled group of corporations of which STWA is parent.

         "1934 ACT" means the Securities Exchange Act of 1934, as amended and as
the same may be amended from time to time.

         "NOTICE OF NON-EXTENSION" means a written notice delivered to or by the
Executive which advises that the Agreement will not be extended as provided in
Paragraph 3.

         "NOTICE OF TERMINATION" means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) gives the required advance notice of termination.

     "PERSON" has the same meaning as such term has for purposes of Sections
13(d) and 14(d) of the 1934 Act.

         "PROXY CONTEST" means the solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of STWA.

         "SUBSIDIARY" means any business entity of which a majority of its
voting power or its equity securities or equity interests is owned, directly or
indirectly by STWA.

         "SUCCESSOR" means any Person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), STWA's
business directly, by merger or consolidation, or indirectly, by purchase of
STWA's voting securities or all or substantially all of its assets.

         "SURVIVING COMPANY" means the business entity that is a resulting
company following a merger, consolidation, share exchange, division or other
reorganization of or relating to STWA.

         "TOTAL PAYMENTS" means the compensation and benefits that become
payable under the Agreement or otherwise (and which may be subject to an Excise
Tax) by reason of the Executive's termination of employment, less the federal,
state and local income tax (but not any Excise Tax) on such compensation and
benefits, in each case determined without regard to any Gross-Up Payments that
may also be made.

         "WELFARE BENEFIT PLAN" has the meaning ascribed to the term "employee
welfare benefit plan" in Section 3(1) of ERISA. For purposes of determining the
Executive's or his dependents' right to continued welfare benefits hereunder
following his termination of employment, the meaning of such term shall include

                                      G-23
<PAGE>

any retiree health plan maintained by STWA at any time after the relevant Date
of Termination, notwithstanding the fact that the Executive is not a participant
therein prior to such date.

                                      G-24

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>6
<FILENAME>v97738exv10w9.txt
<DESCRIPTION>EXHIBIT 10.9
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.9

                              EMPLOYMENT AGREEMENT

         AGREEMENT made as of the 1st day of December 2003 by and between SAVE
THE WORLD AIR, INC. ("STWA"), a Nevada chartered corporation, and Bruce H.
McKinnon (the "Executive").

BACKGROUND

         A.       STWA desires to employ the Executive and the Executive is
willing to serve on the terms and conditions herein provided.

         B.       In order to effect the foregoing, the parties hereto desire to
enter into an employment agreement on the terms and conditions set forth below.

         NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:

         1.       DEFINITIONS AND SPECIAL PROVISIONS. Each capitalized word and
term used herein shall have the meaning ascribed to it in the glossary appended
hereto, unless the context in which such word or term is used otherwise clearly
requires. Such glossary is incorporated herein by reference and made a part
hereof.

         2.       EMPLOYMENT. STWA hereby agrees to employ the Executive, and
the Executive hereby agrees to serve STWA, on the terms and conditions set forth
herein.

         3.       TERM OF AGREEMENT. The Executive's employment under this
Agreement shall commence on the date hereof and, except as otherwise provided
herein, shall continue until December 31, 2007; provided, however, that
commencing on December 31, 2007 and each anniversary thereafter, the term of
this Agreement shall automatically be extended for one additional year beyond
the term otherwise established unless, prior to such date, STWA or the Executive
shall have given a Notice of Non-Extension.

         4.       POSITION AND DUTIES. The Executive shall serve as Executive
Vice President/Business Development of STWA and he shall have such
responsibilities, duties and authority as may, from time to time, be generally
associated with such position and or as specifically detailed in the company's
official "Position Description." He shall also serve as a member of STWA's Board
of Directors and upon any committees thereof as requested by the Board. In
addition, the Executive shall serve in such capacity, with respect to each
Subsidiary or affiliated company, as the Board of Directors of each such
Subsidiary or affiliated company shall designate from time to time. During the
term of this Agreement, he shall devote substantially all of his working time
and efforts to the business and affairs of STWA, the Subsidiaries and affiliated
companies; provided, however, that nothing herein shall be construed as
precluding him from devoting a reasonable amount of time to civic, charitable,
trade association and similar activities that do not represent conflicts and are
not otherwise in any way detrimental to STWA.

                                                                               1

<PAGE>

         5.       COMPENSATION AND RELATED MATTERS.

         BASE COMPENSATION. During the period of the Executive's employment
         hereunder, STWA shall pay to him annual base compensation as follows:

         For the period from December 1, 2003 to December 31, 2004 at an annual
         rate not less than $153,600.00;

         The Board(s) of Directors of STWA shall periodically review the
         Executive's employment performance, in accordance with policies
         generally in effect from time to time, for possible merit or
         cost-of-living increases in such base compensation. Except for a
         reduction, should such reduction occur, which is proportionate to a
         company-wide reduction in executive pay, the annual base compensation
         paid to the Executive in any period shall not be less than the annual
         base compensation paid to him in any prior period. The frequency and
         manner of payment of such base compensation shall be in accordance with
         STWA's executive payroll practices from time to time in effect. Nothing
         herein shall be construed as precluding the Executive from entering
         into any salary reduction or deferral plan or arrangement during the
         term of this Agreement; provided, however, that his base compensation
         shall be determined without regard to any such salary reduction or
         deferral for purposes of calculating the amount of any compensation and
         benefits to which he or his surviving spouse may be entitled under
         Paragraph 6, 7, 10, or 11 following his termination of employment. The
         amounts set forth in the first sentence of this subparagraph (a) shall
         be pro rated to the extent such period is less than a year.

                  (a)      INCENTIVE COMPENSATION. During the period of the
         Executive's employment hereunder, he shall be entitled to participate
         in all incentive plans, stock option plans, and similar arrangements as
         may be in effect and maintained by STWA for executive officers on a
         basis and at award levels consistent and commensurate with his position
         and duties hereunder.

                  (b)      EMPLOYEE BENEFIT PLANS AND OTHER PLANS OR
         ARRANGEMENTS. The Executive shall be entitled to participate in all
         Employee Benefit Plans of STWA that either, are in effect at present or
         that may be adopted in the future. In addition, he shall be entitled to
         participate in and enjoy any other plans and arrangements which provide
         for sick leave, vacation, sabbatical, or personal days, club
         memberships and dues, education payment or reimbursement,
         business-related seminars, and similar fringe benefits provided to or
         for the executive officers of STWA from time to time. Notwithstanding
         the foregoing, Executive shall be entitled to at least four (4) weeks
         vacation per calendar year during each year of employment. Such
         vacation shall be prorated during the year 2003 based on the date of
         this Agreement.

                  (c)      EXPENSES. During the period of the Executive's
         employment hereunder, he shall be entitled to receive prompt
         reimbursement for all reasonable and customary expenses, including
         transportation expenses, incurred by him in

                                                                               2

<PAGE>

         performing services hereunder in accordance with the general policies
         and procedures established by STWA.

                  (d)      AUTOMOBILE. STWA shall provide for an unaccountable
         monthly automobile allowance of not less than $900.00. The company may,
         at its discretion, provide an automobile, mutually acceptable, to the
         Executive for his exclusive use.

         6.       TERMINATION BY REASON OF DISABILITY.

                  (a)      IN GENERAL. In the event the Executive becomes unable
         to perform his duties on a full-time basis by reason of the occurrence
         of his Disability and, within 30 days after a Notice of Termination is
         given, he shall not have returned to the full-time performance of such
         duties, his employment may be terminated by STWA.

                  (b)      COMPENSATION AND BENEFITS. In the event of the
         termination of the Executive's employment under Subparagraph (a), the
         term of this Agreement shall continue for one year after the Date of
         Termination, and STWA shall pay or provide the compensation and
         benefits set forth below:

                           (1)      The Executive shall be paid an amount per
                           annum equal to the greater of (i) his highest base
                           compensation (including the car allowance provided
                           for in Section 5(e)) received during one of the two
                           calendar years immediately preceding the calendar
                           year in which the Date of Termination occurs, or (ii)
                           his base compensation (including the car allowance
                           provided for in Section 5(e)) in effect immediately
                           prior to the Date of Termination (or prior to any
                           reduction which entitled him to terminate his
                           employment for Good Reason), over a period of one
                           year beginning with such Date of Termination. The
                           frequency and manner of payment of such amounts shall
                           be in accordance with STWA's executive payroll
                           practices from time to time in effect.

                           (2)      The Executive shall be paid an amount equal
                           to the higher of the aggregate bonus (es) paid to him
                           with respect to one of the two years immediately
                           preceding the year in which the Date of Termination
                           occurs. Such amount shall be paid to him in cash on
                           the first anniversary date of the Date of
                           Termination.

                           (3)      The Executive shall be paid an amount equal
                           to the highest annual contribution made on his behalf
                           (other than his own salary reduction contributions)
                           to each tax-qualified and non-qualified Defined
                           Contribution Plan of STWA with respect to the year in
                           which the Date of Termination occurs or one of the
                           two years immediately preceding such year. The amount
                           separately determined for each such plan shall be
                           aggregated and shall be paid to him in cash on the
                           first anniversary date of the Date of Termination.

                                                                               3

<PAGE>

                           (4)      The Executive shall accrue benefits equal to
                           the excess of (i) the aggregate retirement benefits
                           he would have received under the terms of each
                           tax-qualified and non-qualified Defined Benefit Plan
                           of STWA as in effect immediately prior to the Date of
                           Termination had he (A) continued to be employed for
                           one more year, and (B) received (on a pro rated
                           basis, as appropriate) the greater of (I) the highest
                           compensation taken into account under each such plan
                           with respect to one of the two years immediately
                           preceding the year in which the Date of Termination
                           occurs, or (II) his annualized base compensation in
                           effect immediately prior to the Date of Termination
                           (or prior to any reduction which entitled him to
                           terminate his employment for Good Reason), over (ii)
                           the retirement benefits he actually receives under
                           such plans. The frequency, manner and extent of
                           payment of such benefits shall be consistent with the
                           terms of the plans to which they relate and any
                           elections made thereunder.

                           (5)      The Executive and his eligible dependents
                           shall be entitled to continue to participate at the
                           same aggregate benefit levels, for one year and at no
                           out-of-pocket or tax cost to him, in the Welfare
                           Benefit Plans in which he was a participant
                           immediately prior to the Date of Termination, to the
                           extent permitted under the terms of such plans and
                           applicable law. To the extent STWA is unable to
                           provide for continued participation in a Welfare
                           Benefit Plan, it shall provide an equivalent benefit
                           directly at no out-of-pocket or tax cost to him. For
                           purposes of the preceding two sentences, STWA shall
                           be deemed to have provided a benefit at no tax cost
                           to him if it pays an additional amount to him or on
                           his behalf, with respect to those benefits which
                           would otherwise be nontaxable to him, calculated in a
                           manner consistent with the provisions of Paragraph
                           12.

                  (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b) COMPENSATION
         AND BENEFITS. Notwithstanding the provisions of Subparagraph (b)(5),
         STWA's obligation to pay or fund any disability insurance premiums on
         behalf of the Executive shall be suspended while his Disability
         continues, provided the cessation of payment or funding does not result
         in the termination of disability benefits. Any amounts otherwise due
         under Subparagraph (b) shall be reduced (but not below zero) by the
         dollar amount of disability benefits received by him pursuant to plans
         or policies funded, directly at its cost, by STWA.

                  (d)      EARLIER CESSATION OF CERTAIN WELFARE BENEFITS.
         Notwithstanding the provisions of Subparagraph (b)(5), STWA shall not
         be required to provide, at its cost, the welfare benefits covered
         therein after the later of (i) the attainment by the Executive and his
         spouse (if any) of age 65, or (ii) the date specified in the relevant
         plan document for benefit termination (assuming that he was employed
         until age 65 or the normal retirement date, if any, specified in such
         document).

                                                                               4

<PAGE>

                  (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                           (1)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Disability and he is survived by a
                           spouse, the compensation and benefits remaining to be
                           paid and provided under Subparagraph (b) shall be
                           unaffected by his death and shall be paid and
                           provided to her or on her behalf; provided, however,
                           that the extent of her rights to the accrued benefits
                           described in Subparagraph (b)(4) shall be determined
                           by reference to the relevant plan provisions and any
                           elections made under such plans; and provided
                           further, that STWA shall not be required to provide
                           continued benefits with respect to her deceased
                           husband; and provided further, that in no event shall
                           STWA be required to provide, at its cost, the other
                           welfare benefits described in Subparagraph (b)(5) to
                           such spouse and her eligible dependents after the
                           earlier of (i) her death, or (ii) the later of (A)
                           her attainment of age 65, or (B) the date specified
                           in the relevant plan document for benefit termination
                           (assuming that the Executive was employed until age
                           65 or the normal retirement date, if any, specified
                           in such document).

                           (2)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Disability and he is not survived by
                           a spouse, (i) STWA shall thereafter make the
                           remaining payments described in Subparagraphs (b)(1)
                           through (b)(3) directly to his estate, (ii) the
                           extent of the rights of any person to the accrued
                           benefits described in Subparagraph (b)(4) shall be
                           determined by reference to the relevant plan
                           provisions and any elections made under such plans,
                           and (iii) STWA's obligation to provide continued
                           benefits under Subparagraph (b)(5) shall terminate.

                  (f)      COMPENSATION AND BENEFITS UPON EXPIRATION OF
         REMAINING TERM OF AGREEMENT. Upon the expiration of the remaining term
         of this Agreement following the Executive's termination for Disability,
         and provided his Disability then continues, he shall be entitled to
         receive the compensation and benefits provided under the terms of any
         long-term disability plan of STWA in effect on the Date of Termination
         or, if greater, at the expiration of such remaining term. If such plan
         exists, such compensation and benefits shall continue until the earlier
         of (i) his death, or (ii) the later of (A) his attainment of age 65, or
         (B) the date specified in the plan document for benefit termination. To
         the extent STWA is unable to provide such compensation and benefits
         under its long-term disability plan, if any, it shall provide
         equivalent compensation and benefits directly at no out-of-pocket or
         tax cost to him. For purposes of the preceding sentence, STWA shall be
         deemed to have provided compensation and benefits at no tax cost to him
         if it pays an additional amount to him or on his behalf, with respect
         to the compensation and benefits which would otherwise be

                                                                               5

<PAGE>

         nontaxable to him, calculated in a manner consistent with the
         provisions of Paragraph 12.

         7.       TERMINATION BY REASON OF DEATH.

                  (a)      COMPENSATION AND BENEFITS TO SURVIVING SPOUSE. In the
         event the Executive dies while he is employed under this Agreement and
         is survived by a spouse, STWA shall pay or provide the compensation and
         benefits set forth below:

                           (1)      The surviving spouse shall be paid an amount
                           equal to the greater of (i) the Executive's highest
                           base compensation received during one of the two
                           calendar years immediately preceding the calendar
                           year in which the Date of Termination occurs, or (ii)
                           his base compensation in effect immediately prior to
                           the Date of Termination (or prior to any reduction
                           which entitled him to terminate his employment for
                           Good Reason) for a period of one year, beginning with
                           such Date of Termination. The frequency and manner of
                           payment of such amounts shall be in accordance with
                           STWA's executive payroll practices from time to time
                           in effect.

                           (2)      The surviving spouse shall be paid an amount
                           equal to the highest payment made to Executive under
                           each incentive bonus plan of STWA with respect to one
                           of the two years immediately preceding the year in
                           which the Date of Termination occurs. Such amount
                           shall be paid in cash to her within 30 days after the
                           Date of Termination.

                           (3)      The surviving spouse shall be paid an amount
                           equal to the sum of the highest annual contribution
                           made on the Executive's behalf (other than his own
                           salary reduction contributions) to each tax-qualified
                           and non-qualified Defined Contribution Plan of STWA
                           with respect to the year in which the Date of
                           Termination occurs or one of the two years
                           immediately preceding such year. Such amount shall be
                           paid in cash to her within 30 days after the Date of
                           Termination or within 30 days after such amount can
                           first be determined, whichever is later.

                           (4)      Subject to the following sentence, the
                           surviving spouse shall be paid benefits determined by
                           reference to the excess of (i) the aggregate
                           retirement benefits the Executive would have accrued
                           under the terms of each tax-qualified and
                           non-qualified Defined Benefit Plan as in effect
                           immediately prior to the Date of Termination, had he
                           (A) continued to be employed for a period of one year
                           following the Date of Termination, and (B) received
                           (on a pro rated basis, as appropriate) the greater of
                           (I) the highest compensation taken into account under
                           each such plan with respect to one of the two years
                           immediately preceding the year in which

                                                                               6

<PAGE>

                           the Date of Termination occurs, or (II) his
                           annualized base compensation in effect immediately
                           prior to the Date of Termination (or prior to any
                           reduction which entitled him to terminate his
                           employment for Good Reason), over (ii) the retirement
                           benefits actually determined under such plans. The
                           frequency, manner, and extent of payment of such
                           benefits shall be consistent with the terms of the
                           plans to which they relate and any elections made
                           thereunder.

                           (5)      The surviving spouse and her eligible
                           dependents shall be entitled to continue to
                           participate at the same aggregate benefit levels, for
                           a period of one year following the Date of
                           Termination and at no out-of-pocket or tax cost to
                           her, in the Welfare Benefit Plans in which the
                           Executive was a participant immediately prior to the
                           Date of Termination, to the extent permitted under
                           the terms of such plans and applicable law; provided,
                           however, that STWA shall not be required to provide
                           continued benefits with respect to her deceased
                           husband; and provided further, that STWA shall not
                           thereafter be required to provide, at its cost, the
                           other welfare benefits covered by such plans to such
                           spouse and her eligible dependents after the earlier
                           of (i) her death, or (ii) the later of (A) her
                           attainment of age 65, or (B) the date specified in
                           the relevant plan document for benefit termination
                           (assuming the Executive was employed until age 65 or
                           the normal retirement date, if any, specified in such
                           document). To the extent STWA is unable to provide
                           for continued participation in a Welfare Benefit Plan
                           as required, it shall provide an equivalent benefit
                           directly at no out-of-pocket or tax cost to her. For
                           purposes of the preceding two sentences, STWA shall
                           be deemed to have provided a benefit at no tax cost
                           to her if it pays an additional amount to her or on
                           her behalf, with respect to those benefits which
                           would otherwise be nontaxable to her, calculated in a
                           manner consistent with the provisions of Paragraph
                           12.

                  (b)      COMPENSATION AND BENEFITS TO ESTATE, ETC. In the
         event the Executive dies while he is employed under this Agreement and
         is not survived by a spouse, (i) STWA shall make the payments described
         in Subparagraphs (a)(1) through (a)(3) directly to his estate, (ii) the
         extent of the rights of any person to the accrued benefits described in
         Subparagraph (a)(4) shall be determined by reference to the relevant
         plan provisions and any elections made under such plans, and (iii)
         STWA's obligation to provide benefits under Subparagraph (a)(5) shall
         terminate.

         8.       TERMINATION BY STWA FOR CAUSE.

                  (a)      IN GENERAL. In the event STWA intends to terminate
         the Executive's employment for Cause, it shall deliver a Notice of
         Termination to him which specifies a Date of Termination not less than
         30 days following the

                                                                               7

<PAGE>

         date of such notice, unless a shorter period of notice is required by
         the principal regulator of STWA or any affiliate of STWA.

                  (b)      COMPENSATION. Within 30 days after the Executive's
         termination under Subparagraph (a), STWA shall pay him, in one lump
         sum, his accrued but unpaid base compensation and vacation compensation
         earned through the Date of Termination.

         9.       TERMINATION BY THE EXECUTIVE WITHOUT GOOD REASON.

                  (a)      IN GENERAL. In the event the Executive intends to
         terminate his employment without Good Reason, he shall deliver a Notice
         of Termination to STWA which specifies a Date of Termination not less
         than (i) 90 days following the date of such notice, if a Change in
         Control shall not have occurred, or (ii) 30 days following the date of
         such notice, if a Change in Control shall have occurred.

                  (b)      COMPENSATION. Within 30 days after the Executive's
         termination under Subparagraph (a), STWA shall pay him, in one lump
         sum, his accrued but unpaid base compensation and vacation compensation
         earned through the Date of Termination.

         10.      TERMINATION BY STWA WITHOUT DISABILITY OR CAUSE.

                  (a)      IN GENERAL. In the event STWA intends to terminate
         the Executive's employment for any reason other than Disability or
         Cause, it shall deliver a Notice of Termination to him which specifies
         a Date of Termination not less than 90 days following the date of such
         notice.

                  (b)      COMPENSATION AND BENEFITS DURING REMAINING TERM OF
         AGREEMENT. In the event of the termination of the Executive's
         employment under Subparagraph (a), STWA shall pay or provide the
         compensation and benefits described in Paragraph 6(b), except that all
         such compensation and benefits shall be for the remaining term of this
         Agreement determined in accordance with Section 3 hereof, unless a
         change in control has occurred prior to such termination of employment,
         in which case all such compensation and benefits shall be for a term of
         three (3) years from the Date of Termination and the term of this
         Agreement shall continue until all such compensation and benefits are
         paid to Executive in full.

                  (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b) COMPENSATION
         AND BENEFITS. In the event the Executive suffers a Disability during
         the remaining term of this Agreement following the Date of Termination,
         STWA's obligation to pay or fund any disability insurance premiums on
         his behalf shall be suspended while his Disability continues, provided
         the cessation of payment or funding does not result in the termination
         of disability benefits. Any amounts described in Paragraph 6(b) and
         otherwise payable under Subparagraph (b) shall be reduced (but not
         below zero) by the dollar amount of disability benefits received by him
         pursuant to plans or policies funded, directly at its cost, by STWA.

                                                                               8

<PAGE>

                  (d)      EARLIER CESSATION OF CERTAIN WELFARE BENEFITS.
         Notwithstanding the provisions of Subparagraph (b), STWA shall not be
         required to provide, at its cost, the welfare benefits covered by
         Paragraph 6(b)(5) after the later of (i) the attainment by the
         Executive and his spouse (if any) of age 65, or (ii) the date specified
         in the relevant plan document for benefit termination (assuming that he
         was employed until age 65 or the normal retirement date, if any,
         specified in such document).

                  (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                           (1)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination without Disability or Cause by STWA and
                           he is survived by a spouse, the compensation and
                           benefits required to be paid and provided under
                           Subparagraph (b) shall be unaffected by his death and
                           shall be paid and provided to her or on her behalf;
                           provided, however, that the extent of her rights to
                           the accrued benefits described in Paragraph 6(b)(4)
                           shall be determined by reference to the relevant plan
                           provisions and any elections made under such plans;
                           and provided further, that STWA shall not be required
                           to provide continued benefits with respect to her
                           deceased husband; and provided further, that in no
                           event shall STWA be required to provide, at its cost,
                           the other welfare benefits described in Paragraph
                           6(b)(5) to such spouse and her eligible dependents
                           after the earlier of (i) her death, or (ii) the later
                           of (A) her attainment of age 65, or (B) the date
                           specified in the relevant plan document for benefit
                           termination (assuming that the Executive was employed
                           until age 65 or the normal retirement date, if any,
                           specified in such document).

                           (2)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination without Disability or Cause and he is not
                           survived by a spouse, (i) STWA shall thereafter make
                           the remaining payments described in Paragraphs
                           6(b)(1) through 6(b)(3) directly to his estate, (ii)
                           the extent of the rights of any person to the accrued
                           benefits described in Paragraph 6(b)(4) shall be
                           determined by reference to the relevant plan
                           provisions and any elections made under such plans,
                           and (iii) STWA's obligation to provide the continued
                           benefits described in Paragraph 6(b)(5) shall
                           terminate.

         11.      TERMINATION BY THE EXECUTIVE FOR GOOD REASON.

                  (a)      IN GENERAL. In the event the Executive intends to
         terminate his employment for Good Reason, he shall deliver a Notice of
         Termination to STWA which specifies a Date of Termination not less than
         30 days following the date of such notice.

                                                                               9

<PAGE>

                  (b)      COMPENSATION AND BENEFITS DURING REMAINING TERM OF
         AGREEMENT. In the event of the termination of the Executive's
         employment under Subparagraph (a), STWA shall pay or provide the
         compensation and benefits described in Paragraph 6(b), except that all
         such compensation and benefits shall be for a term of three (3) years
         from the Date of Termination and the term of this Agreement shall
         continue until all such compensation and benefits are paid to Executive
         in full.

                  (c)      ADJUSTMENT TO CERTAIN SUBPARAGRAPH (b) COMPENSATION
         AND BENEFITS. In the event the Executive suffers a Disability during
         the remaining term of this Agreement following the Date of Termination,
         STWA's obligation to pay or fund any disability insurance premiums on
         his behalf shall be suspended while his Disability continues, provided
         the cessation of payment or funding does not result in the termination
         of disability benefits. Any amounts described in Paragraph 6(b) and
         otherwise payable under Subparagraph (b) shall be reduced (but not
         below zero) by the dollar amount of disability benefits received by him
         pursuant to plans or policies funded, directly at its cost, by STWA.

                  (d)      EARLIER CESSATION OF CERTAIN WELFARE BENEFITS.
         Notwithstanding the provisions of Subparagraph (b), STWA shall not be
         required to provide, at its cost, the welfare benefits covered by
         Paragraph 6(b)(5) after the later of (i) the attainment by the
         Executive and his spouse (if any) of age 65, or (ii) the date specified
         in the relevant plan document for benefit termination (assuming that he
         was employed until age 65 or the normal retirement date, if any,
         specified in such document).

                  (e)      DEATH DURING REMAINING TERM OF AGREEMENT.

                           (1)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Good Reason and he is survived by a
                           spouse, the compensation and benefits required to be
                           paid and provided under Subparagraph (b) shall be
                           unaffected by his death and shall be paid and
                           provided to her or on her behalf; provided, however,
                           that the extent of her rights to the accrued benefits
                           described in Paragraph 6(b)(4) shall be determined by
                           reference to the relevant plan provisions and any
                           elections made under such plans; and provided
                           further, that STWA shall not be required to provide
                           continued benefits with respect to her deceased
                           husband; and provided further, that in no event shall
                           STWA be required to provide, at its cost, the other
                           welfare benefits described in Paragraph 6(b)(5) to
                           such spouse and her eligible dependents after the
                           earlier of (i) her death, or (ii) the later of (A)
                           her attainment of age 65, or (B) the date specified
                           in the relevant plan document for benefit termination
                           (assuming that the Executive was employed until age
                           65 or the normal retirement date, if any, specified
                           in such document).

                                                                              10

<PAGE>

                           (2)      In the event the Executive dies during the
                           remaining term of this Agreement following his
                           termination for Good Reason and he is not survived by
                           a spouse, (i) STWA shall thereafter make the
                           remaining payments described in Paragraphs 6(b)(1)
                           through 6(b)(3) directly to his estate, (ii) the
                           extent of the rights of any person to the accrued
                           benefits described in Paragraph 6(b)(4) shall be
                           determined by reference to the relevant plan
                           provisions and any elections made under such plans,
                           and (iii) STWA's obligation to provide the continued
                           benefits described in Paragraph 6(b)(5) shall
                           terminate.

         12.      PROVISIONS RELATING TO EXCISE TAXES.

                  (a)      IN GENERAL. In the event the Executive becomes
         liable, for any taxable year, for the payment of an Excise Tax (because
         of a change in control) with respect to the compensation and benefits
         payable by STWA under this Agreement or otherwise, STWA shall make one
         or more Gross-Up Payments to the Executive or on his behalf. The amount
         of any Gross-Up Payment shall be calculated by a certified public
         accountant or other tax professional designated jointly by the
         Executive and STWA. The provisions of this paragraph shall apply with
         respect to the Executive's surviving spouse or estate, where relevant.

                  (b)      METHODOLOGY FOR CALCULATION OF GROSS-UP PAYMENT. For
         purposes of determining the amount of any Gross-Up Payment, the
         Executive shall be deemed to pay income taxes at the highest federal,
         state, and local marginal rates of tax for the calendar year in which
         the Gross-Up Payment is to be made, net of the maximum reduction in
         federal income tax which could be obtained from the deduction of state
         and local income taxes. In the event that the Excise Tax is
         subsequently determined to be less than the amount taken into account
         at the time the Gross-Up Payment was made, the Executive shall repay to
         STWA, at the time that the amount of such reduction in Excise Tax is
         finally determined, the portion of the Gross-Up Payment attributable to
         the reduction (plus a portion of the Gross-Up Payment attributable to
         the Excise Tax and the federal, state, and local income taxes imposed
         on the portion of the Gross-Up Payment being repaid by the Executive to
         the extent such repayment results in a reduction in Excise Tax or
         federal, state, or local income tax), plus interest on the amount of
         such repayment. Such interest shall be calculated by using the rate in
         effect under Section 1274(d)(1) of the IRC, on the date the Gross-Up
         Payment was made, for debt instruments with a term equal to the period
         of time which has elapsed from the date the Gross-Up Payment was made
         to the date of repayment. In the event that the Excise Tax is
         subsequently determined to exceed the amount taken into account at the
         time the Gross-Up Payment was made (including by reason of any payment
         the existence or amount of which could not be determined at the time of
         the Gross-Up Payment), STWA shall make an additional Gross-Up Payment
         with respect to the excess at the time the amount thereof is finally
         determined, plus interest calculated in a manner similar to that
         described in the preceding sentence.

                                                                              11

<PAGE>

                  (c)      TIME OF PAYMENT. Any Gross-Up Payment provided for
         herein shall be paid not later than the 30th day following the payment
         of any compensation or the provision of any benefit which causes such
         payment to be made; provided, however, that if the amount of such
         payment cannot be finally determined on or before such day, STWA shall
         pay on such day an estimate of the minimum amount of such payment and
         shall pay the remainder of such payment (together with interest
         calculated in a manner similar to that described in Subparagraph (b))
         as soon as the amount thereof can be determined. In the event that the
         amount of an estimated payment exceeds the amount subsequently
         determined to have been due, such excess shall constitute a loan by
         STWA to the Executive, payable on the 30th day after demand by STWA
         (together with interest calculated in a manner similar to that
         described in Subparagraph (b)).

                  (d)      OTHER ARRANGEMENTS. Notwithstanding the provisions of
         this paragraph to the contrary, the actual amounts payable hereunder as
         Gross-Up Payments shall be coordinated with any similar amounts paid to
         the Executive under any other contract, plan, or arrangement.

         13.      FEES AND EXPENSES OF THE EXECUTIVE.

         After a Change in Control and except as provided in the following
         sentence, STWA shall pay, within 30 days following demand by the
         Executive, all legal, accounting, actuarial, and related fees and
         expenses incurred by him in connection with the enforcement of this
         Agreement. An arbitration panel or a court of competent jurisdiction
         shall be empowered to deny payment to the Executive of such fees and
         expenses only if it determines that he instituted a proceeding
         hereunder, or otherwise acted, in bad faith.

         14.      REDUCTION FOR COMPENSATION AND BENEFITS RECEIVED UNDER STWA
         SEVERANCE POLICY, ETC. Notwithstanding anything herein to the contrary,
         in the event the Executive, his surviving spouse, or any other person
         becomes entitled to continued compensation and benefits hereunder by
         reason of the Executive's termination of employment and, in addition,
         compensation or similar benefits are payable under a severance policy,
         program or arrangement maintained by STWA (other than retirement
         plans), then the compensation or benefits otherwise payable hereunder
         shall be reduced by the compensation or benefits provided under such
         severance policy, program or arrangement.

         15.      MITIGATION. The Executive shall not be required to mitigate
         the amount of any compensation or benefits which may become payable
         hereunder by reason of his termination by seeking other employment or
         otherwise, nor, except as otherwise provided in the following sentence
         or elsewhere herein, shall the amount of any such compensation or
         benefits be reduced by any compensation or benefits received by the
         Executive as the result of his employment by another employer.
         Notwithstanding anything in this Agreement to the contrary, STWA's
         obligation to provide any medical and dental benefits hereunder may be
         suspended, with the written concurrence of the Executive or, if
         applicable, his

                                                                              12

<PAGE>

         surviving spouse during any period of time that such benefits are being
         provided by reason of his or her employment.

         16.      FUNDING OF COMPENSATION AND BENEFITS; ACCELERATION OF CERTAIN
         PAYMENTS.

                  (a)      GRANTOR TRUST. In the event (i) the Executive's
         employment is terminated without Cause or he terminates his employment
         for Good Reason, and (ii) and a Change in Control has occurred as of
         the Date of Termination or occurs thereafter, the Executive shall have
         the right to require STWA to establish a grantor trust (taxable to
         STWA) and fund such trust, on an actuarially sound basis, to provide
         the compensation and benefits to which he is entitled hereunder, other
         than those which may be paid pursuant to the provisions of Subparagraph
         (c). The specific terms of such trust shall be as agreed to by the
         parties in good faith; provided, however, that the trustee shall be a
         financial institution independent of STWA; and provided further, that
         in no event shall STWA be entitled to withdraw funds from the trust for
         its benefit, or otherwise voluntarily assign or alienate such funds,
         until such time as all compensation and benefits required hereunder are
         paid and provided. The determination of the extent of required funding,
         including any supplemental funding in the event of adverse investment
         performance of trust assets, shall be made by an actuary or a certified
         public accountant retained by each party. To the extent such
         professionals cannot agree on the proper level of funding, they shall
         select a third such professional whose determination shall be binding
         upon the parties. Notwithstanding the foregoing, STWA shall remain
         liable for all compensation and benefits required to be paid or
         provided hereunder.

                  (b)      ALTERNATE SECURITY. In lieu of the right given to the
         Executive under Subparagraph (a), he shall have the right under such
         circumstances to require that STWA provide (i) an irrevocable standby
         letter of credit issued by a financial institution other than STWA or
         any Subsidiary of STWA with a senior debt credit rating of "A" or
         better by Moody's Investors Service or Standard & Poor's Corporation,
         or (ii) other security reasonably acceptable to him, to secure the
         payment of such compensation and benefits.

                  (c)      ACCELERATED PAYMENT OF PRESENT VALUE OF CERTAIN
         COMPENSATION. In the event (i) the Executive's employment is terminated
         without Cause or he terminates his employment for Good Reason, and (ii)
         a Change in Control has occurred as of the Date of Termination or
         occurs thereafter, the Executive shall have the continuing right to
         demand that the present value of the remaining payments described in
         Paragraphs 6(b)(1) through (3), and payable by reason of the provisions
         of Paragraph 10 or 11 (as the case may be), be paid to him in one lump
         sum within 30 days after the date written demand is given. For purposes
         of calculating the present value of such payments, a discount factor
         shall be applied to each such payment which is equal to the relevant
         applicable federal rate in effect on the date written demand is given
         by him, determined by reference to the period of time between the date
         of such notice and the scheduled time such payment would otherwise be
         made. In the

                                                                              13

<PAGE>

         event any payment described in Paragraphs 6(b)(1) through (3) is not
         yet determinable on the date written demand is made, the other payments
         shall nonetheless be made as provided above; and the undetermined
         payment shall be made within 30 days after it becomes determinable,
         calculated as provided in the preceding sentence but by treating the
         date on which the payment becomes determinable as the date of written
         notice. Nothing in this subparagraph shall be construed as affecting
         the Executive's right to one or more Gross-Up Payments in accordance
         with the provisions of Paragraph 12; and a Gross-Up Payment (if
         applicable) will be calculated and made with any payment made under
         this subparagraph, as well as any other Gross-Up Payments that may be
         required hereunder at a subsequent date.

         17.      WITHHOLDING TAXES. All compensation and benefits provided for
         herein shall, to the extent required by law, be subject to federal,
         state, and local tax withholding.

         18.      CONFIDENTIAL INFORMATION. The Executive agrees that subsequent
         to his employment with STWA, he will not, at any time, communicate or
         disclose to any unauthorized person, without the written consent of the
         STWA, any proprietary or other confidential information concerning STWA
         or any Subsidiary of STWA; provided, however, that the obligations
         under this paragraph shall not apply to the extent that such matters
         (i) are disclosed in circumstances where the Executive is legally
         obligated to do so, or (ii) become generally known to and available for
         use by the public otherwise than by his wrongful act or omission; and
         provided further, that he may disclose any knowledge of insurance,
         financial, legal and economic principles, concepts and ideas which are
         not solely and exclusively derived from the business plans and
         activities of STWA.

         19.      COVENANTS NOT TO COMPETE OR TO SOLICIT.

                  (a)      NONCOMPETITION. During the period in which he is
         employed by STWA and, if the Executive's employment terminates under
         Paragraphs 6, for a period of 12 months after the Date of Termination
         (the "Noncompetition Period"), the Executive shall not, without the
         written consent in writing of the Board of Directors of STWA, become an
         executive officer, partner, consultant, director, or a four and
         nine-tenths percent or greater shareholder or equity owner of any
         entity engaged in the banking, lending, asset management, mutual fund,
         financial planning or investment security business within the
         California counties of Camden, Burlington, or any other California
         county in which STWA has a branch or loan production office. If at the
         time of the enforcement of this paragraph a court holds that the
         duration, scope, or area restrictions stated herein are unreasonable
         under the circumstances then existing and, thus, unenforceable, STWA
         and the Executive agree that the maximum duration, scope, or area
         reasonable under such circumstances shall be substituted for the stated
         duration, scope, or area.

                  (b)      NONSOLICITATION. During his employment and the
         Noncompetition Period, the Executive shall not, whether on his own
         behalf or on behalf of any

                                                                              14

<PAGE>

         other individual or business entity, solicit, endeavor to entice away
         from STWA, a Subsidiary or any affiliated company, or otherwise
         interfere with the relationship of STWA, a Subsidiary or any affiliated
         company with any person who is, or was within the then most recent 12
         month period, an employee or associate thereof; provided, however, that
         this subparagraph shall not apply following the occurrence of a Change
         in Control.

                  (c)      EXTENSION OF NONCOMPETITION PERIOD. The
         Non-Competition Period shall be automatically extended by the length of
         time (if any) in which the Executive is in violation of any of the
         terms of this Section 19.

         20.      ARBITRATION. To the extent permitted by applicable law, any
         controversy or dispute arising out of or relating to this Agreement, or
         any alleged breach hereof, shall be settled by arbitration in Los
         Angeles, California in accordance with the commercial rules of the
         American Arbitration Association then in existence (to the extent such
         rules are not inconsistent with the provisions of this Agreement), it
         being understood and agreed that the arbitration panel shall consist of
         three individuals acceptable to the parties hereto. In the event that
         the parties cannot agree on three arbitrators within 20 days following
         receipt by one party of a demand for arbitration from another party,
         then the Executive and STWA shall each designate one arbitrator and the
         two arbitrators selected shall select the third arbitrator. The
         arbitration panel so selected shall convene a hearing no later than 90
         days following the selection of the panel. The arbitration award shall
         be final and binding upon the parties, and judgment may be entered
         thereon in the California Superior Court or in any other court of
         competent jurisdiction.

         21.      ADDITIONAL EQUITABLE REMEDY. The Executive acknowledges and
         agrees that STWA's remedy at law for a breach or a threatened breach of
         the provisions of Paragraphs 18 and 19 would be inadequate; and, in
         recognition of this fact and notwithstanding the provisions of
         Paragraph 20, in the event of such a breach or threatened breach by
         him, it is agreed that STWA shall be entitled to request equitable
         relief in the form of specific performance, temporary restraining
         order, temporary or permanent injunction, or any other equitable remedy
         which may then be available. Nothing in this paragraph shall be
         construed as prohibiting STWA from pursuing any other remedy available
         under this Agreement for such a breach or threatened breach.

         22.      RELATED AGREEMENTS. Except as may otherwise be provided
         herein, to the extent that any provision of any other agreement between
         STWA and the Executive shall limit, qualify, duplicate, or be
         inconsistent with any provision of this Agreement, the provision in
         this Agreement shall control and such provision of such other agreement
         shall be deemed to have been superseded, and to be of no force or
         effect, as if such other agreement had been formally amended to the
         extent necessary to accomplish such purpose.

         23.      NO EFFECT ON OTHER RIGHTS. Except as otherwise specifically
         provided herein, nothing contained in this Agreement shall be construed
         as adversely affecting any rights the Executive may have under any
         agreement, plan, policy or

                                                                              15

<PAGE>

         arrangement to the extent any such right is not inconsistent with the
         provisions hereof.

         24.      EXCLUSIVE RIGHTS AND REMEDY. Except for any explicit rights
         and remedies the Executive may have under any other contract, plan or
         arrangement with STWA, the compensation and benefits payable hereunder
         and the remedy for enforcement thereof shall constitute his exclusive
         rights and remedy in the event of his termination of employment.

         25.      DIRECTOR AND OFFICER LIABILITY INSURANCE; INDEMNIFICATION.
         STWA shall provide the Executive (including his heirs, executors, and
         administrators) with the maximum coverage permitted under its
         directors' and officers' liability insurance policy, as soon as STWA
         obtains such a policy, at STWA's expense and shall indemnify him as
         both a director and as an officer (and his heirs, executors, and
         administrators) to the fullest extent permitted under Federal and
         California law against all expenses and liabilities reasonably incurred
         by him in connection with or arising out of any action, suit, or
         proceeding in which he may be involved by reason of his having been an
         officer or director of STWA or any Subsidiary or affiliated company
         (whether or not he continues to be such an officer or director at the
         time of incurring such expenses or liabilities). Such expenses and
         liabilities shall include, but not be limited to, judgments, court
         costs, and attorneys' fees, and the costs of reasonable settlements.

         26.      NOTICES. Any notice required or permitted under this Agreement
         shall be sufficient if it is in writing and shall be deemed given (i)
         at the time of personal delivery to the addressee, or (ii) at the time
         sent certified mail, with return receipt requested, addressed as
         follows:

                  If to the Executive:    Bruce H. McKinnon
                                          11927 Ashdale Lane
                                          Studio City, CA 91604

                  If to STWA              5125 Lankersham Boulevard
                                          North Hollywood, CA 91601

                                         Attention:  Chairman of the Board of
                                                     Directors

The name or address of any addressee may be changed at any time and from time to
time by notice similarly given.

         27.      NO WAIVER. The failure by any party to this Agreement at any
         time or times hereafter to require strict performance by any other
         party of any of the provisions, terms, or conditions contained in this
         Agreement shall not waive, affect, or diminish any right of the first
         party at any time or times thereafter to demand strict performance
         therewith and with any other provision, term, or

                                                                              16

<PAGE>

         condition contained in this Agreement. Any actual waiver of a
         provision, term, or condition contained in this Agreement shall not
         constitute a waiver of any other provision, term, or condition herein,
         whether prior or subsequent to such actual waiver and whether of the
         same or a different type. The failure of STWA to promptly terminate the
         Executive's employment for Cause or the Executive to promptly terminate
         his employment for Good Reason shall not be construed as a waiver of
         the right of termination, and such right may be exercised at any time
         following the occurrence of the event giving rise to such right.

         28.      SURVIVAL. Notwithstanding the nominal termination of this
         Agreement and the Executive's employment hereunder, the provisions
         hereof which specify continuing obligations, compensation and benefits,
         and rights (including the otherwise applicable term hereof) shall
         remain in effect until such time as all such obligations are
         discharged, all such compensation and benefits are received, and no
         party or beneficiary has any remaining actual or contingent rights
         hereunder.

         29.      SEVERABILITY. In the event any provision in this Agreement
         shall be held illegal or invalid for any reason, such illegal or
         invalid provision shall not affect the remaining provisions hereof, and
         this Agreement shall be construed, administered and enforced as though
         such illegal or invalid provision were not contained herein.

         30.      BINDING EFFECT AND BENEFIT. The provisions of this Agreement
         shall be binding upon and shall inure to the benefit of the successors
         and assigns of STWA and the executors, personal representatives,
         surviving spouse, heirs, devisees, and legatees of the Executive.

         31.      ENTIRE AGREEMENT. This Agreement embodies the entire agreement
         among the parties with respect to the subject matter hereof, and it
         supersedes all prior discussions and oral understandings of the parties
         with respect thereto.

         32.      NO ASSIGNMENT. This Agreement, and the benefits and
         obligations hereunder, shall not be assignable by any party hereto
         except by operation of law.

         33.      NO ATTACHMENT. Except as otherwise provided by law, no right
         to receive compensation or benefits under this Agreement shall be
         subject to anticipation, commutation, alienation, sale, assignment,
         encumbrance, charge, pledge, or hypothecation, or to set off,
         execution, attachment, levy, or similar process, and any attempt,
         voluntary or involuntary, to effect any such action shall be null and
         void.

         34.      CAPTIONS. The captions of the several paragraphs and
         subparagraphs of this Agreement have been inserted for convenience of
         reference only. They constitute no part of this Agreement and are not
         to be considered in the construction hereof.

         35.      COUNTERPARTS. This Agreement may be executed in any number of
         counterparts, each of which shall be deemed one and the same instrument
         which may be sufficiently evidenced by any one counterpart.

                                                                              17

<PAGE>

         36.      NUMBER. Wherever any words are used herein in the singular
         form, they shall be construed as though they were used in the plural
         form, as the context requires, and vice versa.

         37.      APPLICABLE LAW. Except to the extent preempted by federal law,
         the provisions of this Agreement shall be construed, administered, and
         enforced in accordance with the domestic internal law of the State of
         California without reference to its laws regarding conflict of laws.

         IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
         it to be executed, as of the date first above written.

                                   ____________________________________
                                             Bruce H. McKinnon

                                   SAVE THE WORLD AIR, INC.

                                   By: ______________________________________
                                             Edward Masry
                                             Chairman of the Board

                                   Attest: __________________________________
                                             Janice Holder
                                             Corporate Secretary

                                                                              18

<PAGE>

GLOSSARY

         "BOARD OF DIRECTORS" means the board of directors of the relevant
         corporation.

         "CAUSE" means (i) a documented repeated and willful failure by the
         Executive to perform his duties, but only after written demand and only
         if termination is effected by action taken by a vote of (A) prior to a
         Change in Control, at least a majority of the directors of STWA then in
         office, or (B) after a Change in Control, at least 80% of the
         non-officer directors of STWA then in office, (ii) his final conviction
         of a felony, (iii) conduct by him which constitutes moral turpitude
         which is directly and materially injurious to STWA or any Material
         Subsidiary, (iv) willful material violation of corporate policy, or (v)
         the issuance by the regulator of STWA or any Subsidiary or affiliated
         company of an unappealable order to the effect that he be permanently
         discharged.

         For purposes of this definition, no act or failure to act on the part
         of the Executive shall be considered "willful" unless done or omitted
         not in good faith and without reasonable belief that the action or
         omission was in the best interest of STWA or any of its Subsidiaries or
         affiliated companies.

         "CHANGE IN CONTROL" means the occurrence of any of the following
         events:

                  (a)      any Person (except (i) STWA or any Subsidiary or
         prior affiliate of STWA, or (ii) any Employee Benefit Plan (or any
         trust forming a part thereof) maintained by STWA or any Subsidiary or
         prior affiliate of STWA) is or becomes the beneficial owner, directly
         or indirectly, of STWA's securities representing 19.9% or more of the
         combined voting power of STWA's then outstanding securities, or 50.1%
         or more of the combined voting power of a Material Subsidiary's then
         outstanding securities, other than pursuant to a transaction described
         in Clause (c);

                  (b)      there occurs a sale, exchange, transfer or other
         disposition of substantially all of the assets of STWA or a Material
         Subsidiary to another entity, except to an entity controlled directly
         or indirectly by STWA;

                  (c)      there occurs a merger, consolidation, share exchange,
         division or other reorganization of or relating to STWA, unless --

                           (i)      the shareholders of STWA immediately before
         such merger, consolidation, share exchange, division or reorganization
         own, directly or indirectly, immediately thereafter at least two-thirds
         of the combined voting power of the outstanding voting securities of
         the Surviving Company in substantially the same proportion as their
         ownership of the voting securities immediately before such merger,
         consolidation, share exchange, division or reorganization; and

                           (ii)     the individuals who, immediately before such
         merger, consolidation, share exchange, division or reorganization, are
         members of the Incumbent Board continue to constitute at least
         two-thirds of the board of directors of the Surviving Company;
         provided, however, that if the election, or nomination for election by
         STWA's shareholders, of any new director was approved by a vote of at
         least two-thirds of the Incumbent Board, such director shall, for the
         purposes hereof, be considered a member of the Incumbent Board; and
         provided further, however, that no individual shall be considered a
         member of the Incumbent Board if such individual initially assumed
         office as a result of either an actual or threatened Election Contest
         or Proxy Contest, including by reason of any agreement intended to
         avoid or settle any Election Contest or Proxy Contest; and

                           (iii)    no Person (except (A) STWA or any Subsidiary
         or prior affiliate of STWA, (B) any Employee Benefit Plan (or any trust
         forming a part thereof) maintained by STWA or any Subsidiary or prior
         affiliate of STWA, or (C) the Surviving Company or any Subsidiary or
         prior affiliate of the Surviving Company) has beneficial ownership of
         19.9% or more of the combined voting power of

                                      G-19

<PAGE>

         the Surviving Company's outstanding voting securities immediately
         following such merger, consolidation, share exchange, division or
         reorganization;

                  (d)      a plan of liquidation or dissolution of STWA, other
         than pursuant to bankruptcy or insolvency laws, is adopted; or

                  (e)      during any period of two consecutive years,
         individuals who, at the beginning of such period, constituted the Board
         of Directors of STWA cease for any reason to constitute at least a
         majority of such Board of Directors, unless the election, or the
         nomination for election by STWA's shareholders, of each new director
         was approved by a vote of at least two-thirds of the directors then
         still in office who were directors at the beginning of the period;
         provided, however, that no individual shall be considered a member of
         the Board of Directors of STWA at the beginning of such period if such
         individual initially assumed office as a result of either an actual or
         threatened Election Contest or Proxy Contest, including by reason of
         any agreement intended to avoid or settle any Election Contest or Proxy
         Contest.

         Notwithstanding the foregoing, a Change in Control shall not be deemed
         to have occurred if a Person becomes the beneficial owner, directly or
         indirectly, of securities representing 19.9% or more of the combined
         voting power of STWA's then outstanding securities solely as a result
         of an acquisition by STWA of its voting securities which, by reducing
         the number of shares outstanding, increases the proportionate number of
         shares beneficially owned by such Person; provided, however, that if a
         Person becomes a beneficial owner of 19.9% or more of the combined
         voting power of STWA's then outstanding securities by reason of share
         repurchases by STWA and thereafter becomes the beneficial owner,
         directly or indirectly, of any additional voting securities of STWA,
         then a Change in Control shall be deemed to have occurred with respect
         to such Person under Clause (a).

         Notwithstanding anything contained herein to the contrary, if the
         Executive's employment is terminated and he reasonably demonstrates
         that such termination (i) was at the request of a third party who has
         indicated an intention of taking steps reasonably calculated to effect
         a Change in Control and who effects a Change in Control, or (ii)
         otherwise occurred in connection with, or in anticipation of, a Change
         in Control which actually occurs, then for all purposes hereof, a
         Change in Control shall be deemed to have occurred on the day
         immediately prior to the date of such termination of his employment.

         "STWA" means Save The World Air, Inc.

         "DATE OF TERMINATION" means:

                  (a)      if the Executive's employment is terminated for
         Disability, 30 days after the Notice of Termination is given (provided
         that he shall not have returned to the performance of his duties on a
         full-time basis during such 30-day period);

                  (b)      if the Executive's employment terminates by reason of
         his death, the date of his death;

                  (c)      if the Executive's employment is terminated by STWA
         for Cause, the date of termination specified in the Notice of
         Termination and determined in accordance with Section 8(a);

                  (d)      if the Executive's employment is terminated by him
         without Good Reason, the date of termination specified in the Notice of
         Termination and determined in accordance with Section 9(a);

                  (e)      if the Executive's employment is terminated by STWA
         for any reason other than for Disability or Cause, the date specified
         in the Notice of Termination and determined in accordance with Section
         10(a); or

                  (f)      if the Executive's employment is terminated by him
         for Good Reason, the termination date specified in the Notice of
         Termination and determined in accordance with Section 11(a);

                                      G-20

<PAGE>

         provided, however that the Date of Termination shall mean the actual
         date of termination in the event the parties mutually agree to a date
         other than that described above.

         "DEFINED BENEFIT PLAN" has the meaning ascribed to such term in Section
         3(35) of ERISA.

         "DEFINED CONTRIBUTION PLAN" has the meaning ascribed to such term in
         Section 3(34) of ERISA.

         "DISABILITY" has the meaning ascribed to the term "permanent and total
         disability" in Section 22(e)(3) of the IRC.

         "ELECTION CONTEST" means a solicitation with respect to the election or
         removal of directors that, if STWA was subject to the provisions of the
         1934 Act, would be subject to the provisions of Rule 14a-11 of the 1934
         Act.

         "EMPLOYEE BENEFIT PLAN" has the meaning ascribed to such term in
         Section 3(3) of ERISA.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
         amended and as the same may be amended from time to time.

         "EXCISE TAX" means the tax imposed by Section 4999 of the IRC (or any
         similar tax that may hereafter be imposed by federal, state or local
         law).

         "EXECUTIVE" means NAME OF EXECUTIVE, an individual residing in ADDRESS,
         California.

         "GOOD REASON" means:

                  (a)      prior to a Change in Control--

                           (i) the Executive's demotion to a lesser position, or
                           any material diminution in his duties or
                           responsibilities;

                           (ii) a reduction in the Executive's base
                           compensation, other than a reduction which is
                           proportionate to a company-wide reduction in
                           executive pay;

                           (iii) a failure to increase the Executive's base
                           compensation, consistent with his performance rating,
                           within 24 months since the last increase, other than
                           similar treatment on a company-wide basis for
                           executives or a voluntary deferral by him of an
                           increase; or

                           (iv) any purported termination of the Executive's
                           employment which is not in accordance with the terms
                           of this Agreement; and

                  (b)      after a Change in Control--

                           (i) a change in the Executive's status or position,
                           or any material diminution in his duties or
                           responsibilities;

                           (ii) any increase in the Executive's duties
                           inconsistent with his position;

                           (iii) any reduction in the Executive's base
                           compensation;

                           (iv) a failure to increase the Executive's base
                           compensation, consistent with his performance review,
                           within 12 months of the last increase; or a failure
                           to consider Executive for an increase within 12
                           months of his last performance review;

                                      G-21

<PAGE>

                           (v) a failure to continue in effect any Employee
                           Benefit Plan in which the Executive participates,
                           including (whether or not they constitute Employee
                           Benefit Plans) incentive bonus, stock option, or
                           other qualified or nonqualified plans of deferred
                           compensation (A) other than as a result of the normal
                           expiration of such a plan, or (B) unless such plan is
                           merged or consolidated into, or replaced with, a plan
                           with benefits which are of equal or greater value;

                           (vi) requiring the Executive to be based anywhere
                           other than the county where his principal office was
                           located immediately prior to the Change in Control;

                           (vii) refusal to allow the Executive to attend to
                           matters or engage in activities in which he was
                           permitted to engage prior to the Change in Control;

                           (viii) delivery to the Executive of a Notice of
                           Nonextension;

                           (ix) failure to secure the affirmation by a
                           Successor, within three business days prior to a
                           Change in Control, of this Agreement and its or
                           STWA's continuing obligations hereunder (or where
                           there is not at least three business days advance
                           notice that a Person may become a Successor, within
                           one business day after having notice that such Person
                           may become or has become a Successor); or

                           (x) any purported termination of the Executive's
                           employment which is not in accordance with the terms
                           of this Agreement.

Notwithstanding anything herein to the contrary, at the election of the
Executive, beginning with the 181st day following a Change in Control and
continuing through the first anniversary of such Change in Control, he may
terminate his employment for any reason or no reason and such termination will
be treated as having occurred for Good Reason.

         "GROSS-UP PAYMENT" means an additional payment to be made to or on
behalf of the Executive in an amount such that the net amount retained by him,
after deduction of any Excise Tax on the Total Payments and any federal, state,
and local income tax and Excise Tax on such additional payment, equals the Total
Payments.

         "INCUMBENT BOARD" means the Board of Directors of STWA as constituted
at any relevant time.

         "IRC" means the Internal Revenue Code of 1986, as amended and as the
same may be amended from time to time.

         "MATERIAL SUBSIDIARY" means a Subsidiary whose net worth, determined
under generally accepted accounting principles, at the fiscal year end
immediately prior to any relevant time is at least 25% of the aggregate net
worth of the controlled group of corporations of which STWA is parent.

         "1934 ACT" means the Securities Exchange Act of 1934, as amended and as
the same may be amended from time to time.

         "NOTICE OF NON-EXTENSION" means a written notice delivered to or by the
Executive which advises that the Agreement will not be extended as provided in
Paragraph 3.

         "NOTICE OF TERMINATION" means a written notice that (i) indicates the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(iii) gives the required advance notice of termination.

     "PERSON" has the same meaning as such term has for purposes of Sections
13(d) and 14(d) of the 1934 Act.

                                      G-22

<PAGE>

         "PROXY CONTEST" means the solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors of STWA.

         "SUBSIDIARY" means any business entity of which a majority of its
voting power or its equity securities or equity interests is owned, directly or
indirectly by STWA.

         "SUCCESSOR" means any Person that succeeds to, or has the practical
ability to control (either immediately or with the passage of time), STWA's
business directly, by merger or consolidation, or indirectly, by purchase of
STWA's voting securities or all or substantially all of its assets.

         "SURVIVING COMPANY" means the business entity that is a resulting
company following a merger, consolidation, share exchange, division or other
reorganization of or relating to STWA.

         "TOTAL PAYMENTS" means the compensation and benefits that become
payable under the Agreement or otherwise (and which may be subject to an Excise
Tax) by reason of the Executive's termination of employment, less the federal,
state and local income tax (but not any Excise Tax) on such compensation and
benefits, in each case determined without regard to any Gross-Up Payments that
may also be made.

         "WELFARE BENEFIT PLAN" has the meaning ascribed to the term "employee
welfare benefit plan" in Section 3(1) of ERISA. For purposes of determining the
Executive's or his dependents' right to continued welfare benefits hereunder
following his termination of employment, the meaning of such term shall include
any retiree health plan maintained by STWA at any time after the relevant Date
of Termination, notwithstanding the fact that the Executive is not a participant
therein prior to such date.

                                      G-23


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>7
<FILENAME>v97738exv31w1.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 Company's 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 Company's 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 Company's, 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 Company'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 Company's internal control
over financial reporting that occurred during the Company's most recent fiscal
quarter (the Company's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
Company'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
Company's auditors and the audit committee of the Company'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 Company'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 Company's internal control over
financial reporting.

Date:

April 13, 2004
- -------------------------------
/s/ Edward L. Masry
- -------------------------------
[Signature]

Edward L. Masry



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>8
<FILENAME>v97738exv31w2.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 Company's 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 Company's 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 Company's, 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 Company'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 Company's internal control
over financial reporting that occurred during the Company's most recent fiscal
quarter (the Company's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
Company'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
Company's auditors and the audit committee of the Company'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 Company'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 Company's internal control over
financial reporting.

Date:

April 13, 2004
- -------------------------------
/s/ Eugene Eichler
- -------------------------------
[Signature]

Eugene Eichler


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>9
<FILENAME>v97738exv32w1.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, 2003 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: April 13, 2004                  By:  /s/ Edward L. Masry
      ---------------------                -----------------------------
                                           Edward L. Masry
                                           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, 2003 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: April 13, 2004                  By: /s/ Eugene Eichler
      ---------------------                -----------------------------
                                           Eugene Eichler
                                           President and Chief Financial 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-----
