Save The World Air, Inc. (STWA), a US-based clean technology company focused on energy efficiency and air quality issues, has reported operating expenses of $840,818 for the first quarter of 2009, compared with the operating expenses of $760,142 in the year-ago quarter. It has also reported a net loss of $1.6 million, or $0.02 loss per share, for the first quarter of 2009, compared with the net loss of $2.3 million, or $0.05 loss per share, in the year-ago quarter.

Results of Operations:

STWA did not generate any revenue for the three-month period ended March 31, 2009 and 2008.

This increase in operating expenses is attributable to an increase in cash expenses of $204,568 offset by a decrease in non-cash expenses of $124,692. The increase in cash expense is attributable to increases in consulting and professional fees ($138,635), salaries and benefits ($46,039), office and other expenses ($16,989) and corporate and travel expenses ($2,905). The decrease in non-cash expenses is attributable to decreases in the fair value of common stocks issued for legal and consulting fees ($121,872) and depreciation and bad debt expense ($3,251), offset by an increase in fair value of options issued to an officer ($431).

Research and development expenses were $246,840 for the three-month period ended March 31, 2009, compared to $259,670 for the three-month period ended March 31, 2008, a decrease of $12,830. This decrease is attributable a decrease contract fees ($44,750) offset by an increase in testing tools and supplies ($31,920).

Other expense for the three-month period ended March 31, 2009 were $464,560, compared to $1,264,035 for the three-month period ended March 31, 2008, a decrease of $799,475. This decrease is attributable to decreases in non-cash interest expense ($790,346) and loss on sale of equipment ($9,683), offset by an increase in other income ($554).

Liquidity and Capital Resources:

General:

STWA has incurred negative cash flow from operations in the developmental stage since its inception in 1998. As of March 31, 2009, the company has been funded primarily through the sale of convertible notes and issuance of the company’s stock upon exercise of warrants.

The condensed consolidated financial statements accompanying this Quarterly Report 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 the company’s business. As reflected in the accompanying condensed consolidated financial statements, the company had a net loss of $1,552,218 and a negative cash flow from operations of $489,701 for the three months ended March 31, 2009, and a stockholders’ deficiency of $3,213,572 as of March 31, 2009. These factors raise substantial doubt about the company’s ability to continue as a going concern. The company’s ability to continue as a going concern is dependent on its ability to raise additional funds, generate revenue and implement its business plan.

STWA’s current liabilities greatly exceed its assets and it is unable to meet the obligations as they become due. The company faces significant challenges in generating revenue and maintaining adequate working capital during the remainder of 2008 as a result of several factors. Among other things, to date the company’s distributors, primarily located in Asia, have placed fewer orders than it had expected under the terms of its distribution agreements. This resulted in the company’s having less revenue and therefore less working capital available for the further development of its business at a time when the operating costs of its business have been increasing. The company will require significant additional outside capital during 2009 in order to meet all of the company’s obligations, produce products for sale and ship such products.

Details of Recent Financing Transactions:

Morale Orchards, LLC and Leodis Matthews:

Leodis Matthews, through his law firm, Matthews & Partners, (Matthews) serves as outside legal counsel to the company. Morale Orchards, LLC (Morale) is owned by Jacqueline Alexander, the wife of Leodis Matthews.

In 2006 and 2007, Morale purchased two convertible promissory notes totaling $1,225,000. The notes were unsecured; convertible into 1,595,588 shares of common stock, due one year from the date issued, and had an implied interest rate of 22.5%. Warrants to purchase 797,794 shares of common stock were issued with the notes. As of January 31, 2008, the notes were in default, and the total amount due for the notes was $1,362,212, including penalties and interest. In addition to the two notes, the company borrowed $20,000 from Morale on October 30, 2007. At January 31, 2008, the company was also indebted to Matthews $472,762 for past legal fee.

Effective January 31, 2008, the company, Morale, and Matthews agreed to a settlement of the company’s loans due Morale and fees due Matthews. Morale agreed to waive all accrued interest on the notes after January 31, 2008, and Morale and Matthews agreed to accept 7,421,896 shares of common stock of the company as payment of the notes payable and fees.

On March 10, 2008, STWA issued 5,530,848 shares of the company’s common stock valued at $2,101,722 to Morale for the conversion of the notes (totaling $1,362,212) and cancellation of $20,000 Note. Also on March 10, 2008, the company issued 1,891,048 shares of the company’s common stock valued at $718,598 to Matthews in exchange for settlement of the legal fees due Matthews of $472,762.

The fair value of the shares of common stock issued was determined to be $0.38 per share, based on the closing price of the company’s common stock on January 31, 2008, for a total settlement of $2,820,320. As a result of the issuance of shares of common stock, the company incurred additional non-cash costs of $927,903 that have been reflected as costs to settle outstanding debt in the accompanying condensed consolidated statement of operations.

2007 Winter Offering: From December 27, 2007 to February 29, 2008 the company conducted an offering (the 2007 Winter Offering) of up to $1,000,000 aggregate face amount of its convertible notes (the 2008 Winter Notes) with a small number of accredited investors. Of this amount, $521,400 aggregate face amount of the 2007 Winter Notes were sold for an aggregate purchase price of $474,000 net proceeds. Therefore, while the stated interest rate on the 2007 Winter Notes is 0%, the implied interest rate on the 2007 Winter Notes is 10%. The 2007 Winter Notes mature on the first anniversary of their date of issuance. The 2007 Winter Notes are convertible, at the option of the noteholder, into shares of common stock of the company (the “Conversion Shares”) at a conversion price equal to the average of the closing bid price of the company’s common stock for the five trading days preceding the closing date of the 2007 Winter Offering (the Conversion Price). Up to $1,042,800 Conversion Shares are issuable at a Conversion Price of $0.50 per share.

Each of the investors in the 2007 Winter Offering received, for no additional consideration, a warrant (the “ 2007 Winter Warrants”), entitling the holder to purchase a number of shares of the company’s common stock equal to 50% of the number of shares of common stock into which the (2007 Winter Notes) are convertible (the “2007 Warrant Shares”) Each 2007 Winter Warrant is exercisable on a cash basis only at a Price of $0.50 per share, and is exercisable for a period of two years from the date of issuance. Up to 521,400 2008 Warrant Shares are initially issuable on exercise of the 2007 Winter Warrants. As of March 31, 2009, investors have converted $521,400 of the Convertible Notes into 1,042,800 shares of the company’s common stock. There was no outstanding balance at March 31, 2009.

2008 Spring Offering: On May 27, 2008, STWA made an offering (the 2008 Spring Offering) with a certain investor of which, $66,000 face amount of the 2008 Spring Note was sold for $60,000 net proceeds. Therefore, while the stated interest rate on the 2008 Spring Note is 0%, the implied interest rate on the 2008 Spring Note is 10%. The 2008 Spring Note will mature on the first anniversary of the date of issuance.